[Senate Hearing 115-839]
[From the U.S. Government Publishing Office]
S. Hrg. 115-839
REDUCING HEALTH CARE COSTS:
DECREASING ADMINISTRATIVE SPENDING
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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 DECREASING
ADMINISTRATIVE SPENDING
__________
JULY 31, 2018
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
31-125 PDF WASHINGTON : 2020
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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
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STATEMENTS
TUESDAY, JULY 31, 2018
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, Opening statement......................... xx
Murray, Hon. Patty, Ranking Member, a U.S. Senator from the State
of Washington, Opening statement............................... xx
Witnesses
Hultberg, Becky, President and Chief Executive Officer, Alaska
State Hospital & Nursing Home Association, Anchorage, AK....... xx
Prepared statement........................................... xx
Summary statement............................................ xx
Eyles, Matt, President and Chief Executive Officer, America's
Health Insurance Plans, Washington, DC......................... xx
Prepared statement........................................... xx
Summary statement............................................ xx
Cutler, David M., Ph.D., Harvard College Professor, Otto Eckstein
Professor of Applied Economics, Harvard University, Cambridge,
MA............................................................. xx
Prepared statement........................................... xx
Summary statement............................................ xx
Book, Robert A., Ph.D., Health Care and Economic Expert, Advisor
to the American Action Forum, Washington, DC................... xx
Prepared statement........................................... xx
Summary statement............................................ xx
REDUCING HEALTH CARE COSTS:
DECREASING ADMINISTRATIVE SPENDING
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Tuesday, July 31, 2018
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., in
Room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, Chairman of the Committee, presiding.
Present: Senators Alexander [presiding], Isakson, Cassidy,
Young, Murkowski, Scott, Murray, Casey, Bennet, Warren, Kaine,
Hassan, 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, then I will
introduce the witnesses. We will hear from the witnesses, and
Senators will then have 5 minutes to ask questions.
This is our third hearing on reducing healthcare costs. At
our last hearing, Dr. Brent James testified that a minimum of
30 percent, and as much as 50 percent, of all healthcare
spending is waste. Let us pause for a moment to realize what a
remarkable statement that is. Dr. James has led a major
healthcare system, is a member of the Institute of Medicine. We
had a panel there that day of equally impressive witnesses, and
nobody really disagreed with his estimate.
At that hearing, we focused on reducing what we spend on
healthcare by examining two things: one, on reducing
unnecessary healthcare tests, services, procedures, and
prescription drugs, and two, how to increase preventive care.
This time, today we are examining the cost of administrative
tasks, which includes everything from the time spent filing or
filling out insurance claims to buying software for an
electronic health record system. Administrative costs are much
higher in the United States than in other countries, according
to a Dr. Ashish Jha, a witness at our first hearing.
Administrative costs account for 8 percent of all healthcare
spending in the U.S.; roughly, that is, $264 billion compared
to 1 to 3 percent for other countries.
While many administrative tasks in the healthcare system
come from outside the Federal government, such as insurance
company or state requirements, the Federal government is
clearly at fault for some of this burden. For example, there
was a lot of excitement over electronic healthcare records in
Washington, D.C. Many said these records systems would make it
easier for doctors and patients to access a patient's health
records and share information with other doctors. Since 2011,
the Federal government has spent $38 billion requiring doctors
and hospitals to install electronic health record systems
through the Meaningful Use programs in Medicare and Medicaid.
The Federal government provided payments to doctors and
hospitals to buy those systems and also created specific
requirements for how doctors must use the systems, penalizing
doctors who did not comply. Unfortunately, health records
systems have ended up being something physicians too often
dread rather than a tool that is useful.
For example, Dr. Reid Blackwelder, a family physician who
chairs a residency program with three clinics in the Tri-Cities
of East Tennessee, is required to have an electronic health
record system because he sees Medicare and Medicaid patients.
He initially received payments from the Federal government to
implement the electronic health records system, but now he has
to pay a monthly maintenance fee to an electronic health
records company, as well as paying for periodic upgrades to the
system. All of these costs add up to being far more expensive
than the record--the paper records he used to keep or the
initial payments the government provided. But he still is not
able to see the electronic health record of a patient
discharged from a hospital across the street. That is because
the hospital does not use the same software that Dr.
Blackwelder does. So, instead he has to call the hospital and
have paper copies of his patient records faxed over to his
office.
There is technology that Dr. Blackwelder could buy to make
his electronic health records system communicate with the local
hospital records system so he would not have to have them fax
the record to his office. However, he would to pay $300 per
month to the electronic health records company for each of the
88 doctors and nurses in his practice. What this means is that
for his 88 doctors and nurses, Dr. Blackwelder would have to
spend $26,400 every month, $316,8000 a year, just to see his
patients' electronic health records from the hospital across
the street or other doctors.
The electronic health records system, which was supposed to
make things easier and simpler, has instead made recordkeeping
more expensive, and Dr. Blackwelder still cannot see the
records of a patient released from the hospital he can see from
his office window. So, this is just one example of how well-
intentioned ideas from Washington, D.C. can turn out to add to
the administrative burden that doctors face.
According to the American Hospital Association, there are
629 different regulatory requirements from four different
Federal agencies that doctors, hospitals, and other healthcare
providers have to comply with. These requirements range from
credentialing doctors and nurses that participate in Medicare
and maintaining compliance with privacy laws such as HIPAA, to
making sure the right signs are hanging around a doctor's
office.
The average community hospital needs 23 full-time employees
just to keep up with the regulations about what a hospital
needs to do to participate in Medicare, called conditions of
participation according to the American Hospital Association.
When the Federal government adds just one more question or one
more rule, it may not seem like it makes much of a difference,
but added together, for doctors like Dr. Blackwelder and to
hospitals, those questions and rules add up to more time spent
on paperwork, less time actually treating patients, and an
increase to the cost of healthcare.
The Trump administration is taking a look at what
administrative tasks are required by the Federal government. I
am glad to see that Seema Verma, administrator of CMS, which
oversees Medicare and Medicaid, recently proposed streamlining
many of the Agency's burdensome reporting requirements. This is
one step. I look forward to hearing more about what the Federal
government could do to reduce administrative tasks today. As we
look at how to reduce healthcare costs, we should keep in mind
that what may seem like a good idea or a magic bullet in
Washington, D.C. may actually result in something very
different for doctors, nurses, and hospitals.
Senator Murray.
OPENING STATEMENT OF SENATOR MURRAY
Senator Murray. Thank you, Mr. Chairman. I am glad we are
continuing our discussion on healthcare costs, an issue I know
that families in my home State of Washington and across the
country are greatly concerned about as many of them struggle to
afford the care they need. And I look forward to hearing from
all of our witnesses today about the way administrative costs
fit into the big picture.
I believe there are opportunities here to help reduce
healthcare costs by reducing complexity while maintaining
quality and safety for patients. We know the current
administrative system is fragmented with different Federal,
state, and private protocols for things like billing, and
measuring quality of care, and more, so I am interested to hear
from our witnesses about ideas to simplify and align
requirements while maintaining protections that ensure patients
are getting safe, quality care and service.
Unfortunately, instead of pursuing policies to address high
administrative costs, President Trump is pursuing a path of
healthcare sabotage, including ideas that will make this
problem actually worse. In fact, the Trump administration's
Office of Management and Budget is currently reviewing a new
sabotage step that will do even more to let insurance companies
offer junk plans that not only undermine important protections
for people with preexisting conditions, but also ignore
requirements that insurers spend most of their money on
patients, not on excessive administrative costs or executive
bonuses. An analysis from the National Association of Insurance
Commissioners shows the most popular short-term junk plans,
like the ones President Trump wants to expand, spend on average
half of their revenue on things that have nothing to do with
patients' healthcare needs. In other words, President Trump
wants to make it easier for insurance companies to discriminate
against people with preexisting conditions and reward
themselves for it with bigger executive bonuses. I think we can
all agree we should be looking for steps to reduce
administrative costs to make healthcare more affordable, and
this idea from President Trump, I believe, moves us in exactly
the wrong direction.
Unfortunately, with this Administration's focus on
sabotaging families' healthcare, efforts to raise healthcare
costs have become par for the course. From day one, President
Trump has focused on rolling back families' healthcare and
protections for people with preexisting conditions, even though
the people across the country have utterly rejected that
backward agenda, like a year ago when they stood up and spoke
out against the mean-spirited Trumpcare bill that tried to
spike premiums, gut Medicaid, and put families back at the
mercy of big insurance companies who could jack up prices for
people with preexisting conditions. Fortunately, those efforts
failed, so President Trump now has decided to sabotage
healthcare from the Oval Office instead.
He dramatically cut investments to help people understand
their healthcare options and get covered. He pushed a partisan
tax cut bill that meant lower rates for massive insurers and
drug companies and higher premiums for families. He handed the
reins back to insurance companies by looking for ways to make
it easier to sell junk insurance that dodges patient
protections like those for people with preexisting conditions,
women, seniors. He abandoned patients in the court of law by
having his Justice Department take the highly unusual step of
refusing to defend preexisting condition protections in court.
And now many of us are concerned President Trump has nominated
a Supreme Court justice who will strike down healthcare for
millions of Americans.
Judge Kavanaugh's history on healthcare makes clear he is a
serious threat to families' healthcare and protections for
people with preconditions existing conditions. So, I hope
Republicans join us in rejecting his nomination just like they
joined us in rejecting Trumpcare when it threatened our
families across the country. And I also hope they will come
back to the table to work with us on legislation to bring down
healthcare costs because I know that is what families in my
state are counting on us to do, and I have no doubt patients
across the country feel the same way.
The Chairman. Thank you, Senator Murray. We will now
introduce the witnesses, and I will ask Senator Murkowski to
introduce our first witness who has come a long way.
Senator Murkowski. Thank you, Mr. Chairman, and I thank you
for including on this distinguished panel this morning Becky
Hultberg. Becky has not only been a great friend and assist to
my staff and my office, but she has been a strong leader in
Alaska. She is currently the president and the CEO of the
Alaska State Hospital and Nursing Home Association. Prior to
this, she served as the commissioner for administration under
Governor Parnell, where she provided business support services
to our state government. That department also oversees
management of the state's active and retiree health plans for
more than 80,000 covered lives. She has also served as the
regional director of communication and marketing for Providence
Health Services Alaska.
She has an extraordinary breadth of understanding of the
associated healthcare costs in rural states, and recognizing
some of the challenges that we have heard before this Committee
as I have attempted to outline them, and the impact to our
smaller facilities, more remote facilities. Ms. Hultberg brings
extraordinary experience to the Committee, and so I appreciate
a great deal that we will have her voice added to this
important discussion this morning as to how we can work to
decrease administrative spending when it comes to the overall
reduction in healthcare costs. So, thank you, Mr. Chairman, and
I look forward to the comments that we will get from Becky this
morning, and appreciate her making the long haul from Alaska to
be here this morning.
The Chairman. Thank you, Senator Murkowski. Our second
witness will be Matt Eyles. He is president and chief executive
officer of America's Health Insurance Plans, the national trade
association representing health insurance providers.
Previously, he held a number of other leadership positions at
Fortune 200 companies, including Coventry Healthcare,
Incorporated, a division of Aetna. Earlier he worked for the
Congressional Budget Office.
Dr. David Cutler--sorry, next witness--he is a Harvard
College Professor, Otto Eckstein professor, of applied
economics at Harvard. He served on the Council of Economic
Advisors of the National Economic Council during the Clinton
Administration, was senior healthcare advisor to the Obama
presidential campaign, held a number of positions with the
National Institutes of Health, the Academy of Sciences, the
Institute of Medicine.
Dr. Robert Book is our fourth witness. He is a health
economist who advises--healthcare and economic expert for the
American Action Forum, senior research director at Health
Systems Innovation Network, LLC. He has a wide range of
experience, including as a senior research fellow in health
economics at Heritage Foundation, on the faculty of the
Industrial College of the Armed Forces, senior association--
associate of the Lewin Group.
Welcome again to our witnesses, and, Ms. Hultberg, if you
would be begin, we will go right down the row. Welcome.
STATEMENT OF BECKY HULTBERG, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION,
ANCHORAGE, ALASKA
Ms. Hultberg. Good morning. My name is Becky Hultberg, and
I am the president/CEO of the Alaska State Hospital and Nursing
Home Association. On behalf of my member hospitals and skilled
nursing facilities, thank you for having me here to testify
today.
Healthcare providers face a variety of administrative
burdens from state, local, and Federal regulations to billing
and insurance-related administrative costs. I will focus my
remarks today on the growing number of Federal regulations and
the impact of this administrative burden on our healthcare
system.
Healthcare providers and regulators share the same goals of
improving quality and keeping patients safe. Providers
recognize the importance of a stable regulatory framework that
allows them to focus on patients rather than paperwork, and to
invest resources in improving healthcare access, cost, and
quality. We appreciate recent work done by CMS in addressing
regulatory burden, but given the amount of Federal regulation
and the pace of change, more must be done.
Close to 24,000 pages of hospital and post-acute care
Federal regulations were published in 2016 alone. The American
Hospital Association quantified the direct cost of compliance
for America's hospitals in a recent report. Hospitals, health
systems, and post-acute care providers must comply with 629
discrete regulatory requirements across nine domains, spending
$39 billion annually in administrative activities related to
regulatory compliance. For an average-sized community hospital
of about 160 beds, this equates to spending of over $7 and a
half million annually on regulatory compliance, 59 staff
dedicated to this purpose.
For skilled nursing facilities the cost of complying with
the requirements of participation issued in October 2016
exceeds $735 million annually, or nearly $100,000 per building.
This is at a time when all-in margins for skilled nursing
facilities are less than 1 percent.
We often discuss administrative burden in terms of direct
costs, but it is important to recognize the opportunity cost as
well. The opportunity cost is the next best thing you could
have done with the financial and human resources spent on
something or the value of the foregone alternative. It
highlights the reality of scarcity, that when a dollar or a
staff hour is spent on administrative cost, it is not available
to spend on something else. Financial and human resources spent
in regulatory compliance cannot be used for adding services,
implementing patient safety initiatives, hiring doctors or
nurses, or addressing community needs.
There are steps the Federal government can take to address
the growing mountain of Federal regulations while ensuring
patient safety. For hospitals, we recommend better aligning and
applying regulatory requirements within and across Federal
agencies and programs. Regulators should provide clear, concise
guidelines and reasonable timelines for the implementation of
new rules. Conditions of participation for Medicare, a
significant source of the cost of regulatory compliance, should
be evidence-based, aligned with other laws and industry
standards, and flexible. Requirements for the Meaningful Use
program should be streamlined and increasingly focused on
interoperability. Finally, Congress, CMS, and the Office of
Inspector General should revisit Stark Law and other
requirements aimed at combating fraud to provide the
flexibility necessary to support coordinated, high-quality,
high-value care.
Skilled nursing facilities face new unfunded mandates to
hire staff and establish compliance programs under the
requirements of participation, that due to their sheer volume
and specificity are difficult, if not impossible, to implement.
CMS should revise the requirements of participation to make
them more outcome-focused and patient-centered. We also
recommend that the automatic revocation of CNA training, if a
facility receives a significant civil monetary penalty, be
addressed through changes to Federal statute. Finally, we urge
Congress to address the requirement that 5 percent, or a
minimum of five facilities, receive a Federal survey each year
This requirement unfairly penalizes small states with few
facilities, and I want to thank Senator Murkowski for her
interest in this issue.
Rapid improvements in quality and patient are occurring at
scale in our Nation's hospitals and skilled nursing facilities.
Voluntary partnerships between CMS and providers to improve
quality, like the Partnership for Patients and the American
Healthcare Association's Quality Initiative, are resulting in
measurable improvements in patient care. Skilled nursing
facilities are improving on 20 of 24 outcomes measured by CMS,
and Alaska providers are exceeding national trends in several
areas. Alaska hospitals reduced the rate of death from severe
sepsis and septic shock from 20 percent to just under 5 percent
in 2 years. Behind those statistics are real people--someone's
mother, someone's friend, someone's child--alive today because
of this collaborative work. We must focus our resources on the
quality improvement partnerships yielding real results for
patients.
The issue of administrative burden comes into sharp focus
in rural America. Volume of regulation requires scale to
implement, and rural areas lack scale. The Nation's hospitals
and skilled nursing facilities simply cannot continue to
effectively comply with an ever-growing burden of Federal
regulations. For a large hospital, the opportunity cost of
regulation may mean a program delayed, but for a small town,
the choice may be much more difficult. The opportunity costs of
regulatory burden for rural communities may be the loss of
services.
I want to thank this Committee for your commitment to
improving the Nation's healthcare system and for having me here
today.
[The prepared statement of Ms. Hultberg follows:]
prepared statement of becky hultberg
Good morning. My name is Becky Hultberg, and I am the President/CEO
of the Alaska State Hospital and Nursing Home Association. On behalf of
my member hospitals, health systems and skilled nursing facilities,
thank you for the opportunity to testify today and for addressing this
critical topic. Health care providers face a variety of administrative
burdens, from state, local and federal regulations, to billing and
insurance-related administrative costs. I will focus my remarks on the
growing number of federal regulations and the impact of this
administrative burden on our health care system.
Health care providers and regulators share the same goals of
improving quality and keeping patients safe. Hospitals, health systems,
and post-acute care providers recognize the importance of a stable
regulatory framework. Such a framework would allow them to focus on
patients, rather than paperwork, and to invest resources into improving
health care access, cost, and quality. We appreciate recent work done
by the Centers for Medicare and Medicaid Services (CMS) in addressing
regulatory burden, such as the ``Meaningful Measures'' initiative, and
changes to the Promoting Interoperability Program, but given the volume
and complexity of new and existing federal regulation and the pace of
regulatory change, more work remains to be done.
Close to 24,000 pages of hospital and post-acute care federal
regulations were published in 2016 alone. The American Hospital
Association (AHA) quantified the direct cost of compliance for
America's hospitals in a 2017 report entitled, ``Regulatory Overload:
Assessing the Regulatory Burden on Health Systems, Hospitals and Post-
acute Care Providers.'' Hospitals, health systems, and post-acute care
providers must comply with 629 discrete regulatory requirements across
nine domains, spending $39 billion annually in administrative
activities related to regulatory compliance. For an average-sized
community hospital (around 160 beds), this equates to spending more
than $7.5 million annually on regulatory compliance, with 59 staff
dedicated to this purpose. Larger hospitals spend as much as $19
million on compliance activities. The average community hospital spends
over $750,000 annually just on the information technology investments
required for compliance. To put these numbers into the context of
patient care, the regulatory burden costs $1,200 every time a patient
is admitted to a hospital.
The Requirements of Participation (RoPs) issued for skilled nursing
facilities (SNFs) in October 2016 provide an example of the
overwhelming burden of regulatory change. The implementation cost of
the new rule is estimated at $831 million, with annual costs of
compliance exceeding $735 million, or nearly $100,000 per building.
This is at a time when all-in margins for skilled nursing facilities
are only 0.7 percent, according to the Medicare Payment Advisory
Commission.
Most often, we discuss administrative burden in terms of direct
costs, however it is equally important to recognize opportunity costs.
The opportunity cost is the next best thing you could do with the
financial and human resources spent on something, or the value of the
foregone alternative. It highlights the reality of scarcity, that when
a dollar or staff hour is spent on administrative activities, it is not
available for something else. Financial and human resources spent in
regulatory compliance activities cannot be used for adding new
services, implementing new patient safety initiatives, caring directly
for patients, hiring physicians and nurses, or addressing needs within
our communities.
Rapid improvements in quality and patient safety are occurring at
scale in our nation's hospitals and skilled nursing facilities.
Voluntary partnerships between CMS and providers to improve quality,
like the Partnership for Patients and the American Health Care
Association's Quality Initiative, are resulting in significant,
measurable improvements in patient care. Alaska hospitals participate
in the Washington State Hospital Association Hospital Improvement
Innovation Network (HIIN), one of 16 such networks around the country.
HIINs are sustaining and accelerating change, delivering real results
for patients. As an example, working together, Alaska hospitals reduced
the rate of death from severe sepsis and septic shock from 20 percent,
to just under five percent in two years. Behind those statistics are
real people, someone's mother, someone's friend, someone's child, alive
today because of this work.
As part of the Quality Initiative, skilled nursing facilities are
improving on nearly every metric. Nursing hours have been steadily
increasing over the past five years. SNFs have shown national
improvement in 20 of the 24 quality outcomes measured by CMS, and the
re-hospitalization rates for all admissions, regardless of payor
status, have been steadily decreasing. The proportion of patients
admitted for post-acute care who are discharged back to the community
has steadily increased over the past five years. This equates to
142,000 fewer hospitalizations, and $1 billion in savings to the health
care system. SNFs in Alaska are doing better than the national average
on overall Five Star rating, RN staffing rating, off-label
antipsychotic use, and long-stay falls with injury.
These partnerships are examples of the power of collaboration in
improving patient safety. We must focus our resources on the quality
improvement partnerships yielding meaningful outcomes for patients.
All hospitals, health systems, and post-acute care providers feel
the weight of burdensome administrative processes and regulations. As
we consider both the direct and opportunity costs of administrative
burden, it is helpful to consider the impact on our most vulnerable
health care providers.
The issue of administrative burden comes into sharp focus in rural
America. The volume of regulation and complexity of the regulatory
framework requires scale to implement - and rural areas lack scale.
Spreading these costs over a small population is increasingly difficult
for our smallest providers. The nation's rural hospitals and skilled
nursing facilities simply cannot continue to effectively comply with an
ever-growing mountain of federal regulations. For a large hospital, the
opportunity cost of a regulation may mean a program delayed, but for a
small town, the choice may be much more difficult. The opportunity cost
of regulatory burden for rural hospitals and skilled nursing facilities
may be the loss of these services for the residents of that community.
The federal government can take steps to address the growing volume
of federal regulations, while ensuring patient safety. There should be
better alignment and application of regulatory requirements within and
across federal agencies and programs; as well as clear, concise
guidelines and reasonable timelines for the implementation of new
rules. Some examples for consideration include Medicare Conditions of
Participation (CoP) for hospitals; the Promoting Interoperability
Program; Stark Law and civil monetary penalties; and reforms in Post-
acute Care (PAC).
Medicare Conditions of Participation.
CoPs for Medicare are a significant source of the cost of
regulatory compliance and should be evidence-based, aligned with other
laws and industry standards, and flexible. Medicare CoPs require
providers to adhere to established health quality, safety, and
operational standards to participate in the Medicare programs. There is
tremendous value in the CoPs to ensure the safe delivery of care;
however, the administrative components to certify that hospitals adhere
to all standards present a growing burden to providers.
According to the AHA's 2017 report on regulatory overload,
hospitals spend, on average, $3.1 million annually for administrative
compliance activities on hospital CoPs. Hospitals strive to be fully
compliant with all the requirements all of the time, but that effort is
made more difficult and onerous if the requirements lack clarity or
conflict with the requirements of other standards-setting
organizations. Accreditation bodies should streamline and modify
standards so that they support integrated and coordinated care, and
ensure that regulations are clear, well-vetted, and consistently
enforced.
Promoting Interoperability Program.
Hospitals and health systems appreciate recently proposed changes
to the Promoting Interoperability Program, formerly the EHR Incentive
Program, that focus on relieving regulatory burden and the importance
of interoperability. While hospitals support various proposals that
introduce flexibility in the program's requirements, there are several
areas of concern. In the FY2019 Inpatient Proposed rule, CMS asks for
input regarding the opportunity to further advance interoperability of
health information through the creation of CoPs for hospitals and
critical access hospitals and conditions for coverage (CfCs) for other
providers. Hospitals strongly oppose creating additional CoPs/CfCs to
promote the interoperability of health information. A new mandate tied
to CoPs is not the right mechanism to advance health information
exchange. CMS should recognize impediments to information sharing and
address them directly. Creating a CoP or CfC that would apply to only
one set of actors is not an appropriate strategy. Further, it is not
clear that such requirements would have any greater impact on
interoperability than the existing ones; however, they could have
unfortunate consequences for some hospitals and communities.
We do not recommend that CMS implement a CoP/CfC to increase
interoperability across the continuum of care, because post-acute care
providers were not given the resources or incentives to adopt health
IT. Adding this requirement would place yet another unfunded mandate on
these providers and would be workable only if all facilities were
afforded the same opportunity to acquire certified EHRs that conformed
to standards enabling the kind of interoperability CMS envisions.
Hospitals would benefit from additional time to implement and
optimize the 2015 edition certified EHR technology. Experience to date
indicates that the transition to a new edition of certified EHR
technology is challenging due to lack of vendor readiness, the
necessity to update other systems to support the new data requirements,
and the time required to review and modify workflows and build
performance. We are concerned that the 2019 transition will present
additional challenges due to new reporting requirements, and the
requirements to use EHR functionality that were not included in the
2015 edition certification criteria. At this time, hospitals lack
widespread experience with the 2015 edition certified EHR. CMS should
examine current experiences to inform proposed future program
requirements.
Hospitals oppose the use of Stage 3 requirements in FY 2019. The
level of difficulty associated with meeting all of the Stage 3 current
measures is overly burdensome. Some of the measure thresholds require
the use of certified EHRs in a manner that is not supported by mature
standards, technology functionality, or an available infrastructure.
The costs associated are significant for hospitals and health systems
without demonstrable benefit, especially for smaller facilities with
negative margins. Small hospitals are often forced to buy expensive
upgrades totaling tens, if not hundreds of thousands of dollars, with
reporting functionality they don't need. For a hospital barely staying
afloat, that is a significant expenditure.
Stark and Anti-Kickback.
Congress, CMS and the Office of the Inspector General should
revisit Stark Law and other requirements aimed at combating fraud to
provide the flexibility necessary to support coordinated, high-quality,
high-value care.
Hospitals and health systems are adapting to the changing health
care landscape and new value-based models of care by eliminating silos
and replacing them with a continuum of care to improve the quality of
care delivered, community health, and overall affordability. However,
portions of the Anti-kickback Statute, the Ethics in Patient Referral
Act (also known as the ``Stark Law'') and certain CMPs stand in the
way. Congress should create a safe harbor under the Anti-kickback
Statute to protect clinical integration arrangements so that physicians
and hospitals can collaborate to improve care and eliminate
compensation from the Stark Law to return its focus to governing
ownership arrangements.
Post-Acute Care.
The PAC field continues to undergo a major transformation. In FY
2018, all long-term care hospitals will have transitioned to the new,
two-tiered payment system, under which one out of two cases is paid a
far lower ``site-neutral'' rate that is comparable to an inpatient
prospective payment system (PPS) rate. Also underway are CMS's
regulatory efforts to reform the skilled nursing facility and home
health PPSs, with refined proposals for payment models expected for
2019.
Given the scope of the changes already underway for post-acute
care, we urge Congress to reject new changes or payment cuts that would
reduce payment accuracy or increase administrative burden for these
services, as such changes could threaten access to medically necessary
care. Instead, we encourage the facilitation of changes that will
preserve access to medically necessary care, improve payment accuracy,
and streamline excessive regulatory demands.
Skilled nursing facilities face huge new unfunded mandates to hire
staff and establish compliance programs in the 2016 RoPs, that, due to
their sheer volume and specificity, are difficult if not impossible to
implement. The rule includes updated standards of practice,
consideration for different types of residents in nursing centers, and
other changes that CMS believes will improve care for residents. We
support changes that focus on patient-centered care and improving
outcomes. However, many provisions require SNFs to develop new
infrastrucure and extensive documentation, along with adding new staff
positions that create redundancy and add cost without demonstrable
benefits to residents. Regulatory changes on issues ranging from
pharmacy services to transitions of care mean well, but create a large
unfunded mandate. Noncompliance with any of these changes puts a SNF's
Medicare and Medicaid qualification on track for termination.
CMS implemented an 18-month moratorium for imposing the most severe
remedies for noncompliance with eight out of 249 distinct regulatory
citations, but providers still must implement these changes. Nurses and
other clinical staff are being pulled from the bedside to develop and
update more than 20 different written policies and procedures, and to
complete other administrative tasks prescribed in the RoPs. For
example, the new regulations require providers to copy and fax a
detailed transfer notice to the Long-term Care Ombudsman every time a
resident is transferred to the hospital for emergency care or a planned
hospital-based procedure. Requiring this level of documentation beyond
what is required in a resident's medical record or other resident
communication takes staff away from patient care without improving
outcomes or saving costs. CMS should revise the SNF RoPs to make them
more outcome-focused and patient-centered.
Federal law regarding the RoPs unduly burdens small states. The
federal survey requirement is carried out through state governments,
with federal oversight surveys ensuring compliance. Federal law
requires that CMS survey five percent of SNFs within a state, or a
minimum of five facilities. With 18 facilities, our members have a far
higher survey burden than the 1,202 facilities in California. This
means they spend more time on paperwork, and less on patient care. We
urge Congress to address this inequity by changing statute to create a
single, consistent standard for all states. Thank you to Senator
Murkowski for her interest in this issue.
Finally, we ask Congress to address the unintended consequences of
the revocation of Certified Nursing Assistant (CNA) training programs
when a SNF receives a CMP above a certain level. The recent increase in
the use of CMPs as an enforcement tool is another well-intentioned idea
with harmful unintended consequences. CNAs, who provide much of the
care for SNF residents, are trained in programs run by SNFs. These
training programs are revoked for two years when CMPs of a certain
amount are issued, regardless of whether the CMPs were related to
caregiving. The increase in the use of CMPs retrospectively and for
citations unrelated to resident harm has resulted in many CNA training
programs being revoked unnecessarily. These programs help to address
the nationwide shortage of health care workers, while offering free job
training to often economically disadvantaged individuals who would
otherwise have to pay hundreds or thousands of dollars for similar
career-track education. We recommend that the automatic revocation of
CNA training be addressed through changes to federal statute.
Conclusion.
The federal regulatory framework is intended to protect patients,
ensuring that they receive safe, high-quality care, a goal shared by
providers. However, not all regulations achieve this objective, and
well-intentioned guidance can cause harmful unintended consequences.
Where regulations add cost, without any benefit to patients, they
should be reviewed and modernized or eliminated. Where they are
duplicative, they should be streamlined. A commitment to patient safety
means a commitment to investing our time and resources into activities
that demonstrably improve patient safety, not those that simply check a
box or fill out a form. We look forward to continuing to partner with
federal regulatory agencies in this work. Thank you for your commitment
to improving the nation's health care system.
[summary statement of becky hultberg]
The federal regulatory framework is intended to protect patients,
ensuring they receive safe, high-quality care. Hospitals, health
systems and skilled nursing facilities share this goal. However, not
all regulations achieve this objective, and well-intentioned guidance
can be costly and even have harmful unintended consequences. The volume
of regulation, complexity of the regulatory framework, and pace of
change is overly burdensome on hospitals, health systems and post-acute
care providers.
Close to 24,000 pages of hospital and post-acute care
federal regulations were published in 2016.
Hospitals, health systems, and post-acute care
providers must comply with 629 discrete regulatory requirements
across nine domains, spending $39 billion annually in
administrative activities related to regulatory compliance.
For an average-sized community hospital (around 160
beds), this equates to spending more than $7.5 million annually
on regulatory compliance, with 59 staff dedicated to this
purpose.
To put these numbers in the context of patient care,
the regulatory burden costs $1,200 every time a patient is
admitted to a hospital.
For skilled nursing facilities, the annual cost of
compliance with the Requirements of Participation issued in
October 2016 is estimated at $735 million, or nearly $100,000
per building. This is at a time when all-in margins for skilled
nursing facilities are less than one percent.
Most often, administrative burden is discussed in terms of direct
costs; however, it is important to recognize opportunity costs as well.
The opportunity cost is the next best thing that could be done with the
financial and human resources spent on something, or the value of the
foregone alternative. Financial and human resources spent in meeting
regulatory compliance cannot be used for adding services, implementing
patient safety initiatives, hiring health care professionals, or
addressing community needs. The opportunity cost of regulatory burden
for rural hospitals and skilled nursing facilities may be the complete
loss of these services in the community.
The federal government can take steps to address the growing volume
of federal regulations, while still ensuring patient safety. There
should be better alignment and application of regulatory requirements
within and across federal agencies and programs; as well as clear,
concise guidelines and reasonable timelines for the implementation of
new rules. Examples for consideration include Medicare Conditions of
Participation for hospitals; the Promoting Interoperability Program;
Stark Law and civil monetary penalties; and Post-acute Care regulatory
reform. Collaborative, voluntary quality improvement programs like the
CMS Partnership for Patients and American Health Care Association
Quality Initiative are delivering meaningful results. Resources on
patient safety should be spent where they are delivering the best
outcomes for patients.
______
The Chairman. Thank you, Ms. Hultberg. Mr. Eyles, welcome.
STATEMENT OF MATT EYLES, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
AMERICA'S HEALTH INSURANCE PLANS, WASHINGTON, DC
Mr. Eyles. Chairman Alexander, Ranking Member Murray, and
Members of the Committee, I am Matt Eyles, president and CEO of
AHIP, America's Health Insurance Plans. I appreciate the
opportunity to testify on reducing healthcare costs and
administrative spending and on our industry's leadership in
simplifying healthcare and protecting patients.
Every American deserves access to comprehensive, affordable
coverage choices, without regard to preexisting conditions,
that help to improve their health and financial security. AHIP
and our members are strongly committed to advancing this goal.
Our members invest in a wide range of initiatives to improve
patient care and health and to protect patients from
inappropriate or unnecessary treatments.
Our written testimony focuses on four areas. First, we
provide an overview of how consumer premium dollars are
invested in the commercial market. Our graphic analyses show
that the vast majority of every healthcare dollar goes to pay
directly for medical treatments and services. The rest largely
fund programs and services that improve health, reduce, short-
and long-term costs, and increase healthcare choices. Second,
we review some of the administrative activities carried out by
health insurance providers, including medical management, care
management and care coordination, and fraud prevention. These
all work together to improve the healthcare experience and
reduce costs for consumers.
Third, we offer examples of how health insurance providers
are working to simplify administration for doctors, hospitals,
and nurses. Finally, we outline our recommendations on steps
that can be taken, with help from industry partners and
policymakers, to address barriers to simplifying processes and
providing more value to patients.
Health insurance providers have a 360-degree view into how
patients use their coverage and care. Based on that insight,
our members have pioneered many innovative strategies for
making healthcare more effective, efficient, and affordable.
For example, several research studies show wasteful spending in
healthcare. About two-thirds of physicians report that at least
15 to 30 of care is unnecessary. Health insurance providers use
medical management tools to help patients get the right care at
the right time in the right setting with a focus on better,
smarter care.
We work with clinicians to help confirm treatment regimens
ahead of time and ensure the use of the most cost-effective
therapies. Prior authorization is one example of an effective
medical management tool to ensure better, smarter care.
Although it is applied to less than 15 percent of coverage
services, it effectively addresses overuse and misuse of
procedures in commercial and public programs. With prior
authorization, our members analyze whether a treatment is safe
and effective for a particular patient based on the best
available clinical evidence.
Insurance providers also ensure the treatment is provided
in the most appropriate care setting by a qualified license
provider and it is provided with other needed services. AHIP is
working with many others, including the AMA, to improve prior
authorization processes, and by making prior authorization more
fully electronic, we can further improve its effectiveness and
efficiency.
Health insurance providers also have invested billions of
dollars to monitor, detect, and eliminate fraud. AHIP is a
founding member of the Healthcare Fraud Prevention Partnership,
which includes the Federal government, state agencies, law
enforcement, and health plans. Since 2012, the HFPP has saved
hundreds of millions of dollars through the detection and
prevention of fraud.
We are also working with others to simplify operations and
the consumer experience without sacrificing quality. For
example, through a partnership with the Council for Affordable
Quality Healthcare, AHIP members collaborate with other
stakeholders to develop and adopt standard rules for electronic
transactions. Because of this work, an increasing number of
transactions are now electronic. However, there is more work to
be done. A 2016 CAQH report estimated that more than 3 billion
manual transactions occur each year between commercial health
plans and providers.
Insurance providers have also played a leading role in
developing web portals to provide easy access for physicians to
multiple plans for key eligibility and determination
information, such as copays, coinsurance, and deductibles.
Portals also provide access to current information on claims
status, reducing time and paperwork. To harmonize performance
measures, our industry actively participates in the Core
Quality Measures Collaborative to reward high-quality,
evidence-based care. Our industry is working to encourage
further improvements, including moving away from paper
transactions, achieving interoperability for measuring quality,
creating parity in privacy laws for physical and behavioral
health, improving electronic transactions, and recognizing
fraud detection and prevention expenses in MLR calculations.
Thank you for the opportunity to testify. I look forward to
answering the Committee's questions.
[The prepared statement of Mr. Eyles follows:]
prepared statement of matt eyles
Chairman Alexander, Ranking Member Murray, and members of the
committee, I am Matt Eyles, President and CEO of America's Health
Insurance Plans (AHIP). AHIP is the national association whose members
provide coverage for health care and related services to millions of
Americans every day. Through these offerings, we improve and protect
the health and financial security of consumers, families, businesses,
communities, and the nation. We are committed to market-based solutions
and public-private partnerships that improve affordability, value,
access, and well-being for consumers.
We appreciate this opportunity to testify on our industry's
leadership in simplifying health care and in efforts to protect
patients; support doctors and hospitals in delivering high quality,
evidence-based care; and reduce administrative costs. Our members are
strongly committed to working with clinicians and hospitals to reduce
complexity, improve value and patient health, and increase patient
satisfaction.
Americans deserve affordable coverage choices that help to improve
their health and financial security. To advance this goal, health
insurance providers invest in a wide range of initiatives--some of
which involve administrative spending--to improve patient care, enhance
health outcomes, and protect patients from receiving inappropriate or
unnecessary health care services and treatments that provide little to
no value.
Health insurance providers don't just pay medical bills--we're
partners, dedicated to better health and well-being for consumers. We
believe all patients should be treated with safe, effective care.
Essential tools like medical management that emphasize case management
and care coordination help us deliver on that promise. When patients do
better, we all do better. That's why we are committed to helping
patients get better when they're sick, and stay healthy when they're
well. It's why we work together with doctors, nurses, and hospitals to
break down barriers and find real solutions, so that patients get the
care they need, when they need it, and in the right setting without
hassle.
Our testimony focuses on the following topics:
An overview of how health care dollars are spent and
the reality that administrative costs are a small part of
overall health care spending;
Administrative activities carried out by health
insurance providers, including medical management and fraud
prevention, to improve the health care experience for
consumers;
Initiatives and collaborations through which health
insurance providers are working to simplify administrative
burdens for hospitals and clinicians; and
Our commitment to working with other stakeholders and
policymakers to address challenges and barriers to
administrative simplifications that provide value to patients.
How Health Care Dollars Are Spent
Any discussion of administrative spending needs to begin with a
clear understanding of where health care dollars are spent. A recent
AHIP research project, in which we collaborated with Milliman to
analyze administrative costs, provides a visual display of how premium
dollars are invested for products in the commercial market. \1\
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\1\ Where Does Your Health Care Dollar Go?, AHIP, May 2018.
The graphic below shows that the vast majority of every premium
dollar goes to pay for medical products and services. The rest largely
goes to fund programs and services that patients and consumers truly
value because they improve their health, reduce both short-term and
long-term health care costs and increase the health care choices
---------------------------------------------------------------------------
available to them.
Many Administrative Activities Improve the Health Care Experience for
Consumers
Health insurance providers have a 360-degree view into how patients
use their coverage and care and what works best for them. Based on that
insight and to help improve the patient experience, our members have
pioneered many innovative strategies that are strongly focused on
making health care more efficient, effective, and affordable.
Medical Management: Promoting Better, Smarter Care
Health insurance providers are committed to high quality care for
every patient. This commitment is clearly demonstrated in the medical
management tools, case management and care coordination our members use
on a daily basis to promote better, smarter care that is safe and
effective for patients.
Several research findings show that such tools are needed to reduce
wasteful spending:
Sixty-five percent of physicians report that at least
15-30 percent of care is unnecessary. \2\
---------------------------------------------------------------------------
\2\ Over treatment in the United States. Lyu H, et al. PLOS One.
Sept. 6, 2017.
The Institute of Medicine estimates that 10-30
percent of health care spending is wasted each year on
excessive testing and treatment. \3\
---------------------------------------------------------------------------
\3\ Best care at lower cost: the path to continuously learning
health care in America. Institute of Medicine. September 6, 2012.
In 2014, between 23 and 37 percent of beneficiaries
in Medicare used at least one low-value service for a total
cost of $2.4 to $6.5 billion. \4\
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\4\ Medicare Payment Advisory Commission. Report to the Congress:
Medicare and the health care delivery system. June 2018.
Just five low-value services account for more than
$25 billion in unnecessary spending within Medicare. \5\
---------------------------------------------------------------------------
\5\ Providers make efforts, but cuts to low-value care elusive.
HealthcareDIVE. January 24, 2018.
Between $200 and $800 billion is wasted annually on
excessive testing and treatment. \6\
---------------------------------------------------------------------------
\6\ Best care at lower cost: the path to continuously learning
health care in America. Institute of Medicine. September 6, 2012.
A study based on a review of insurance claims for 1.3
million people in Washington state found that nearly half of
that sample--about 600,000 patients--underwent an unnecessary
treatment, at a total cost of more than $280 million. These
costs included laboratory tests for healthy patients ($80
million), heart tests for low-risk patients ($40 million), and
redundant cervical cancer screenings ($19 million). \7\
---------------------------------------------------------------------------
\7\ Unnecessary Medical Care Is More Common Than You Think,
ProPublica, February 1, 2018.
To address these concerns and promote better, smarter care, health
insurance providers have developed medical management approaches that
help patients get the right care at the right time in the right
setting, which prevents harm and reduces costs. Medical management
---------------------------------------------------------------------------
includes smart-care tools based on several key principles:
Patient care should be based on proven clinical
evidence. Just like doctors use scientific evidence to
determine the safest, most-effective treatments, health
insurance providers partner with doctors and nurses to help
identify the clinical approach for the patient that has better
results, better outcomes, and better efficiencies and offer
clinical decision support tools to encourage implementation.
Patients deserve safe, effective, and affordable
care. Health insurance providers work with doctors, nurses and
other clinicians to design and develop approaches that help
ensure necessary treatments, confirm treatment regimens ahead
of time, prescribe and dispense appropriate drugs, and utilize
the most cost-effective therapies. This helps ensure that
patients receive the safest, most-effective care at the most
affordable cost.
Patients benefit when health insurance providers
partner with doctors, nurses, and hospitals. Collaboration and
innovation deliver real value for patients. Health insurance
providers help clinicians stay informed as their patients move
through the health system, and they reward doctors and
hospitals that provide excellent and objectively high-quality
care to patients based on specific quality measures and
outcomes.
Medicare Advantage (MA) and MA Special Needs Plans, which provide
coverage for dually eligible beneficiaries as well as those with
chronic conditions, have invested heavily in care management to provide
for the seamless delivery of health care services across the continuum
of care and improve patient outcomes. Physician services, hospital
care, prescription drugs, and other health care services are integrated
and delivered through an organized system whose overriding purpose is
to prevent illness, manage chronic conditions, improve health status,
and employ best practices to swiftly treat medical conditions as they
occur, rather than waiting until they have advanced to a more serious
stage.
As part of their overall strategy for serving Medicare
beneficiaries, MA plans are also implementing patient-centered
innovations that include:
Mitigating the harm of chronic diseases by focusing
on prevention, early detection, and care management;
Reducing beneficiary costs;
Addressing the needs of vulnerable individuals,
including low-income beneficiaries; and
Applying clinical best practices to increase patient
safety and limit unnecessary utilization of services.
Medicare Advantage plans work to identify the specific health care
needs of their enrolled beneficiaries, so they can benefit from
integrated care coordination, chronic disease management, and quality
improvement initiatives. These activities promote more early detection
of chronic conditions and the design of disease management programs,
which studies show are improving care for beneficiaries. For example, a
January 2012 article in Health Affairs reported that beneficiaries with
diabetes in a Chronic Care Special Needs Plan had more primary care
physician office visits and fewer preventable hospital admissions and
readmissions than beneficiaries in traditional Medicare. \8\
---------------------------------------------------------------------------
\8\ Cohen, Robb, Lemieux, Jeff, Mulligan, Teresa, Schoenborn,
Jeff. Medicare Advantage Chronic Special Needs Plan boosted primary
care, reduced hospital use among diabetes patients. Health Affairs
31(1):110-119. January 2012.
These investments in medical management have proven to be
effective. Extensive studies comparing Medicare Advantage to
traditional Medicare have shown remarkable care improvements. A recent
peer-reviewed study found that, on average, Medicare Advantage provides
``substantially higher quality of care'' by outperforming traditional
Medicare on 16 out of 16 clinical quality measures, and achieving
equivalent or higher scores on five out of six patient experience
measures. \9\ In other studies, Medicare Advantage plans have been
shown to reduce hospital readmissions and institutional post-acute care
admissions while also increasing rates of annual preventive care visits
and screenings. \10\, \11\, \12\, \13\
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\9\ Timbie, Justin W., Bogart, Andy, Damberg, Cheryl et al.
Medicare Advantage and fee-for-service performance on clinical quality
and patient experience measures: Comparisons from three large states.
Health Services Research 52(6), Part I: 2038-2060. December 2017.
\10\ Huckfeldt, Peter J., Escarce, Jose J., Rabideau, Brendan, et
al. Less intense post-acute care, better outcomes for enrollees in
Medicare Advantage than those in fee-for-service. Health Affairs 36(1):
91-100. January 2017.
\11\ Sukyung, Chung, Lesser, Lenard I., Lauderdale, Diane S., et.
al. Medicare annual preventive care visits: Use increased among fee-
for-service patients, but many do not participate. Health Affairs
34(1): 11-20. January 2015.
\12\ Ayanian, John Z., Landon, Bruce E., Zaslavsky, Alan M., et
al. Medicare beneficiaries more likely to receive appropriate
ambulatory services in HMOs than in traditional Medicare. Health
Affairs 32(7):1228-1235. July 2013.
\13\ Lemieux, Jeff Sennett, Cary Wang, Ray, et al. Hospital
readmission rates in Medicare Advantage plans. American Journal of
Managed Care 18(2): 96-104. February 2012.
---------------------------------------------------------------------------
Moreover, in many geographies with high Medicare Advantage
enrollment, spending in the traditional Medicare program actually goes
down as providers adopt practice patterns and care
guidelines that positively ``spillover'' into their care of
patients who remain in traditional Medicare. \14\ The Medicare
Advantage program also has a beneficiary satisfaction rate of 90
percent for plans, preventive care coverage, benefits, and choice of
provider. \15\
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\14\ Johnson, Garret, Figuero, Jose F., Zhou, Xiner, et al. Recent
growth in Medicare Advantage enrollment associated with decreased fee-
for-service spending in certain US counties. Health Affairs 35(9):
1707-1715. September 2016.
\15\ Morning Consult National Tracking Poll. March 11-16, 2016.
---------------------------------------------------------------------------
Prior Authorization: Protecting Patients From Unnecessary and
Inappropriate Care
Prior authorization is an example of an effective medical
management tool that promotes better, smarter care delivery. Prior
authorization is a pre-approval process that a clinician or a hospital
must receive from an insurance provider before a patient receives the
care or service. Prior authorization is applied to selected medical
procedures, services or treatments to ensure that they are safe and
effective for that particular patient based on the best available
clinical evidence, are administered or provided in the appropriate care
setting by a qualified, licensed provider and are provided with other
support services that may be needed.
While prior authorization is applied to a relatively
small percentage (typically less than 15 percent) of covered
services, procedures, and treatments, this tool benefits
patients by:
Encouraging evidence-based care;
Ensuring safety and effectiveness of the treatment;
Promoting appropriate use of drugs and services to
avoid potentially dangerous effects;
Ensuring care is delivered in the appropriate venue,
at the appropriate time/frequency and by the most appropriate
provider; and
Promoting and encouraging a dialogue between the
health insurance provider and clinician to ensure tailored,
patient-focused treatment plans and promote adherence.
Prior authorization is used to target specific safety and efficacy
concerns. Some examples of services or treatments that may require
prior authorization include:
Imaging tests with radiation for patients who may
have already had high exposure to radiation from previous
tests;
Joint injections without evidence or clinical
documentation showing a diagnosis of arthritis;
Surgery for sleep apnea as first line treatment,
contrary to evidence-based guidelines;
Repeat spine surgery unsupported by history, physical
findings, and imaging;
Magnetic Resonance Imaging (MRI) for low back pain as
a first line treatment, instead of physical or other therapy,
as recommended by professional guidelines;
Appropriateness/usefulness of prescribing
antipsychotic medications for children and adolescents; and
Use of addictive opioids that exceed the Centers for
Disease Control and Prevention's (CDC) recommended limits.
Numerous state Medicaid programs also use prior authorization to
address the overuse and misuse of opioids and mistreatment and
diagnosis of low back pain by overusing high-tech imaging, recognizing
the potential harm and costs associated with unnecessary exposure to
radiation and unnecessary surgeries.
Similarly, the traditional Medicare program is implementing the use
of evidence-based guidelines and prior authorization for outlier
clinicians to address the overuse and misuse of imaging services, which
can expose patients to unnecessary and potentially harmful radiation,
unnecessary surgery and office visits, undue stress, and add wasteful
costs to the health care system. \16\
---------------------------------------------------------------------------
\16\ Imaging for Low Back Pain, American Academy of Family
Physicians. https://www.aafp.org/patient-care/clinical-recommendations/
all/cw-back-pain.html
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In its June 2018 report to Congress, the Medicare Payment Advisory
Commission (MedPAC) recommended that the traditional Medicare program
more broadly adopt six tools used effectively by Medicare Advantage and
other health plans to reduce low-value care, such as prior
authorization, clinical decision support and provider education, and
more accountable provider payment models. \17\
---------------------------------------------------------------------------
\17\ Medicare Payment Advisory Commission. Report to the Congress:
Medicare and the health care delivery system. June 2018.
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Fraud Prevention: Stopping Criminal Behavior to Protect Patients and
Eliminating Wasteful Spending
Recognizing the importance of eliminating unnecessary spending from
the health care system to reduce costs and improve affordability, and
the committee's strong interest in this issue, we want to emphasize the
value of investments made by health insurance providers in fighting
health care fraud. The Federal Bureau of Investigation (FBI) estimates
that health care fraud costs American
taxpayers between 3 and 10 percent of what is spent on health care,
between $80 - 230 billion a year. \18\
---------------------------------------------------------------------------
\18\ FBI-HealthCare Fraud (https://www.fbi.gov/about-us/
investigate/white--collar/health-care-fraud)
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The enormous costs of health care fraud are borne by all Americans,
and eliminating fraud and abuse is a critical priority for health
insurance providers as well as public programs. Our members have
invested billions of dollars in initiatives to monitor, detect, and
eliminate criminal behavior. Many health insurance providers have
established their own designated investigation units comprised of
highly trained professionals who employ sophisticated analytics that
indicate when an investigation is warranted--to prevent, detect and
remedy fraudulent and abusive conduct. When they find criminal
activity, they work closely with law enforcement--local police, state
police, the FBI, and the Drug Enforcement Administration (DEA)--to stop
fraud and protect the American people. This work helps ensure that the
care paid for is legal and warranted and, more importantly, protects
consumers and patients from both physical and financial harm.
Our members' anti-fraud initiatives also include credentialing
activities that identify providers who are not qualified, not
appropriately licensed, or operating outside the scope of their
expertise. Health insurance providers are committed to selecting the
highest quality care providers to participate in their plan networks.
They rely on independent experts and government partners to carefully
review quality metrics, outcomes measures, credentialing, and other
critical information to ensure that their customers have access to
quality care providers.
Anti-fraud initiatives focus on:
Identifying usage patterns indicative of substance
abuse and implementing drug utilization programs that rely on
data analysis and clinical assistance to provide interventions
to help members obtain appropriate treatment for substance use
disorders;
Identifying patterns of provider overutilization or
situations where providers perform, order, or deliver
procedures that are not medically necessary or appropriate; and
Identifying instances of medical identity theft,
including assisting victims in correcting false information in
their medical records.
Recognizing the important role fraud prevention initiatives play in
protecting patients and preventing unnecessary spending, these
activities--even though categorized as administrative spending--are, in
fact, an investment and a highly effective use of our health care
dollars.
The Healthcare Fraud Prevention Partnership (HFPP), of which AHIP
is a founding member, is a voluntary public-private partnership between
the federal government, state agencies, law enforcement, private health
insurance providers, and health plan associations. These entities and
organizations work together to foster a proactive approach to detecting
and preventing health care fraud through data and information sharing.
The HFPP offers a forum that facilitates the sharing of identifiable
federal, state, and public-sector data and best practices with partners
from across the health care landscape.
AHIP has worked to help the Partnership recruit additional health
care payers to help the HFPP gain broader coverage, access to more
data, and greater effectiveness. The HFPP has grown to 105 partners
with 217 million covered lives. Since its inception in September 2012,
the HFPP estimates it has achieved $329 million in savings from its
work across public and private payers.
Simplifying Administrative Burdens for Hospitals and Clinicians
Health insurance providers are working continually to streamline
and simplify administrative processes as part of their broader focus on
protecting patients and encouraging the delivery of high quality,
evidence-based care. By collaborating with other stakeholders and
leveraging best practices in technology, our members are taking
important steps to simplify health care operations and the consumer
experience. The following initiatives build upon congressionally
approved requirements that are helping to reduce paperwork and
streamline business processes across the health care system. \19\, \20\
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\19\ The Health Insurance Portability and Accountability Act
(HIPAA) of 1996 set national standards for electronic transactions
(claims and encounter information, payment and remittance advice,
claims status, eligibility, referrals, and authorizations and payment),
code sets (for diagnoses, procedures, diagnostic tests, treatments, and
supplies), and unique identifiers (health plan identifier, employer
identification number, and national provider identifier).
\20\ The Patient Protection and Affordable Care Act (ACA) of 2010
included additional requirements including the adoption of operating
rules for each transaction, a standard unique identifier for health
insurance providers, and standards for electronic funds transfer and
electronic health care claims attachments to standardize business
practices.
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Reducing the Cost of Administrative Transactions and Simplifying
Administrative Tasks
Through a partnership with the Council for Affordable Quality
Healthcare (CAQH), our members are participating in an industry-wide
collaboration, the Committee on Operating Rules for Information
Exchange (CAQH CORE), that works to reduce the costs associated with
administrative transactions and simplify administrative tasks through
the development and adoption of health care operating rules for
electronic transactions. Common rules that simplify administrative
transaction allow providers to have more time to spend in treating
patients.
More than 130 organizations are participating in this effort,
including health insurance providers, hospitals and clinicians,
vendors, state and federal government entities, standard development
organizations, and other interested parties. \21\
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\21\ https://www.caqh.org/core/list-participating-organizations
Many important steps have been taken to date. For example, the
Department of Health and Human Services (HHS) has adopted CAQH CORE
operating rules for eligibility, claim status, electronic funds
transfers (EFT), and electronic remittance advice (ERA) transactions.
In addition, CAQH CORE has developed operating rules related to health
care claims, prior authorization, enrollment and disenrollment in a
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health plan, and premium payments.
As a result of this work, an increasing number of transactions
between health plans and providers are electronic, secure and more
uniform, and the use of manual phone, fax and mail transactions has
declined. Over the past four years, the transmission of benefit and
eligibility verifications through fully electronic transactions has
increased to nearly 80 percent; the adoption of electronic claim status
inquiries has increased by 38 percent; and the use of manual ERA
transactions has decreased by 81 percent. \22\
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\22\ 2017 CAQH Index, A Report of Healthcare Industry Adoption of
Electronic Business Transactions and Cost Savings.
Although great strides have been made to reduce the cost of
administrative transactions, we have more work to do. The CAQH Index
recently found that a manual transaction costs $4.40 more on average
than an electronic transaction and that completing all health care
transactions electronically would yield $11.1 billion in savings
annually. \23\ To realize these cost savings, continued engagement and
commitment from all public and private stakeholders are essential to
ensure the broad adoption of CAQH CORE operating rules across the
industry.
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\23\ 2017 CAQH Index, A Report of Healthcare Industry Adoption of
Electronic Business Transactions and Cost Savings.
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Web Portals: Streamlining the Exchange of Clinical and Administrative
Data
Health insurance providers have played a leadership role in the
development of web portals, through which physicians can reach multiple
insurers simply and quickly via a common portal. These portals allow
office staff easy access to determine key eligibility and benefit
information (co-pays, co-insurance, deductibles) in real time, and
provide access to current and accurate information on the status of
claims to reduce the submission of duplicate claims.
Web portals are an industry-driven solution that has been adopted
to streamline communications between clinicians and multiple health
insurance providers. Portals can be used to exchange a broad range of
clinical and administrative data, such as claim status, prior
authorization, or provider directory information. Solutions offered by
Availity and NaviNet, for example, serve as a one-stop solution that
allow clinicians to exchange data with multiple health insurance
providers in real time. These portals reduce the need for clinicians to
call health insurance providers or use proprietary portals to update or
verify clinical and administrative data, allowing them instead to
access a network of health insurance providers in one place.
Emerging cloud-based solutions have further enhanced the ability of
these portals to store and easily retrieve needed data. In addition,
health care providers are leveraging cloud-based hosting of clinical
data and analytic tools, helping to streamline work flows, and offer
the ability to share data across the care continuum.
Core Quality Measures Collaborative: Harmonizing Performance Measures
That Reward High Quality, Evidence-Based Care
Health insurance providers are at the forefront of efforts to
develop and implement performance measures that reward the delivery of
high quality, evidence-based health care services. To support this
work, AHIP and many of our members are active participants in the Core
Quality Measures Collaborative (CQMC), a voluntary effort created to
promote the alignment and harmonization of performance measures across
public and private payers. Other participants include the Centers for
Medicare & Medicaid Services (CMS), primary care and specialty
societies, and consumer and employer groups.
To date, the CQMC has released eight consensus-based core measure
sets: (1) accountable care organizations / patient-centered medical
homes / primary care; (2) cardiology; (3)
gastroenterology; (4) HIV/hepatitis C; (5) medical oncology; (6)
obstetrics and gynecology; (7) orthopedics; and (8) pediatrics. \24\
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\24\ AHIP, CMS Collaborative Announces Core Sets of Quality
Measures, AHIP press release, February 16, 2016.
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To solidify its independence, ensure its long-term sustainability,
and continue to align its work with other stakeholders, the CQMC has
engaged the National Quality Forum (NQF) to be its new operational
home. AHIP, CMS, NQF staff, and CQMC members will work together to
reconvene the core measure set workgroups for the inclusion of
additional measures, update the existing measure sets and eliminate
measures if duplicative or outdated, and develop strategies and tools
to promote implementation of the measure sets. A 2017 AHIP survey,
based on responses from 24 health insurance providers with 108.3
million enrollees, found that 70 percent had adopted some or all of
these core measure sets into their provider contracts.
Our Commitment to Address Existing Challenges and Barriers
Health insurance providers are committed to working with other
stakeholders and policymakers to address a number of significant
challenges and barriers to administrative simplifications that provide
value to patients.
Move Away From Paper Transactions. Many providers still use mail
and fax for submitting eligibility data and documentation of rationale
needed to approve claims. The 2016 CAQH Index Report estimates that
more than three billion manual transactions are conducted annually
between commercial medical health plans and providers. Electronic
health care claims attachments are rarely utilized by physicians, as
standards have not yet been finalized. Delays in the submission of
these materials can lead to delays in approvals and denials. Health
plans will continue to work with care providers to encourage the use of
electronic transactions.
Achieve Interoperability to Support Quality Measurement. Physician
reporting on quality measures is impeded by the lack of
interoperability across electronic health records (EHRs) and the
inability of some EHRs to support the retrieval of quality measurement
data. To ensure that consumers have meaningful information on quality,
it is important to improve the functionality of EHRs to allow quality
data to be extracted and reported on a widespread basis. These efforts
should be combined with steps to standardize the use of quality
measures across public and private payers, and to streamline and reduce
the overall number of quality measures. CQMC has been working to ensure
that new measures can be reported from EHRs.
Achieve Interoperability to Improve Health Care Quality. Lack of
interoperability is a significant remaining challenge to improving the
quality of care and lowering costs. Consumers can and do face real
risks--delays, voids in care, or unnecessary duplication of tests--when
providers do not have full access to a patient's medical history. To
ensure that patients receive safe and quality care, this information
should be easily transferable and accessible regardless of the care
setting. With the expansion of advanced payment models, more and more
health insurance providers are exchanging timely, actionable data with
physicians to help ensure they have access to information on treatments
and services provided by all clinicians caring for the patient (such as
emergency room visits, changes in prescribed drugs, etc.).
Create Parity in Privacy Laws for All Physical and Behavioral
Health Conditions. Access to a patient's entire medical record,
including behavioral health records, ensures that providers and
organizations have all the information necessary to provide safe,
effective treatment and care. 42 CFR Part 2 is an outdated, potentially
harmful regulation that requires segmentation of substance use disorder
records, furthering stigma and endangering patient lives. Individuals
who suffer from substance use disorders are more likely to have
comorbid mental and physical health conditions that can have
complicated ripple effects on a patient's health and treatment that
should be carefully coordinated and monitored. Siloing patient records
concerning substance use disorders prevents such coordination, inhibits
treatment, exposes patients to unnecessary risk, and increases system
costs. Parity should be applied to all behavioral health and physical
conditions regarding illegal disclosure of private health information
under HIPAA.
Implement Electronic Transactions and Operating Rules. To continue
the adoption of administrative simplification, remaining electronic
transactions and operating rules should be implemented in a timely
manner and should be designed to meet and keep up with the industry's
evolving business needs to truly lower administrative costs. Our
industry continues to work with CAQH and the National Committee on
Vital and Health Statistics (NCVHS) on the adoption of needed standards
and operating rules.
Rescind HPID Regulations: In the near term, CMS should rescind
regulations implementing the health plan identifier (HPID). AHIP and
other stakeholders, including providers and clearinghouses, have
testified before the NCVHS numerous times that there is no longer a
need for HPID, as this need is served by the Payer ID, which is
currently used in electronic transactions across the industry.
Recognize and include fraud detection and prevention expenses in
the medical loss ratio (MLR) and rebate calculation. HHS has recognized
the challenge of fraudulent actions in government programs and
permitted the inclusion of fraud fighting costs in MLR calculations for
those programs. We strongly recommend that HHS similarly allow these
expenses to be included in MLR calculations in the individual and group
markets.
Provide transparency into Federal exchange fee and align it with
evolving exchange functions. CMS continues to collect a 3.5 percent
user fee from issuers participating in the Federal exchange while
simultaneously reducing the functions of CMS to support
healthcare.gov-- including reducing the outreach, education, and
marketing budget for healthcare.gov. CMS is also working to implement
enhanced direct enrollment with the goal of shifting more enrollment to
issuer and web broker websites and away from healthcare.gov.
Transparency into the total amount of user fees collected and their use
will allow health plans and other Federally-facilitated Marketplace
(FFM) business partners to better collaborate with the Center for
Consumer Information and Insurance Oversight on how to improve FFM
efficiency. Marketing and outreach activities should be given high
priority to continue attracting new customers.
Finalize Certification Requirements and Electronic Transaction
Attachment Standards. CMS should revise and finalize the requirements
for health plan certification, which were proposed in 2014 and
subsequently withdrawn in 2017 pending resolution of HPID requirements.
Similarly, HHS should finalize requirements for electronic transaction
attachment standards, for which proposed regulations are pending, to
support real time electronic exchange of administrative data and reduce
the need for manual follow-up or submission of attachments.
Improve Implementation Process for Standard Transactions and
Operating Rules. More broadly, the process for adopting and modifying
standard transactions and operating rules needs to be improved. The
current process is too slow--taking years from initial inception to
adoption of requirements to implementation--and cannot keep up with the
evolving business needs of various industry stakeholders. We support
efforts by the NCVHS to promote a more predictable, timely process.
Conclusion
Thank you for this opportunity to testify and share our
perspectives on these important issues. We appreciate the committee's
commitment to streamlining administrative functions and reducing
administrative burdens for both providers and payers. We look forward
to working with the committee, along with other policymakers and
stakeholders, to reduce complexity and simplify health care to protect
patients and support doctors and hospitals in delivering high quality,
evidence-based care.
[summary statement of matt eyles]
America's Health Insurance Plans (AHIP) and our members are
strongly committed to simplifying administrative processes and
advancing solutions that improve affordability, value, access, and
well-being for the American people. Our industry invests in a wide
range of initiatives--some of which involve administrative spending--to
improve patient care, enhance health outcomes, and protect patients
from receiving inappropriate or unnecessary health care services and
treatments that provide little to no value.
Promoting Better, Smarter Care: Health insurance providers have
developed medical management approaches that help patients get the
right care at the right time in the right setting, which prevents harm
and reduces costs. Our members use these tools every day to promote
better, smarter care that is safe and effective for patients.
Protecting Patients From Unnecessary and Inappropriate Care: Prior
authorization is one example of an effective medical management tool.
It is applied to selected medical procedures, services or treatments to
ensure that they are safe and effective for that particular patient
based on the best available clinical evidence, are administered or
provided in the most appropriate care setting by a qualified, licensed
provider, and are provided with other support services that may be
needed to improve patient care and outcomes.
Stopping Criminal Behavior to Protect Patients and Eliminating
Wasteful Spending: Health insurance providers have invested billions of
dollars in fraud prevention initiatives to monitor, detect, and
eliminate criminal and/or fraudulent behavior. This work helps ensure
that medical care paid for is legal and warranted and, more
importantly, protects consumers and patients from both physical and
financial harm.
Reducing the Cost of Administrative Transactions and Simplifying
Administrative Tasks: Through a partnership with the Council for
Affordable Quality Healthcare (CAQH), AHIP's members participate in an
industry-wide collaboration, the Committee on Operating Rules for
Information Exchange (CAQH CORE), which supports the development and
adoption of standardized health care operating rules for electronic
transactions. As a result, an increasing number of transactions between
health plans and providers are electronic, secure and more uniform, and
the use of manual phone, fax and mail transactions has declined.
Streamlining the Exchange of Clinical and Administrative Data:
Health insurance providers have played a leading role in the
development of web portals used by physicians to reach multiple
insurers simply and quickly via a common portal. These portals allow
office staff easy access to determine key eligibility and benefit
information (co-pays, co-insurance, deductibles) in real time, and
provide access to current and accurate information on the status of
claims to reduce the submission of duplicate claims.
Harmonizing Performance Measures That Reward High Quality,
Evidence-Based Care: Many AHIP members are active participants in the
Core Quality Measures Collaborative (CQMC), a voluntary effort created
to promote the alignment and harmonization of performance measures
across public and private payers.
Recommendations: Our written testimony discusses several areas
where health insurance providers are working with other stakeholders
and policymakers to address challenges and barriers to administrative
simplifications that provide value to patients. These efforts include
(among others): moving away from paper transactions, achieving
interoperability to support quality measurement and improve quality,
creating parity in privacy laws for all physical and behavioral health
conditions, implementing electronic transactions and operating rules,
and recognizing fraud detection and prevention expenses in medical loss
ratio calculations
______
The Chairman. Thank you, Mr. Eyles. Dr. Cutler, welcome.
STATEMENT OF DAVID M. CUTLER, PH.D., HARVARD COLLEGE PROFESSOR;
OTTO ECKSTEIN PROFESSOR OF APPLIED ECONOMICS, HARVARD
UNIVERSITY, CAMBRIDGE, MASSACHUSETTS
Dr. Cutler. Chairman Alexander, Ranking Member Murray, and
Members of the Committee, thank you for inviting me to testify
today. My name is David Cutler. I am a professor of economics
at Harvard where I have been teaching and working in healthcare
for about 25 years--over 25 years--and I am delighted to talk
about the role that the Administration, Congress, and others
can play in reducing administrative expenses in U.S.
healthcare.
Healthcare administrative expenses are a major drain on the
economy. As much as 30 percent of the healthcare bill in the
U.S.--that is about a trillion dollars a year--is devoted to
administrative expense. That is approximately twice what the
United States spends on caring for cardiovascular disease and 3
times what we spend treating cancer. Most of the expenses are
for what are called billing and insurance related services,
two-thirds of which are--occur in providers' offices,
hospitals, doctors, skilled nursing facilities, and the like.
There are several reforms that would reduce administrative
costs in the U.S. Some of these been--have been picked up by
other witnesses. Let me just try and give them a little bit of
a typology.
First is simplifying the complexity with which patients are
coded. For example, when a patient visits the emergency
department, there are 1 of 5 different codes that could be put
in. The particular code depends on the past history of the
patient and other conditions. So, as a result, an enormous
amount of manpower, time, and energy is spent searching through
the records and finding every possible condition a patient
could have had so that he or she can be put into a higher
category for reimbursement. This is wasted time, effort, and
money that could be directed to other uses.
Second, which is something that has also been mentioned,
particularly by Mr. Eyles, is standardizing preauthorization
requirements. A great share of the cost of the administrative
burden in the United States is documenting things associated
with prior authorization, for example, if one service is going
to be provided, what has to be done in advance and proof that
what was done in advance actually occurred and had the
requisite outcome. I have been in hospitals where they show me
the procedures for billing radiology. Just radiology services
at one hospital across all the different payers and the manuals
that they have to comply with are over a foot thick. The reason
is that each different insurer will have their own policies,
and it is not just that. It is that each different payer
working with that insurer will have their own policies related
to preauthorization, and the net effect is that there is an
army of coders and medical records keepers who are kept
employed keeping up to date with that.
The third issue is the integration of medical records and
billing systems, and this is something that Chairman Alexander
mentioned in his opening comments, which is absolutely right,
which is that in most industries, what happens is that
computers take over for people, and what happens in healthcare
administration is that people take over for computers. So, you
have an electronic medical record system that keeps some
information. You have a billing system that keeps separate
information. They do not talk to each other, so, as a result,
you have people involved in the one and people involved in the
other, and it is extremely costly to do that. As the Chairman
said and as Mr. Hultberg said, the automation--the requirements
with regards to integration have not kept up with where we need
to be, and that is a serious problem here.
The best guess of researchers is that we could eliminate at
least half, if not more, of the administrative cost burden and,
thus, reduce medical spending in the U.S. by about 8 to 15
percent if we were to simplify the administrative transactions
associated with billing and insurance. The unfortunate
circumstance, however, is that these changes will not occur on
their own. Even the big players the private--in the private
sector in healthcare are not big enough to make these changes
occur without additional help from the biggest player, and that
is the Federal government.
In fact, if you look at other industries that have
successfully reduced administrative expense, they all have a
common theme, which is that the single biggest player in the
industry has been intimately involved with this. In the case of
retailing--that is, selling goods to people--it was, to a great
extent, the product of companies like Walmart that standardized
billing packaging, and coding, and all sorts of things so that
the transaction, which in healthcare involves several people on
the providers' end and several people on the insurers' end,
involves nobody in retail. The second example is the Federal
Reserve, which standardized financial transactions in the 1970s
and then has kept that system up to date over time. And that
has also saved enormous amount of expense for banks and other
financial institutions, and it could have only happened with
the Federal government being involved.
So, what we see in industry after industry is that the big
player has to take part or it does not happen. Therefore, what
I recommend, and I will be very explicit because I believe in
explicit goals and consequences, is that the Department of
Health and Human Services, working with healthcare
organizations, as Ms. Hultberg and Mr. Eyles suggested, develop
and implement a plan to reduce the administrative burden in
healthcare by 50 percent within the next 5 years. I believe
that such a plan is achievable and attainable. I believe it
would have enormous benefits for the economy, and,
unfortunately, I do not think it will happen without actions by
this Congress and the Administration. So, I encourage you to
act rapidly.
Thank you for having me here, and I look forward to
answering any questions you might have.
[The prepared statement of Dr. Cutler follows:]
prepared statement of david m. cutler
Chairman Alexander, Ranking Member Murray, and Members of the
Senate HELP Committee, thank you for the opportunity to testify before
you today. It is an honor to be invited to participate in today's
discussion.
My name is David Cutler. I am professor of economics at Harvard
University, where I have been engaged in research and teaching on
health economics for over 25 years. I have conducted research on
overall medical care spending and specifically on the component of
medical spending attributable to administrative expense. The desire to
reduce administrative costs in the U.S. health care system spans the
political spectrum. Thus, I hope the findings and recommendations I
present are taken in this spirit.
The Nature of the Problem
Administrative expenses are those expenses that are not directly
associated with providing goods and services to people in need of care.
There is no account kept on the amount of administrative expense of
United States healthcare system, but there are estimates of the overall
magnitude.
These estimates suggest that administrative expenses range from 15
to 30 percent of medical spending. \1\, \2\ To put this amount in
perspective, even the smaller estimates suggest that administrative
costs account for twice what the United States spends on cardiovascular
disease care every year, and three times what the United States spends
on cancer care. \3\
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\1\ Yong PL, Saunders RS, Olsen L, eds. The healthcare imperative:
lowering costs and improving outcomes--workshop series summary.
Washington, DC: National Academies Press, 2010.
\2\ Jiwani, Aliya, David Himmelstein, Steffie Woolhandler, et al.,
``Billing and insurance-related administrative costs in United States'
health care: synthesis of micro-costing evidence.'' BMC Health Services
Research. 2014;14(556).
\3\ Cutler, David M, Elizabeth Wikler, and Peter Basch. 2012.
``Reducing Administrative Costs and Improving the Health Care System,''
New England Journal of Medicine, 367, 20, 1875-1878.
Beyond the amount of money spent on administrative costs are the
hassles associated with administration. The average U.S. physician
spends 43 minutes per day interacting with health plans about payment,
dealing with formularies, and obtaining authorizations for procedures.
\4\ The time and frustration associated with administrative expenses
leads to physician burnout and pushes some physicians to leave
practice. \5\
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\4\ Casalino Lawrence P., Sean Nicholson, David N. Gans, et al.
``What does it cost physician practices to interact with health
insurance plans?'' Health Affairs, 2009;28:w533-w543
\5\ Shanafelt, Tait D., Omar Hasan, Lotte N. Dyrbye, et al.,
``Changes in Burnout and Satisfaction With Work-Life Balance in
Physicians and the General US Working Population Between 2011 and
2014,'' Mayo Clinic Proceedings; 90; 12:1600-1613.
The level of administrative expense in the United States is far
higher than in other countries, even those committed to pluralistic
systems of insurance and private provision of medical care. For
example, administrative costs account for 39 percent of the difference
in spending between the United States and Canada, greater than the
additional spending accounted for by higher payments to pharmaceutical
companies and more frequent use of services such as imaging and
additional procedures. \6\
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\6\ Cutler, David M., and Dan P. Ly. 2011. ``The (Paper)Work of
Medicine: Understanding International Medical Costs.'' Journal of
Economic Perspectives, 25 (2): 3-25.
The bulk of administrative expenses are for `billing and insurance
related' (BIR) services. When people think of administrative expense,
they often jump to activities in insurance companies. This is a part of
the total, but only a part. Two-thirds of administrative expenses occur
in offices of physicians, hospitals, and other care providers. \7\
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\7\ Yong et al., op cit.
Administrative costs are a form of economic ``arms race.'' Pushed
by businesses and individuals to reduce spending, insurers introduce
requirements providers must fulfill before they can get paid. These
additional requirements cost the insurer money to enforce, but are
worth it in the savings from not paying out additional claims. In
response to new rules, providers hire additional personnel to maximize
the amount they are reimbursed. Witnessing this, insurers beef up rules
yet again, putting in place additional requirements for payment. The
net effect is a spiral of cascading administrative costs on both side
of the market, with no benefit to patients and no net benefit to
---------------------------------------------------------------------------
insurers or providers.
A depiction of the processes involved in BIR services in provider
offices is shown in Figure 1, taken from Tseng et al. \8\ The
activities include verifying a patient's eligibility for services;
submitting bills in an appropriate format; reviewing those submissions;
submitting documentation required for pre-authorization purposes;
collecting copayment or coinsurance from patients; and providing
quality information and other documentation about the outcome of the
procedure. The typical hospital spends nearly 10 cents out of every
dollar collected collecting that dollar; the typical physician's office
spends even more.
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\8\ Tseng, Philip, Robert S. Kaplan, Barak D. Richman, et al.,
``Administrative Costs Associated With Physician Billing and Insurance-
Related Activities at an Academic Health Care System.'' JAMA.
2018;319(7):691-697.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Figure 2 shows the extent to which the activities in Figure 1 have
been automated, using data from the Council for Affordable Quality
Healthcare (CAQH). \9\ Claim submission is almost entirely electronic,
with 95 percent of claims submitted fully electronically. Other
administrative transactions are between 50 and 75 percent fully
electronic, including eligibility verification checking on claim
status, and payment inquiries. The least automated activities are prior
authorization and claim attachment (clinical information that needs to
be submitted with a claim). Less than 10 percent of these transactions
are fully electronic. CAQH estimates that the cost of conducting these
tasks manually is two to ten times higher than the cost of conducting
them electronically, so that savings from automating the transactions
in figure 2 alone would exceed $11 billion annually.
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\9\ CAQH, 2017 CAQH Index: A Report of Healthcare Industry
Adoption of Electronic Business Transactions and Cost Savings, 2018.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Steps to Reduce Administrative Expense
The goal of policy is to reduce administrative costs, but to do so
in a smart way. It is not that we want to eliminate the functions that
administrative costs serve. Verifying that people are eligible to
receive care, that reimbursement is accurate, and that fraud and abuse
are prevented are important goals. Rather, the idea is to conduct these
processes more efficiently.
Administrative costs are not a monolithic, so there's not a single
solution that will reduce them. However, there are number of actions
that would materially reduce administrative costs. The Institute of
Medicine estimated that administrative costs could be reduced by half.
\10\ Comparisons with other industries suggest the reduction could be
even larger. In physician's offices as a whole, there are 5.8
nonphysician employees for every physician; the comparable figures are
1.9 for law offices and 1.8 for accounting practices. \11\ Let me
describe three steps that could be taken to reduce administrative
costs.
---------------------------------------------------------------------------
\10\ Yong et al., op cit.
\11\ Cutler, David M., ``The Good and Bad News of Health Care
Employment,'' JAMA Forum, January 24, 2018.
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Reducing Severity Adjustments
A significant portion of administrative costs is associated with
measuring the severity of a patient presenting for treatment. For
example, a patient presenting to the emergency department for treatment
will be coded into one of five different severity levels (99281-99285)
based on the nature of the illness or injury of the patient and their
past history. The underlying rationale for this differentiation is
sound: it takes more resources for an emergency department to treat a
more severely ill patient. However, the administrative requirement of
billing in this system is extremely high. For example, a patient with a
history of high blood pressure or diabetes will often move into a more
severe category than one without those conditions. Thus, there are
people whose job it is to search the records of every emergency
department patient to look for whether every patient has a history of
conditions which would bump the patient into a more lucrative
reimbursement category.
The emergency department example carries throughout medical care
system. For a large share of medical care goods and services, the
health care system creates enormous administrative cost by
differentiating payments according to the severity of the patient's
illness and background.
The natural solution is to limit the extent of differentiation. For
example, payers could have one code for emergency department admissions
instead of five, and similarly for other medical care goods and
services. CMS recently announced its intention to implement such a
policy for evaluation and management visits, moving from five billing
categories to just two.
There are two potential drawbacks to reduced differentiation of
payments with severity of illness. First, removing additional payment
for more severely ill patients makes some patients with severe illness
unprofitable. This may induce providers to discourage such patients
from seeking care, for example by turning them away or making it
difficult to schedule appointments. I suspect this concern is minor,
and in any case steps can be taken to manage it. Recall that most
providers are willing to care for even patients who bring no revenue
(the uninsured); their mission justifies this activity. Thus, selection
is less of a concern with providers than with insurers. And some carve
outs to the no-severity adjustment rule can be created. For uncommon
but expensive items--complex surgeries, for example--it makes sense to
retain a severity adjustment; the administrative costs are low relative
to the amount of money involved in creating winners and losers.
Finally, it is possible that alternative risk adjustment models could
be employed that address most of what the severity adjustment covers
but without the detail of measuring the full set of past conditions.
For example, patient age, gender, and zip code are routinely collected
and are correlated with a host of risk factors. Even a simple medical
factor such as whether a patient was hospitalized in the past year
would provide significant risk adjustment without involving high
collection burden.
The second potential drawback is that severity-neutral payments
will transfer resources from providers that see more complex patients
to providers that see less complex patients. The key to addressing this
concern is to ensure that enough of the savings from administrative
simplification flow to providers, so that losses to such providers can
be offset by enhanced revenues. Imagine that we reduce administrative
costs in hospitals by half, or 5 percent of total hospital spending.
Insurers could split the resulting savings with providers, for example
cutting payments by only 2.5 percent. This additional surplus would
almost certainly compensate the providers that lose money because their
true patient mix is more severe than average.
On balance, therefore, I believe that current severity adjustments
are substantially inefficient relative to a simpler system without such
detailed risk adjustment but with workarounds for some limited number
of cases.
Standardizing Pre-Authorization Requirements
A second reform that would reduce administrative costs is
standardizing the documentation required for pre-authorization of
services. A typical insurer will have a multitude of policies regarding
what findings must be documented before it will authorize further
treatment. For example, an MRI and physical therapy might be required
before orthopedic surgery. Some such requirements are natural and
beneficial, but there are far too many different requirements. It is
not just that each insurer has their own pre-authorization
requirements. Rather, each insurer has multiple different pre-
authorization requirements, varying for each specific business they
insure or public program they participate in. I once had a provider
system show me the manual it keeps to bill radiology services alone; it
was over a foot high.
Complying with these requirements involves enormous expense. Armies
of computer programmers and manual reviewers are employed by both
insurers and providers to keep up with the changes. Further, the
information required for the pre-authorization is often not easily
accessible. The relevant information is in the physicians' electronic
medical record, but there is no easy way for the electronic medical
record to convey that information to the insurer's billing system. As a
result, the process involves people. A person in the provider's office
accesses the electronic or paper medical record, xeroxes the relevant
pages, and faxes them over to the insurer. Different people in the
insurance company then need to look at the information and document
that the information satisfies the necessary requirements.
Standardizing pre-authorization requirements would be a major step
forward. One might imagine that insurers and providers could live with
two options: a more generous policy for payers willing to spend more,
and a more restrictive policy for payers on a tighter budget. Providers
could then focus on a small number of metrics associated with
demonstrating applicability of the services under these two regimes.
Variation from the standard policies would not be prohibited but could
be discouraged, perhaps by requiring the payer to pay for the
additional administrative expense they impose for both insurers and
providers by deviating from these rules.
Integrating Medical Record and Billing Systems
There is another way to view the previous example about the
difficulty of pre-authorization requirements, and that is the inability
of some computer systems to talk to others. Part of the reason for
people to be engaged with billing is because electronic medical records
which record clinical information have no way to communicate
information to payment systems run by insurers. Thus, when an insurer
requires documentation of a particular diagnosis or prior treatment, it
requires people to be involved. Normally, we think of computers as
making up for the limitations of people. In health care, it is people
who make up for the limitations of computers.
By contrast to health care, consider what happens when a person
shops at Walmart. When an item is scanned at the register, the register
automatically alerts the inventory system, which in turn automatically
re-orders new inventory from the relevant supplier. The supplier's
computer processes this information and arranges for new inventory to
be sent to the store (along with other inventory that needs to be
restocked). All of this occurs without a single individual being
involved. The goal should be the same in health care.
A related issue occurs with quality assessment required for many
pay-for-performance systems. Almost all payers, including public
programs, have some pay-for-performance incentives built into their
contracts, for example additional money associated with meeting
guideline care for people with chronic disease. Information on the
quality metrics is often in the electronic medical record, but that is
not the format it needs to be in for payment purposes. As a result,
providers spend a good deal of time, effort, and money pulling
information from electronic medical record systems and putting them in
a format appropriate for pay-for-performance calculations.
Technologically, there is no reason why electronic medical record
systems cannot interface with billing systems or automatically submit
information for quality assessment. However, there are few incentives
for existing firms to make this happen. Providers do not wish to give
insurers access electronic medical records, because they consider them
proprietary. Each individual insurer has little incentive to invest in
a system that is more conducive to provider systems, since doing so for
a single practice involves large costs and little gain. Makers of
electronic medical record systems have incentives to keep their systems
exclusive, so that it is more difficult for providers to switch from
one company to another. Thus, we are in a situation where costs remain
high even though everyone recognizes that they could be reduced.
The solution to the technological interoperability can be solved
through either public or private actions. In the public sector,
standards regarding health information technology could be modified so
that select information flow from electronic medical record systems to
billing systems is required. Most of the federal effort devoted to
interoperability has focused on increasing access to clinical
information by patients and providers. For example, everyone agrees
that a person with a medical record at one organization who visits a
provider at a second organization should be able to have their record
read at the second provider. However, much less attention has been
devoted to the links between medical records systems and billing
systems.
A private sector solution might involve something like the credit
card industry, where intermediaries read information from electronic
medical records and send the compiled information to insurers in the
appropriate format. The intermediaries would take a common set of
information from providers--the universe of information that is
required--and then parcel out the information as required. As an
analogy, consider the world of retail trade. One of the amazing
features about retail is that the smallest stores can process the same
payment methods as the largest stores. The reason for this is that
firms such as VISA and MasterCard have created a standardized
transmission standard that takes credit card information and sends it
to the customer's bank. Purchase authorization is provided almost
instantaneously and with minimal administrative cost. To be sure, these
intermediaries charge a good deal for the services they provide. But
those costs are well below the comparable costs associated with
intermediation in the fragmented health system.
What Federal Policy Can Do
Administrative costs have fallen in many industries throughout the
economy. The retail sector was noted above. But credit cards are just
the tip of the iceberg. Other examples include Universal Product Codes
(UPCs) to make checkout less expensive, electronic sales for many
goods, and employment of sophisticated information systems to reduce
distribution and inventory costs. Another example is the financial
services industry. Trillions of dollars are transmitted electronically
each day, with barely any administrative cost. To a great extent, this
is because the technology for doing so has been standardized.
In each of these industries and others, there is a common theme to
reducing administrative costs: administrative costs fall when there is
a dominant player that forces standardization. In retail trade,
standardization came about to a great extent because of the activities
of Walmart. Walmart required suppliers that wished to sell to it to
adopt standards that reduced administrative costs. \12\ The result was
a streamlining of retailing as a whole. The Federal Reserve did the
same for banking, working with financial institutions to create the
Automated Clearing House system (ACH) in the 1970s and updating it over
time. The financial transfer system now occurs entirely in the
background.
---------------------------------------------------------------------------
\12\ Johnson, P. Fraser, and Ken Mark, ``Half a Century of Supply
Chain Management at Wal-Mart,'' Harvard Business School, 2012.
There is only one organization in health care that is large as the
Federal Reserve or Walmart, and that is the federal government. The
federal government is the largest buyer of medical care, including
Medicare, the Veteran's Administration, the Department of Defense,
federal employees, and health insurance exchanges. The federal
government also pays for a good deal of Medicaid, though the program is
run at the state level. Because of the centrality of the federal
government to payment, if the federal government is not involved in
---------------------------------------------------------------------------
administrative reform, it simply cannot happen.
What the federal government does not have is the mandate to do so.
The Department of Health and Human Services acts primarily as a payer.
It enacts new payment systems for Medicare and other programs as it
deems appropriate, but it generally does not think about trading off
the value of these systems relative to the administrative costs they
engender. More recently, the federal government has assumed a role in
health IT, through the HITECH Act. Meaningful use standards are a key
part of federal activity, but these standards are generally focused on
clinical use of IT systems, not how IT can contribute to administrative
simplification.
Both payment reform and IT promotion are important areas. My
suggestion is not that the federal government not focus on these areas.
Rather, I propose that each be coordinated with a third goal: creating
and implementing a plan to reduce the administrative costs of medical
care. To be as specific as possible, I propose that:
The Department of Health and Human Services, working with health
care organizations, should develop and implement a plan to reduce
administrative costs in health care by 50 percent within five years.
The plan should include payment simplification, standardized pre-
authorization policies, and integrated medical record and billing
systems.
Congress can monitor progress on an ongoing basis. To ensure that
the plan is brought to fruition, reductions in payments commensurate
with a reduction in administrative costs of some magnitude, perhaps 25
percent, could be set to occur at the end of the five year period.
Of course, one should not have blind faith in the ability of the
federal government to coordinate in new areas. The disastrous opening
of the Health Insurance Exchanges gives everyone pause about the wisdom
of proposing federal action. On the other hand, the federal government
has been a leader in many areas. Payment reform had no widescale
implementation before recent federal actions, and the rollout of many
payment models has gone well. And within the area of administrative
simplification, Medicare was a leader in requiring claims to be
submitted electronically. That explains a good part of why claims
submission is almost fully electronic.
The reality of the situation is this: unless the federal government
leads the way, the United States will continue wasting hundreds of
billions of dollars annually on unnecessary administrative expenses. I
urge Congress to act to prevent this.
[summary statement of david m. cutler]
Health care administrative costs are a major drain on the economy.
As much as 30 percent of the health bill in the US is devoted to
administration, twice what is spent on cardiovascular disease and three
times what is spent on cancer. Most of this expense is for billing and
insurance related services, two-thirds of which occurs in provider
offices.
There are several reforms that would reduce administrative costs in
US health care. These include:
1. Simplifying the complexity with which patients are coded. A
good deal of administrative complexity is associated with
determining the severity of each patient, so that the patient
can be placed in the highest reimbursement category. Reducing
severity adjustments would eliminate the need for some
administrative expense.
2. Standardizing Pre-Authorization Requirements. Pre-
authorization requirements are particularly costly because they
differ across insurers, and even within an insurer they differ
across groups purchasing insurance. Having fewer pre-
authorization possibilities would reduce provider and payer
burden.
3. Integrating Medical Record and Billing Systems. Electronic
medical record systems are generally not integrated with
billing systems. As a result, transactions that require
clinical information necessitate involvement of people in both
insurers and providers. Requiring integration of medical record
and administrative systems would reduce the need for costly
workarounds.
The best guess of health care researchers is that administrative
cost reforms could lower administrative expenses in half, thus reducing
overall medical spending by 8-15 percent. However, these changes will
not occur on their own. The health care industry is too fragmented for
individual payers or providers to gain from changing billing and
insurance processes.
In every industry that has successfully reduced administrative
expense, the dominant industry player has paved the way for such
savings. Examples include Walmart in retail and the Federal Reserve in
financial transactions. The dominant player in health care is the
federal government. Unless the federal government pushes for
administrative savings, administrative costs will remain a burden. I
encourage Congress to pursue a plan along these lines:
The Department of Health and Human Services, working with health
care organizations, should develop and implement a plan to reduce
administrative costs in health care by 50 percent within five years.
The plan should include payment simplification, standardized pre-
authorization policies, and integrated medical record and billing
systems.
Unless the Federal government leads the way, the United States will
continue to waste hundreds of billions of dollars annually on
unnecessary administrative expenses. I urge Congress to act rapidly.
______
The Chairman. Thank you, Dr. Cutler. Following Dr. Book's
testimony, I am going to step out for an appointment, and
Senator Murkowski will Chair the hearing for a while, and I
thank her for that.
Dr. Book, welcome.
STATEMENT OF ROBERT A. BOOK, PH.D., HEALTHCARE AND ECONOMIC
EXPERT; ADVISOR TO THE AMERICAN ACTION FORUM, WASHINGTON, DC
Dr. Book. Thank you, Chairman Alexander, and Ranking Member
Murray, and Members of the Committee. Thanks for the
opportunity to discuss my research on healthcare administrative
costs.
So, to summarize, costs occur at three levels as we have
heard: at the health plan, whether it is a private sector
health plan or a government health plan inside the health plan;
and at the provider level in the hospitals, the physician
offices, and other providers; and also at the patient level
when patients have to schedule appointments, and read the bills
and the EOBs they receive, and cross-match them to make sure
everything is right, and send in a payment. There is a
significant amount of research at the health plan level, there
is a smaller amount of research on administrative costs at the
provider level, and as far as I can tell, there is no research
at the patient level, which is that it affects every one of us
one way or another.
So, the primary problem that we have in this discussion is
most reports give administrative costs as a percentage of total
spending, including spending on direct patient care, and this
is especially a problem in talking about administrative costs
at the plan level. So, for example, someone might claim that
Medicare's administrative costs are 2 percent or 5 percent and
those in private insurance are 10 or 20 percent, and it sounds
so much higher. It turns out Medicare, of course, has mainly
patients who are age 65 and over or disabled or with end-stage
renal disease, and, on average, they need more healthcare than
people covered in private plans. So, they--we take
administrative costs. We divide it by a much larger number, we
get a smaller percentage and make them--and make them look very
efficient, but really their administrative cost percentage is
lower, not because they are more efficient, but because they
have sicker patients, which, of course, has nothing to do with
their administrative costs.
So, it turns out if we look at--if we look at--the correct
way to do this is to look at it in terms of how much
administrative costs there is per person because administrative
costs do not scale with the dollar value of claims, and they do
not even scale that much with the number of claims. If you look
at claims processing in Medicare, it is only about a quarter
percent of Medicare's entire budget. And doing that more
efficiently or having fewer claims is not going to affect their
administrative costs very much.
So, expressed that way, Medicare's administrative costs,
last time I did the calculations, averaged $509 per person, and
private administrative costs that same year were $453 a person.
So, they were a lot closer, and Medicare's actually turned out
to be a little bit higher.
This issue occurs also when we compare systems in different
countries, and that is either at the health plan level or at
the provider level. So, there was one study that attempted to
compare hospital administrative costs and noted, and they
actually said this in the article, that hospitals employ--in
some countries employ large numbers of physicians. That is not
the way healthcare is organized in the United States. The
hospital exists and does its job, and the physicians are paid
separately.
So, then they proceeded to report administrative costs as a
percentage of total hospital expenditures. Well, if the
hospital expenditures include payments of physicians, then the
same administration is going to be a much lower percentage. So,
naturally the countries that did that look so much more
efficient, but really they were just being measured
differently. And we actually do not--this tells us nothing
about whether administrative costs are higher in one country or
another because we have not made an appropriate apples-to-
apples comparison.
Now, it is also a problem sometimes to identify and collect
administrative costs. Budget documents were generally not
designed for us researchers, and it is hard to track down--
track down costs, and we end up making estimates. So, but I can
tell you for sure if the--if the answer is a percentage, it is
wrong because asking for a percentage in this case is simply
asking the wrong question.
So, more recently I have looked into how the ACA affected
administrative costs of private insurance. The exchanges were
supposed to reduce the administrative cost of covering private
sector individuals, and it turns out the insurance companies
did save money. Administrative costs from the year before to
the year after went from $414 per person to $265 a person, but
the total went up $893 because the Federal government spent
more money setting up the exchanges than they saved in
administrative costs for the companies.
I would like to address one story that has been going
around--I think it was mentioned at an earlier hearing in this
series--that says that Duke University Hospital supposedly has
900 beds and 1,500 billing clerks. So, when I first heard this,
I thought that seems like the wrong comparison because they
also have a lot of outpatient care which has nothing to do with
hospital beds. So, we checked on Duke's website, and, of
course, hospital inpatient care represents about 2 percent of
the visits in the Duke Health System. And I talked to Paul
Vick, associate vice president of Duke Healthcare, and it turns
out they do have a staff of 1,500. But in addition to billing,
they handle appointment scheduling, patient registration,
clinic check-in, medical records, health information, charge
caption encoding, cash management payment accounting, and all
sorts of other functions. And when we asked how many people
actually handled just billing for Duke Hospital instead of all
the other hospitals in the system, it turned out to be 15 full-
time equivalents. Not 1,500. Fifteen.
Thank you. I think I am out of time, so thank you very
much. I will be happy to answer your questions.
[The prepared statement of Dr. Book follows:]
prepared statement of robert a. book
Chairman Alexander, Ranking Member Murray, and Members of the
Committee:
Thank you for the opportunity to discuss my research on health care
administrative costs. Administrative costs occur mainly at three
levels: at the health plan level, whether it is a private-sector health
insurance plan or a government-run program; at the provider level, that
is, at hospitals, physician offices, pharmacies, and other providers;
and at the patient level, when patients have to schedule appointments
and read the bills and ``explanation of benefits'' documents they
receive.
There is a significant amount of research on administrative costs
at the health plan level, a smaller amount of research on such costs at
the provider level, and as far as I can tell, little to no research at
the patient level.
Administrative cost research is plagued by two problems:
First, most reports give administrative costs as a percentage of
total spending, including spending on direct patient care. So, for
example, someone might claim that Medicare's administrative costs are 2
percent or 5 percent, but private insurance has administrative costs of
10 percent or 20 percent. It sounds much higher. But the difference is,
Medicare has patients who are aged 65 or older, or disabled, or who
have end-stage renal disease. Private insurance mostly covers patients
who are under age 65 and not disabled, and on the whole require lower
levels of health care services. The result is that Medicare spends a
lot more per patient on direct health care, which means administrative
costs as percent of health care costs is almost guaranteed to be lower.
Using percentages might make sense if administrative costs scaled
with the level of direct care spending, but it doesn't. The only
component of administrative costs that is obviously related to the
volume of health care is claims processing, but that is correlated with
the number of claims, not their dollar value, and is also a very small
share of total administrative costs. For example, in a previous
study\1\ I found that Medicare's spending on claims processing was
about 4 percent of administrative costs, and less than one-quarter of
one percent of total Medicare outlays.
---------------------------------------------------------------------------
\1\Robert A. Book, ``Medicare Administrative Costs Are Higher, Not
Lower, Than for Private Insurance,'' Web Memo #2505, The Heritage
Foundation, June 25, 2009, at http://bit.ly/2LMNfsD.
Most of the administrative costs of operating a health plan are
spent enrolling members, designing the plan rules, establishing
provider networks, and other activities that are not processing claims
and are not correlated with the number of dollars spent paying health
care providers. The same applies to Medicare, to other government
---------------------------------------------------------------------------
programs, and to private sector health plans.
In that study, I found that while Medicare's administrative
spending was lower as a percentage of total claims, it was actually
higher on a per-beneficiary basis. Medicare's administrative costs were
$509 per primary beneficiary, and private plans had an administrative
costs of $453 per beneficiary. So Medicare administrative spending was
lower as a percentage because their average beneficiary needs more
health care--but higher on per-beneficiary basis. (See Table 1.)
Expressing administrative spending as a percentage of total
spending is inherently misleading. Medicare's administrative percentage
is lower not because they are more efficient, but because their
patients are, on average, sicker. Asking for a percentage is simply
asking the wrong question.
The second problem in this sort of research is that it is sometimes
hard to find administrative costs. Budget documents are not typically
written for the benefit of those of us trying to track this information
down. Most of the administrative costs of Medicare are in the budget
for the Center for Medicare and Medicaid Services (CMS), but some of
those costs are in the budgets of other agencies. For example, Medicare
enrollment is the responsibility of the Social Security Administration
(SSA), some of the revenue is collected by the Internal Revenue Service
(IRS), and fraud enforcement is at least partly the responsibility of
the Department of Justice (DoJ). Activities corresponding to all of
these would appear directly in administrative costs of a private sector
health plan.
In the case of private health plans, until 2016 we had the opposite
problem. In order to calculate administrative costs, researchers would
take total premium revenue and subtract total claims paid, and assume
the rest was administrative costs. This is reasonable if one wishes to
count taxes as administrative costs, and health services provided
directly by the health plan (such as on-call nurses) to be
administrative costs as well. But they really are not what we normally
think of as ``administrative.'' So, private sector administrative costs
were overstated, just as government program administrative costs were
understated
Since 2016, data as been available from reports that private sector
health plans have been required to file in order to comply with the
ACA's Medical Loss Ratio (MLR) requirements. This allows us to separate
out taxes and plan-provided health care, and get a better estimate of
administrative costs.
Under the ACA, Non-Medicare Administrative Costs Have Increased, Not
Decreased
During the debate leading up to the passage of the ACA, proponents
argued that one of the benefits of establishing government-run health
insurance exchanges would be the reduction in administrative costs
associated with private health insurance. These arguments were based
partly on assertions of superior efficiency of government operations
over those of the private sector, \2\, \3\ but primarily on the claim
that having an exchange would eliminate the need for insurance
companies to spend money on marketing. In addition, it was claimed that
\4\ requiring a minimum Medical Loss Ratio (MLR) \5\ and reduction of
executive pay \6\ through limits on the deductibility of compensation
(Section 9014) would limit the unrestrained pursuit of profit \7\. The
predicted impact was that reducing administrative costs would lead to
lower premiums and lower national spending on health care without
having to reduce the quantity or quality of actual health care
delivered.
---------------------------------------------------------------------------
\2\ Paul Krugman, ``The Health Care Racket,'' The New York Times,
February 16, 2007.
\3\ Steffie Woolhandler, Terry Campbell, and David U. Himmelstein,
``Costs of Health Care Administration in the United States and
Canada,'' New England Journal of Medicine, August 2003; 349:768-775, at
http://www.nejm.org/doi/full/10.1056/NEJMsa022033#t=article.
\4\ Jacob S. Hacker, ``The Case for Public Plan Choice in National
Health Reform,'' Institute for America's Future (undated but apparently
completed in December 2008), p.6, at http://institute.ourfuture.org/
files/Jacob--Hacker--Public--Plan--Choice.pdf.
\5\ Bittany La Couture, ``Medical Loss Ratio Under the
ACA,''American Action Forum, September 15, 2015, at https://
www.americanactionforum.org/research/medical-loss-ratio-under-the-aca.
\6\ Frank Clemente, ``A Public Health Insurance Plan: Reducing
Costs and Improving Quality,'' Institute for America's Future, February
5, 2009, p. 6, at http://www.ourfuture.org/files/IAF--A--Public--
Health--Insurance--Plan--FINAL.pdf.
\7\ Edward M. Kennedy, ``A Democratic Blueprint for America's
Future,''Address at the National Press Club, January 12, 2005. http://
www.commondreams.org/views05/0112-37.htm; Pete Stark, ``Medicare for
All,'' The Nation, February 6, 2006. http://www.thenation.com/doc/
20060206/stark; Max Baucus, ``Call to Action Health Reform 2009,''
November 12, 2008, p. 77 http://finance.senate.gov/healthreform2009/
finalwhitepaper.pdf; Hacker (2008), p. 6-8; Clemente (2009), p. 15.
That is not what has occurred. Instead, total administrative costs
increase. While insurers indeed appear to have spent less on
administrative costs, both on a per-covered-person basis and as a
percentage of total premiums since the law went into effect, government
spending necessary to set up and operate the exchanges vastly exceeded
the amount saved by private-sector insurers, leading to an increase in
total administrative costs. In fact, just the federal government's
expenditures in establishing and operating the ACA exchanges--a
function devoted solely to enrollment--vastly exceeds the total
administrative costs, both for enrollment and operations--of private-
---------------------------------------------------------------------------
sector insurers prior to the implementation of the exchanges.
In 2013, the year before the exchange provisions took effect,
administrative costs averaged $414 per covered person per year in the
individual market. In 2014, the first year in which exchanges operated,
average costs for the entire individual market increased to an average
of $893 per covered person-year. However, this obscures the full effect
of the administrative cost of operating the exchanges, because these
figures include both those covered in exchanges and those covered by
Qualified Health Plans (QHPs) through off-exchange enrollment. For
those covered in the exchange, just the federal government's
administrative costs amounted to $1,539 per effectuated exchange
enrollee, not including administrative costs incurred by insurers.
Because insurers were instructed to report their costs for the entire
individual market (both on-exchange and off-exchange) together, it is
impossible to determine with certainty the relative administrative
costs for both groups. Depending on what assumptions one makes, total
administrative costs (both government costs and insurer costs) for
exchange enrollees could range from $1,562 to $1,804 and costs for off-
exchange enrollees could range from $265 to $414. \8\
---------------------------------------------------------------------------
\8\ Robert A. Book, ``The ACA Exchanges Increased Administrative
Costs of Health Insurance,''American Action Forum, December 21, 2016,
at https://www.americanactionforum.org/wp-content/uploads/2016/12/2016-
12-21-ACA-Admin-Cost. pdf
---------------------------------------------------------------------------
Comparing Across Countries
When comparing across countries, this problem of tracking
administrative costs and the hazards of reporting those costs as a
percentage are even more acute.
Administrative costs of government programs are difficult to track
down for U.S. programs, and the same applies to programs in other
countries. Few researchers really know how to interpret budget reports
from a wide variety of countries, know what relevant data is in other
places, and then find it. Some studies take reported administrative
costs at face value, but these almost always include different things
in different countries. One study \9\ attempted to compare the entire
administrative cost throughout the health care sector in the U.S. and
Canada, and when they could not find certain components reported
anywhere simply assumed percentages of revenue (for example, they
assumed that one-third of physician office rent and equipment, and one-
half of ``other professional expenses'' was due to administration), and
sometimes extrapolated data from a single state to the entire U.S.
---------------------------------------------------------------------------
\9\ Steffie Woodlander, Terry Campbell, and David U. Himmelstein,
``Costs of Health Care Administration in the United States and
Canada,'' New England Journal of Medicine, 349(2003):768-775, at
https://www.nejm.org/doi/full/10.1056/NEJMsa022033.
In addition, health systems that are organized differently will
often end up with administrative costs falling in different parts of
the health system, leaving sector-by-sector comparisons meaningless.
For example, another study \10\ attempted to compare hospital
administrative costs across eight countries, but noted that in some
countries, hospitals employ large numbers of physicians, which is not
the case in the U.S., where the vast majority of physicians practicing
in hospitals are not hospital employees. The authors then proceeded to
report hospital administrative costs as a percentage of total hospital
expenditures. In countries where hospitals employ most of the
physicians who practice there, physician pay becomes part of the total
expenditures. Naturally, those countries had lower percentages of
administrative costs, because they were dividing by a larger number. Of
course, those administrative costs didn't disappear--they were just
accounted for differently, creating an illusion of efficiency.
---------------------------------------------------------------------------
\10\ David U. Himmelstein, et. al., ``A Comparison Of Hospital
Administrative Costs In Eight Nations: US Costs Exceed All Others By
Far,'' Health Affairs 33:9(2014):1586-1594.
This happens at the health system level as well. A hospital that
has to bill for its services will have more administrative costs,
however measured, than a hospital that receives an annual budget from a
government agency. However, in the latter case, the government will
have to determine the annual budget for the hospital--a task which, if
taken seriously, will involve a complicated study of the mix of care
the hospital will be called upon to provide and the resources needed to
provide it. That study may be done mostly by people in the government
agency, and those people will need to be paid. That pay--and all the
---------------------------------------------------------------------------
other costs of that study--will count as administrative costs.
Likewise for office-based physicians. In some countries with
single-payer government-run systems, physicians are paid a fixed salary
and are expected to provide a certain level of service per year.
Billing costs are replaced by reports about what services are provided,
which may cost more or less than billing. In England, for example,
patients are allocated to physicians by giving each physician a
``catchment area''; if one lives in the catchment area (which may have
many physicians) one may visit that physician (similar to a school
assignments in the U.S.). Someone has to analyze population and health
trends by geography and draw up the boundaries of the catchment areas,
and update them periodically. Thus, the cost of acquiring patients for
each physician is no longer with the physician (as marketing)--but it
doesn't disappear, it just moves to the health plan level, and most
likely increases.
Regulatory Compliance
In the U.S., one of the most substantial administrative costs at
all levels of health care is regulatory compliance. Operators of health
plans must file copious information with state and federal regulators,
for example, in order to justify premiums as not too high (because of
the burden on enrollees) and also not to low (because they might run
out of money to pay claims).
Health care providers of all types are subject to regulations of
all sorts. When HIPAA was passed in 1996, the privacy provisions caused
substantial administrative costs for nearly all providers to develop
new processes, as well as ongoing administrative costs of implementing
these processes. \11\ There does not appear to be any corresponding
savings on other cost categories to offset these extra costs, and it is
unclear if the privacy goals were achieved.
---------------------------------------------------------------------------
\11\ See, for example, Peter Kilbridge, ``The Cost of HIPAA
Compliance,'' New England Journal of Medicine, 348(2003):1423-1424.
The ACA imposed numerous new regulatory regimes on providers,
including submitting more data (useful to us researchers, but costly to
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providers and therefore ultimately to patients and taxpayers). In
one case, proponents of new regulations claimed they would save
money--a requirement for most providers to adopt electronic health
records was supposed to reduce duplication of tests and diagnostic
procedures by making results available to all of a patient's providers.
The administrative cost of adopting these new systems has been incurred
by providers, but there is no evidence of any savings. \12\ In
particular, hospitals continue to repeat tests previously done by other
providers, perhaps to validate the results, or perhaps because they get
paid for doing the tests again (or perhaps both). In this case, a known
administrative costs was supposed to reduce actual health care costs,
but it failed to do so.
---------------------------------------------------------------------------
\12\ Joyce Frieden, ``EHRs Don't Save Money or Time, Docs Say,''
MedPage Today, September 17, 2014, at https://www.medpagetoday.com/
practicemanagement/practicemanagement/47716.
---------------------------------------------------------------------------
An Urban Legend
I would like to take this opportunity to address one story that has
been told in the context of administrative costs, just to illustrate
the difficulty in coming by reliable facts to discuss this issue. About
ten years ago, a prominent health economist, the late Uwe Reinhardt,
told the Senate Finance Committee that:
I serve on the board of the Duke Health System, and we consolidated
all our billing. We had 900 clerks, and we have 900 beds. I am sure we
have a nurse per bed, but we have a billing clerk per bed. I think we
have probably worked this down maybe a little, so do not hold me to
that number. But that borders on the obscene. \13\
---------------------------------------------------------------------------
\13\ U.S. Congress, Senate, Committee on Finance, Health Care
Reform: An Economic Perspective, 110th Cong., 2nd Sess., Nov. 19, 2008,
34.
About a year later, one of my colleagues on the panel for this
hearing raised the number of clerks to 1300, with the same 900 beds.
\14\ More recently, about a year ago, he cited figures of 900 beds and
1500 clerks. \15\
---------------------------------------------------------------------------
\14\ Steven Landsburg, ``Making Health Care Work,'' Dec. 15, 2009,
[quoting David Cutler] at http://www.thebigquestions.com/2009/12/15/
making-health-care-work.
\15\ Kathryn Watson, ``Why is health care so expensive in the
first place?'' CBS News, Jul. 5, 2017 [quoting David Cutler], at
https://www.cbsnews.com/news/why-is-health-care-so-expensive-in-the-
first-place.
In trying to track down this story and verify the figures, I was
unable to find the current number of billing clerks in the Duke Health
System. I was, however, able to very that the Duke University Hospital
indeed has 957 licensed inpatient beds. The Duke Health System includes
two other hospitals (with consolidated billing, if Dr. Reinhardt's
statement is correct), bringing the total number of beds in the Duke
Health System, to 1,512. In fiscal year 2017, those 1,512 beds
---------------------------------------------------------------------------
accounted for 68,523 total admissions.
However, like most hospital systems, Duke provides a large volume
of outpatient care, which doesn't involve the use of any of those
hospital beds. The Duke Health System also includes physician visits,
and if they have truly consolidated their billing, those billing clerks
would be responsible for those visits as well. In fiscal year 2017,
Duke had a total of 1,482,650 hospital outpatient visits, and 2,291,037
physician visits.
That means that those hospital beds accounted for only 1.78 percent
of Duke Health System visits.
In other words, measuring administrative (in) efficiency by
comparing the number of billing clerks to the number of hospital beds
is utterly meaningless. Those hospitals beds represent only a very
small percentage of what those billing clerks are doing.
Conclusion
Administrative costs are a significant component of health care
costs, but there is little accurate understanding of how to measure
those costs. Part of the problem is that locating and identifying
administrative costs in available data sources is difficult.
But a more serious concern is that many researchers and
policymakers misunderstand the drivers of administrative costs. Most
studies express administrative costs as a percentage of direct health
care costs, and approach which necessarily misleads the reader.
Administrative costs must be expressed as a dollar amount for each unit
that causes those costs to increase. For example, administrative costs
of operating a health plan--whether a non-profit or for-profit
insurance plan or a government program--is better expressed on a per-
enrollee basis. Administrative costs for providers should be expressed
in terms of an appropriate measure of units of care delivered.
Furthermore, when comparing vastly different entities--such as
health plans in different countries--one has to be very careful to make
sure that like figures are being compared.
Finally, it is important to keep in mind that administrative cost
is not all necessarily ``waste.'' Patients need to be enrolled,
providers need to be paid, and resources need to be distributed. All of
those activities generate administrative costs, and all of those
activities are essential to a well-functioning health care system.
TABLE 1. Administrative Costs of Medicare and Private Health Insurance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Medicare Private Health Insurance
-------------------------------------------------------------------------------------------------------------------------
Medicare Total Non-Benefit Non-Benefit Total Total Non-Benefit Non-Benefit
Primary (``Administrative'') (``Administrative'') Beneficiaries (``Administrative'') (``Administrative'') Percent by
Year Beneficiaries Spending Spending Per Primary ---------------- Spending Spending Per which Medicare
--------------------------------------- Beneficiary ---------------------- Beneficiary is higher
---------------------- ----------------------
(millions) ($billion) (millions) ($billion) (dollars per
(dollars per person) person)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2000 37.06 14.10 $380 202.8 52.0 $256 48.4
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
2001 37.32 14.40 $386 201.7 56.6 $281 37.5
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
2002 37.68 15.84 $420 200.9 68.8 $342 22.7
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003 38.11 16.50 $433 199.9 82.2 $411 5.3
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004 38.64 20.14 $521 200.9 85.3 $425 22.7
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
2005 39.21 19.94 $509 201.2 91.1 $453 12.3
percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources:..............................................................................................................................................
1. CMS Medicare Denominator file and medicare Enrollment Database,, Prepared by Susan Y. Fu, center for Medicare and Medicaid Services, Office of
Research, Development, and Information. Available from the author on request. ``Medicare Primary Beneficiaries'' excludes those who have another
source of coverage (such as employer-sponsored insurance) and are thus subject to the medicare Second Payer (MSP) Program. Under MSP, Medicare pays
only under very limited circumstances, and only to the extent, if any, by which Medicare's payment is more generous than the beneficiaries other
coverage.............................................................................................................................................
2. Author's calculations based on Zycher (2007).......................................................................................................
3. Bureau of the Census, current Population Survey....................................................................................................
4. Centers for Medicare and Medicaid Service, National Health Expenditure Accounts, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/
tables.pdf, Table 12 (accessed June 25, 2009)........................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Originally appeared in: Robert A. Book, ``Medicare Administrative Costs Are higher, Not Lower, Than for Private Insurance,'' Webmemo #2505, The Heritage
Foundation, June 25, 2009, at http://bit.l/2LMNfsD.
Table 2. Administrative Costs in the Individual Market
----------------------------------------------------------------------------------------------------------------
2013 (No Exchanges) 2014 (With Exchanges)
------------------------------------------------------------------------------------
Insurer Costs Insurer Costs Federal Costs
----------------------------------------------------------------------------------------------------------------
Direct Administrative Costs $4.64 billion $4.12 billion $3.63 billion
----------------------------------------------------------------------------------------------------------------
Grants to States $6.12 billion
----------------------------------------------------------------------------------------------------------------
Total Covered Person-Y11.12 million 15.54 million 6.34 million
(on and off-exchange) (on-exchange only)
----------------------------------------------------------------------------------------------------------------
Administrative Cost Per $414 $265 million $1,539 million
Covered Person-Year (on and off-exchange) (on-exchange only)
================================================================================================================
Combined Administrative Costs (on and off-exchange)
================================================================================================================
Total Administrative Costs $4.64 billion $13.87 billion (insurer plus federal)
----------------------------------------------------------------------------------------------------------------
Total Covered Life-Year11.2 million 15.54 million (on and off-exchange)
----------------------------------------------------------------------------------------------------------------
Administrative Cost Per $414 $893
Covered Life-Year
----------------------------------------------------------------------------------------------------------------
Source:.......................................................................................................
Centers for Medicare and Medicaid Services, President's Budget, author's calculations.........................
----------------------------------------------------------------------------------------------------------------
Originally appeared in: Robert A. Book, ``The ACA Exchanges Increased Administrative Costs of Health
Insurance,'' American action Forum, December 21, 2016, at https://www.americanactionforum.org/wp-content/
uploads/201/12/2016-12-21-ACA-Admin-Costs.pdf
[summary statement of robert a. book]
Most reports give administrative costs as a percentage of total
spending, including spending on direct patient care. For example,
someone might claim that Medicare's administrative costs are 2 percent
or 5 percent, but those of private insurance are 10 percent or 20
percent. It sounds much higher. But Medicare has mainly patients who
are aged 65 or older, or disabled, and therefore require, on average,
more health care than people covered by private insurance. Dividing by
a larger number produces a smaller percentage.
Using percentages might make sense if administrative costs scaled
with the level of direct care spending, but they don't. Medicare's
administrative spending is actually higher on a per-beneficiary basis.
Medicare's administrative costs were $509 per primary beneficiary, and
private plans had an administrative costs of $453 per beneficiary.
Expressing administrative spending as a percentage of total spending is
inherently misleading. Medicare's administrative percentage is lower
not because they are more efficient, but because their patients are, on
average, sicker. Asking for a percentage is simply asking the wrong
question.
Proponents of the ACA argued that one of the benefits of
establishing government-run health insurance exchanges would be a
reduction in administrative costs associated with private health
insurance in the individual and small-business market. While insurers
indeed appear to have spent less on administrative costs in this area,
government spending necessary to set up and operate the exchanges
vastly exceeded the amount saved by private-sector insurers. In 2013,
the year before the exchange provisions took effect, administrative
costs averaged $414 per covered person per year in the individual
market. In 2014, the first year in which exchanges operated, average
administrative costs increased to an average of $893 per covered
person-year.
The problem occurs in international comparisons as well. One study
attempted to compare hospital administrative costs, but noted that in
some countries, hospitals employ large numbers of physicians, which is
not the case in the U.S. The authors then proceeded to report
administrative costs as a percentage of hospital expenditures,
including physician pay for some countries but not others.
In the U.S., one of the most substantial administrative costs at
all levels of health care is regulatory compliance. When HIPAA was
passed in 1996, the privacy provisions caused substantial
administrative costs for nearly all providers to develop new processes,
as well as ongoing administrative costs of implementing these
processes. Proponents of a requirement for most providers to adopt
electronic health records claimed it would save money by reducing
duplication of tests and diagnostic procedures. The administrative cost
of adopting these new systems has been incurred by providers, but there
is no evidence of any savings.
Finally, it is important to keep in mind that administrative cost
is not all necessarily ``waste.'' Patients need to be enrolled,
providers need to be paid, and resources need to be distributed. All of
those activities generate administrative costs, and all of those
activities are essential to a well-functioning health care system.
The views expressed here are my own.
______
Senator Murkowski. [Presiding] Thank you all. Appreciate
what you have contributed this morning, and we will begin with
questions. Senator Young is first up, but he is not here, so
Senator Isakson..
Senator Isakson. Thank you. Thank you, Senator Murkowski. I
want to make sure I heard this right. Mr. Cutler, you said you
thought we ought to have a goal of reducing administrative
expenses by 50 percent within 5 years. Is that true? Is that
the number I heard right?
Dr. Cutler. That is correct.
Senator Isakson. You think that is doable.
Dr. Cutler. I do think that is achievable.
Senator Isakson. What is the largest single thing you could
do to accomplish reduction in administrative costs?
Dr. Cutler. I think the three items I gave you would be
the--would be the three, and those are simplifying the
complexity with which we are coding patients so you do not have
to search through for everything with the patient, everything
that the patient ever had. Second is standardizing
preauthorization requirements so you do not have to deal with
enormously different systems for preauthorization from every
insurer and every business that is buying insurance. And third
is electronically integrating medical records and billing
systems so that you do not have to have people take information
from one system and put it in another. Those three would go a
great deal of the way.
Senator Isakson. On the--on the last point in terms of
software, are you familiar with Cerner?
Dr. Cutler. Yes.
Senator Isakson. Are you familiar with Epic?
Dr. Cutler. Yes.
Senator Isakson. Those are two of the bigger ones. Is that
not correct?
Dr. Cutler. That is correct.
Senator Isakson. Is it true that they are--they are not
totally interoperable?
Dr. Cutler. That is correct.
Senator Isakson. Does that not contribute tremendously to
the cost?
Dr. Cutler. Indeed. That is exactly the kind of thing I
was--I was thinking of.
Senator Isakson. Well, good. You are making me look good.
Thank you.
[Laughter.]
Senator Isakson. Let me--let me just----
Dr. Cutler. I appreciate you making me look good, too,
Senator.
Senator Isakson. Well, good. That is two for two. Let me
just make this point for everybody, especially the Members of
the Senate on the panel. As Chairman of the Veterans Committee,
we have just gone through a process of deciding to make our
software interoperable with the Department of Defense. So, we
have the Department of Defense health services and veterans'
health services have been totally separate.
Dr. Cutler. Mm-hmm.
Senator Isakson. Different software systems doing this,
doing everything else. We have just signed what I understand is
one of the largest contracts in the history of the Federal
government to acquire Cerner, and for Cerner, which covers the
DOD as well, to merge all veterans' healthcare and DOD
healthcare into one service. Do you think that things like that
will help reduce the overall cost when you merge two big
systems?
Dr. Cutler. I do believe so, especially if done in a way
that you can view across--seamlessly across all the different
systems so that you can really see what is needed for each
particular patient, when you need it, and avoid all the
integration hassles.
Senator Isakson. Georgia Tech in Atlanta has developed a
system called FHIR. Are you familiar with that?
Dr. Cutler. No, I'm not.
Senator Isakson. That is an acronym for interoperable
software between different IT systems for healthcare so they
can talk to each other. I found out after--I did Y2K in the
State Board of Education for the State of Georgia with 187
school systems. We had to all comply with Y2K, and 20 years
later, I end up in the United States Senate and Chairman of
Veterans Committee, and we are merging Cerner and Epic, two
large software systems.
But what I have basically come to learn is that the--all
the great simplification that technology brings to information,
it is complicated when you have two different sets of systems
operating that stuff and they have to talk to each other. And
so, I think one of the--I believe--I have come to believe that
one of most important things we can do to reduce the cost of
administration and recordkeeping, and I would think probably
preauthorization, too, would be to have as much standardization
and interoperability of software as possible so wherever the
patient comes from and whatever hospital or physician is
serving them, the system is common so they do not have to
redo--re-scramble the egg all over again or unscramble the egg
all over again. And I think that is one of the major costs we
have seen, and that is why we are doing it in the VA, and I
hope we are proven to be right at some point in the future.
Lastly, on preauthorization, how much preauthorization
history--is that primarily on surgeries?
Dr. Cutler. No, it actually occurs throughout the health--
throughout healthcare. It is on surgeries. It is on radiology.
It is on testing, on minor procedures, dermatological
procedures. It happens all over.
Senator Isakson. Is it--it is designed to reduce the amount
of healthcare claims that are filed?
Dr. Cutler. It is designed to reduce the amount of
healthcare claims, and there is nothing wrong with having some
differences in policy. Some are more generous, some are less
generous. The issue here is that there are so many different
ones that it is virtually impossible to keep up with them. So,
a typical provider might be facing thousands of different
preauthorization requirements depending on exactly which
company the patient is insured by and which individual employer
sponsored--that patient works for because they may have
customized their own preauthorization requirement.
Senator Isakson. What percentage--this is one quick
question. I had a case number of years ago where somebody in my
company had a--went to the dermatologist to have a mole
removed, and it was tested. She had to have it tested. It came
back benign, and the insurance we had at the time would not
would pay for it, said we would have had to pay for it had it
been malignant. That is a Catch-22 it seems like to me. Does
that still go on?
Dr. Cutler. Yes, it does.
Senator Isakson. Thank you very much. Thank you, Madam
Chairman.
Senator Murkowski. Thank you, Senator Isakson. Senator
Murray.
Senator Murray. Thank you. Thank you to all of our
witnesses for being here today, and let me start with you, Mr.
Eyles. In April, your association commented on the Centers for
Medicare and Medicaid Services' proposal to expand the
availability of junk short-term plans. And you wrote that you
are ``concerned that substantially expanding access to short-
term, limited-duration insurance will negatively impact
conditions in the individual health insurance market,
exacerbating problems with access to affordable, comprehensive
coverage.'' And one of the reasons you stated was that short-
term plans are ``offered to consumers only after submitting
information about their health status or prior medical
conditions.''
We have spent a lot of time here focusing on paperwork
burdens that providers and insurers deal with in our healthcare
system. One of the problems with the Trump administration's
sabotage of our healthcare system is the paperwork burden it
will impose on patients and families. So, can you tell us more
about the information patients are often required to submit to
purchase short-term plans?
Mr. Eyles. Sure. I mean, thank you, Senator Murray. I
think--just as a basic starting point, I think it is important
to note that we have supported access to comprehensive
coverage, including coverage for preexisting conditions. Now,
there are some instances where short-term plans are in the
market and that they will be asking consumers for particular
medical information. It will vary based on who the insurance
provider is. The types of information that they will ask could
be around preexisting conditions. It could be around use of
medical services in the past. It could be around other risk
factors. So, that is the type of information that would be
asked for within short-term policies.
I think when we were talking about the impact on the
individual market, that is why we expressed some concern about
how this would impact the rest of the market. And we said that
they should be short-term, of limited duration, and
nonrenewable. And, most importantly, we emphasized the need for
clear disclosure to consumers. We want to make sure that there
is no confusion as to what policy a consumer is buying. They
need to know whether it is comprehensive coverage or a short-
term plan. And in our comments back to the Administration,
really emphasized the need for clear communication so that
people understand what it is that they are buying.
Senator Murray. Okay. I appreciate that. I am glad our
Committee is looking at a bipartisan way to look at
administrative costs, but I hope that we can also work--make
sure that we do not impose new paperwork burdens for our
patients. Dr. Cutler, I am worried that in addition to imposing
new burdens on patients, junk short-term plans will impose new
burdens on providers that will in turn be passed, of course, on
to patients in the form of higher healthcare costs. Talk to us
about how the coverage in short-term plans compare to normal
individual market coverage, and do patients typically have to
pay more for their care out-of-pocket if they use short-term
plans?
Dr. Cutler. Thank you, Senator. Typically, the answer to
that is yes. That is, the short-term policies will not cover as
many services or they will not cover them as generously, and so
it adds to this set of different policies that providers have
to be aware of. And many times they will have particular
limitations on, for example, medications that they might access
or particular services that they might access, in which case
the providers then have to spend much more in the way of
resources trying to figure out where to direct the patient. So,
all of this complexity really adds to expense without reducing
what the needs of the patient--without affecting the needs of
the patient, that is not by making the patient healthier.
Senator Murray. Right. And so, when hospitals and clinics
receive less of their payment from insurers and more out-of-
pocket, does that increase or decrease the amount of time they
spend on bill collections from patients?
Dr. Cutler. A much, much greater increase.
Senator Murray. Much.
Dr. Cutler. Many hospitals now, because of the increase in
high cost-sharing health plans, are devoting many more
resources to collecting money from patients than they used to,
and that has been a very big burden for a number of
organizations.
Senator Murray. What is the likelihood patients will not
pay, leaving hospitals with more uncompensated care?
Dr. Cutler. That is also very high, Senator. The typical
American family has $600 in its bank account, and so when faced
with a deductible, let us say, of $3,000, or even a service
that is not covered entirely, they do not have the resources on
hand to pay for it. So, either they put it on a credit card, in
which case it goes into general unsecured debt, or the provider
institution works out some arrangement with them and then
spends a lot of money collecting the amounts down the road.
Senator Murray. Okay. Thank you. So, I am really concerned
if we expand the use of skimpy junk insurance plans, hospitals
and clinics are going to have to do more work to collect bills,
it sounds like. And when patients are unable to afford the huge
bills they are stuck with, hospitals will have more
uncompensated care, and that increases costs for everyone, and
obviously providers shift those costs back to patients. So,
that is my concern with this and one I think we should all be
aware of, so I appreciate your responses. Thank you, Madam
Chairman.
Senator Murkowski. Thank you, Senator Murray. Senator
Young.
Senator Young. Dr. Cutler, in your testimony you discussed
an economic arms race between payers and providers that causes
administrative costs to skyrocket as payers try to prevent
unnecessary payments. In short, it works this way: insurers
introduce requirements providers must fulfill before they can
get paid, and in response to the new rules, providers hire
additional personnel to maximize the amount they are
reimbursed. It goes on and on and on, and consumers get stuck
with the bill. Are there actions that Congress can take to
incentivize payers and providers to avoid this escalation is my
question, number one. And then question number two is whether
Federal payers, like Medicare and Medicaid, are part of this
problem.
Dr. Cutler. Mm-hmm. Thank you, Senator. On the first
question, yes, there is a good deal that could be done on
standardization. Again, I want to just go back to the question
Senator Isakson asked, which is how would one do it. So, the
complexity of coding is a clear example of this where an
insurer will require additional codes before it will pay a
higher amount, and then the provider system will hire
additional people to code those additional codes, and then
seeing that the codes are still going up, the insurer puts in
additional requirements, and so on. So, standardizing, or, in
this case, eliminating, many of the severity adjustments would
make a lot of sense because then you do not have to get in an
arms race over that.
Second, to standardizing on the preauthorization
requirements, again, you have the situation where it may be
perfectly reasonable for one insurer in its thinking on its own
to say I am going to have a tougher preauthorization
requirement, and they do not recognize the enormous burden that
is placed on the--on the providers and on the other insurers by
now contributing to the cacophony of different things that a
small provider system has to deal with.
Then integrating billing systems and medical records
systems, which, again, is an area where standardization--the
Federal government has responsibility for the standardization
through the High Tech Program, and it has not done so in this
dimension, which I think has been a lost opportunity so far.
So, I think in all of those, there are areas where the Federal
government will have to be uniquely involved in it.
In terms of the Federal payers, I think they vary
enormously. The Medicare program probably involves less
administrative cost for providers than the Medicaid program
does. And the reason is that preauthorization requirements
could be minimal in Medicare with the exception of Medicare
Advantage where the private insurers will do what they do. But
the preauthorization is relatively small, and other than-- you
still have things associated with complexity, but by and large,
it eliminates some of those costs.
I think Medicaid is somewhat different in part because
patients churn a lot from one plan to another, from one type of
system to another. That churn creates difficulties for a lot of
providers because it is not entirely clear who is going to be
insuring the patient when that patient comes to use services,
or even if at all, if that patient is going to be insured at
all. So, it is something where the difficulty of getting
universal insurance coverage has played havoc on providers, not
just in terms of lost revenue, but in terms of increased
expense associated with having to monitor patients, collect
from them based on whatever plan they are in, and see through
all the other parts of it.
Senator Young. Thank you. And in your response to me,
Doctor--in your response to me, Doctor, you referenced the
coding and the severity levels. And you have discussed in your
testimony the potential for severity neutral payments whereby
providers are not paid more, with some exceptions, for more
severe cases. Would agreements between payers and providers to
allow providers to share in some of the savings for agreeing to
severity neutral compensation from payers require new
legislation or regulation to your knowledge?
Dr. Cutler. It would--one could have private agreements
like this that would not. In order to really be effective, you
would have to do it for the vast part of the healthcare system
because it is very difficult to have different payers with
different requirements and save a lot on administrative
expense. So, the greatest gains would come from standardization
and harmonization, which necessarily involves the Federal
government.
In fact, the reason why many providers and insurers in the
private sector have not gone there, and maybe Mr. Eyles will
agree or disagree, is because if the Federal government is
acting a different way, it just makes no sense to do something
different from that. So, it has to be in concert particularly
with Medicare, but also with Medicaid, in order to get maximum
effectiveness.
Senator Young. Mr. Eyles.
Mr. Eyles. Sure, and that is a good point, Dr. Cutler. As
we think about standardizing prior authorization, I think it is
also important to note that there are a number of private
efforts that are within also the congressional purview. So,
what is happening with the Council for Affordable Quality
Healthcare is that they have created a committee with over a
hundred organizations looking at how can you standardize these
processes and these transactions to get a more simplified way
of operating so you can do these in real time. So, right at the
point of treating an individual patient or a point of
prescribing. And so, there are efforts that are happening, but
that is not to say that more cannot be done.
Senator Young. Thank you.
Senator Murkowski. Thank you, Senator Young. Senator
Hassan.
Senator Hassan. Thank you, Madam Chair, and thank you,
Ranking Member Murray, and thank you to all the witnesses for
being here today. We are talking a lot this morning about
administrative burdens in the healthcare system, how they
affect doctors, hospitals, insurers, and the government. But I
think it is important that we remember the most significant
part of this whole discussion, which is patients and their
families. I am the mother of a son with very complex medical
needs. At various times--Ben is a wonderful young man, 30 years
old, who happens to have very severe cerebral palsy and a lot
of the medical complications that go with that. And also
because he does not speak or use his fingers or communicate
very clearly to the outside world, although he is cognitively
understanding everything. He is time consuming.
We have been very fortunate because Ben has had some
incredible providers and caregivers, but I have experienced
firsthand what it is like to be forced to jump through
administrative hoops, being stuck in the middle between
multiple providers and insurers because we have private
insurance, but Medicaid also covers Ben, or sometimes dealing
with an insurance company employee who simply does not have the
expertise to understand the significance of the medical record
he is looking at. I have also been there when the insurance all
of a sudden decides to switch him from one medication that
works for him that he has been on for years to another
medication. Ben has about--at various times has had about 10
doctors and about 20 medications.
I hear from Granite Staters who experience these
frustrations, too. It is hard as a patient or a family member
to spend all day on the phone, wondering, for example, if a
prior authorization went through. It is particularly hard when
you are juggling a job, caring for kids, and all the other
daily activities that families have. I will also note that we
have talked about the importance of integrating electronic
medical records for purposes of administrative fees, but I can
tell you how important it is to patient safety. At 3:00 in the
morning when your hospital that owns your physician's practice
tells you that they cannot get access to your son's primary
care health record because they are on different electronic
systems, and all of a sudden the doctor saying to you, do you
remember 15 years ago when your son had that one pneumonia
whether we used this antibiotic or that antibiotic. It is
pretty scary.
So, when we are talking about administrative burdens, I
think we really--what really would make a difference is to
eliminate these burdens for patients and their families, not
just for their time and effort, but also for good patient
outcomes. So, could all of you just address, and we will just
go down the line. We will start with you, Ms. Hultberg. What
can Congress do to help reduce administrative burdens in the
healthcare systems for patients and their families?
Ms. Hultberg. Thank you for that excellent question. To
echo what some of the other panelists have said, I think more
alignment within private payers around things like
preauthorization, around billing. And to Dr. Cutler's point
earlier, not just private payers, but Federal payers as well.
From a hospital perspective, the Federal government in its--
with the many ways it funds healthcare does not handle all of
these things consistently. So, I think there is a role for the
Federal government in looking at Federal payers, how do we--how
do Federal payers manage preauthorizations, billing
requirements. And there is much more of a role for health
insurance plans in taking ownership of this issue and taking
steps to streamline these requirements to make it easier for
patients.
Senator Hassan. Thank you. Mr. Eyles.
Mr. Eyles. Thank you for sharing your story. I think it is
really important to recognize the impact on patients, and I
know as we have been talking about this that is where we need
to start. Thinking about the burden on families and caregivers,
I think getting to a truly interoperable system where those
medical records are able to be accessed at any point in time
and any place, and being able to do so in an electronic
fashion, and tap into them. I think Senator Isakson touched on
some of the interoperability challenges.
Health plans are committed to being part of the solution,
but we can only be one part because it has to work between
plans, it has to work between providers, and it also has to
work between the Federal government. So, aligning a lot of
those standards and making it simpler, more automated in real
time would alleviate a lot of that burden to have to bring in
the patient in the first place and really allow it to happen
with the provider.
Senator Hassan. Thank you. Dr. Cutler.
Dr. Cutler. I echo everything that was said. I also just
want to make one comment, which is that while the Federal
government has been slow to act in some of these areas, a
number of states have made progress in terms of trying to
increase the interoperability, and particularly around issues
of the ownership of the records and your right to access to
records everywhere. So, and I know Senator Smith comes from a
state where that has been--probably has done as much as any
state on those lines. And so, I think we can do much more with
the sort of technology backbone, but also with the personal
interactions, to make sure that people have access to their
records which belong to them.
Senator Hassan. Thank you. And I know I am running out of
time, but could I ask Dr. Book to just comment quickly?
Dr. Book. Thank you. Your story illustrates exactly what I
mentioned in my testimony about the administrative burden on
patients that no one seems to talk about very often. I think I
have experienced that for myself. I think a lot of other people
have experienced it. And it is--and it is not just in
healthcare, too. It is a--it is a--I experienced an issue like
this with the IRS where one side--one person says I have paid
and then I get a letter saying I did not pay.
Simply putting this under one organization may not solve
it, but there is one thing we could do is establish a safe
harbor from, say, antitrust concerns that might inhibit
different information systems companies from talking to each
other----
Senator Hassan. Yeah.
Dr. Book.--so they would not be afraid that they would be
prosecuted for collusion because they--they talk to each other
about a standard data interchange format.
Also, there are a lot of restrictions on patients' access
to their own data. I have an implanted defibrillator that is
constantly tracking data on me. The company that made it used
to have a web portal where patients could get their own data,
and that was shut down because it was found to violate some
regulation. I do not see why there should be a regulation that
prevents patients from accessing their own data at three in the
morning or any other time.
Senator Hassan. Well, I appreciate that very much. Thank
you, Madam Chair, for letting me go over, and I will submit a
question on transparency and outcomes which I think is
important as costs, too. Thanks.
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Senator Murkowski. Thank you, Senator. It is such an
important question. When we think about the administrative
burden it sounds so technical, but at the end of the day, it
all comes back to the individual, the patient, and their
families.
Ms. Hultberg, I wanted to ask you about the rule that you
briefly referenced. This is this minimum rule of five where CMS
requires at least 5 percent, but no fewer than 5, skilled
nursing facilities in a state every year get surveyed. So, in
the State of Alaska, we have got 17 facilities, so we are in a
situation where we get the benefit, I guess, of about 30
percent surveys. CMS surveys five each year, so it is about 30
percent. You put that in a state like California. I do not know
how many facilities they may have, but I--we all know that it
is well over 17.
You mentioned in your testimony that the rural areas simply
lack scale, and with this particular regulation you can see how
the lack of scale forces even greater costs on a facility
because of these requirements . You have got civil penalties
that you have to deal with and just the reality of undergoing
the frequency of these surveys. Can you speak just briefly to
this issue of scale in our rural facilities and how regulations
just like this can add to the already heightened costs?
Ms. Hultberg. Sure. Thank you for the chance to answer that
question, Senator. So, you very accurately described the
minimum of five rule. I actually do happen to know that
California has 1,200 skilled nursing facilities. So, that means
they receive a Federal survey once every 20 years. Mine receive
one every 3 to 4 years.
Why is that important? That is important because the
Federal surveyors have two responsibilities. Their
responsibility is to oversee the state surveyors who conduct
annual surveys of our facilities and to do the check to check
the facility itself. So, these surveys tend to have a high
number of deficiencies. Not all those deficiencies are related
to patient care. And there is a tremendous burden on the
facility after a survey in then writing up very detailed plans
of correction for each individual item found in the survey.
Those are resources, often clinical staff, nurses, or others
that could be devoted to patient care. They could be----
Senator Murkowski. So, this goes back to your opportunity
costs.
Ms. Hultberg. Absolutely, Senator. It could be devoted to
other things. Why is it hard in a rural facility? Well, imagine
a rural facility where you have maybe 11 beds and you have five
surveyors descend on your facility for a week. Now, they are
going to find--they are going to find things that you are going
to have to write up and address. It is a tremendous direct
cost. It is, as you said, a tremendous opportunity cost. So, we
think that there should just be a one standard framework for
surveys that is consistent across states.
Again, our facilities welcome the opportunity to correct
things related to patient care, but many of these things are
not. As an example, we had a facility working really hard to
serve culturally appropriate food to its elders. They received
a deficiency for serving too much fish.
[Laughter.]
Senator Murkowski. There is no such thing as too much fish.
[Laughter.]
Ms. Hultberg. I was not aware there was in Alaska either.
But those are the kinds of things that are costing resources,
staff, time, dollars, and put particular burdens on those small
facilities that have less available.
Senator Murkowski. Let me ask about this rural healthcare
strategy. CMS announced this several months ago and wants to
focus on this rural healthcare strategy. I sent a letter to
Administrator Verma suggesting that there is no one rural lens,
that a rural healthcare strategy needs to be a little bit
broader. Can you--can you speak to that aspect of it, that if
we just think of rural--you got urban, you got rural, and treat
them differently that way. But explain to--explain to the
Committee here the challenges that you face there.
Ms. Hultberg. Senator, excellent point. When we think about
rural, our definitions are different. A rural hospital in
Colorado might be a hundred beds and that is considered rural.
And then we look at a community like Wrangell where there--they
have an eight--an eight-bed hospital plus some swing beds, so
the needs of those facilities are going to be very different.
We appreciate CMS' focus on rural and their desire to have a
rural lens to look at--to look at hospitals and other
healthcare providers, but we think it needs to not just be a
single rural lens, as you noted, but it really needs to
consider the different geographies, the different patient
populations, the different types of facilities.
So, I think that the operative word there is
``flexibility.'' When you look at a state like Alaska, our
needs are going to be much different than a state like Iowa.
So, I think there are many examples that I could point to of
ways that CMS could take that philosophy, develop more
flexibility, and then be more responsive to the needs of our
communities, whether it is the electronic health records,
direct supervision, or other areas.
Senator Murkowski. Well, we would welcome that input as
they do work forward on this strategy so that there is a full
appreciation of that, so thank you. Senator Smith.
Senator Smith. Thank you, Madam Chair and Ranking Member
Murray, and thank you so much to all of our panelists for being
here today. It is very interesting.
I am going to just brag on Minnesota a little bit. We are a
national leader when it comes to delivering high-quality care,
and we also have been innovator and a leader when it comes to
reducing administrative costs, and one innovation is
Minnesota's Healthcare Administrative Simplification
Initiative. And what it has done is to launch a series of
reforms to standardize and automate healthcare transactions,
and it is saving tens of millions of dollars in Minnesota.
Dr. Cutler, I wanted to--you raised this I think. I wanted
to ask you a little bit more about this. I am wondering how
innovations like this at the state level can inform the kind of
changes that we need to make at the Federal level. It strikes
me that there are so many--states have so much to do with how
these programs are implemented, how insurance companies are
regulated. They have a pretty vital role to play. Could you
just speak about that a little bit?
Dr. Cutler. Yes, absolutely. So, there are a number of
areas where states can make enormous progress, and you
mentioned Minnesota, which I believe is justifiably proud--
should be justifiably proud. I think also places like Utah
nearby, but with a different obviously background, have also
made progress there. So, those are very good in that they
provide great examples to work from. They show concrete
savings. They show satisfaction on the provider system. They
show how insurers, and providers, and patients locally can come
together.
They also reach a limit in terms of what they can do. So,
for example, they cannot do things that affect Medicare because
that is Federal, and they typically cannot do that. They also
cannot do things that affect the ERISA market, the large firm
market where the employees are self-insured, because those are
not affected by state insurance regulations. So, I think they
provide significant savings and proof of concept with which we
can then use to build both nationally and in other--and in
related domains.
Senator Smith. So, they can kind of--they could show us
ways of demonstrating what works, experimenting, and then that
could inform----
Dr. Cutler. That is correct.
Senator Smith.--what we do at the Federal level, though
certainly it cannot solve the issues at the Federal level. Mr.
Eyles, would you--I see you are nodding your head. Would you
like to comment on that?
Mr. Eyles. Sure. I think that is a very good observation
that you can learn a lot from the state level. But when you
think about just how healthcare operates in different regions
of the country, how it is practiced, whether it be in the upper
Midwest, or in California, or in other places, to scale it on a
national level, I think that really is informative in terms of
the steps that the Federal government could take or that
Congress could take to move things forward. But it is hard to
sort of replicate exactly what Minnesota would have done in
every other state.
Senator Smith. Thank you for that. I am--I am quite
interested in this as a way of demonstrating what we might be
able to do as we try to figure out how to tackle the big kahuna
that we need to tackle here in this Committee and at the
Federal level. I have actually been working on some legislation
to figure out how to support these kinds of public/private
partnerships at the state level as a way of demonstrating
success, and I look forward to talking with some of the other
Members of my Committee, this Committee, on this as well as we
move forward.
I would like to go to this question of preauthorization
that Senator Hassan--Senator Hassan was talking about the
impact that this has on people. And I cannot tell you the
number of Minnesotans that have told me about their
frustration, getting caught in this Catch-22 of trying to get
the care that they know that they or their family member need
while at the same time they are hung up getting the
documentation together. Mr. Eyles and Dr. Cutler, both of your
testimonies raised this issue as an opportunity for
simplification reforms. And, Mr. Eyles, I would just wonder if
you would support the kind of standardizing of prior
authorization protocols that Dr. Cutler was talking about
across products and payers. Do you think that something like
that could work?
Mr. Eyles. I think it has potential. I think it is
important to look at exactly which population is being served
by each program. You know, Medicaid is a little different than
Medicare, is a little different than the commercial
marketplace. But I think there are elements certainly that
could be standardized, and I know that our members, again
working through examples with CAQH and others to create that
standardization, to make it easier for providers to take
patients out of it, I think have a lot of potential.
Senator Smith. Thank you. And, Dr. Cutler, do you see--
where do you see the resistance to this kind of
standardization, prior authorization?
Dr. Cutler. You know, it is--resistance? I am trying to
think of the right word because ``resistance'' is not quite
what going is through my mind. It is really more a reluctance,
and to a great extent it comes from the insurers because they
all have customized their own systems and they put them in
place, and then you say--and they do it for each individual
business that they insure and so on. And then you say, well, we
ought to have standardization, they say, but--yes, but what
will happen to what I put in place.
It is the sort of cost of change is what staring them in
the face, and they are a little bit----
Senator Smith. Sure.
Dr. Cutler.--perplexed about how to deal with that. It
reminds me a little bit about providers when they were faced
with the choice of buying electronic medical records or not.
Most of them had a difficult time implementing it, but then
once it was implemented, they are extremely glad they did so,
and they believe they provide better patient care.
Senator Smith. Right.
Dr. Cutler. The evidence shows that.
Senator Smith. Right.
Dr. Cutler. It is just a question of getting over the hump
that says, yes, we can do this, and then we will achieve these
benefits.
Senator Smith. There is such incredible inherent complexity
in the way that America uniquely provides healthcare to people,
and most complexity is there for some reason that made sense
some time, but the question is how do you clear that all out
for the benefit of the patients and their families. Thank you
very much, Madam Chair.
Senator Murkowski. Thank you, Senator Smith. Senator
Cassidy.
Senator Cassidy. Thank you, Madam Chair. Gentlemen and
lady--I am sorry--I have got a bunch of questions, so if I
hustle you along, it is not to be rude. Obviously, I am very
interested in this topic. I have--on my website I have ``Making
Healthcare Affordable Again,'' and one of the things we address
is administrative costs.
Now, some of this, I have to admit, there is kind of
cognitive dissonance. Dr. Cutler, you mentioned how kind of
ascribing to the Federal government the role of making things
less administratively burdensome, and I am thinking, man, I
must be dropping acid. Not that I have ever dropped acid----
[Laughter.]
Senator Cassidy. For the record I have not.
[Laughter.]
Senator Cassidy. But in one of the briefings we were given,
the American Hospital Association has a report, ``Regulatory
Overload,'' 629 different regulatory requirements from four
different Federal agencies.
Dr. Cutler. Mm-hmm.
Senator Cassidy. I am sure Mr. Eyles could give me the same
thing for insurance. Having practiced medicine, it is
incredible how much the Federal government loads upon us, and I
almost--my jaw dropped when you said most providers are pleased
about the electronic health record. Actually, I read the
leading cause of burnout for physicians is the electronic
health record. So, I am not sure who is finding it so--who is
so enamored because the electronic health record is just so
burdensome. Somebody put their testimony 30 minutes of clicking
for every 5 minutes of seeing a patient. They said 30/30. I
find is 30 minutes of clicking for every 5 minutes of seeing a
patient. It is just a parallel reality if we are going to say
that patients--that docs enthralled with this. And I say that
not to chide or to confront, but just to observe.
Dr. Book, I like your perspective. We have not looked at
the administrative burden upon the patient or the physician. We
have looked upon it on the system. Yes, the physicians some,
but nearly as much. One model we talk about in our white paper
is the direct primary care model in which a patient pays a
monthly fee, and the doc does not bill insurance companies for
those services covered by the monthly fee, and the patient does
not have otherwise a deductible or copay, coinsurance; rather,
it is just that monthly fee. Senator Cantwell and I have a bill
that would promote this. Any thoughts about direct primary
care? Are you familiar with that?
Dr. Book. I am not familiar with it before, but it sounds
like it has potential. I think the question I would want to
know is will that--is what percentage of the healthcare system
will be affected by that. That could be obviously effective for
a large percentage of patients, but the real--the real
dollars--the large dollars are going into very sick patients
needing specialty care.
Senator Cassidy. So, you mentioned that.
Dr. Book. Trying to confuse us.
Senator Cassidy. The way it works is that you would still
have catastrophic coverage on top. It started in Washington
State; hence, Senator Cantwell's interest. But for that kind of
ambulatory service, I have a headache on Friday afternoon, I do
not go to the ER; rather, I go see the doc with whom I have a
contract.
Dr. Book. Right.
Senator Cassidy. That seems to work for the both the
patient and the doc. It gets them out of the ER.
Dr. Book. Like I said, that sounds like it has potential,
and I would be happy to look at it and answer and say something
for the record--write something for the record later if you
would like.
Senator Cassidy. Got you.
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[COMMITTEE INSERT]
Senator Cassidy. Dr. Cutler, you had mentioned the issue
with prior authorization and how Medicare does not have prior
authorization, but Medicare has an ungodly amount of waste,
fraud, and abuse. Go down to South Miami and there is mansions
built upon waste, fraud, and abuse from Medicare.
Dr. Cutler. Yes.
Senator Cassidy. So, there is that tension of the prior
auth with the absence of Medicare, yes, but a lot of--now, I
like your concept could we standardize. But, Mr. Eyles, for you
to suggest it is not burdensome upon the patient, when I would
see--when I was doc, when I would see patients, my nurse would
just put the phone on speaker as she heard over and over again,
``Your call is very important to us, please hang on,'' and 45
minutes later that very important call get answered. And, yes,
it would be then approved. Frankly, docs perceive the prior
auth is used merely as an obstacle by which they will not
prescribe a certain therapy even if it is indicated, just to
say that.
Why could this not be integrated into the electronic
medical record? Why does my nurse have to be on the phone as
opposed the insurance company just being able to otherwise
access?
Mr. Eyles. Well, I think the challenge right now, Senator
Cassidy, is really around interoperability of electronic
medical records.
Senator Cassidy. Now, I thought, though, Humana gets all my
billing data, for example, because when I tour their MA plan,
they truly do download all my billing data.
Mr. Eyles. And----
Senator Cassidy. So, why do they not use that?
Mr. Eyles. Well, and that may be for some plans, and it may
not be for all electronic medical record systems, right? I
think that may be a good example of something that we can learn
from in terms of how we could scale that and apply that more
broadly. But right now----
Senator Cassidy. Okay. Now, let me stop you. Dr. Cutler,
you had mentioned that there is increased overhead associated
with private plans, and yet what I have read is that in
countries such as the Netherlands, which only use private
plans, they still have half of our administrative overhead. So,
it does not seem inherent that it is going to be the Federal
government because, as Dr. Book convincingly tells me, the
overhead associated with Medicare is actually more costly than
private plans. There is something the Netherlands does, though,
that it is different. Any comments on that?
Dr. Cutler. Yes, in most countries--the Netherlands is an
example, Germany is another example where they have competing
private plans--private plans are highly regulated. So, they do
not impose, for example, preauthorization requirements.
Senator Cassidy. So, it kind of goes back to the
standardization of what you would do.
Dr. Cutler. It goes back to standardization and to they do
not have the different--all the different severity codes and
all of that, so they have eliminated a lot of the
administrative costs.
Senator Cassidy. Got you. And so, two more things about
that. Mr. Eyles, I have heard of something called a real-time
benefit analysis. Going to the interchange between Senator
Murray and Dr. Cutler, the patient does not know how much
something costs. By the way, I will note these horror stories
under Obamacare policies, not under limited programs. But that
said, a real-time benefit analysis where you can press a button
and the patient automatically knows how much they owe relative
to their coinsurance and copay. I am told some insurers have
this, have not just yet implemented. Why would this not be more
broadly available?
Mr. Eyles. Most of these tools are available through our
members. The vast majority, well over 80 percent of them have
these types of tools. The question is are they being used at
the point at which care is being delivered.
Senator Cassidy. I was told specifically they have not yet
been deployed in the sense that when I go to my MRI, that I can
click and it is on my coinsurance to the doctor, boy, I have
200 bucks left to pay. Dr. Cutler, you are nodding your head.
Are you familiar with which I speak of?
Dr. Cutler. Yes, in fact, that is true. A number of them
have--some of them--some of the plans do not have it. A number
have it, and either they do not make it available or it is only
available in very difficult to access circumstances.
Senator Cassidy. Yeah, it seem like we need to make an app
for that, right, Dr. Book?
Dr. Cutler. Absolutely.
Dr. Book. I can tell you from my personal experience that
sometimes they get it wrong. There was a provider who told me I
still had some left on my deductible when I had actually
fulfilled my entire out-of-pocket limit for the year. So, the
information they get is not always correct. I am not sure why
that is.
Senator Cassidy. So, it needs--it is still beta version,
but it----
Dr. Book. Well, no, it is a great concept, and it works if
go to the pharmacy, but it does not seem to work anywhere else.
Senator Cassidy. I am way over. Thank you, Madam Chair, for
your indulgence. Actually, I have one or two more, but I will
let it go.
Senator Murkowski. I think we will have an opportunity for
a second round real quick. Senator Warren.
Senator Warren. Thank you. So, the cost of healthcare is
too high, we are looking for ways to bring it down, and today
we are focused on administrative costs. I actually want to zero
in on how much private insurance companies spend on
administration compared to public programs like Medicare.
There has been a lot of debate about how to do this
comparison. The 2018 Medicare trustees report states that
administrative costs for Medicare are $8.1 billion. That is
somewhere between 1 and 2 percent of overall expenditures. That
is a whole lot lower than the administrative costs in private
insurance, which seem to range somewhere between 10 and 12
percent, depending on who you ask, who paid for the study, and
what data you are using. But some people argue that Medicare
beneficiaries have higher medical costs than the younger,
healthier people who are on private coverage, which makes
administrative costs look artificially small as a share of
Medicare costs, so we should use dollar amounts instead.
Dr. Book, you have made this argument, and you have done an
analysis that claims Medicare actually spends more dollars per
beneficiary. I think you were just quoted by Senator Cassidy on
that, that Medicare actually spends more dollars per
beneficiary on administrative costs than private insurance. Is
that right??
Dr. Book. That is correct, yes.
Senator Warren. Yeah. So, I want to dig in to how you reach
that conclusion. You argue that we should add to Medicare
administrative costs the costs of all the other ways that the
Federal government supposedly subsidizes Medicare by doing
things like keeping records, writing laws, collecting revenues
at the IRS.
Dr. Book. So----
Senator Warren.--maintaining Federal buildings, paying
salaries in Congress, the list goes on and on. Your analysis
specifically says that you want to take a flat percentage of
expenses, ``the general government function.'' This is in your
work, ``the general government function part of the Federal
budget'' and relabeling that as Medicare administrative costs.
In other words, Dr. Book, you are saying that because we
are sitting here today discussing Medicare at this hearing, we
should count as Medicare costs a piece of the salary of every
Member of this Committee, a piece of what it costs to keep the
lights and the air conditioning on in this hearing room, a
piece of what it costs to run the electricity to your
microphone, a piece of the salary for the Capitol Hill police
officer at the door, and all as part of Medicare's
administrative costs?
Dr. Book. So, I was trying to do an apples-to-apples
comparison between the cost of operating Medicare and the cost
of operating private sector----
Senator Warren. I am just looking at what you said. So,
the--a piece of the Federal government function.----
Dr. Book. Right, I understand. I understand that. And the
items you mentioned, yeah, are included, but they are tiny.
They are pennies. What is more important is private insurance
companies have to send out bills----
Senator Warren. Well, they are only pennies--I am sorry,
let me stop you there.
Dr. Book. Private--private----
Senator Warren. Dr. Book, I am just trying to get how you
calculated this. They are only pennies because I just picked
out a few things.
Dr. Book. Right.
Senator Warren. You added it up over the range of the
entire Federal government. Look, I am all for trying to use the
best data possible when trying to figure out what something
costs.
Dr. Book.--data, I could tell you if you would like.
Senator Warren. But this approach does not have any
credibility at all. This is just a game to inflate the numbers.
Dr. Book. May----
Senator Warren. So, I want to look at some of the numbers
that are not in dispute. Mr. Eyles, you work for AHIP, the
trade association for insurance companies. So, you are here
working today for the insurance companies. The five largest
for-profit insurers in the country reported roughly $20 billion
in profit last year. Can you tell me how does that compare to
the profits the Federal government makes on Medicare and
Medicaid?
Mr. Eyles. I think it is important to look at the context
of profits overall.
Senator Warren. How does it compare?
Mr. Eyles. I could not say. I do not know that----
Senator Warren. You could not say? Let me tell you, it
compares to zero because the Federal government does not make a
profit----
Dr. Book. Actually, Medicare loses money.
Senator Warren.--on Medicare or Medicaid, or, for that
matter, on the Veterans Health Administration, or the Indian
Health Service, or TRICARE, because these programs are about
providing healthcare, not raking in money for profits or
handing out dividends to shareholders.
You know, we can go back and forth on whether
administrative costs in Medicare are 2 percent or 7 percent.
Dr. Book. They are not a percent. They are a----
Senator Warren. But one thing is perfectly clear. When
giant for-profit companies divide up who gets what out of the
premium dollars that they rake in, they never forget to set
aside a few billion dollars for themselves. And I think that is
why it is time to crack down on the shady practices that
insurance companies use to juice their profits at the expense
of families that are struggling to get by. And I think it is
time to ramp up the fight for Medicare for all so that everyone
is covered, no one goes broke because of a medical bill, and we
start treating healthcare like the basic human right that it
is, not like a profit center for multibillion dollar
corporations.
Thank you, Madam Chair.
Senator Murkowski. Thank you, Senator Warren. Senator
Scott.
Senator Scott. Thank you, Madam Chair. I have decided to
pass on my time to Dr. Cassidy. He was doing such a fantastic
job. I do want to make a quick comment on the Medicare for all.
Having spent about 25 years in the insurance industry, one of
the things I think we ought to do, and I think that Dr. Book
was starting down that path, is to understand and appreciate
the overall cost that the government bears for every single
program that we have. So, when we are spending $4 trillion as
the government, bringing in $3 trillion dollars as the
government, the taxpayers are the ones that are losing the
elasticity in their paychecks because their money is coming to
Washington, compelled to do so for programs that perhaps could
be better provided through the private sector if we look at the
overall cost structure.
So, you cannot not look at every facet of what causes
something to cost what it does in the government perspective.
You just cannot articulate with great specificity the real
challenge that the taxpayer has for all of the nuances that the
government brings with it when it provides healthcare or any
other service. Dr. Cassidy?
Senator Cassidy. Hey, thank you, Senator Scott. I just
cannot help but, in all due respect to Senator Warren, comment
on a couple of things. Dr. Book, your analysis has total
credibility with me, and I will say it because the first time I
saw that the DOJ was doing a major anti-fraud thing on all the
rip-offs in South Florida and Louisiana on Medicare, and I
realized that Blue Cross would have done that on their own
ticket, and instead it is the Federal--it is the DOJ doing it
for CMS made me realize that was not being included as part of
their--as part of it.
As regards to Medicare for all, again, I cannot help but
just mention that the Urban Institute--pretty liberal-- MRCADS,
as well as the Tax Policy Center have all come in with numbers
roughly the same, roughly that we would--it is just quite
remarkable--Medicare for all under conservative estimates would
increase Federal budget commitments by approximately $32.6
trillion dollars in the first 10 years of full implementation,
would have to double corporate and individual taxes. It still
would not be enough to pay for everything. So, just to say that
there has to be a little bit note of reality as opposed to
wishful thinking and all this.
Now back to the questions I had kind of on my own. Mr.
Eyles, a major--and Ms. Hultberg, a major part of the
administrative overhead associated with all of this is
negotiating prices. Somebody pointed out to me that Medigap
policies proliferate. Even on the Obamacare individual markets
they are very limited, and partly is that Medigap policies are
able to piggyback onto Medicare pricing. All that effort to
negotiate has been done, to Dr. Cutler's point, and so you can
just say I am going to pay you Medicare pricing, and then the
insurance company can come in and immediately has a provider
panel.
Now, Mr. Eyles, what would you think if, say, on the
individual exchanges in a state where you only have one or two
insurance companies, like Louisiana--effectively a monopoly--
you could say, okay, we are going to allow insurers to come in
and to use Medicare pricing or a multiple, 1.2, 1.3 times
Medicare pricing, and they are immediately in business to
provide competition to the stakeholders. Why is it important?
It has clearly been shown when you have only one or two
dominant insurers, costs go up. If you have more competition,
cost goes down. And they may get after what Dr. Cutler says in
these countries like the Netherlands, one of the ways, I am
sure, they regulate is by pricing. I see he is nodding his
head. First, as a provider, Ms. Hultberg, what would you think
of that?
Ms. Hultberg. So, I am going to defer a detailed answer on
that--to that to the insurance colleague next to me. I will
note a couple of things, though, with respect to Medicare.
First of all, Medicare does not cover costs in my state. So, as
we talk about----
Senator Cassidy. So, it could be a multiple.
Ms. Hultberg. So, it--and ``multiple'' is fair, and there
are--there are insurance companies currently who are basing
pricing off a multiple of Medicare. So, but I do think that as
we have this conversation, whether it is Medicare for all or
some other variation of Medicare pricing, it is really
important to note that often Medicare does not cover costs, and
in my state it is pretty, generally speaking----
Senator Cassidy. I cannot help but say that under Graham-
Cassidy, the amendment that we had put up, Medicaid in Alaska
would have been--had their true costs recognized. For some
reason, your governor strongly opposed having his true costs
recognized, but that is up to him. Mr. Eyles?
Mr. Eyles. I mean, let me start by saying we support having
access to choice and competition within the marketplace, and we
think that is really important. I think right now, the
knowledge about the Medicare fee schedule, about what is what
Medicaid is paying is available out there. I think we want to
make sure that plans are negotiating with physicians in the
most effective way, that they we are moving the system towards
paying for value, not just looking at what Medicaid or Medicare
might be paying. So, I mean, there is----
Senator Cassidy. Well, let me interrupt because the problem
is all that requires a heck of a lot of negotiating and putting
together a provider panel, and right now we have whole counties
in Iowa where they do not have a single insurer. So, I do not
want the best to be the enemy of the adequate. Dr. Book, any
thoughts upon what I just offered?
Dr. Book. Yes, sir. I think it is interesting to note how
Medicare makes its prices. They do not negotiate with
providers. They just set prices by regulation.
Senator Cassidy. But they do look at cost reports.
Dr. Book. They look at cost reports, and they--also for
physicians services, they survey about a hundred physicians for
each code they are reviewing and ask them to evaluate the
service they are reviewing compared to some other service and
answer a few questions on a five--on a multiple choice five-
part scale whether it is more, about the same, or more
difficult, or less difficult.
Senator Cassidy. But most--but the physician does not have
to take Medicare. And granted, there are some places where they
take less Medicare----
Dr. Book. Right.
Senator Cassidy.--and you could pay multiple. But the point
is we have got a problem----
Dr. Book. The insurance company can choose to pay a
multiple if you have a Medicare patient.
Senator Cassidy. We have concentration among insurance
companies----
Dr. Book. Right.
Senator Cassidy.--and they can set rates to physicians and
to other providers.
Dr. Book. Right.
Senator Cassidy. We do not have the insurer. I guess I am
trying--looking for a solution. Dr. Cutler, any comments on
this?
Dr. Cutler. Yes. So, I think getting more firms into
insurance and more competition is clearly very good and
beneficial, and I think anything we can do to make it easy. I
do not know--my sense is that is less of an issue than some
other things are, but let me--but let me not state that so
assertively. I do think that we ought to be moving Medicare
payments away from just the fee-for-service levels.
Senator Cassidy. Oh, I get that totally. I am saying that,
just----
Dr. Cutler. Right. So, I think one would want to think
about some kind of transition that says here are the rates you
have access to now, and then here is how we are going to move
it over time.
Senator Cassidy. Okay. Mr. Eyles, last question. CalPERS
has used reference pricing very effectively to lower expenses,
and just for context, they do a survey of providers. They find
the range for hip replacement or knee replacements, $20 to
$50,000. Quality is equal, so they say to their beneficiaries
we will give you $20K. If you will go someplace else you pay
the delta, but in the meantime we are going to give you $20K,
and that is all we are going to pay. Turns out everybody lowers
their prices, and we end up paying the same across the board.
It seems to have worked.
Can we use more of that? It is effectively price
transparency, but brought into relevance to the patient, which
sometimes it is bringing it into relevance. Would it-- what are
your thoughts about insurance companies is that more, and I
will open that up to the other panel if you all can answer----
Mr. Eyles. Sure.
Senator Cassidy.--because we are all over time.
Mr. Eyles. Thanks, Senator Cassidy. I mean, I think there
is interest at looking at innovative pricing models to make
sure that we are getting the most value. I think the question
really will come down to things like participation in networks,
and will you have access to an adequate range of providers, and
can you make it work for the patient, and do they have real-
time transparency. There is a lot of considerations to think
about, but I think anything that provides greater transparency
to the patient and understanding about what the difference is
between quality is a good thing. So, I think we are--there is
interest in those kinds of activities.
Ms. Hultberg. Senator, I would like to just to add that I
think in the situation of California, you are dealing with a
very large market both of covered lives and of providers. And
as we have this conversation, what we cannot forget is the
safety net providers who are--that are--like hospitals, open 24
hours a day. We need to make sure that as we--as we look at
things like competition and price transparency that we are also
addressing our safety net and ensuring that we do not lose our
safety net.
Senator Cassidy. Sir.
Dr. Cutler. Senator, if I could just offer one comment,
which is the reference pricing has been a huge success. It is
been a great success there. What they do is very intensive. So,
they call up the patient and they say, hey, look, you are
scheduled for elective hip replacement. If you go to this
institution where it is scheduled at, it is $60,000. The other
one is $20,000, so, therefore, you are going to pay the
$40,000. If you do not do that, if you just say, look, there is
a high-deductible policy and so on, then people do not switch
where they go.
So, the--so it--and it goes back to we were talking about--
what Senator Murray was asking about earlier. People do not
understand the insurance policies at all, so they actually do
very little price shopping. In a typical high-deductible
policy, there is essentially zero price shopping. It is when it
is much more intensive that I go to you and say, Mr. Cutler,
you can either pay $40,000 or pay your standard $200, and I can
show you the quality metrics, which one would you like. Then
you can get people to switch. So, unfortunately, it works well,
but it is not as easy as we would like it to be.
Senator Cassidy. Dr Book.
Dr. Book. I think what Dr. Cutler is saying is that there
are administrative costs to implementing something like that,
and in some cases, those administrative costs might be well
worth it. We tend to think of administrative costs as waste,
but sometimes those administrative costs are spent on very
useful things, and that is an example of it where you are
calling someone up and explaining the situation, something they
might not be able to look up themselves because providers
usually dare not post prices in advance, okay? And making more
information is costly, but it may be well worth it.
Senator Cassidy. In our white paper, we advocate making
that--the providers post in advance, but I will leave it----
Dr. Book. That will be good, yes.
Senator Cassidy. Madam Chair, thank you, and, Senator
Scott, thank you.
Senator Scott. The least I could do.
Senator Murkowski. Thank you. Senator Murray, follow-ups?
Senator Murray. I just will submit additional questions for
the record.
[The information referred to follows:]
[COMMITTEE INSERT]
Senator Murray. But I want to thank all of our witnesses
for being here today and for your insightfulness. Thank you.
Senator Murkowski. Thank you. Just very briefly to wrap up
on the--on the prior authorization because I think Senator
Hassan spoke to it. There has just been--there is so much
frustration that goes on, not only on the patient side, but
administratively. And it just seems that it is one of these
situations where you--in order to meet the requirements, you
have got to make sure that you are either putting your
administrative assistant on speakerphone for 45 minutes. It is
kind of this--it is not harassment, but maybe it is harassment.
You just have to stay on. And it requires greater burden to
provide the authorization that will effectively work to reduce
the cost. But it seems to me that there is a line here when
you're bringing on people to handle this.
Will the standardization that has been suggested by you,
Dr. Cutler, and others have echoed, that will help? Is that
enough? In other words, are we at a--are we at a point that we
have effectively started a secondary business here with just
dealing with the insurance companies to get the sign off and to
get that approval? Is it just standardization that will address
this, or is there more to this, because this is something that
everyone is complaining about. Dr. Cutler?
Dr. Cutler. I think of standardization and of IT
integration as being related. That is, you both want to
standardize so you do not have 10,000 different requirements,
and you also want to make it easy to transfer the information
from the medical record as proof that the preauthorization
requirement has been met so it can be seamless. The physician
says I would like to do X. The insurance policies are clear
because there is standardization about them, and then the
systems can automatically provide verification that X was done,
and then you do not need the people involved. So, I think it
is--you get part of the way there just by standardizing, and
then another part of the way through easy interchange.
Senator Murkowski. I understand all that. I recognize that.
But in my mind, I still go back to Wrangell where we have eight
beds, where your staff is limited, and yet the requirements are
as significant as they are for a major hospital in Seattle. And
so, back to the issue of scale and why a rural strategy is
going to be important to recognizing that we are just not
equally situated.
Even with the interoperability and the--and the full
integration of electronic medical records, I do not know if you
have additional suggestions, Ms. Hultberg, that speak to these
smaller facilities that still bear pretty extraordinary costs.
Ms. Hultberg. I do think, to echo Dr. Cutler, that
technology is a piece of this. Technology can be a help, but
right now it is sometimes a hindrance, so I think we have to
figure out this technology piece. Also recognizing that there
may be other steps that we need to take to really enable us to
continue to have a rural healthcare infrastructure that is
meaningful.
But as an example, Wrangell, this little tiny medical
center on an island, is going to spend $65,000 this year on
upgrading to meet Stage 3 Meaningful Use. They are not going to
see patient benefit for those dollars. They are having to
purchase a software package with functionality they do not
need, and earlier this year, Wrangell had less than 10 days'
cash on hand. So, $65,000 in this Committee room where you deal
with billions of dollars may not seem like a lot, but for
Wrangell Medical Center it is really important, and for the
residents of that community it is really important.
So, one of the things we encourage is revisiting our
current framework for electronic health records, removing some
of those barriers, ensuring that we have interoperability,
which was the promise of electronic medical records that has
not been realized. And then I think we may see enough
improvement that could be sufficient.
Senator Murkowski. Very good. Thank you. The hearing record
will remain open for 10 days. Members may submit additional
information for the record within that time if they would like.
[The information referred to follows:]
[COMMITTEE INSERT]
Senator Murkowski. The HELP Committee will meet again on
Wednesday, August 15th, when we will hear from Dr. Francis
Collins from the National Institutes of Health. So, we thank
you all for being with us and providing such great testimony to
the Committee today.
With that we stand adjourned.
[Whereupon, at 11:41 a.m., the hearing was adjourned.]
[all]