[Senate Hearing 115-839]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 115-839

                      REDUCING HEALTH CARE COSTS:
                   DECREASING ADMINISTRATIVE SPENDING

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

                                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

                              ----------                              

                               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

                              ----------                              


                         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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
 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)
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
   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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \23\  2017 CAQH Index, A Report of Healthcare Industry Adoption of 
Electronic Business Transactions and Cost Savings.
---------------------------------------------------------------------------
 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\
---------------------------------------------------------------------------
    \24\  AHIP, CMS Collaborative Announces Core Sets of Quality 
Measures, AHIP press release, February 16, 2016.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
                     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 
---------------------------------------------------------------------------
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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    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.]

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