[Senate Hearing 117-734]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-734

                   THE HOSPITAL INSURANCE TRUST FUND
                  AND THE FUTURE OF MEDICARE FINANCING

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FISCAL RESPONSIBILITY 
                          AND ECONOMIC GROWTH

                                 OF THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION
                               __________

                            FEBRUARY 2, 2022
                               __________


                 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                 
                                     

            Printed for the use of the Committee on Finance
            
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
53-384-PDF                 WASHINGTON : 2023  


                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                 ______

       Subcommittee on Fiscal Responsibility and Economic Growth

                 ELIZABETH WARREN, Massachusetts, Chair

RON WYDEN, Oregon                    BILL CASSIDY, Louisiana
                                     RICHARD BURR, North Carolina

                                  (II)

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Warren, Hon. Elizabeth, a U.S. Senator from Massachusetts, chair, 
  Subcommittee on Fiscal Responsibility and Economic Growth, 
  Committee on Finance...........................................     1
Cassidy, Hon. Bill, a U.S. Senator from Louisiana................    12

                               WITNESSES

Chernew, Michael E., Ph.D., Chair, Medicare Payment Advisory 
  Commission, Washington, DC.....................................     3
Rogers, Susan, M.D., FACP, president, Physicians for a National 
  Health Program, Chicago, IL....................................     5
Kapczynski, Amy, professor and faculty co-director, Global Health 
  Justice Partnership and Law and Political Economy Project, Yale 
  Law School, New Haven, CT......................................     7
Baicker, Katherine, Ph.D., dean and Emmett Dedmon professor, 
  Harris School of Public Policy, University of Chicago, Chicago, 
  IL.............................................................     8
Capretta, James C., senior fellow and Milton Friedman chair, 
  American Enterprise Institute, Washington, DC..................    10

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baicker, Katherine, Ph.D.:
    Testimony....................................................     8
    Prepared statement...........................................    31
Burr, Hon. Richard:
    Prepared statement...........................................    34
Capretta, James C.:
    Testimony....................................................    10
    Prepared statement...........................................    34
Cassidy, Hon. Bill:
    Opening statement............................................    12
    Prepared statement...........................................    41
Chernew, Michael E., Ph.D.:
    Testimony....................................................     3
    Prepared statement...........................................    43
Kapczynski, Amy:
    Testimony....................................................     7
    Prepared statement...........................................    49
Rogers, Susan, M.D., FACP:
    Testimony....................................................     5
    Prepared statement...........................................    57
Warren, Hon. Elizabeth:
    Opening statement............................................     1
    Prepared statement...........................................    61

                             Communications

AARP.............................................................    63
Alliance for Retired Americans...................................    64
American Academy of Actuaries....................................    67
American Medical Association et al...............................    70
Center for Fiscal Equity.........................................    72
Center for Medicare Advocacy.....................................    77
Fields, Clive, M.D...............................................    81
Foothills Coalition for Universal Healthcare.....................    83
Hoffman, Rob.....................................................    83
Kanzler, Pat, R.N................................................    83
McGowan, Dr. Richard.............................................    84
Mullarkey, Ellen.................................................    84
Peterson, Diane J., et al........................................    85
Schmidt, Sharon and Diane J. Peterson............................    86
Shapiro, Peter...................................................    86
3M Health Information Systems, Inc...............................    87
Tuck, Andrew.....................................................    94
Van Deusen, Carol and Richard....................................    94

 
 THE HOSPITAL INSURANCE TRUST FUND AND THE FUTURE OF MEDICARE FINANCING

                              ----------                              


                      WEDNESDAY, FEBRUARY 2, 2022

                           U.S. Senate,    
         Subcommittee on Fiscal Responsibility     
                               and Economic Growth,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:30 p.m., 
via Webex, in Room SD-215, Dirksen Senate Office Building, Hon. 
Elizabeth Warren (chair of the subcommittee) presiding.
    Present: Senators Cassidy, Whitehouse, and Daines.
    Also present: Democratic staff: Catherine Laporte-Oshiro, 
Economic Policy Advisor for Senator Warren; and Tess Byars, 
Health Policy Advisor for Senator Warren. Republican staff: 
Katie Rudis-Hadji, Legislative Director and General Counsel for 
Senator Cassidy; Brian Looser, Health Policy Advisor to Senator 
Cassidy; and Mary Moody, Health Policy Advisor to Senator 
Cassidy.

OPENING STATEMENT OF HON. ELIZABETH WARREN, A U.S. SENATOR FROM 
MASSACHUSETTS, CHAIR, SUBCOMMITTEE ON FISCAL RESPONSIBILITY AND 
             ECONOMIC GROWTH, COMMITTEE ON FINANCE

    Senator Warren. May we come to order? Good afternoon, and 
welcome to today's hearing before the Subcommittee on Fiscal 
Responsibility and Economic Growth. Bear with us.
    I am pleased to be working with Ranking Member Cassidy on 
the hearing, ``The Hospital Insurance Trust Fund and the Future 
of Medicare Financing.'' That title may sound a little dry, so 
let me be more direct.
    This hearing is about Medicare finances, both how to 
strengthen the current system and how to pay for expanded 
coverage to include vision, dental, and hearing. The short 
version is this: the Medicare system is hemorrhaging money on 
scams and frauds. It is critical that we stop the flow, and, if 
we do, the system will have more than enough money to operate 
at its current level and increase coverage.
    Where do we begin? Well, how about with giant drug 
manufacturers? In 2019, total Medicare spending on prescription 
drugs was $220 billion. Since Medicare is a very high-volume 
buyer, you would think that the Medicare program would be 
getting a great deal on pricing--but you would be wrong.
    Because Medicare cannot negotiate prices, drug companies 
are able to rake in billions in profits. Now that is bad 
enough, but the drug companies have more ways to juice their 
profits. They use anticompetitive tactics like pay-for-delay, 
product hopping, and patent thickening, all while antitrust 
regulators turn a blind eye. It is enough to gag a maggot.
    There is so much we could do to improve Medicare finances. 
For example, we could save Medicare as much as $130 billion 
over 10 years just by strengthening enforcement of our 
antitrust laws and ending one--just one--type of industry 
ripoff.
    Or consider another option. We could rein in greedy private 
insurers that take advantage of the Medicare Advantage program. 
Now, Medicare Advantage was a back-door effort to privatize the 
Medicare program. It was built on vague promises of cost 
savings, but instead it has cost Medicare almost $150 billion 
extra over the past 12 years because greedy private insurers 
are gaming the program's rules, including its risk-adjustment 
process, its benchmark policy, and its quality bonus program, 
all to squeeze more money out of Medicare and to drive up the 
cost for taxpayers.
    Medicare could save nearly $800 billion over 10 years just 
by ending these scams. Together, just those few changes alone 
would save Medicare over $900 billion over 10 years. And just 
to put that in perspective, the estimated shortfall in the 
hospital insurance trust fund is $517 billion between 2026 and 
2031. And the cost of extending Medicare coverage to include 
dental, vision, and hearing to the program is just under $360 
billion.
    In other words, we do not need to cut Medicare benefits. We 
need to cut out the scams that are bringing Medicare down. The 
number of corporate vultures hoping to feed on Medicare 
continues to grow. Even today, in the Biden administration, CMS 
has invited the same insurers that are already scamming 
Medicare and dozens of new investor-owned organizations to 
cover traditional Medicare beneficiaries through a new 
privatized Direct Contracting model that lets them pocket--get 
this--as much as 40 percent in profits. This invites fiscal 
disaster, and I hope this administration will reverse this 
decision.
    Yes, we need to make changes to Medicare, but not the cuts 
and privatization that my Republican colleagues have sought in 
past efforts to, quote, ``reform'' Medicare. No. Instead of 
undermining the system and the benefits that we deliver, we 
need to crack down on greedy drug manufacturers, on private 
insurers, and on private equity firms. We need drug price 
negotiation, and we need better oversight of the Medicare 
Advantage program so that for every dollar spent, a Medicare 
beneficiary actually gets a dollar's worth of value. And with 
more than $900 billion that we could save, we need to expand 
Medicare coverage to include dental, vision, and hearing 
benefits for all of our seniors and people with disabilities 
who are part of the program. That is how we build a healthier 
America.
    Now, I look forward today to discussing these issues. I 
appreciate all of our witnesses who are joining us, and I look 
forward to hearing about their experiences and their insights.
    [The prepared statement of Senator Warren appears in the 
appendix.]
    Senator Warren. So let us get started with the witness 
introductions. Ranking Member Cassidy is going to join us for 
his opening statement just a little bit later. But we have a 
great set of witnesses here today to share their views on 
Medicare financing, and I very much appreciate their attendance 
today.
    First, joining us virtually, we have Dr. Michael Chernew. 
Dr. Chernew is the Chair of the Medicare Payment Advisory 
Commission, which is the independent congressional agency that 
was established to advise Congress on issues affecting the 
Medicare program.
    Second, joining us remotely, we have Dr. Susan Rogers, the 
president of Physicians for a National Health Program. She is 
also an assistant professor of medicine at Rush University, and 
she recently retired from the Stroger Hospital of Cook County.
    Third, also joining us virtually, we have Professor Amy 
Kapczynski. She is a professor of law at Yale Law School, and 
serves as faculty co-director of the Global Health Justice 
Partnership and the Law and Political Economy Project. Her 
research focuses on information policy, intellectual property, 
international law, and global health.
    Next, joining us remotely, we have Katherine Baicker, dean 
and professor of the University of Chicago Harris School of 
Public Policy. Professor Baicker studies the effectiveness of 
public and private health insurance, including the effect of 
reforms on the distribution and the quality of care.
    And then finally, our fifth witness joining us virtually, 
we have James Capretta, senior fellow at the American 
Enterprise Institute, and senior advisor at the Bipartisan 
Policy Center.
    So, I want to thank you all for joining us here today. I 
look forward to hearing your testimony.
    Dr. Chernew, could we start with you, please? I will 
recognize you for 5 minutes.

STATEMENT OF MICHAEL E. CHERNEW, Ph.D., CHAIR, MEDICARE PAYMENT 
              ADVISORY COMMISSION, WASHINGTON, DC

    Dr. Chernew. Thank you, Chair Warren and Ranking Member 
Cassidy, Senators, and staff. Thank you very much for the 
opportunity to speak with you today on behalf of MedPAC about 
Medicare solvency and the future of Medicare financing.
    Before I launch into the main thrust of my comments, I 
would like to acknowledge the enormous hold that the pandemic 
has placed on all Americans, particularly Medicare 
beneficiaries and the clinicians and health-care workers who 
have been on the front lines of the pandemic for the last 2 
years.
    Turning to the topic at hand--Medicare's fiscal 
challenges--the hospital insurance Part A trust fund is 
projected to be exhausted around 2026 or 2027. The Medicare 
trustees estimate that it would take an immediate reduction in 
Part A spending of $70 billion to put Part A's financing on a 
stable footing.
    However, Part A is only part of Medicare's fiscal problem. 
Spending on other parts of Medicare is also growing rapidly and 
contributes to Medicare's overall sustainability problems. I 
will be discussing policies related to both Part A 
sustainability and overall Medicare spending. It is important 
to start with context.
    The core issue is that we are striving to give more and 
better care to more beneficiaries with relatively fewer workers 
to provide financing. Around the time of Medicare's inception, 
there were 4.6 workers for every Medicare beneficiary. By 2029, 
there are expected to be only 2\1/2\ workers per beneficiary. 
This demographic challenge heightens the need to avoid paying 
more than needed to support beneficiary access to high-quality 
services, and to find ways to alter patterns of utilization to 
reduce spending while maintaining quality and access.
    My written testimony outlines recommendations that address 
traditional fee-for-service Medicare, Medicare Advantage, and 
the Medicare Part D program. The first set of recommendations 
would reduce payments to certain providers that have 
historically been substantially overpaid under traditional fee-
for-service Medicare. Most of these providers are funded 
through Part A, so these recommendations produce immediate 
savings for the Part A trust fund, and we assert that these 
payments will not compromise access to or quality of care. 
These recommendations appear in our annual March report.
    Shifting to the Medicare Advantage program, this program 
allows beneficiaries enrolled in both Part A and Part B to 
receive benefits from private plans, rather than traditional 
fee-for-service Medicare. Medicare pays these plans a fixed 
monthly amount for each enrollee. It is adjusted up or down to 
reflect the characteristics and medical conditions of that 
enrollee. Although Medicare Advantage plans are able to provide 
Medicare coverage at a cost below fee-for-service, Medicare 
pays plans more for their enrollees than they would cost in 
fee-for-service.
    This occurs for three main reasons. First, in low fee-for-
service spending markets, MA payments are deliberately set at 
levels higher than fee-for-service spending to balance across 
markets, access to MA plans, and added benefits.
    Second, MA plans are paid more if they serve sicker 
beneficiaries, giving plans a strong financial incentive to 
identify as many diagnoses as possible. Providers do not have 
the similar coding incentives in traditional fee-for-service, 
resulting in a risk-
adjustment system that is poorly calibrated.
    Third, Medicare pays Medicare Advantage plans more for 
achieving higher ratings in the Medicare Advantage quality 
bonus program, but we have found that this program likely does 
not lead to better outcomes for Medicare Advantage enrollees. 
If Medicare Advantage plans can provide the Medicare benefits 
for less than traditional fee-for-service, Medicare should pay 
them in a manner that allows the program to share in those 
efficiencies. This follows the general principle that if 
suppliers of goods and services can do so at a lower cost, 
payments should go down. MedPAC has made several 
recommendations to address the rates paid to Medicare Advantage 
plans that involve reforms to how benchmarks are calculated, 
the method for adjusting payments to reflect diagnostic coding, 
and the structure of the quality bonus program, all of which 
are described in more detail in my written testimony.
    Moving to the Part D program, the Commission has long 
recognized the clinical value of prescription drugs and the 
importance of Part D in promoting access to needed medications. 
Part D is administered by private plans that receive a mix of 
capitated payments and cost-based reinsurance subsidies to 
finance the pharmacy benefits. The reinsurance payments occur 
after an enrollee's prescription drug costs reach the 
catastrophic phase of the Part D benefit, shifting the cost 
liability onto the Medicare program. Medicare's payment for 
reinsurance has grown considerably, rising from less than half 
of the capitated payments in 2007 to nearly five times as large 
by 2020.
    The design of the Part D program should be altered to both 
save money for Medicare and improve incentives around 
prescription drug pricing, plan design, and out-of-pocket 
spending. Our June 2020 report to the Congress outlined a 
comprehensive recommendation to redesign the Part D benefits to 
accomplish these goals.
    In closing, thank you very much for the opportunity to talk 
with you today. MedPAC stands ready to help you address the 
difficult fiscal challenges faced by Medicare. We look forward 
to continued discussions, and I am happy to answer any 
questions you have.
    Thank you.
    [The prepared statement of Dr. Chernew appears in the 
appendix.]
    Senator Warren. Thank you, Dr. Chernew.
    And now, Senator Cassidy, would you like to do your opening 
statement, or do you want me to do one more of our witnesses? 
One more of our witnesses--good.
    Thank you, Dr. Chernew. Dr. Rogers, I would like to 
recognize you for 5 minutes, please.

 STATEMENT OF SUSAN ROGERS, M.D., FACP, PRESIDENT, PHYSICIANS 
           FOR A NATIONAL HEALTH PROGRAM, CHICAGO, IL

    Dr. Rogers. Thank you so much. And thank you for inviting 
me to join this hearing on this topic.
    My name is Dr. Susan Rogers, and I am a general internist 
from Chicago, IL, and I am president of Physicians for a 
National Health Program, which is a national organization of 
more than 24,000 doctors that advocates for a single-payer 
health-care system. And I am also a proud beneficiary of 
traditional Medicare.
    The current threat to Medicare is very real. What we now 
call traditional Medicare was created in 1965 to provide a 
safety net for seniors and the disabled, many of whom lived in 
poverty, and to provide equity in health care when it 
effectively desegregated our Nation's hospitals.
    Today, even though it is the most popular, effective, and 
efficient health program in our Nation's history, traditional 
Medicare is at risk of being sold off to the highest bidder, 
with no input from seniors, health providers, or even members 
of Congress.
    Now the privatization of Medicare began when President 
Nixon enacted the HMO Act in 1973, and privatization actually 
exploded in 2003 with the creation of Medicare Advantage, the 
version of Medicare run by commercial insurers. The common 
thread among these privatization experiments is the theory that 
inserting a middleman between Medicare and its health 
providers, between physicians and patients, will somehow save 
money or improve care. However, it has failed at both.
    In fact, researchers estimate that Medicare overpaid 
Medicare Advantage insurers by more than $106 billion from 2010 
to 2019. And that is money that could have been spent on 
seniors' care.
    Despite decades of failure, CMS launched a new model of 
Medicare privatization called Direct Contracting, and instead 
of paying doctors directly, Medicare pays third-party middlemen 
called Direct Contracting Entities, or DCEs, a set amount to 
manage seniors' health. DCEs are then allowed to pocket what 
they do not pay for in services, which is a dangerous financial 
incentive to restrict and ration seniors' health care.
    If you have not heard of Direct Contracting, that is by 
design. It was created in 2019 by the CMS Innovation Center, 
also called CMMI, which is authorized to conduct payment 
experiments and to scale them up to all of Medicare without 
input from Congress. Virtually any type of company can apply to 
be a DCE, including commercial insurers, venture capitalists, 
or physician groups.
    Seniors on traditional Medicare can be automatically 
assigned to a DCE without their knowledge or understanding, if 
their primary care provider is affiliated with a DCE. Then, the 
only way for a senior to opt out is to change primary care 
physicians, making this actually a bait-and-switch program for 
seniors. Forcing seniors to switch physicians is not only a 
terrible burden, but it undermines the importance of the 
patient-physician relationship that clearly DCEs do not 
acknowledge.
    The new model program is that DCE middlemen will somehow 
lower costs and improve coordination of care, but former CMS 
and CMMI officials estimate that DCEs may spend as little as 60 
percent of their Medicare payments on patient care, keeping the 
other 40 percent as profit and overhead.
    How this is an improvement on traditional Medicare I do not 
know, since Medicare spends 98 percent of its funds on health 
care.
    As a physician, I understand that it is my duty and 
responsibility to help make the care decisions, along with my 
patients, and then coordinate that care. That role is not for 
investors to take from us. They do not coordinate care. They 
coordinate payments.
    Medicare was designed as a lifeline for America's seniors 
and adults living with disability. We cannot let it become a 
playground for Wall Street investors. If middlemen in health 
care actually saved money and improved outcomes, the U.S. would 
not have the most expensive and ineffective health-care system 
in the world. We do not need to put seniors through another 
failed experiment to prove this.
    So, like an old African proverb says, ``If you keep doin' 
what 'cha been doin', you'll keep gettin' what you already 
got.'' So, we need to get back to what we know works, and that 
is traditional Medicare.
    Thank you so much.
    [The prepared statement of Dr. Rogers appears in the 
appendix.]
    Senator Warren. Thank you, Dr. Rogers.
    Professor Kapczynski, I recognize you for 5 minutes.

STATEMENT OF AMY KAPCZYNSKI, PROFESSOR AND FACULTY CO-DIRECTOR, 
GLOBAL HEALTH JUSTICE PARTNERSHIP AND LAW AND POLITICAL ECONOMY 
            PROJECT, YALE LAW SCHOOL, NEW HAVEN, CT

    Ms. Kapczynski. Chair Warren, Ranking Member Cassidy, and 
distinguished members of the subcommittee, I appreciate the 
opportunity to testify today.
    My name is Amy Kapczynski. I teach at Yale Law School, and 
today I want to talk about the problems high drug prices and 
abuses of power pose for the Medicare program and for Medicare 
beneficiaries.
    In the last year, close to 40 percent of Americans reported 
that they did not take a medicine as prescribed because of the 
cost. This is nothing short of a crisis, and it is driven by 
drug prices that have been rising unchecked for decades.
    From 1980 to 2018, pharmaceutical spending increased more 
than tenfold in real terms--so, excluding economy-wide 
inflation. Just last year, more than 100 drugs saw price 
increases beyond inflation. We have seen old drugs like insulin 
rise hundreds of percent in recent decades. The average new 
cancer drug in the United States today costs more than 
$175,000. And these prices for old and new drugs do not reflect 
in any logical way the benefits or the R&D costs.
    So, for Medicare patients, high prices translate into 
unaffordable co-insurance bills and deductibles, and rising 
premiums. So one recent study, for example, showed that seniors 
on Medicare who have common chronic conditions like diabetes 
saw their out-of-pocket drug costs rise by over 40 percent 
between 2009 and 2019.
    Seniors cannot afford these costs, and we are seeing people 
delay treatment and even die as a result. High drug prices are 
also a major challenge for Medicare financing. So, as Senator 
Warren mentioned, we see about $220 billion in drug costs for 
Medicare, and bringing down costs can result in enormous 
savings.
    So just for one example, CBO estimated that the legislative 
approval of H.R. 3, the Elijah Cummings Lower Drug Costs Now 
Act, would save the program about $50 billion a year on 
average. And if we curbed patent abuses, we could do still 
better.
    So why are drug prices so high in the U.S.? How should we 
think about this problem? The core is really quite simple. Drug 
companies have monopoly rights that permit them to set high 
prices, particularly when we have widespread insurance, and 
also mandates even to cover monopolized products. Companies 
also engage in anticompetitive conduct that exacerbates the 
problem.
    So this is why, though most prescriptions in the U.S. are 
for generic drugs, spending is heavily concentrated on patented 
medicines, suggesting that 7 percent of drugs in Medicare Part 
D drive 60 percent of the spending. And Medicare, of course, is 
forbidden by law from negotiating for lower prices.
    So the historic argument for these high prices has been 
R&D, but unfortunately prices, we know, are not set in 
relationship to R&D. They are set according to what the market 
can bear. And that is not about R&D costs, but it is about 
market power. So we see that the largest pharmaceutical 
companies, for example, spend significantly more, and in some 
cases twice as much, on marketing as they do on R&D, even in a 
global pandemic.
    We see old drugs like insulin--no new innovation--rising 
dramatically in price. And we see exploitative anticompetitive 
conduct like pay-for-delay deals to keep generic drugs off the 
market for several more years, or investment in patent lawyers 
rather than innovation to create thickets of patents that 
surround the drug and delay entry again of generic competition. 
So, there is a lot of concern in Washington today about 
inflation, and it is worth noting that this is a fundamentally 
inflationary environment and it has been for a long time. I 
think it is worth stressing some things about this.
    One, it is very clear, in this context, that we are seeing 
inflation due to unregulated monopoly power. Two, it is causing 
enormous pain for ordinary Americans. And three, we know how to 
solve it in fact, and without causing sector-wide pain as other 
approaches might.
    So, I want to just come to several recommendations. We do 
actually know how to solve this problem. Many other countries, 
in fact all other industrialized countries, have systems of 
fair pricing for medicines. Borrowing from those, we have had 
proposals that have become very well-developed now. And we 
should draw upon these and ensure that, to protect the future 
of the Medicare program and the future of Medicare 
beneficiaries, Congress passes legislation that is going to 
curb high launch prices by enabling HHS to negotiate fair 
prices and think about fair prices by looking at R&D costs, how 
much public funding there was, what the investment risk was, 
the benefit of the drug, all of those things, and then backing 
up those negotiations with strong enforcement measures--for 
example, the ability to allow generic competitors into a market 
if a company refuses to sell.
    We should also have legislation that penalizes price spikes 
to prevent price gouging on existing drugs. We should explore 
legislation to curb anticompetitive patent thickening, and that 
would strengthen rules against pay-for-delay settlement deals. 
And we should also critically provide the FTC with more 
resources and authority to address anticompetitive conduct in 
the sector.
    Thank you.
    [The prepared statement of Ms. Kapczynski appears in the 
appendix.]
    Senator Cassidy [presiding]. Thank you, Ms. Kapczynski.
    Professor Baicker, you are next.

 STATEMENT OF KATHERINE BAICKER, Ph.D., DEAN AND EMMETT DEDMON 
   PROFESSOR, HARRIS SCHOOL OF PUBLIC POLICY, UNIVERSITY OF 
                      CHICAGO, CHICAGO, IL

    Dr. Baicker. Thank you so much. I would like to thank 
Senator Warren and Senator Cassidy, and the members of the 
committee, for the opportunity to talk.
    I think there are three topics that I would like to cover 
to help promote the fiscal sustainability and financial 
protections that Medicare must provide the beneficiaries, as 
well as the crucial access to health care. First, I want to 
talk briefly about payment reforms; second, about patient co-
pays and insurance design; and third, about the benefits and 
challenges of choice and competition among plans and among 
providers.
    Providers respond to prices much like anyone else. It is 
not how we usually think about our health-care providers 
because, of course, they are first and foremost considering 
their patients well-being. But when we pay more for services, 
we get more services. And when we pay less for services, we get 
fewer of them. And right now, Medicare's fee-for-service 
traditional structure gets the prices wrong despite all best 
efforts. It is very difficult to write down prices that align 
with value on a line-by-line basis. And we see over-use of some 
services at the same time that we see under-use of other 
services. And that is not the best way to ensure we get the 
most health care for beneficiaries for every dollar that we 
spend.
    Aligning payments to providers with the value of health 
care that the service provides could help our dollars go 
further in promoting health and well-being for beneficiaries. 
That would include some alternative payment models, each of 
which has challenges, but which has potential. We see 
experiments in the Medicare program with alternative payment 
models like bundled payments, or capitated payments, or ACOs. 
Those experiments have been on a fairly modest scale to date, 
so it's not surprising that we have not seen huge changes in 
response to them.
    Some of the experiments in bundled payments, particularly 
those looking at joint replacement, have seen a reduction in 
cost while maintaining the quality of outcomes for 
beneficiaries. But it is hard to write down bundled payment 
models that incorporate all of Medicare spending. So thus far, 
they have had pretty limited effects.
    It is crucial in thinking about bundled payments as an 
alternative to the traditional Medicare payments to think about 
how broad the bundles are. A lot of the savings may accrue from 
downstream post-acute care versus in-hospital care, or the 
original surgeon's fees, so it is important to think about 
broad bundles to promote value and best outcomes for 
beneficiaries conditional on having that service.
    There are alternative models that might incorporate a 
broader array of Accountable Care Organizations, payment based 
on global population health for patients in rural populations--
and those models aim to share savings with providers so that 
they can help steer their patients towards the highest-value 
care, and the care that is right for their individual patients.
    Those models, I think, have also shown some promise in 
helping to align patients' services--and where they get those 
services--with the best outcomes that they can get for the 
money spent. The challenge with those models is being assured 
that the payment rate is right so that you do not incentivize 
too much care for any given type of payment, nor risk patients 
not having access to the care they need.
    All of these alternative models rely on enlisting 
providers' expertise in helping to steer their patients, which 
is vitally important. The doctor-patient relationship is 
crucial to making sure that patients have the information that 
they need. I think those provider tools have a lot of 
potential, but they work even better when you align patient 
incentives with getting the care that is right for them, and 
that is of high value.
    I think patient cost sharing gets a bad rap as merely a way 
to shift costs to patients, but its value as a tool really is 
much more in helping steer patients toward care that will have 
the greatest real improvements in health outcomes, and away 
from care that is of really questionable benefit.
    In fact, we know patients, like physicians, respond to the 
cost of care that is in front of them. When you raise co-
payments, patients use less care--not just low-income patients 
for whom the co-
payments would be a barrier, but even high-income patients. 
They cut back not only on care of questionable health benefit, 
but also on care that is potentially of high benefit, which is 
why it is really important that patient cost sharing aligns the 
co-payments not only with the patient's ability to pay, so that 
co-payments are lower for lower-income patients, but also with 
the value of the care so that patients do not risk forgoing 
care that has high potential health benefits.
    Those patient cost-sharing tools can be really important to 
the effectiveness of getting the provider payments right by 
aligning all of the incentives with higher-value care that 
produces better health outcomes. But all of those choices only 
work when there is a real choice among insurers and among 
providers. There is a huge return to letting patients choose 
care that lines up with their own priorities and their own 
health conditions, and that is not always the case in a lot of 
parts of the country. So, policies that also promote choices 
among providers and among insurers can help ensure we spend our 
health-care dollars wisely.
    Thank you.
    [The prepared statement of Dr. Baicker appears in the 
appendix.]
    Senator Cassidy. Thank you, Dr. Baicker.
    And now, Mr. Capretta.

   STATEMENT OF JAMES C. CAPRETTA, SENIOR FELLOW AND MILTON 
 FRIEDMAN CHAIR, AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC

    Mr. Capretta. Thank you, Senator, and thank you to Senator 
Warren also, for holding this hearing, and the rest of the 
members of the committee. It is obviously a very important 
topic.
    I want to talk about three things. One is how this 
financing problem for the hospital insurance trust fund fits 
into a larger picture of fiscal problems for the country. 
Second, I want to talk a little bit about what I would not do, 
some ideas that have been advanced to try to address the 
hospital insurance trust fund that I think should be understood 
more clearly, and set aside. And then third, some 
recommendations about broader Medicare reform along the lines 
of some of the suggestions we have just heard about.
    But first, how does this problem fit into the larger 
picture? The HI trust fund on its own is of course a problem, 
but really it needs to be understood in the context of Medicare 
more generally, and the Federal budget overall. In Medicare 
more generally, it is not well understood that there is a 
second trust fund, the SMI trust fund, the supplementary 
medical insurance trust fund, which relies on very large 
transfers from the general fund of the Treasury to keep it 
solvent. And when you look at the totals for that, they are 
really immense. Over the next 10 years alone, there will be 
$5.3 trillion transferred from the general fund to SMI to keep 
it solvent. At enactment, the general fund was only supposed to 
cover about 50 percent of SMI costs. Now it is up to 75 
percent, and it has been for a number of decades, and that is 
where it stands.
    This is not costless. These are taxes that have to be 
covered one way or another from current taxpayers, or future 
taxpayers, to pay back borrowing to cover these expenses. The 
real problem is total Medicare expenses, not HI expenses.
    In 1990, total spending on Medicare was 1.9 percent of GDP. 
Now, it is about 4 percent of GDP. And the Medicare trustees 
expect it will rise to 5 percent in 2030, and 6 percent in 
2050.
    Now how does that fit into the larger budget issue? The 
Federal Government is also borrowing at a huge rate. The 
Congressional Budget Office projects, because of Medicare, 
Social Security, and Medicaid spending, that the amount of 
borrowing is expected to go from roughly 25 percent of GDP in 
1980 to about 200 percent of GDP in 2050. So Medicare, along 
with Social Security and Medicaid--those two programs in 
particular are very much central to the very massive fiscal 
problems facing the country. And the HI problem really is just 
a subset of this much larger challenge that Congress needs to 
grapple with. And fixing Medicare is central to fixing the 
larger problem too, so they go hand in hand.
    Now what has been suggested to address this problem by the 
Biden administration, I worry really might end up causing more 
problems than it would help. What they have suggested, in 
essence, is to take a current tax, the Net Investment Income 
Tax that was created as part of the Affordable Care Act in 
2010, to pay for the Affordable Care Act's cost. They want to 
transfer those dollars from the general fund now to the HI 
trust fund.
    That would essentially use the same tax twice. It would be 
basically using the same revenue to pay for the ACA and then 
come around later and also pay to keep Medicare HI solvent. I 
think that double use of the same tax pretty obviously would 
put the Federal Government in a worse hole compared to the 
alternative of actually paying for this in a more 
straightforward manner.
    So, what should we do? I think, first of all, we just need 
to look at this as a broader question and not just related to 
HI. I am just going to mention five things very quickly that 
need to be modernized and updated in Medicare.
    First, the benefit is too fragmented. It needs to be 
modernized. It was created as two parts back in 1965 because 
that was how many insurance plans were designed then, and then 
a third part, the drugs, was added in 2003. It is time to put 
this together into one understandable, coordinated benefit with 
rational cost-sharing. Right now, you have a deductible and a 
co-payment for hospitalizations, which really does not make 
sense. So you need to rationalize the benefit structure.
    Second, the choice structure--how the beneficiaries go 
about picking between the plans that they have available to 
them--needs to be much more clear and seamless and 
straightforward. There needs to be stronger premium competition 
between the available options so that the beneficiaries, when 
they take a lower-priced option, can save money themselves.
    Third, there needs to be price competition among the 
providers--as Dr. Baicker was just describing--some of it being 
part of alternative payment models.
    And finally, I would just note I would move to a 
consolidated trust fund. Instead of having these two trust 
funds, just like the benefit getting combined, I think the 
trust funds need to be combined into one as well, so that the 
financing of the whole program could be clearer and handled 
more straightforwardly across all of the different forms that 
are available.
    Thank you.
    [The prepared statement of Mr. Capretta appears in the 
appendix.]

            OPENING STATEMENT OF HON. BILL CASSIDY, 
                 A U.S. SENATOR FROM LOUISIANA

    Senator Cassidy. Thank you all. I will give my opening 
statement, and then we will begin questioning.
    First, thank you all for joining us. This is a diversity of 
opinion, and I want to thank my chair for agreeing to hold 
this. In fact, this is a debate that we should have been having 
for like 6 years now. And the folks who have been testifying, 
and those who are watching, know this.
    This program goes insolvent in 2026--2026. It is not really 
``years,'' it is more like months--it is years, but it is not 
that many years. And so, thank you all for participating in 
this conversation. We should be addressing this in a more 
serious fashion than we are.
    My staff wrote this, and I will agree with it, that the 
challenge of the lack of sustainability and the looming 
insolvency of the Medicare trust fund are being shrugged off as 
so disastrous that they will not occur. But I am not sure just 
ignoring the problem means that it will not occur.
    Now frankly, there are some who would wish to expand the 
benefit beyond that which we have in a program going insolvent 
in 2026. That does not make sense to me. We have an obligation 
to the people currently being covered, and yet we would expand 
the benefit and maybe have insolvency come even quicker. By the 
way, consequences of insolvency--we all know this, but for the 
record--under current law, it would be an immediate cut to 
providers, roughly 20 to 30 percent, which means just as much 
money coming in would be paid out.
    Now, Dr. Baicker mentioned providers are sensitive to 
costs, to price. I can promise you--I happen to be a doctor, 
you know--when I am getting paid below my costs, I cannot make 
it up on volume. And so, if we are paying somebody 20-percent 
lower than they are currently receiving, which would be below 
their costs, they will not make it up on volume, which means 
that this becomes an issue of access for those who are Medicare 
beneficiaries.
    Now, there are over 60 million Medicare beneficiaries in 
the country. Some would suggest that we do away with cost 
share. I am a doctor. I can promise you, doctors can prescribe 
lots of tests. They can prescribe lots of procedures. And there 
is a lot of data showing that one thing that puts the brakes on 
it is if you have just a little bit of cost share--not too 
much, so the diabetic does not get her needed care--but at 
least a little bit so people think twice.
    It comes to mind, I once had a patient call me, and she 
said, ``Doc, you are my liver doctor--I am a liver doctor--my 
cardiologist ordered a liver test. I have a health savings 
account. I will pay for it if I need it. But do I really need 
it? It is my money.'' I said, ``I am your liver doctor. You do 
not need it.'' So, she did not get it.
    Contrast that with another patient I had who said, ``Oh, 
I''--she was kind of wealthy--she goes, ``I have a bells and 
whistle policy. I do not care what they charge me because my 
insurance covers it all.''
    Now there are consequences of this. My wife, a surgeon, 
once said, ``If you do procedures, inevitably you get 
complications.'' And so, when folks are incentivized to over-
prescribe whatever it is--drugs, procedures, office visits, et 
cetera--inevitably there is an associated rate of 
complications.
    So, we have to get--I think Dr. Baicker referred to this; I 
will use my words, not hers--but this kind of just-right 
measurement of how much cost share we have, without 
overburdening the patient, understanding that measure of 
burdensomeness changes with the individual patient can change.
    We need to encourage them to be cost-conscience, to 
participate in their health care, but not to overwhelm them 
with the cost, which in turn ends up denying health care.
    Now, traditional fee-for-service is a critical source of 
care, but frankly, many regard it as outdated. It does nothing 
to incentivize quality and provider improvement parameters, and 
there is the, quote, ``tragedy of the commons'' where there is 
a consumption motivation by both the patient and the physician.
    And for the folks who think patients do not demand tests, I 
can promise you, I have been in the room with patients who have 
demanded tests which I knew were not necessary. We can quickly 
make a program that is going insolvent in 2026 go insolvent in 
2022, and that is without referring to the motivation that 
might be among those providing the services.
    So this is the state of the program after nearly 60 years 
of painstaking annual benefit and reimbursement negotiations 
involving thousands of people here in Washington, bureaucrats 
if you will, and billions if not trillions of dollars in 
resources, all the while--a key point made by Mr. Capretta--
subjecting beneficiaries to gaps in benefits, and confusing and 
often hidden costs.
    Dr. Kapczynski referred to some of this. We have these kind 
of mandated--the Federal Government has to pay what is charged 
sort of things--and then in Medicare Part D we have this way 
for companies to offload that expense onto the patient. I am a 
patient advocate. That is wrong. We need to fix that, as we 
also attempt to address the other financing challenges.
    It is time to take a modern approach to the way we deliver 
health care. Much of that is going to pertain to how we finance 
health care and an approach that rewards providers for keeping 
patients out of hospital beds--and one that recognizes the 
patient and the doctor, and that relationship, as the ultimate 
arbiter of value, health, and well-being.
    We can get there without disrupting the quality and access 
our constituents need, but the discussion has to begin today.
    I thank you all for participating. With that, Madam Chair, 
I turn back to you.
    [The prepared statement of Senator Cassidy appears in the 
appendix.]
    Senator Warren. Thank you very much, Senator Cassidy. So, 
let's start with round one questions.
    Medicare spends too much money on prescription drugs. The 
program is barred from negotiating prices, which means that 
seniors and taxpayers pay way too much just to improve the 
profits of giant drug companies.
    Build Back Better would change this by giving HHS the 
authority to negotiate the prices of some high-priced brand 
name drugs. That is not all. It would also penalize 
manufacturers that raise prices above inflation, and 
restructure Medicare's drug benefit to make drug companies and 
insurers do more to cover the costs of prescription drugs.
    Now, I am all in for these ideas. These are good ideas. It 
is really great. The drug pricing provisions of Build Back 
Better will save an estimated $297 billion. That is a lot of 
money. But it is not all we can do. We can drive down drug 
costs in Medicare by enforcing current competition laws. Drug 
companies use a host of dirty tricks to limit competition, to 
extend their monopolies, and to keep prices high, and we should 
put a stop to it.
    So, if I can, let me start with you, Professor Kapczynski. 
Econ 101 tells us that a healthy market is one where lots of 
companies compete with each other to attract customers, and 
that that drives prices down.
    Does that describe the current state of the pharmaceutical 
industry?
    Ms. Kapczynski. You know, it really does not--for two 
reasons, really. One is, as with many other industries, we 
really have seen a wave of consolidation in recent decades. And 
this kind of consolidation and concentration in an industry 
does lead to problems, and it can threaten innovation here as 
elsewhere.
    A colleague of mine here at Yale--Florian Ederer--and 
colleagues did a study showing that a substantial number of 
pharmaceutical acquisitions, between 5 and 7 percent, are aimed 
solely at shutting down innovation that competes with the 
portfolio of the company purchasing, and those are killer 
acquisitions, and they affect the development of new drugs.
    But there is a broader problem too, and that is, even 
without traditional kind of industry consolidation, the 
pharmacy industry has monopoly power baked into it, and that is 
because of the role of patents and other kinds of exclusive 
rights that the government grants and that the companies can 
take advantage of. So they can, as you suggest, expend their 
energy not on innovating, but on creating thickets of patents 
around their profitable drugs, delaying generic entry. They can 
abuse the profits that they get, investing in patent lawyers to 
pay their competitors to stay out of the market, those pay-for-
delay deals. And so, we really do not have a market that 
functions in a conventional, competitive way. Instead, it is 
sort of oodles of opportunities to expand and exploit monopoly 
power.
    Senator Warren. So that is really powerful. Let me just 
break that apart into both pieces, first about the 
consolidation in the industry.
    As I understand it, between 1995 and 2015, the 60 leading 
pharmaceutical companies merged into 10. So that is how much 
concentration there was. Drug companies, we know, are getting 
bigger and bigger, which stifles competition and elevates 
prices. But as you say, drug companies do even more to boost 
their profits. So they game the system to extract as much as 
they can.
    And you mentioned about the patent system already baked 
into it, and then on top of that there is the abuse of the 
patent system. So, in a competitive market, we expect to see 
drug companies' fund new scientific discoveries, get a patent 
to protect their monopoly for a few years while they earn a 
rate of return on it that covers their initial expenses, until 
the time runs out on the patent and competitors can get in and 
drive down the price of that drug.
    That would mean that the vast majority of new drug patents 
would be issued for new drugs to be brought to the market. That 
is what a competitive market would look like. And that is how 
the system was supposed to work.
    Professor Kapczynski, is that how the system works? Are new 
patents more likely to be issued for new drugs coming onto the 
market, or are they mostly issued for old drugs that are 
already being sold?
    Ms. Kapczynski. Yes, that is a terrific question. Many 
people think drugs are patented, and that means there is a 
patent on the compound. That is really not the case. So drugs 
are commonly patented with dozens, sometimes even more than 100 
patents, and there may be one on the actual medium, but there 
will be many others, as I said, sometimes dozens, on other 
kinds of things. In the sort of academic literature, we call 
these secondary patents. They are patents on things like a 
formulation, a particular dosage, a tiny alteration in the 
chemical structure that maybe provides no therapeutic benefit 
but that allows another patent that you can then use to sue and 
try to extend the years of life.
    So I did a study about this in 2012 with some colleagues, 
and we found that it is more common for drugs to have patents 
of these trivial sort of secondary types than it was for them 
to have compound patents in particular. And in fact, the 
patents come later, these trivial secondary patents. And so, in 
the study that we did, these patents could extend patent life 
for the drug as a whole anywhere from about 6 to 7 years. That 
is a problem with that kind of evergreening and thickening. 
These are not therapeutic benefits, and you still get 20 years 
for those patents. It adds more years of monopoly, and we can 
see that it happens more with drugs that are more expensive. 
And when you have drugs that can charge Medicare billions of 
dollars a year and you add a couple of extra years onto that, 
of course you get a really serious fiscal problem.
    Senator Warren. So, in other words, the drug companies are 
racing to protect the profits from their old drugs with more 
and more patents, not because there is something special about 
those drugs, but because they want to use the patents--that is, 
this protected period of time--to stop competitors from being 
allowed to make them. And the longer they have a total monopoly 
on the drug, the longer they can keep prices sky-high and rake 
in money from the taxpayers through the Medicare program.
    So, let me just ask you, Professor Kapczynski, is there any 
information on how much some of these tactics cost Medicare?
    Ms. Kapczynski. You know, there is. There have been a few 
studies of this. One found that the drug made by AbbVie called 
Humira, that delayed generic entry for that one drug cost 
Medicare over $2 billion between 2016 and 2019.
    There was another study that just came out about delayed 
generic entry of a multiple sclerosis drug, and that cost 
Medicare up to $6.5 billion in excess spending over 2 years. 
And as you say, this is a problem because the system 
incentivizes companies to do trivial innovation instead of 
really substantial initiatives, costing Medicare billions of 
dollars.
    Senator Warren. So the two drugs that you mentioned, that 
is $8.5 billion in excess Medicare spending, just from two 
drugs.
    So I understand that there is another trick that drug 
companies use, and that is called the pay-for-delay scheme, in 
which they pay potential competitors not to produce generic 
versions of the drug because the generic version would undercut 
prices for their own drugs.
    Professor Kapczynski, is there any research on how much 
these pay-for-delay schemes are costing Medicare?
    Ms. Kapczynski. Yes. There has actually been some research 
on that as well. And once again, we are talking about billions 
of dollars. So, Professor Robin Feldman recently did a study 
that calculated that pay-for-delay deals cost the Federal 
Government between $2.3 and $13.5 billion, as measured by list 
prices. So that is a tremendous savings there as well, if we 
could really curb these attempts to keep generic companies off 
the market.
    Senator Warren. So that could be $130 billion over 10 
years, enough to pay for hearing and vision benefits for all 
Medicare beneficiaries. So I think of this as, imagine if we 
put an end to all these tactics and forced drug companies to 
actually function in a competitive market; we would generate 
even more savings. And that is not counting the savings that 
taxpayers could get from Medicare actually being able to 
negotiate prices.
    This is not something special to the pharmaceutical 
industry. We see in industry after industry, research shows us 
that monopoly power leads to higher prices. And the 
pharmaceutical industry is just no exception to that.
    We should strengthen enforcement of our Nation's antitrust 
laws. We should crack down on anticompetitive behaviors that 
huge drug companies use routinely to keep their prices high. 
And we should save Medicare billions and billions of dollars as 
a result.
    Thank you.
    Ranking Member Cassidy?
    Senator Cassidy. Thank you. Once more, thank you all. It is 
just an impressive panel.
    Dr. Baicker, I sign up my family for insurance. I am a 
doctor, you know--I have been to med school--and I look at that 
array of choices, and the complexity of it is like, oh, my 
gosh, it just takes much longer than it seems it should for me 
to comprehend this.
    Now, you mentioned something which sounds great in theory, 
but I am not quite sure how it would work. How would we vary 
the co-insurance or co-pay for an individual based upon her or 
his ability to pay?
    Now, I guess we have a little bit of that with the dual-
eligibles, with Medicaid paying for those additional payments. 
But clearly somebody who is a gazillionaire would have greater 
tolerance to increased deductibles and co-insurance, and 
clearly somebody who was a retiree on a fixed income less so. 
How can we achieve that which is great in theory but would add 
complexity to a system which is already fairly complex?
    Dr. Baicker. Thank you, Senator Cassidy. That is a great 
question, because I think you are right. The complexity for 
patients makes it much harder not only for them to choose, but 
for them to get any care at all. And on the flip side of that, 
I think complexity for providers makes it much harder for them 
to navigate the system, with different patients and different 
insurance plans. So the implementation of more nuanced cost-
sharing for patients would have to be done on the back end in a 
way that does not inhibit their ability to go in and get care 
at the point of care.
    On the income side, I think we have the infrastructure to 
make that pretty seamless for patients. You could have, you 
know, with the lower-income patients, your cost share in tiers 
could be zero, $5, and $10, for very high-value care, medium-
value----
    Senator Cassidy. Let me ask you--let me interrupt. So you 
are imagining that we would have some sort of immediate access 
to IRS data on your insurance, or I am sure Senator Warren 
would suggest we could have some assessment of the person's 
underlying wealth even if they do not actually report income?
    Dr. Baicker. I think that you could use information 
available, not in real time, but to think about the year ahead. 
Are you in a tier of cost-sharing that is low, or medium, or 
high, based on your reported income, based on your 
participation in other programs? We have a lot more data. We 
could harmonize data across the system--and that is a topic for 
a different hearing--but if we could harmonize data across all 
of our public programs, we could do a much better job of this.
    But I do think that we have the data available to put 
people into different tiers of cost sharing. That would be 
relatively easy. The harder part is then deciding which care is 
of low, medium, or high health benefit. And again, I would not 
expect providers or patients in real time to assess that item 
of care for that person, but the data that we now have 
available through claims data bases, as well as access to 
electronic health records, gives insurers the opportunity to 
design a benefit that, in real time, makes things most 
affordable for patients when that care is of particularly high 
value----
    Senator Cassidy. Let me stop you there. I was going to ask 
a pred of this, but you have just stolen the question, if you 
will. So how do we align that incentive--again, I am speaking 
of the physician who is in the room with a patient, and they 
are trying to figure it out. They are already aggravated with 
preauthorization and the ultimate complexity that the person 
answering the phone is not aware of for this particular 
patient. So how do we align the incentives between the 
patients, the providers, and the payers to get that tradeoff 
between cost and quality?
    Dr. Baicker. The mechanics of it are no small task, so I 
would not want to minimize that. And I would be very happy for 
Jim Capretta to jump in on this, but on the real-time alignment 
side, right now patient cost-sharing is often operating at odds 
with incentives that are intended to help providers focus on 
high-value care. So, imagine that an Accountable Care 
Organization, or a care manager, is supposed to be thinking 
about what is the right kind of care for this patient and wants 
to steer a patient towards a post-acute care to get them home 
fast--and the resources that also result in better outcomes.
    If the patient's cost-sharing is eliminating any kind of 
financial signal there--as you were saying, patients do pay 
attention to those signals--if the patient's cost-sharing is 
completely misaligned with the provider's incentives, any tool 
you try to deploy on the provider side is going to be much less 
effective.
    We see that in Medigap policies. We see that in Accountable 
Care Organizations----
    Senator Cassidy. I am out of time, almost. Jim Capretta, in 
30 seconds, could you give an addendum to that which was just 
said?
    Mr. Capretta. Well, the only thing I would add is that, as 
you said in your opening comments, fee-for-service a lot of 
times can work great, but there is a lot of evidence, and lots 
of studies that show some management of care--that is, some 
system that is trying to look across all of the patient's needs 
for services--does tend to produce higher quality and lower 
costs.
    Now, you have to get the incentive of payment from whoever 
is enrolling that person into managed care right too. That is 
either the government or an employer, basically. But managed 
care can--you know, there is lots of evidence that good managed 
care, the right kind of managed care, can deliver pretty high 
value in the right circumstances.
    And so I would not discount that as a potential opportunity 
here.
    Senator Cassidy. So you feel as if that kind of solves the 
nexus of what I just asked Dr. Baicker?
    Mr. Capretta. Mostly, mostly, but not--you know, mostly.
    Senator Cassidy [presiding]. Some of my physician friends 
are unhappy with that managed care aspect. But we have to move 
on.
    Senator Whitehouse, I believe you are joining us virtually.
    Senator Whitehouse. Yes, I am, and I am delighted to be 
with you. And I will follow up on my friend, Senator Cassidy's, 
questioning, because we overlap quite a lot on this. I was--I 
have been a supporter and defender of MedPAC and worked very 
hard to make sure that CMMI and ACOs got into the original 
Obamacare bill. And I am kind of an amateur delivery system 
reform advocate. So that is where I am coming from.
    I will send all of you a copy of my handy-dandy favorite 
graph right here, which shows on the top line the original 
predicted Federal health-care spend by CBO in 2010 for the 2010 
to 2020 decade, and then, tagged onto the end of that, the 
prediction for 2020 forward.
    And then you compare that to the actual. And what happened 
with the actual is that it came in well below the projections. 
Even with COVID surging health-care costs, it came in still 
well below the projections. And in the next 20 years, the 
projections are that, compared to the original baseline, we are 
going to save $6 trillion in Federal health-care spending.
    And I contend that that comes from delivery system reform--
triple aim--ACOs, getting off of fee-for-service, all the stuff 
that we have been talking about. And I would like to make sure 
that we revive that conversation and figure out what we can do 
to improve ACOs. We have two of the champions both in Rhode 
Island. One was Coastal Medical and the other was Rhode Island 
Primary Care Physicians. They are now integrated into larger 
organizations, but that is how they did the ACO work that made 
them best-in-show Nationwide, and so those are the names I 
still think of them by.
    But we had really, really, really good results with ACOs. 
We are trying to get CMMI to go along with the Rhode Island-
based sort of mini-Statewide ACO-type thing for advanced care 
patients, end-of-life care patients, whatever you want to call 
them, because there are some stupid things that Medicare does 
with payments, if you are at that point in your life and in 
your care. We need to free it up so that it is more patient-
based also.
    So I am really interested in following up this conversation 
to see what your best recommendations would be to do, you know, 
ACO 2.0 to see where we should be pushing CMMI. Liz Fowler used 
to be here in this committee and was Chairman Baucus's lead 
staffer during the Affordable Care Act proceedings, so she 
knows this history very, very well, and is very able. So I 
think we have a big opportunity.
    And as to Bill's questions and mine, I think you could 
basically switch them, other than the Rhode Island State 
references, and you could not tell who asked them. This is 
really bipartisan. And even at our bitterest--you know, repeal 
Obamacare, don't you dare repeal Obamacare, don't you dare--
battles, the ACOs, CMMI, delivery system reform, all of that 
was safe, was unchallenged, was winning and percolating and 
doing well, and doing well in both red and blue States.
    So my purpose in showing up is to enlist all of you in 
giving advice to this subcommittee as to what we should be 
doing to push that $6-trillion number to maybe a $7-trillion 
number, maybe even $10 trillion. But as we have seen over and 
over again, better health-care decisions save money, in 
addition to making patients feel better, and generally making 
doctors feel better about their work. So I think there is a lot 
of opportunity here, and I would like to ask all of you to 
pitch in and help us seize the next level of those 
opportunities.
    And if you have specific thoughts, you have 49 seconds.
    [Pause.]
    Senator Whitehouse. Do you agree that this is a good place 
to go, at least?
    Senator Cassidy. Sheldon, can I interject for a second? 
Because Sheldon and I have talked about this a lot. And I was 
going to follow up with a question, if Senator Daines allows me 
a minute more.
    Senator Whitehouse is pointing out that in the case of 
Medicare Advantage, it is anchored to an unenrolled cohort. So 
the MA plan can improve, but it still makes a profit because it 
is anchored to an unenrolled cohort.
    So, Dr. Chernew, this may be a question for you. Whereas 
ACOs, the more they save, the less margin there is to save, and 
so therefore their upside becomes less and less. If you will, 
it disincentivizes further improvement. So I think, Sheldon, 
that is what I gathered your concern is.
    Senator Whitehouse. We had some jolly wars with the Obama 
administration about punishing rather than feeding the lead 
dogs, and basically trying to get them into a situation in 
which no further gains could be extracted. And even if they 
were way more efficient than their next-door physician groups, 
they were punished for that. So there were some very 
unfortunate decisions that were attempted to be made during the 
Obama administration, but I think we fended off the worst of 
them, and it all actually turned out pretty well, though there 
was a lot of hard work for the ACOs to plow through.
    Senator Cassidy. So, Dr. Chernew, is there a way, as 
Sheldon presented the problem, as I kind of elaborated on in my 
interpretation of it, is there a way to address the fact of a 
diminishing return for the greater quality you get?
    Dr. Chernew. So first, thank both of you for your question. 
Actually, I enjoyed listening to your discourse. Let me start 
by saying that it is pretty well acknowledged that there is 
inefficient care delivery in the fee-for-service system, and 
that the fee-for-service payment model is not well-suited to 
get rid of a lot of that inefficiency. And I think, as you both 
were discussing, the ACO program offers some promise. MedPAC in 
general has been very supportive of this direction of payment 
reform, and we have been actually having discussions about 
exactly how to solve that problem with benchmarking. We call it 
the ratchet effect. The better you do, the less you get paid in 
the future. And we will be having a report published in June to 
address that specific issue. The sort of foreshadowing of 
results is, yes, I do believe there are ways in the regulations 
that you could address that problem. More broadly speaking, 
payment reform is particularly important. The trick is to get 
the regulations right to provide the incentives for efficient 
delivery of care and maintaining quality care. What we have 
seen so far, I think, has been success of alternative payment 
models, but honestly, not a ton of success. And through, I 
believe, appropriate changes to regulations as MedPAC is now 
discussing, we can do a lot better and make sure that the way 
in which we pay providers is not an impediment to the efficient 
delivery of care that we need, if we are going to maintain 
fiscal sustainability and manage it properly.
    Senator Whitehouse. Okay. So my favorite illustration of 
this is, we have an insurance company in Rhode Island, a 
neighborhood health plan, that deals with a lot of the lower-
income population, Medicaid and so forth, and a new CEO came in 
and he went through all their frequent flyers at the emergency 
departments, and he sent social workers to go talk to all of 
them.
    And one social worker came back and said, ``Hey, boss, I 
think if we buy this guy an air conditioner and a TV, we can 
probably reduce his appearances in the emergency department 
quite a lot. He is running about, you know, $230,000 a year 
now, because he has a few conditions, and when he goes in, they 
find something, and they have to deal with it, and around and 
around you go. But he seems to be going just because he is hot 
in the summer and lonely.'' So, yes, here is a couple of 
hundred bucks, go to Walmart and get an air conditioner, get a 
TV. And sure enough, he went from--I am making up the numbers 
now, but, you know--20 emergency department visits to 2. And 
they saved hundreds of thousands of dollars.
    Now it is really hard to create air conditioners and 
televisions as a benefit. It is really inefficient to do that. 
But if you let people who know the patient make some choices 
like that, and you allow the cost--you know, if the social 
worker had to buy the TV and the air conditioner herself, that 
would be pretty expensive----
    Senator Cassidy. Okay, Sheldon, I have to move on to 
Senator Daines.
    Senator Whitehouse. Okay; that is just one way to improve--
--
    Senator Cassidy. Okay.
    Senator Daines?
    Senator Daines. Dr. Cassidy, thank you. And thank you for 
holding this hearing. I was also enjoying the back-and-forth.
    There is no question that Medicare provides critical 
support to seniors and people with disabilities in my home 
State of Montana. Tens of millions of Americans rely on this 
program. It is bringing access to affordable medical care. And, 
unfortunately, the major changes in demographics and rising 
health costs have placed this program on an unsustainable path. 
I think that is why we are here today.
    The numbers that I just looked at yesterday are very 
concerning. Looking back at 2020, Medicare spent $925 billion 
on medical services for American seniors, but the program 
collected less than half of that amount in payroll taxes and 
monthly premiums. So, if you look at where the rest of the cost 
is covered, about $400 billion is picked up by the Federal 
taxpayer. This taxpayer-funded amount is going to grow every 
year.
    It is troubling news, as we saw what just came out in the 
last 24 hours: our Federal debt just hit $30 trillion for the 
very first time. To make matters even worse, the hospital 
insurance trust fund, which pays for seniors' hospital bills 
and other services--its depletion is projected now to be in 
2026. That seemed like a long time in the future years ago, but 
it seems very close today. We may need to come together to save 
and strengthen Medicare for my generation, and of course for 
those to follow.
    Ten years ago, the chairman of this committee, and the 
House Budget Committee chairman Paul Ryan, unveiled a proposal 
to reform Medicare--10 years ago. It seems like just a few 
years ago, but it was 10 years ago. It was a major effort to 
recognize the need for structural reforms to ensure Medicare's 
solvency.
    The Ryan-Wyden plan was designed to protect the program, 
lower costs for consumers, and help control costs through 
competition and choice, all without cutting benefits. At the 
end of the day, reaching a bipartisan consensus on modernizing 
Medicare through such structural reforms, alongside 
prescription drug reforms and delivery of care reforms, is 
going to be critical in ensuring that Medicare remains a 
guaranteed option for seniors in my home State of Montana and 
across the country.
    Going back to the Clinton Medicare Commission's 
recommendations in 1999, 23 years ago, there have been numerous 
bipartisan proposals to improve the solvency of Medicare and 
protect it for our Nation's seniors.
    My question, Mr. Capretta: could you elaborate, if you were 
to pick one, two, or three reforms you would want to recommend 
to this committee to pursue, what might they be?
    Mr. Capretta. Well, the first one I would start with is the 
one you just described, which is essentially--I think some 
people disparage it a little bit with this term--but it is 
called premium support, which is the Congressional Budget 
Office's model. In my written testimony, I describe how that 
would work.
    Basically, it would be to, in a very standardized way--
getting back to Senator Cassidy's point earlier about confusing 
choices, you have to present to the beneficiary the very clear 
standardized options for both the traditional coverage in 
Medicare, for their D coverage for drugs, and for supplemental 
benefits. All that needs to be standardized so they can 
identify very clearly that the premium differences between the 
options are strictly based on efficiency of care delivery and 
not differences in benefits.
    So you have to standardize what they are looking at, and 
then bring competition into it, so to say, if they pick a 
lower-priced option, they get to save some of the premium 
themselves. That is the essence of premium support.
    And the Congressional Budget Office has estimated that it 
would save about 8 percent relative to current law spending. 
And the beneficiaries would save about 5 percent, if you based 
the contribution toward the coverage at the average premium.
    So I think there is a lot of promise there. It is 
controversial in some ways. It has been done on a bipartisan 
basis periodically. I do not think it needs to be 
controversial, because these choices are already there. There 
is already some level of competition. It is a way of organizing 
it better so it is more clear what the competition is aimed at, 
and that is, cutting premiums for the beneficiaries.
    Senator Daines. So that is a great recommendation. I have 
30 seconds here. If you were to give us your second round draft 
pick, what might it be?
    Mr. Capretta. I think there should be more provider 
competition along the same lines, that is, even for those in 
fee-for-service. If they select a practitioner who is going to 
charge less for a service, I think we ought to let the 
beneficiaries save some of their money, regardless of where 
they are in the cost-sharing scheme or the deductible. In other 
words, get more price transparency going. Get more bundled 
pricing going. And then, when the beneficiary picks that hip 
replacement surgery that is less expensive, why not let them 
keep some of the savings too, regardless of where they are in 
their deductible?
    I think if you want competition on pricing and to get 
revealed pricing that is more relevant than just regulated 
pricing, those are the kinds of ideas you have to pursue.
    Senator Daines. Thank you. And one of the words I have 
heard a few times tossed around here, and I believe it is 
always part of the solution, is the word ``incentive.'' 
Incentivizing better outcomes, lower costs. I think we will 
see, at the end of the day, it is going to be an important part 
of what we do here to change the system to save this important 
safety net.
    Thank you.
    Senator Warren. Thank you, Senator Daines.
    So, we were talking earlier about drug companies, but they 
are not the only ones who have figured out how to game the 
rules and drive up costs. A few decades ago, Congress started 
letting private insurance companies administer Medicare for 
seniors who opted in. The insurance companies claimed--when 
they were first getting permission to do this--that they would 
run Medicare better than the Federal Government. More benefits 
at less cost; that was the promise.
    But over the past 12 years, Medicare Advantage, the part of 
Medicare where insurance companies have the biggest role, has 
actually cost the Federal Government $143 billion more than 
traditional Medicare. Meanwhile, insurance companies have 
soaked up literally billions and billions of dollars in profits 
from undertaking this.
    Now, one serious problem is how Medicare pays insurance 
companies. So let's imagine a specific patient who goes to the 
doctor for her heart murmur. It turns out that this patient had 
shoulder surgery a few years ago. She also has exercise-induced 
asthma.
    Dr. Chernew, would the patient's surgical history or her 
asthma diagnosis affect how her doctor gets paid for this visit 
in traditional Medicare, if she is covered by traditional 
Medicare?
    Dr. Chernew. No. In fee-for-service----
    Senator Warren. Dr. Chernew?
    Dr. Chernew. I am here.
    Senator Warren. There you go. Go ahead.
    Dr. Chernew. Sorry. No, in fee-for-service, physicians get 
paid for the visit and related tests and services that they 
provide, which in this case would likely be limited to the 
patient's heart murmur or whatever conditions they went in for, 
not a bunch of conditions that happened in the past that they 
were not being treated for at the time of the visit.
    Senator Warren. Okay, so let's keep building on this. In 
traditional Medicare, doctors are paid for the services they 
provide. For this patient, if her doctor does not need to take 
an X-ray of her shoulder, or prescribe her a new inhaler for 
her asthma, then those diagnoses may not even appear on her 
record. That could mean that doctors in traditional Medicare 
under-report diagnoses, but Medicare Advantage has the opposite 
problem.
    Dr. Chernew, how would discovering those additional two 
diagnoses change the way that Medicare pays Medicare Advantage 
for patient care?
    Dr. Chernew. Sure. So because Medicare Advantage gets paid 
more for patients who have more diagnoses--at least in the 
following year they get paid more--they would generally get 
paid more if they are able to record more diagnoses.
    If I could, let me illustrate with a slightly different 
example, which is the work of a colleague of mine, which 
suggests that for every 100 patients in fee-for-service with 
congestive heart failure, only about 75 percent have reported 
congestive heart failure in the following year. Because 
Medicare Advantage plans have the financial incentives, they 
devote resources to identifying those patients. And by adding 
that code, the plans therefore get paid more from identifying 
undiagnosed congestive heart failure, or preventing previously 
diagnosed congestive heart failure from dropping off in 
subsequent years. And that leads to higher Medicare Advantage 
payments, because the risk adjustment system, as you pointed 
out, is poorly calibrated.
    Senator Warren. Okay. So this risk adjustment means that 
payments are going to go up. And I guess the underlying logic 
is that a sicker person is going to use more health-care 
services, so Medicare is going to compensate for the additional 
risk. But I take it that what you are saying, Dr. Chernew, is 
that having a higher risk score in Medicare Advantage does not 
necessarily mean that the patient is either going to get more 
care or better care. Is that what you are saying here?
    Dr. Chernew. They might not necessarily get more or better 
care, or they might. It is a calibration issue. But, yes, you 
are correct. Those added codes may not actually be treated. 
That is true.
    Senator Warren. Okay. And Medicare Advantage plans, they 
are not finding new diagnoses so they can help people get more 
care; they are doing it so they can make more money from 
Medicare, because that is how the system is set up.
    In fact, an entire industry has been created to help them 
do exactly that. And as a result, Medicare ends up paying more 
for a beneficiary's care in Medicare Advantage than it would 
pay for exactly that same beneficiary's care in traditional 
Medicare.
    So, Dr. Chernew, you have studied this for a long time. If 
the Federal Government cracked down on these insurance company 
practices, how much money would it save Medicare?
    Dr. Chernew. So the Medicare program already takes some 
money out to adjust for this miscalibration. The Commission 
believes that that's insufficient. And so, if you took out 
another 3 to 4 percentage points, for example, which is our 
estimate of the added payment, in 2021 you would have saved 
about $10 billion.
    Senator Warren. Wow. And you know, I actually--we were 
looking into this, my team and I. It turns out that other 
experts have even put the number higher. Some say as high as 
$600 billion over the next 8 years.
    Think about it. That one change alone creates more money 
than the hospital insurance trust fund's entire projected 
shortfall through 2031. And that isn't even the only scam that 
Medicare Advantage plans use.
    We could save almost $200 billion more by eliminating some 
of the other tricks that Medicare Advantage plans use to 
squeeze money out of Medicare. That would be enough to make a 
down payment on lowering the Medicare eligibility age, or 
adding dental benefits to Medicare.
    Insurance companies have promised more competition and 
lower costs for decades. But instead, they have cost the 
Medicare program billions of dollars. And that is because the 
goal of giant insurance companies is not to save the government 
money; the goal is for the insurance companies to make profits 
for themselves. And more often than not, they do that by 
ripping off the Federal Government and denying people the care 
that they need. I think it is time for Congress to put an end 
to this kind of corporate profiteering.
    So ordinarily, at this point I would hand the questions 
back over to Senator Cassidy, but we are trying to manage votes 
at the same time. So Senator Cassidy is not here. So I am going 
to turn around and go to another round of questions. I am not 
going to let you all waste any time at all.
    So here is where I would like to start on this one. And 
that is, in 2019 the Trump administration announced a new 
Center for Medicare and Medicaid Innovation, CMMI, initiative 
to allow private plans to use the same scams that they 
perfected over in Medicare Advantage and import those into 
traditional Medicare, once again driving up costs for 
taxpayers.
    Now, under CMMI's Direct Contracting model, Medicare 
beneficiaries will be assigned to a Direct Contracting Entity. 
We heard about this earlier in direct testimony here. These are 
called DCEs. And like the insurance companies in Medicare 
Advantage, DCEs will receive a fixed payment to cover the 
beneficiary's care. But then they get to pocket virtually all 
of the money that they do not spend on patient care.
    This has set off a global gold rush on Wall Street. 
Beneficiaries are enrolled in DCEs based on their primary care 
provider, so insurance companies, private equity firms, and 
institutional investors are scooping up primary care practices 
so that they can get in on the deal. And these investor-owned 
doctor practices use the same playbook as Medicare Advantage to 
squeeze more money out of Medicare.
    Dr. Rogers, you spoke about this. You have studied this. Of 
the 53 Direct Contracting Entities that CMMI has already 
approved, how many are owned by private investors and insurance 
companies, as opposed to hospitals, doctors, and other health-
care providers?
    Dr. Rogers. Thank you, Senator Warren, for this question. 
There are 28 DCEs that are investor-owned, and there are 6 that 
are owned by Medicare Advantage insurers. So these are the ones 
that are there for the profit. And to me, there is clearly a 
conflict of interest if you are there to provide health care, 
but your mission is to make money.
    It is a conflict of interest, and it is not going to ever 
be equal. And unfortunately, the people who are going to lose 
are patients. Denial of care is the way they will control 
costs. They will limit access, employ preauthorization--there 
are a lot of mechanisms that are there.
    One of the things that has been done too--and we talked 
about the up-coding and how patients are made to look sicker. 
It is embedded in the software. So, as a physician, I cannot 
sign off on a chart until I have checked enough boxes so that 
they can up-code.
    Senator Warren. Wow.
    Dr. Rogers. It is part of the infrastructure now, so even 
though that is not what I want to diagnose them with as their 
provider or their physician, it is embedded there in the 
structure.
    Senator Warren. And this is by design. I mean, what you are 
talking about when you say it is embedded in the structure--the 
majority of these DCEs are investor-owned. And CMS has said 
that one of its goals for the Direct Contracting model is to 
bring in organizations, and I'm going to quote them here, 
``that currently operate exclusively in the Medicare Advantage 
program,'' to bring that into traditional Medicare. And to make 
the deal even more attractive for these private actors, CMMI 
has weakened key guard rails that will allow insurers and 
investors to pocket even more profits through the Direct 
Contracting model than they can now do in Medicare Advantage.
    So let me ask another question around this. Under Medicare 
Advantage, plans are legally required to spend at least 85 
percent of their revenues on patient care. Essentially, it sets 
a 15-percent cap on total profits.
    So, Dr. Rogers, does the same cap exist in DCE programs?
    Dr. Rogers. Well, it is a very much smaller cap, I can tell 
you that, because the DCEs only have to be--they can keep up to 
60 percent.
    Senator Warren. That's right. So in other words, they can 
make 40 percent in profits.
    Dr. Rogers. They need to spend 60 percent. I had that 
backwards. They need to spend 60 percent. But they are able to 
take 40 percent. So that's--I mean, when we talk about trying 
to control costs, they are not adding anything to care. These 
are investors. They know nothing about health-care delivery. 
These are investors who are making money. And to me, I think 
health care should be off the buffet table when investors come 
in and decide what they want to put on their plates.
    Senator Warren. I want to say on this, I support 
coordinated care, and I appreciate the potential that 
coordinated care models have to lower costs and improve the 
quality of care. But give me a break on what's happening here.
    Wall Street is not racing to buy up clinics because they 
want to expand coordinated care models and limit profits. 
Private-equity insurance companies want the eye-popping profits 
that are possible when the Federal Government lets them pocket 
whatever it is they can avoid spending on seniors and people 
with disabilities who need health care.
    So, Dr. Rogers, right now, as you know, we are in the 
demonstration project phase on this. If this demonstration 
project is allowed to proceed, does it effectively amount to a 
privatization of Medicare?
    Dr. Rogers. Totally. Totally. If you look at our health-
care system now, Medicaid is very much privatized. Private 
insurance is privatized. And then the other big one is 
Medicare, which is becoming privatized. And by ``privatized,'' 
I mean public monies are going into an entity and giving total 
control of those dollars to that entity. That is complete 
privatization.
    Senator Warren. So privatization--and let me just ask: over 
the 35-year history of Medicare managed care, including 
Medicare Advantage, have these private-sector arrangements ever 
delivered the cost savings that taxpayers were promised when 
the plan started?
    Dr. Rogers. Never. Never. Never. They have been paid 
billions, and in fact the managed care companies have been paid 
hundreds of billions more than if people had been in 
traditional Medicare.
    Remember, traditional Medicare has an overhead of 2 
percent. There is nobody working in DC and in CMS who is making 
millions of dollars a year as their salary. So you have a whole 
different system in the private system, and that is where all 
the money is going. And even if we look 8 years ahead, because 
CMMI, they want to move everybody enrolled in traditional 
Medicare to the DCEs. And by 2030, that will cost us more than 
$600 billion.
    We forgot about providing care. I mean, this is--you know, 
it is all about making money.
    Senator Warren. Thank you, Dr. Rogers.
    It is completely baffling to me that the Biden 
administration wants to give the same bad actors in Medicare 
Advantage free rein in traditional Medicare. Without 
intervention, the 53 existing DCEs will enroll as many as 30 
million of the 36 million beneficiaries who are now in 
traditional Medicare. That means that 80 percent of traditional 
Medicare will be privatized. And the new owners of Medicare 
will use the same scams they have been using for years in 
Medicare Advantage to drive up the costs of traditional 
Medicare.
    My view is that President Biden should not permit Medicare 
to be handed over to corporate profiteers. Doing so is going to 
increase costs and put more strain on the hospital insurance 
trust fund. The Biden administration should shut down the 
Direct Contracting model immediately.
    And I see that Senator Cassidy is back, and Senator Cassidy 
is recognized.
    Senator Cassidy. Dr. Kapczynski--I apologize; I keep on 
mangling your name--I apologize, but I am sure I am not the 
first person----
    Dr. Kapczynski. Not at all. [Laughter.]
    Senator Cassidy. You know, you raised an interesting issue 
of Humira as an originator drug, and yet it really should be 
replaced with a lower-cost option, but it is not. We are paying 
a lot of money for that.
    Now, one thought that has been raised to encourage patients 
to convert to a follow-on biologic similar, a follow-on drug, 
would be to gain-share. If there is a price here for the 
originator drug, and a price here for the biosimilar, you would 
gain-share both the physician and the patient so that they 
would share in the savings that accrue. And the idea is that 
that is a way to motivate people. What thoughts do you have 
about that?
    Dr. Kapczynski. So I think it can be helpful to encourage 
substitution of generics and biosimilars where we do not have 
any difference in the drugs. We just know that we have new 
entrants on the market, and sometimes they have brand 
recognition, things like that, that otherwise are kind of a 
barrier to patients getting more affordable drugs.
    So I do think that that is something that we should be 
thinking about. That said, I think that the way that the patent 
system works, sometimes we do not even have competitors on the 
market.
    Senator Cassidy. I am totally with you on the patent 
thickets. I am with you on that. But let me just kind of 
continue on this line of thought.
    Mr. Capretta, MA plans, if you will, somewhat gain-share 
with patients by adding different benefits--the health club 
benefit, for example--and lowering premiums. But as far as I 
know, there is no gain-share in which there is cash deposited 
into an account which they could use to make their own 
decisions.
    I say that because I think Dr. Chernew's testimony spoke 
about how some of the benefits of the MA plans are not really 
used by the beneficiaries as much. But if they had their own 
fund which they could use--for example, to pay for over-the-
counter drugs--that might be more meaningful to them.
    If we take the same sort of concept, the gain-sharing, as a 
way to reward patients and providers for making better 
decisions, what do you think about applying that to Medicare?
    Mr. Capretta. I completely support that. I would note that 
MA plans are allowed under current law to rebate against the 
Part B premium, and so there is the opportunity for that to 
some degree.
    But I have to say, there have been many studies of this. 
And most MA plans don't go that direction. They go down to a 
zero premium. And if they could offer a rebate, they instead 
offer supplemental benefits, much of which are very difficult 
for the beneficiary to quantify and translate into their value 
in a premium. Maybe that is what you are getting at in terms of 
what Michael said.
    So I think we need to make these choices more transparent 
for the beneficiary when they actually have an opportunity to 
make a choice, so that when they pick the MA plan, they can 
save money in the premium with an apples-to-apples comparison 
with traditional Medicare. And then also, as you indicate, when 
they are using the individual services, we should work with the 
MA plans through the regulatory structure to say you should be 
allowing them to save money too, when they pick lower-priced 
providers, even below what you have negotiated with them.
    So you know, we need to get some more transparency going in 
the pricing of the premiums, and also in the pricing of the 
individual services, and of course drugs and devices as well.
    Senator Cassidy. Dr. Baicker, I used the example from the 
private insurance market of the health savings account, and I 
gave the example of the patient calling me, and you are my 
liver doctor, and all of that. And so the fact that she was 
spending her own money really motivated her to get in touch 
with me and to make a wise decision. Kind of that nexus you are 
describing about cost and quality.
    Now just a thought experiment. I'm just kind of--this is 
stimulating--this conversation has stimulated this thought. If 
you are able to gain-share with the patient so that maybe some 
benefits which she may not think are important to her would be 
replaced by an account which could only be spent upon health 
care; again, imagine a dental service without having dental 
insurance, or being able to pay for the over-the-counter drug. 
Is there sufficient data that we could intuit that that would 
help us solve this kind of conversation between the provider 
and the patient regarding necessity and quality, understanding 
that, to an extent, the patient would be the payer?
    Dr. Baicker. I think we have evidence that value-based 
insurance design, where patients are paying based on their 
ability to pay, but also on the value of the service, can 
actually result in better effectiveness and better health 
outcomes. But it has to be based on good information, and also 
based on the providers knowing what the patient needs for the 
next step in care. And that is not the way the system works 
right now. But patients having more stake in it would help make 
the provider-side incentives more effective and would help give 
the patients more choice. And there is a lot of evidence as 
well that patients have very different preferences. If you ask 
people about their priorities, some people would really like to 
have lower co-payments and a more restrictive network. Some 
people would rather have more expansive networks and higher 
premiums. But there is some return to that choice for that 
patient in making sure the dollars are spent where they are 
valued the most.
    There is also system-level benefit and spillover through 
creating efficiency in health. When incentives lead to some 
patients being treated more effectively, that can benefit 
others who need similar treatment, or other patients who are 
seen by that set of providers or in that hospital system.
    Senator Cassidy. So you are still emphasizing, rightly I 
think, the role to have the systems' approach to how the 
patient is managed, but at the same time, accepting that part 
of that could have the patient have this model where she saves 
a little money if she chooses a less expensive option. But the 
physician has to be held accountable to make sure that it is 
still high-value care, not just cheaper for the sake of being 
cheaper. Am I summarizing well enough?
    Dr. Baicker. Absolutely. The patient has to reap benefits 
in terms of more affordable care, and care that better matches 
her preferences. The provider has to reap benefits in order to 
allocate resources to the places that have the highest value 
for the system to reap benefits.
    Senator Cassidy. And one thing--and my chair has been very 
tolerant of my going over. Way back when I reviewed the 
literature, and it has been a while, the concept of an engaged 
patient, I just happen to know, again from my practice, 
whatever the economic circumstances of my patient--and I worked 
in a hospital for the uninsured--if she or he was engaged, and 
you could measure engagement, the outcomes were better. They 
were more likely to adhere to their insulin. I am sure Dr. 
Rogers would agree with this. They were more likely to take 
their blood pressure medicine, if they were engaged. And one 
thing that I know the literature points out is, engagement is 
also enhanced by the patient having some sort of financial buy-
in, if you will.
    And that comes in a variety of forms, but the health 
savings account is a classic one, as I spoke of in my example 
of a patient, that if she has a little bit of dollars that she 
has to spend, then she is going to scrutinize more carefully. 
Do I remember that literature correctly?
    Dr. Baicker. Yes. I think there is a big behavioral 
economics literature pointing to the importance of patient 
engagement and how these tools can help. And patient incentives 
do not need to be just in the form of higher co-payments; they 
could also be rebates to patients to achieve lower costs and 
more effective patient care. And there is some evidence that 
sending patients checks in the mail is another powerful way to 
engage their thoughts about where care is really valuable.
    Senator Cassidy. So I will finish with this. Your last 
statements suggest that you agree with Dr. Kapczynski that if 
we manage to gain-share with the patients and choose a follow-
on biologic, as opposed to an originator drug, that would be a 
way to move behavior while maintaining quality of care. So I 
think we went far from that original point, but I think we 
ended up there as well.
    Madam Chair?
    Senator Warren. Thank you, Senator Cassidy.
    And I ask for unanimous consent for Senator Burr to be able 
to submit a statement for the record. Hearing no objection, so 
ordered.
    [The prepared statement of Senator Burr appears in the 
appendix.]
    Senator Warren. I want to thank Senator Cassidy for being a 
great partner in the two of us putting together this hearing 
today. It has been enormously valuable. We covered a lot of 
topics, and I think we covered them with some data and some 
clarity, and I appreciate that.
    I want to thank our witnesses. I really appreciate your 
being here.
    For Senators who wish to submit questions for the record, 
those questions are due 1 week from today. That is Wednesday, 
February 9th. And for our witnesses, you will have 45 days to 
respond to any questions. And again, thank you very much for 
the work that you have done in this field, all of you, for a 
very long time. And thank you for being with us today.
    And with that, this hearing is adjourned.
    [Whereupon, at 4:09 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


Prepared Statement of Katherine Baicker, Ph.D., Dean and Emmett Dedmon 
    Professor, Harris School of Public Policy, University of Chicago
            sustainability and value in the medicare program
    My name is Katherine Baicker, and I am dean of the Harris School of 
Public Policy at the University of Chicago and a health economics 
researcher. I would like to thank Senator Warren, Senator Cassidy, and 
the distinguished members of the committee for giving me the 
opportunity to speak today about sustainability and value in the 
Medicare program. I serve on a number of boards and advisory panels, 
but am presenting my own views. This statement draws on several pieces 
I have written in this area, as well as research conducted by many 
others.

    The importance of access to health care and the financial 
protections that insurance should provide have never been more salient, 
and Medicare is a vital part of our health-care system for millions. 
Ensuring that Medicare maximizes health benefits within a financially 
sustainable system requires careful attention to insurance design and 
balancing tradeoffs across multiple dimensions of coverage and payment 
structure.
Payment Models to Promote Value
    Moving towards models of paying for value, rather than volume, is a 
crucial step in ensuring that health-care resources are well spent. As 
Michael Chernew and I have written,\1\ there are promising strategies 
for improving quality and reducing ineffective spending that rely on 
reforming the way we pay for health care to align providers' incentives 
to improve value. Providers' judgment is crucial in finding ways to 
reduce waste and help patients chose the most efficient sites and types 
of care based on their health-care needs. Giving providers a financial 
stake in driving value can be much more effective than reforms that 
focus solely on patients' incentives or rely on inflexible government 
coverage rules.
---------------------------------------------------------------------------
    \1\ Baicker, Katherine and Michael Chernew, ``Alternative 
Alternative Payment Models,'' JAMA Internal Medicine 177, no. 2 (2017 
February 1): 222-223.

    There have been a number of experiments with promising mechanisms, 
but these have been implemented in limited ways and with limited 
financial consequences--and thus with limited effects. Some payment 
models focus on episodes of care, using bundled payments to incentivize 
providers to limit spending during the episode while achieving quality 
benchmarks. The savings usually accrue to the hospital or specialist 
responsible for the episode. Evidence on the effectiveness of such 
models is mixed. Some studies suggest that bundled payments for joint 
replacement may reduce spending--both for the patients covered by that 
payment model and for others treated by the same 
providers.\2\, \3\ Much of the savings may derive from 
reductions in post- acute care utilization, highlighting the importance 
of how broadly bundles are defined.\4\ Other studies find much smaller 
changes in spending.\5\ Attention needs to be paid to incentives to 
select healthier patients or shift costs of care downstream, as well as 
to the ``extensive margin'' of the number of bundles, not just the 
``intensive margin'' of the cost per bundle--the risk of offsetting 
volume increases. Furthermore, bundled payments as currently 
constructed cover only a small fraction of Medicare spending, and 
savings to date have been driven by a small subset of episode 
types.\6\, \7\
---------------------------------------------------------------------------
    \2\ Finkelstein, Amy, Einav, Liran, Ji, Yunan, and Mahoney, Neale, 
``Randomized Trial Shows Healthcare Payment Reform Has Equal-Sized 
Spillover Effects on Patients Not Targeted By Reform,'' PNAS 117, no. 
32 (2020 August 11): 18939-18947.
    \3\ Finkelstein, Amy, Ji, Yunan, Mahoney, Neale, and Skinner, 
Jonathan, ``Mandatory Medicare Bundled Payment Program for Lower 
Extremity Joint Replacement and Discharge to Institutional Postacute 
Care Interim Analysis of the First Year of a 5-Year Randomized Trial,'' 
JAMA 320, no. 9 (2018): 892-900.
    \4\ Navathe, A.S., Troxel, A.B., Liao, J.M., et al., ``Cost of 
Joint Replacement Using Bundled Payment Models,'' JAMA Internal 
Medicine 177, no. 2 (2017): 214-222.
    \5\ Dummit, L.A., Kahvecioglu, D., Marrufo, G., et al., 
``Association Between Hospital Participation in a Medicare Bundled 
Payment Initiative and Payments and Quality Outcomes for Lower 
Extremity Joint Replacement Episodes,'' JAMA 316, no. 12 (2016): 1267-
1278.
    \6\ Urdapilleta, O., Weinberg, D., Pedersen, S., Kim, G., Cannon-
Jones, S., Woodward, J., ``Evaluation of the Medicare Acute Care 
Episode (ACE) Demonstration: Final Evaluation Report,'' (2013): http://
downloads.cms.gov/files/cmmi/ACE-EvaluationReport-Final-5-2-14.pdf.
    \7\ Dummit, L., Marrufo, J., Marshall, J., et al., ``The Bundled 
Payments for Care Improvement Initiative Models 2-4: Year 2 Evaluation 
and Monitoring Report,'' (2016): https://innovation.cms.gov/Files/
reports/bpci-models2-4-yr2evalrpt.pdf.

    Other approaches focus on total population spending, such as 
Accountable Care Organizations. These models provide incentives for 
provider groups to reduce per-capita spending and improve quality. The 
savings generally accrue to the organization that employs the primary 
care provider. Population-based payments have the potential to cover a 
greater share of spending and thereby have a bigger impact 
system-wide, although savings to date have been modest.\8\
---------------------------------------------------------------------------
    \8\ McWilliams, J.M., ``Savings From ACOs--Building on Early 
Success,'' Annals of Internal Medicine (2016): http://annals.org/aim/
article/2566329/savings-from-acos-building-early-success.

    It is important to note that the Medicare program doesn't capture 
all of the savings in either model--a large share of savings are 
``shared'' with providers. Potential savings to the Medicare program 
depend on how the benchmark payments are set. In the episode-based 
models, benchmarks are often set a bit below estimated spending, 
guaranteeing that Medicare will reap some savings, but any greater 
savings would go to providers. The share of savings providers get to 
keep--and their risk of loss--drives the incentives to improve 
efficiency. Over time, savings to Medicare could grow if benchmarks 
rose more slowly than they otherwise would. As discussed below, 
Medicare Advantage is an increasingly attractive option for 
beneficiaries, giving beneficiaries a choice among private plans that 
often come with expanded benefits, more active management, and 
limitations on provider networks. None of these alternatives seems to 
lower the quality of care, but both payment structure and risk 
adjustment should be constructed with an eye to promoting quality and 
access.\9\, \10\, \11\
---------------------------------------------------------------------------
    \9\ McWilliams, J. Michael, Hatfield, Laura, Chernew, Michael., et 
al., ``Early Performance of Accountable Care Organizations in 
Medicare,'' New England Journal of Medicine 374 (2016): 2357-2366.
    \10\ Baicker, Katherine and Jacob Robbins, ``Medicare Payment 
Policy and System-Level Health-Care Use: The Spillover Effects of 
Medicare Managed Care,'' American Journal of Health Economics 1, no. 4 
(2015 Fall): 399-431.
    \11\ Baicker, Katherine, Chernew, Michael, and Robbins, Jacob, 
``The Spillover Effects of Medicare Managed Care: Medicare Advantage 
and Hospital Utilization,'' Journal of Health Economics 32, no. 6 (2013 
December): 1289-1300.

    Alternative coverage and payment models could thus be substantial 
improvements over the fee-for-service system that dominates Medicare 
now, but the effectiveness of these tools will depend on having broad 
scope and real financial stakes; and the way that payments are 
calibrated will drive the share of any savings that accrues to the 
Medicare program (taxpayers), providers, and patients.
Patient Choices and Financial Protection
    Another driver of access, utilization, and value is the set of 
cost-sharing and coverage parameters faced by patients--what services 
are covered, which providers are included, and how much patients are 
expected to pay out-of-pocket. Patient cost-sharing is often perceived 
as merely a mechanism to shift costs to patients that results in 
restricted access to needed care, but more nuanced use of patient cost-
sharing can be a powerful way to promote better use of health-care 
resources without creating barriers to needed care.\12\
---------------------------------------------------------------------------
    \12\ Baicker, Katherine, ``Rethinking Health Insurance Design,'' 
JAMA Health Forum 2, no. 5 (2021 May 13): e211440.

    The traditional economics model is based on patients having 
detailed information about the value of care options and the ability to 
implement choices that fully incorporate their preferences and 
priorities. Health insurance protects patients against the financial 
risk of needing expensive care,\13\ but it also generates use of care 
that is of lower value by insulating patients from having to pay the 
true cost of care (which they would only do if it was worth it to them 
in terms of improved health)--described as ``moral hazard'' by 
economists. There is ample evidence that higher copayments do reduce 
the use of health care.\14\, \15\ Patient cost-sharing would 
ideally balance the positive effect of risk protection and the negative 
effect of excess use. In this simple world, if a $10 copay deters use 
of a service, that indicates that the patient valued the health benefit 
of the service at less than $10--with the copayment thus deterring use 
of low-value care with little health benefit. Copayments should be 
highest for care where patients are most price- sensitive, since that 
is the care of least value to them. Higher copayments wouldn't increase 
patients' total costs in this simple case, since health insurance 
premiums would be commensurately lower.
---------------------------------------------------------------------------
    \13\ Baicker, Katherine and Levy, Helen, ``Cost Sharing as a Tool 
to Drive Higher-Value Care,'' JAMA Internal Medicine 175, no. 3 (2015 
March): 399-400.
    \14\ Newhouse, J.P., Insurance Experiment Group, Free for All? 
Lessons From the RAND Health Insurance Experiment (Cambridge, MA: 
Harvard University Press, 1993).
    \15\ Baicker, Katherine and Goldman, Dana, ``Patient Cost-Sharing 
and Healthcare Spending Growth,'' Journal of Economic Perspectives 25, 
no. 2 (2011): 47-68.

    But, of course, that simple model does not capture the complex 
reality of the difficult choices patients have to make, often in 
fraught circumstances, under time pressure, and with incomplete 
information. There is strong evidence from behavioral economics, 
medicine, and psychology that higher copayments reduce use of high-
value as well as low-value care. This is of particular importance for 
low-income patients, but is also seen in higher income populations for 
whom the copay is not unaffordable. The health costs of reductions in 
care in response to even modest copays, which we've called ``behavioral 
hazard,'' can be severe, reflecting the real-world limitations in 
decision-making that all patients face, such as limited information, 
limited time, challenges in follow-through, and misperceptions of 
risk.\16\, \17\
---------------------------------------------------------------------------
    \16\ Chandra, Amitabh, Flack, Evan, and Obermeyer, Ziad, ``The 
Health Costs of Cost-Sharing,'' NBER Working Paper No. 28439 (2021 
February).
    \17\ Baicker, Katherine, Mullainathan, Sendhil, and Schwartzstein, 
Joshua, ``Behavioral Hazard in Health Insurance,'' Quarterly Journal of 
Economics 130, no. 4 (2015 November): 1623-1667.

    These findings can inform the design of nuanced cost-sharing that 
is a positive force for higher value care.\18\ Copays could be higher 
for care that is of questionable health benefit, and lower (sometimes 
free, or even negative) for care that is of high health benefit. Such 
insurance design could simultaneously improve the important financial 
protection that health insurance offers for enrollees and substantially 
improve health outcomes.\19\ While such insurance design improvements 
would not necessarily generate savings for the Medicare program itself, 
they could amplify the effectiveness of provider payment reforms, 
indirectly benefiting the program's finances as well as enrollees. 
Reforms to Medigap in particular could be helpful in this regard.
---------------------------------------------------------------------------
    \18\ Baicker, Katherine and Levy, Helen, ``Cost Sharing as a Tool 
to Drive Higher-Value Care,'' JAMA Internal Medicine 175, no. 3 (2015 
March): 399-400.
    \19\ Chernew, Michael E., Rosen, Allison B., and Fendrick, A. Mark, 
``Value-Based Insurance Design,'' Health Affairs 26 (2007): w195-w203.
---------------------------------------------------------------------------
Competition to Foster Innovation, Affordability, and Value
    Competition among insurance plans can be a powerful driver of 
innovation that both improves health outcomes and reduces prices. The 
Medicare Advantage program provides an example of giving enrollees a 
choice among publicly funded insurance options.

    One advantage of having multiple plans available is that different 
enrollees have different preferences and priorities--both for the total 
share of resources they would like devoted to health care and for the 
types of features in health insurance that they value the most, such as 
tradeoffs between lower copayments, more expansive networks, lower 
premiums, and more comprehensive coverage.\20\ Since Medicare's 
inception, health care has gotten much more complex and expensive, 
income disparities have widened, and the cost to taxpayers has 
increased dramatically.\21\ Adding flexibility along multiple 
dimensions--along with subsidies to ensure that robust insurance is 
affordable across the income distribution--can leave everyone better 
off. Another advantage of plan competition is that it has the potential 
to drive down costs and accelerate valued innovation.\22\ This requires 
true competition within the insurer market (as well as among 
clinicians, hospitals, innovators, and other health-care institutions), 
however, which is not the case in many parts of the country.
---------------------------------------------------------------------------
    \20\ Baicker, Katherine and Chandra, Amitabh, ``What Values and 
Priorities Mean for Health Reform,'' New England Journal of Medicine 
383, (2020 October 8): e89.
    \21\ Shepard, Mark, Baicker, Katherine, and Skinner, Jonathan, 
``Does One Medicare Fit All? The Economics of Uniform Health Insurance 
Benefits,'' Tax Policy and the Economy 34 (2020): 1-41.
    \22\ Dafny, Leemore and Lee, Thomas, ``Health Care Needs Real 
Competition,'' Harvard Business Review (2016 December).

    The Medicare program provides vital access to care and financial 
protection for millions of Americans. Ensuring that it provides the 
best health outcomes possible while maintaining financial 
sustainability and affordability--both for individual beneficiaries and 
for the taxpayers of today and tomorrow who must fund the benefits--
should be a policy priority. Evidence points to opportunities to reform 
provider payments and benefit design to focus health-care resources 
---------------------------------------------------------------------------
where they will do the most to improve health and well-being.

    I thank you again for this opportunity and look forward to 
answering any questions you may have.

                                 ______
                                 
               Prepared Statement of Hon. Richard Burr, 
                   a U.S. Senator From North Carolina
    Thank you, Chair Warren, for holding this hearing. I think it is 
past time to have an honest conversation with the American people about 
the hard decisions that are needed to make Medicare sustainable for 
future generations.

    It is my hope that this hearing will allow us to demonstrate the 
stark contrast between those who want to end Medicare as we know it, 
and those of us who want to save it.

    The hospital insurance trust fund, which finances Medicare Part A, 
will be depleted in 2026, at which time Part A payments will be 
drastically reduced. According to the Medicare trustees, beneficiary 
access to health-care services could be rapidly curtailed.

    No one thinks this should be allowed to happen.

    This issue isn't just looming on the horizon--it's here. Benefits 
will be cut in just 4 short years if we fail to act.

    Rather than make false promises about benefit expansions or a so-
called ``Medicare-for-All'' program, we should be honest about what we 
can afford and figure out how we're going to save Medicare for those 
who are currently at or near retirement.

    I look forward to using my remaining months in the Senate to 
further this critical conversation, and I hope the rest of my Senate 
Finance Committee colleagues will join me in efforts to protect this 
program for generations to come.

                                 ______
                                 
      Prepared Statement of James C. Capretta, Senior Fellow and 
          Milton Friedman Chair, American Enterprise Institute
 the hi trust fund's shortfall points to much larger fiscal challenges
    This subcommittee is to be commended for holding this hearing, 
because the subject matter it will address--the financial outlook for 
Medicare generally, and status of the program's hospital insurance (HI) 
trust fund specifically--will require Congress's attention in the near 
term. Last year, the board of trustees charged with overseeing, and 
reporting on, the program's financial status projected that HI would be 
depleted of reserves in 2026.\1\ It is not known at this time if this 
year's report to Congress (due by April 1st according to the Medicare 
title of the Social Security Act) will alter the projected year of HI 
depletion.\2\
---------------------------------------------------------------------------
    \1\ ``2021 Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and the Federal Supplementary Medical Insurance 
Trust Funds,'' The Boards of Trustees of Federal Hospital Insurance and 
the Federal Supplementary Medical Insurance Trust Funds, August 31, 
2021, https://www.cms.gov/files/document/2021-medicare-trustees-
report.pdf. Hereafter, the report is referenced as the 2021 trustees' 
report.
    \2\ See section 1817(b)(2) of the Social Security Act, https://
www.ssa.gov/OP_Home/ssact/title18/1817.htm.

    The decline of HI's reserves is of course, on its own, a problem 
that should concern Congress because of the importance of ensuring 
continuity in the provision of medical services. If HI were to have 
insufficient funds to pay fully for all of the claims it receives, it 
is likely that providers would get paid a fraction of what current 
regulations would allow, which might then jeopardize access to care for 
some beneficiaries. Congress has never allowed such a scenario to 
occur, and it is unlikely to do so in this instance either. There is 
every reason to expect corrective legislation will be passed in time to 
---------------------------------------------------------------------------
prevent an interruption of benefit payments.

    However, even if near-term depletion of HI is averted, that will 
not resolve the fundamental problem because HI's issues really are 
symptoms of a larger fiscal challenge.

    The imbalance between HI spending and outgo is a manifestation of 
the widening gap between Medicare's total costs, for both HI and 
Supplementary Medical Insurance (SMI), and the receipts (taxes and 
premiums) collected to pay for both trust funds' expenses.

    Figure 1 replicates the key projection data for all of Medicare's 
costs and receipts from the 2021 trustees' report, shown as a 
percentage of Gross Domestic Product (GDP), from the program's 
inception through the projection period covering the next 75 years. The 
core problem is the rapid growth of total Medicare spending, driven by 
an aging population and escalating costs for services, not strictly (or 
even primarily) an imbalance in HI-only income and outgo.\3\
---------------------------------------------------------------------------
    \3\ These projections may be too optimistic, according to the 
actuaries who produce estimates of future Medicare spending and 
receipts, because they assume a perpetual widening between what is paid 
for services by Medicare relative to commercial insurance, driven by 
payment limits enacted by Congress in 2010 and 2015. See ``Projected 
Medicare Expenditures under an Illustrative Scenario with Alternative 
Payment Updates to Medicare Providers,'' John D. Shatto and M. Kent 
Clemens, Centers for Medicare and Medicaid Services, August 31, 2021, 
https://www.cms.gov/files/document/illustrative-alternative-scenario-
2021.pdf.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    In 1990, total program spending equaled 1.9 percent of GDP; 3 
decades later, it had reached 4.0 percent of GDP. Medicare's trustees 
expect costs will exceed 5.0 percent of GDP in 2030 and 6.0 percent in 
2050.\4\
---------------------------------------------------------------------------
    \4\ The 2021 trustees' report, https://www.cms.gov/files/document/
2021-medicare-trustees-report.pdf.

    What is striking about this figure is what it reveals about the 
general revenue financing of Medicare. At enactment, SMI was supposed 
to be financed from beneficiary premiums covering half of its expenses, 
with the remainder covered by transfers from the general fund of the 
Treasury. Over time, the share covered by premiums was allowed to fall 
to 25 percent, which is where it remains. The other 75 percent of 
expenses paid from SMI--for physician services, prescription drugs, and 
other ambulatory care--comes from the general fund of Treasury, which 
is just another way of saying other taxes the Federal Government 
collects, and funds that the Treasury borrows to cover annual budget 
---------------------------------------------------------------------------
deficits.

    The transfers from the Treasury are not subject to limitation; they 
occur automatically and are set at levels that ensure the SMI trust 
fund is perpetually solvent. Thus, Congress is never asked to 
``rescue'' SMI because the trust fund is never in danger of being 
depleted.

    But that does not mean it imposes no economic burden on taxpayers, 
because it does. As shown in Figure 1, the transfers to SMI are very 
substantial, and escalating rapidly. The 2021 trustees' report 
estimates the transfers to SMI will total $5.3 trillion over the next 
decade alone. By 2050, the annual transfer will equal 2.8 percent of 
GDP, up from 0.7 percent in 2000.

    Again, these funds must come from taxpayers at some point, either 
immediately in the form of current taxes, or in the future as tax 
collections to pay off the debt that was incurred to keep paying 
benefits in previous years.

    The Department of the Treasury releases an annual statement 
covering the financial status of the entire Federal Government, and 
uses accrual accounting to present as much of the data as is practical. 
Accrual accounting attempts to take into account new benefit 
obligations earned under the rules of various entitlement programs in 
relation to the expected revenue to pay for them, and uses discounting 
to present the streams in present value terms. The difference between 
the cumulative totals for spending and receipts can be presented as the 
unfunded liability that will need to be closed in some fashion.

    For Medicare, the trend line of the estimated unfunded liabilities 
is what is most alarming. As shown in Table 1, in the most recent 
report, released in March 2021, Medicare had a combined unfunded 
liability of $45.7 trillion as of 2020, up from $32.5 trillion in 
2016.\5\
---------------------------------------------------------------------------
    \5\ ``Financial Report of the United States Government: Fiscal Year 
2020,'' Department of the Treasury, March 25, 2021, https://
fiscal.treasury.gov/files/reports-statements/financial-report/2020/fr-
03-25-2021-(final).pdf. The unfunded liability calculation presented 
here is based on the open group method, which includes all current and 
future participants in the Medicare program.


            Table 1. Medicare's Accrued Unfunded Liabilities
                              ($ trillions)
------------------------------------------------------------------------
                                   2016    2017    2018    2019    2020
------------------------------------------------------------------------
Open Group Method                  32.5    33.5    37.7    42.2    45.7
------------------------------------------------------------------------
Source: Department of the Treasury (2021).

    The growing gap between Medicare's total expenditures and the 
receipts dedicated to paying for them also is central to the adverse 
fiscal outlook for the Federal budget as a whole, as reflected in data 
published by the Congressional Budget Office (CBO) and summarized in 
Table 2.


   Table 2. Overview of Key Federal Budget Aggregates P(Historical and
                               Projected)
                               (% of GDP)
------------------------------------------------------------------------
                          1980      2000      2021      2030      2050
------------------------------------------------------------------------
Social Security             4.2       4.0       5.0       5.9       6.3
 
Medicare (Gross)            1.3       2.2       3.7       5.1       7.7
 
Other Health                0.4       1.0       2.7       2.5       3.1
 
Defense                     4.8       2.9       3.3       2.8       3.3
 
Rest of Government          8.6       5.4      14.4       4.1       2.7
 
Net Interest                1.9       2.2       1.5       2.5       8.2
------------------------------------------------------------------------
Total Spending             21.2      17.7      30.6      22.9      31.3
 
Total Revenues             18.5      20.0      17.2      17.7      18.4
 
Annual Surplus (+) or      -2.6      +2.3     -13.4      -5.1     -12.8
 Deficit (-)
 
Federal Debt               25.5      33.7     102.7     104.5     195.3
------------------------------------------------------------------------
Source: CBO (Historical Tables and Long-Term Projections).

    The same demographic and health-specific factors pushing up 
Medicare's expenses are also increasing costs in Social Security and 
Medicaid. The combined expense of these programs is the principal 
reason the Federal Government is running large deficits today and will 
run sustained and widening deficits over the next 3 decades.

    As is shown in the table, spending on Medicare, along with Social 
Security, Medicaid, and other health entitlements, has grown steadily 
for decades. In 2050, CBO expects the combined spending on these 
programs will be equal to 17.1 percent of GDP, up from 5.9 percent of 
GDP in 1980. In 2050, obligations for just these programs will consume 
nearly all expected Federal revenue.

    Rising expenses for the major entitlement programs, without a 
commensurate increase in revenues, will push Federal borrowing up very 
rapidly. In 2050, CBO projects the annual budget deficit will reach 
12.8 percent of GDP, and cumulative Federal debt will have grown to 
nearly 200 percent of GDP, up from 25.5 percent in 1980.

    Borrowing at such a pace is outside of all historical experience 
for the United States, and almost certainly would lead to a crisis. One 
possibility is that the U.S. dollar would gradually lose its position 
as the world's reserve currency, which would then precipitate a 
substantial rise in the cost of borrowing funds in public markets. If 
net interest payments spike, there will be less funding available for 
other public priorities, which might then force policymakers to enact 
painful austerity measures.
    using the same tax for two purposes undermines fiscal discipline
    The administration has proposed several tax policies to extend the 
solvency of the HI trust fund, but the implications of these policies 
are not well understood.

    A major problem, as explained by the Committee for a Responsible 
Federal Budget (CRFB), is that the administration's plan would use 
Federal tax receipts twice: the taxes would be deposited into the HI 
trust fund, thus slowing the depletion of its reserves. At the same 
time, the taxes also are dedicated to offsetting new spending plans 
outside of Medicare.\6\ Put another way, one tax is planned to be used 
to pay for two streams of Federal expenditures.
---------------------------------------------------------------------------
    \6\ ``How Much Would the President's Budget Extend Medicare 
Solvency?'', Committee for a Responsible Federal Budget, June 10, 2021, 
https://www.crfb.org/blogs/how-much-would-presidents-budget-extend-
medicare-solvency.

    One of the administration's proposals for HI solvency is to 
transfer the receipts from a tax created in the Affordable Care Act 
(ACA)--the net investment income tax, or NIIT--from the Treasury's 
general fund to HI. CRFB estimates that this transfer would increase HI 
receipts by $430 billion over 10 years, and by $2.15 trillion over 30 
years. There would be no additional Federal revenue generated by this 
policy, however. Rather, it would divert the revenue from the existing 
tax, which was instrumental in 2010 in ensuring the ACA was estimated 
by CBO as not increasing Federal deficits. In other words, this tax 
paved the way for ACA's enactment, and now would be used to extend HI 
---------------------------------------------------------------------------
solvency.

    The administration also proposes to tighten the rules around the 
implementation of the NIIT, along with the Self-Employment 
Contributions Act (SECA), which would generate new revenue of $235 
billion over 10 years and $1.2 trillion over 30 years. However, as 
proposed, this revenue also would go paying for the Build Back Better 
legislation in addition to shoring up HI. Again, using the same source 
of revenue for two purposes actually increases Federal borrowing 
relative to what would occur if the new tax were to be devoted solely 
to delaying the exhaustion date of the HI trust fund.
                            broader reforms
    While it is important to ensure the HI fund is not depleted of all 
reserves, and that full benefits are paid on a continuous basis, 
Congress should view HI's challenges as signals that the broader 
program needs to be updated and reformed. After all, hospital care does 
not occur without the patient also getting attention from a physician. 
Many other services and treatments also are usually provided to the 
patient both before and after an admission occurs. A narrow focus on 
hospital costs risks perpetuating a fragmentation within Medicare that 
is outdated.

    The following are six aspects of current Medicare that are in need 
of reform and could be addressed in a plan to improve the program's 
overall financial outlook.

    1.  A Less Fragmented Benefit. When Medicare was enacted, in 1965, 
it was modeled on the prevailing private insurance plans of that time, 
which often provided separate coverage for hospitalizations and 
physician services. Medicare did so too, and established separate cost-
sharing rules for its two parts (A and B). It also paid for A with 
payroll taxes and B with premiums and general fund transfers. Medicare 
also did not cover prescription drugs, nor did it limit what 
beneficiaries must pay out-of-pocket on an annual basis (a so-called 
``catastrophic cap'').

       In the intervening decades, the basic structure of Medicare did 
not change, but workarounds were created to address the program's 
limitations. Seniors bought supplemental plans, and HMOs were 
introduced to provide a more integrated plan (with less cost-sharing) 
for the beneficiaries. In 2003, Congress added a new part to the 
program--D--for prescription drugs.

       It is time to bring Medicare's benefit design into line with the 
standards of today's insurance plans. There should be one cost-sharing 
structure, and a limit on out-of-pocket costs. Drugs can be covered 
separately for the time being, but, in time, part D should be folded 
into the larger plan too. This redesign would lessen the need for 
supplement coverage, and can be accomplished on a budget neutral basis.

    2.  The Choice Structure. Medicare's origin and evolution have made 
the program difficult for beneficiaries to navigate. When eligible 
persons enroll in part A, typically at age 65, they also can 
voluntarily enroll in parts B (for physician and ambulatory care) and D 
(prescriptions) by agreeing to monthly premiums covering a portion of 
their total costs. They also have the option to enroll in Medicare 
Advantage, or buy a supplemental policy wrapped around the traditional 
fee-for-service (FFS) benefit.

       Adding to the complexity is the lack of a single coordinated 
system of enrollment across these components and coverage options. 
Under current processes, it is not a simple matter for beneficiaries to 
compare the all-in financial implications of the various combinations 
of coverage available to them. Many beneficiaries end up relying on 
brokers to sign up for coverage, even though brokers are often paid by 
plans seeking to boost enrollment.

       Improving the program and lowering its costs should include 
simplification of the enrollment process so that beneficiaries can 
readily identify low-cost, and high-value, options.

       Beneficiaries should be presented with the full range of their 
benefit options through one, government-administered enrollment portal 
that makes it less necessary for beneficiaries to rely on outside 
parties to help them make their choices. Through it, they should be 
able to compare competing approaches for on an apples-to-apples basis 
(with standardized benefits) and across the three main benefit 
components, as shown in Figure 2.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Accountable Care Organizations (ACOs)--now a subpart of 
FFS--should become a coverage option that is distinct from both FFS and 
MA. ACOs differ from MA plans in that they are organized and run by the 
hospitals and physician groups providing care to patients, not 
insurance companies. Some Medicare beneficiaries may be comforted by 
this distinction. ACOs also are not traditional FFS because they need 
to have systems in place for coordinating care across settings and 
disciplines.

    3.  Premium Competition. CBO has confirmed that strong competition 
among the coverage options can lower Medicare's costs, and those 
imposed on the beneficiaries, but reform in the payment system is 
needed to achieve these results.

       MA plans already submit competitive bids under current law, but 
those bids are considered in relation to benchmarks tied in part to 
historical cost rates that may not accurately reflect what spending 
would be with efficient care provision. Further, FFS does not 
participate in the bidding process, in that its enrollees pay the same 
premium irrespective of the relative cost of FFS to other plans. The 
exemption of FFS from competition has been an impediment to more 
vigorous premium competition.

       Fair competition requires submission of bids from FFS, ACOs, and 
MA plans for the same set of standardized benefits, as defined in a 
reformed Medicare benefit package. FFS's bid would be a calculation by 
the government based on the per beneficiary costs in each market. The 
government could refine its risk adjustment methodology to ensure the 
competition is based on efficient care delivery and not differences in 
the underlying health status of the enrollees.

       The government's contribution toward coverage (its ``premium 
support'') would be based on the submitted bids. CBO has estimated 
that, if the government set its contribution based on the average bid, 
there would be savings both for the government and the beneficiaries, 
as shown in Figure 3. The government's costs would fall by 8 percent, 
and the beneficiaries would pay 5 percent less in out-of-pocket costs 
and premiums.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    CBO's assessment confirms that competition would lower costs 
by encouraging migration toward more efficient coverage options. It 
also suggests that the competition likely would slow cost growth in 
future years by encouraging the development and adoption of cost-
reducing technologies that improve the efficiency of care delivery.\7\
---------------------------------------------------------------------------
    \7\ ``A Premium Support System for Medicare: Updated Analysis of 
Illustrative Options,'' Congressional Budget Office, October 2017, 
https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/
53077-premiumsupport.pdf.

    4.  Competition and Price Shopping in FFS. Premium support is not 
the only means by which stronger market discipline can be introduced 
into Medicare. Enrollees in FFS can be encouraged to select low-cost 
---------------------------------------------------------------------------
and high-quality service providers too, in managed care plans or FFS.

       For this to occur, Medicare will need to become a leader in 
using standardized pricing to foster strong competition among service 
providers. Not all medical care is amenable to consumer discretion, but 
some is (perhaps 40 to 50 percent). Hospitals and physicians today have 
weak incentives to post clear pricing for their services, and the 
complexity of medical care makes price comparisons difficult for 
patients when multiple line items are billed for a full episode of 
care.

       Medicare could promote strong provider competition by requiring 
participating facilities and practitioners to disclose their prices for 
standardized services covering common procedures and services.\8\ 
Further, this requirement should force those providing services to work 
with each other to provide one, all-in price covering a full episode of 
care. It is essential that what is being priced be standardized, and 
cover the full range of services required to properly take care of what 
the patient needs.
---------------------------------------------------------------------------
    \8\ For an explanation of the benefits of reference pricing, see 
``Reference Pricing Changes the `Choice Architecture' of Health Care 
for Consumers,'' James C. Robinson, Timothy T. Brown, and Christopher 
Whaley, Health Affairs, March 2017, https://www.healthaffairs.org/doi/
pdf/10.1377/hlthaff.2016.1256.

       An essential added step is an incentive for the Medicare 
enrollees to want to use lower-priced options. Medicare could do this 
by calculating benchmarks in every market (based on prevailing FFS 
rates) for the list of standardized interventions. Beneficiaries opting 
for providers who post prices below the benchmarks should get to keep 
some of the savings (perhaps 50 percent). In some cases, for expensive 
care (such as common surgeries), the payment to the Medicare 
beneficiary could be substantial, which would create strong incentives 
for the providers to price their services more aggressively and for the 
---------------------------------------------------------------------------
beneficiaries to migrate to the lowest-priced options.

    5.  Consolidated Trust Fund. Medicare's trust funds need updating 
to mirror the changes recommended for Medicare's insurance design, with 
parts A and B combined into one insurance plan. With the benefits 
combined, the trust funds should be merged too (into a singular 
Medicare trust fund), with all receipts and expenses of the existing HI 
and SMI trust funds redirected to the combined account.

       A crucial additional reform is the recalibration of the basis 
for general fund support of the program's spending obligations. It 
should not be unlimited, as it is today for SMI. Trust funds only work 
as political signals if their receipts are limited in some way, and are 
defined to ensure affordability over time. That is distinctly not the 
case currently, with the government's contribution to SMI expected to 
rise to levels that will push Federal debt well above what would be 
sustainable, or advisable.

       One option would be to tie the government's contribution to the 
new Medicare trust fund to what was paid in a reference year, and then 
index that amount for subsequent years to the rate of growth in the 
national economy. This adjustment would ensure that current and future 
taxpayers contribute the same amount of their combined incomes each 
year toward ensuring adequate health services for the Nation's elderly 
and disabled citizens.

       Changing the basis of general fund support for Medicare will not 
by itself ensure an appropriate political response when trust fund 
depletion becomes imminent. In a sense, that is the intent--to force 
elected leaders to grapple with the uncomfortable reality that there is 
a limit to how much can be borrowed to pay for Medicare benefits. A 
single trust fund with a limited tap on general revenue would ensure 
the trust fund was an instrument of fiscal discipline, which is the 
purpose of such accounting devices.
                               conclusion
    Medicare is one of the Federal Government's most important programs 
because of the access to medical care it provides to its enrollees. Its 
financial status should be improved to ensure its benefits are secure 
for both current and future participants. That will require looking at 
the financial outlook for all of Medicare and not just HI.

    The right reforms have the potential to improve and strengthen 
Medicare by making the program more efficient rather than cutting 
benefits. As these changes will take time to implement, Congress should 
begin to consider and develop the necessary legislation as soon as 
possible.

Related Papers and Book Chapters:

``Market-Driven Medicare Would Set US Health Care on a Better Course,'' 
        James C. Capretta, Economic Perspectives, American Enterprise 
        Institute, July 2021, https://www.aei.org/wp-content/uploads/
        2021/07/Market-Driven-Medicare-Would-Set-US-Health-Care-on-a-
        Better-Course.pdf.

``Toward Meaningful Price Transparency in Health Care,'' James C. 
        Capretta, Economic Perspectives, American Enterprise Institute, 
        July 2019, https://www.aei.org/wp-content/uploads/2019/06/
        Toward-meaningful-price-transparency-in-health-care.pdf.

``Structured Markets: Disciplining Medical Care with Regulated 
        Competition,'' James C. Capretta, American Enterprise 
        Institute, March 2021, https://www.aei.org/wp-content/uploads/
        2021/03/Structured-Markets.pdf.

``Fiscal Rules for Social Security and Medicare: Would Accrual 
        Accounting Help?'', James C. Capretta, in Public Debt 
        Sustainability: International Perspectives, Barry W. Paulson, 
        John Merrifield, and Steven H. Hanke, eds., Lexington Books, 
        2022.

                                 ______
                                 
               Prepared Statement of Hon. Bill Cassidy, 
                     a U.S. Senator From Louisiana
    First, thank you all for participating in this conversation. This 
is a diversity of opinion, and I want to thank my chair for agreeing to 
hold this hearing, but this is a debate that we should have been having 
for 6 years now. And the folks who are testifying and the folks who are 
watching know this. This program goes insolvent in 2026! It's not 
really years, it's more like months.

    We should be addressing Medicare solvency in a more serious fashion 
than we are. The challenge of the lack of sustainability and the 
looming insolvency of the Medicare trust fund are being shrugged off as 
so disastrous that they won't occur. But I'm not sure just ignoring the 
problem means that it won't occur.

    With that said, there are some who would wish to expand the benefit 
beyond that which we have in a program going insolvent in 2026. That 
doesn't make sense to me. We have an obligation to the people currently 
being covered, and yet we would expand and maybe have insolvency come 
even quicker. By the way, consequences of insolvency under current law 
would be an immediate cut to providers of roughly 20 to 30 percent, 
which means just as much money coming in would be paid out.

    Dr. Baicker mentioned how providers are sensitive to cost and 
price. I can promise you, as one of my physician colleagues said, if a 
doctor is getting paid below cost, you can't make it up on volume. And 
so, if we're paying someone 20-percent lower than what they're 
receiving, which would be below their cost, they won't make it up on 
volume. Which means this becomes an issue of access for those who are 
Medicare beneficiaries.

    There are over 60 million Medicare beneficiaries in the country. 
Some would suggest that we do away with cost sharing. I'm a doctor, and 
I can promise you, doctors can prescribe lots of tests, they can 
prescribe lots of procedures. And there's a lot of data showing that 
one thing that puts the brakes on it is the one thing that provides 
just a little bit of cost share. Not too much so that the diabetic does 
not get her needed care, but a little bit so people think twice.

    It comes to mind, I once had a patient call me, and they said, 
``Doc, you're my liver doctor. My cardiologist ordered a liver test. I 
have a health savings account and I'll pay for it if I need it, but do 
I really need it? It's my money and I'd like to know first.'' I said, 
``I'm your liver doctor, and you don't need it.'' So she didn't get it. 
Contrast that with another patient that I had who was kind of wealthy. 
She said, ``I've got a bells and whistles policy, so I don't care what 
they charge me because my insurance covers it all.''

    Now there are consequences to this. My wife's a surgeon, and she 
once said, ``If you do procedures, inevitably you get complications.'' 
And when folks are incentivized to over-prescribe whatever it is--
drugs, procedures, office visits, et cetera--inevitably there's an 
associated rate of complication. I think Dr. Baicker referred to this, 
but I'll use my words not hers. We're trying to find the optimal amount 
of cost share without overburdening the patient, understanding that 
measure of burdensomeness changes with the individual patient can 
change. Let's encourage them to become cost-conscious, to participate 
in their health care, but not to overwhelm them with the cost, which in 
turn ends up denying health care.

    Traditional fee-for-service is a critical source of care, but in 
many regards it's outdated. It does nothing to incentivize quality and 
provider improvement parameters, and there is the ``tragedy of the 
commons'' where there is a consumption motivation by both the patient 
and the physician. And if folks think patients don't demand tests, I 
can promise you, I have been in the room with patients who've demanded 
tests which I knew were not necessary. We can quickly make a program 
that is going insolvent in 2026 go insolvent in 2022, and that is 
without referring to the motivations that might be among those who 
might be providing the services.

    So this is the state of the program after nearly 60 years of 
painstaking annual benefit and reimbursement negotiations involving 
thousands of people here in Washington, bureaucrats if you will, and 
billions if not trillions of dollars in resources, all the while--to 
the key point made my Mr. Capretta--subjecting beneficiaries to gaps in 
benefits, which creates an often hidden cost. Dr. Kapczynski referred 
to some of this too.

    And even with all these resources dedicated to getting incentives 
aligned, we still have administered pricing, in which the Federal 
Government pays as little as possible, and then under Medicare Part D, 
we've allowed companies to offload expense onto the patient. I'm a 
patient advocate, and that is wrong. We need to fix that as we also 
attempt to address the other financing challenges.

    It's time to take a modern approach to the way we deliver health 
care. Much of that is going to pertain to how we finance health care. 
We need an approach that rewards providers for keeping patients out of 
hospital beds, and one that recognizes the patient and the doctor, and 
that relationship, as the ultimate arbiter of value, health, and well-
being. We can get there without disrupting the quality and access our 
constituents need, but the discussion has to begin today.

    I thank you all for participating.

                                 ______
                                 
        Prepared Statement of Michael E. Chernew, Ph.D., Chair, 
                  Medicare Payment Advisory Commission
    The Medicare Payment Advisory Commission (MedPAC) is a small 
congressional support agency established by the Balanced Budget Act of 
1997 (Pub. L. 105-33) to provide independent, nonpartisan policy and 
technical advice to the Congress on issues affecting the Medicare 
program. The Commission's goal is to pursue Medicare policies that 
ensure beneficiary access to high-quality care, pay health-care 
providers and plans fairly by rewarding efficiency and quality, and 
spend tax dollars responsibly. The Commission would like to thank Chair 
Warren and Ranking Member Cassidy for the opportunity to testify at 
this hearing today.
                              introduction
    The Medicare program faces a very challenging financial future. In 
2021, the Congressional Budget Office (CBO) projected that annual 
Medicare spending would more than double in the 10-year period between 
2021 and 2031, rising from $839 billion to $1.8 trillion (Congressional 
Budget Office 2021a). During this period, Medicare's share of total 
Federal spending is expected to rise from 10.1 percent to 18.8 percent 
(Congressional Budget Office 2021b).\1\ CBO also projected that 
Medicare's hospital insurance (HI) trust fund--which is largely 
financed by payroll taxes and funds Medicare's payments to hospitals 
and post-acute care providers, as well as a portion of payments to 
Medicare Advantage (MA) plans--will become insolvent in 2027. The 
Medicare trustees project that the HI trust fund will become insolvent 
a year earlier, in 2026. Without changes to current law or policy, the 
trustees have estimated that ensuring the solvency of the trust fund 
for an additional 25 years would require the Medicare payroll tax to be 
raised from 2.9 percent to 3.7 percent. Alternatively, without revenue 
increases, Part A spending would need to immediately be reduced by 18 
percent (about $70 billion in 2022), an amount that will grow over time 
if action is delayed (Boards of Trustees 2021).
---------------------------------------------------------------------------
    \1\ The 2021 figure is artificially low due to temporary increases 
in Federal spending related to the coronavirus pandemic. In 2019, the 
last full year before the pandemic, Medicare accounted for 14.6 percent 
of Federal spending.

    The continued growth in spending also affects the Supplementary 
Medical Insurance (SMI) trust fund, which funds payments to physicians 
and ambulatory care providers, outpatient prescription drug benefits, 
and a portion of payments to MA plans. The SMI trust fund accounts for 
a larger share of total Medicare spending than the HI trust fund (60 
percent vs. 40 percent). The SMI share is also growing over time; CBO 
projects that SMI spending will increase to 64 percent of total 
spending in 2031. The SMI trust fund is financed by a combination of 
general revenues and beneficiary premiums, so it cannot become 
insolvent like the HI trust fund. However, the continued growth in SMI 
spending consumes a growing share of general tax revenues and reduces 
---------------------------------------------------------------------------
the funding available for other parts of the budget.

    Increasing Medicare spending also strains beneficiaries' household 
budgets. In 2020, Medicare premiums and cost sharing were estimated to 
consume 24 percent of the average Social Security benefit, up from 14 
percent in 2000. The Medicare trustees estimate that in another 20 
years, these costs will consume 31 percent of the average Social 
Security benefit.

    The projected insolvency of the HI trust fund and the need to make 
spending from the SMI trust fund more sustainable will motivate changes 
in Medicare spending--at a minimum reducing the rate of spending growth 
over time. In this spirit, though all policy changes involve tradeoffs, 
the Commission believes there are policies that will reduce spending 
without significant deleterious consequences. Spending is only one side 
of the solvency/sustainability equation; revenues are equally 
important. However, my comments will be limited to policy changes that 
would affect Medicare spending. The financing of the Medicare program 
lies outside the Commission's statutory purview.

    The Commission has identified a number of aspects of Medicare 
payment systems that hamper the program's ability to achieve fiscal 
sustainability. We have made--and will continue to make--
recommendations that, if implemented, could address these challenges 
and allow Medicare to improve payment accuracy and equity without 
sacrificing the quality of or access to care for the program's 
beneficiaries. For today's hearing, I would like to highlight our work 
in three areas: annual updates to Medicare's fee-for-service (FFS) 
payment systems, the MA program, and the prescription drug benefit 
(Part D).
Annual Updates to FFS Payment Rates
    As required by law, the Commission annually makes payment update 
recommendations for providers paid under Medicare's traditional FFS 
payment systems. An update is the amount (usually expressed as a 
percentage change) by which the base payment rate for all providers in 
a payment system is changed relative to the prior year. In making our 
update recommendations, we first assess the adequacy of Medicare 
payments in the current year by considering beneficiaries' access to 
care, providers' access to capital, and how Medicare payments compare 
with providers' costs. As part of that process, we examine whether 
payments will support the efficient delivery of services, consistent 
with our statutory mandate. We then assess how those providers' costs 
are likely to change in the year the update will take effect and make a 
judgment about what, if any, update is needed for the year in question. 
Next month, we will release our latest March report, which will have 
recommendations on payment updates for 2023.

    I would like to note that our work on payment updates over the past 
2 years has focused heavily on the effects of the coronavirus pandemic, 
which has had catastrophic consequences for many Medicare beneficiaries 
and affected the entire health-care delivery system. We have been 
careful to consider the impacts of the pandemic and pandemic-related 
policies on our measures of payment adequacy in both the short and long 
term. To the extent that the effects of the pandemic are temporary or 
vary significantly across providers in a sector, they are best 
addressed through targeted, temporary funding policies rather than a 
permanent change to payment rates.

    Our assessments of payment adequacy change from year to year based 
on new data and any underlying changes in a particular payment system, 
but I would like to highlight that over the last 4 years (spanning our 
March 2019, March 2020, and March 2021 reports, plus the 
recommendations that we approved last month and will appear in our 
March 2022 report), we have consistently found that payment rates for 
four types of providers--largely in the post-acute care sector, and 
largely funded through the HI trust fund--are unnecessarily high and 
could be reduced without compromising beneficiaries' access to care:

        Skilled nursing facilities have had Medicare profit margins 
that exceed 10 percent, continuing a 2-decades-long trend. Over the 
last 4 years, we have recommended that their annual update for the 
upcoming year be eliminated (i.e., keeping payment rates the same as in 
the prior year) and, most recently, that current payment rates also be 
lowered by 5 percent. CBO estimates that these changes would reduce 
program spending by more than $10 billion over 5 years.

        Home health agencies have had Medicare profit margins that 
exceed 15 percent, also continuing a long-running trend. Over the last 
4 years, we have recommended that their annual update for the upcoming 
year be eliminated and current payment rates be lowered, most recently 
by 5 percent. CBO estimates that these changes would reduce spending by 
between $5 billion and $10 billion over 5 years.

        Inpatient rehabilitation facilities have had Medicare profit 
margins of between 13 percent and 15 percent. Over the last 4 years, we 
have recommended that the annual update be eliminated and current 
payment rates be lowered by 5 percent. CBO estimates that these changes 
would reduce spending by between $5 billion and $10 billion over 5 
years.

        Hospices have had Medicare profit margins that exceed 10 
percent. Over the last 4 years, we have recommended eliminating their 
annual update and, for the last 3 years, also reducing the annual cap 
on payments to individual hospices by 20 percent. (The reduction in the 
cap would apply additional financial pressure to hospices that have 
very long lengths of stay and relatively high profits.) CBO estimates 
that these changes would reduce spending by between $5 billion and $10 
billion over 5 years.

    These recommendations would affect providers of Part A-covered 
services, so any reductions in their payment rates would lower Part A 
spending and improve the solvency of the HI trust fund. (Home health is 
a partial exception because some of its services are covered by Part 
B.) In addition to their direct effects on providers and FFS spending, 
these recommendations would have the added benefit of applying a 
modicum of appropriate financial pressure on MA plans by reducing the 
spending benchmarks that help determine plan payment rates.
                           medicare advantage
    The MA program allows beneficiaries enrolled in both Part A and 
Part B to receive benefits from private plans rather than from the 
traditional FFS Medicare program. (Since MA plans provide both Part A 
and Part B services, roughly 40 percent of their funding comes from the 
HI trust fund and 60 percent comes from the SMI trust fund. They 
receive separate payments from the SMI trust fund for providing drug 
benefits.) The Commission strongly supports the inclusion of private 
plans in the Medicare program because they have the potential to offer 
more affordable care for beneficiaries while spending less than FFS. 
Thus, the Commission contends that under the right payment mechanisms, 
MA plans could serve as vehicles to manage overall spending and quality 
of care more effectively than the fragmented FFS system. Although MA 
plans have the potential to provide good value for the program, the 
methodology that Medicare uses to pay MA plans has several features 
that prevent that value from materializing and that contribute to the 
program's solvency and sustainability problems.

    The MA program is now quite robust. Enrollment has grown by about 
10 percent annually in recent years, and last year 46 percent of 
eligible Medicare beneficiaries (about 27 million people) were enrolled 
in plans. If this trend continues, the majority of eligible Medicare 
beneficiaries will be enrolled in MA in the next few years. Almost all 
beneficiaries (99 percent) have access to at least one plan, and the 
average beneficiary has more than 30 plans available in their county. 
The payments that plans use to provide extra benefits, known as 
rebates, have also grown rapidly, and this year average nearly $2,000 
annually per enrollee, an all-time high.

    However, the expansion of MA is also a cause for concern. Private 
plans that accept full risk have been available in Medicare since the 
mid-1980s, but our review suggests that they have never yielded 
aggregate savings for the program. That remains true today. We estimate 
that in 2022 Medicare payments to MA plans equal about 104 percent of 
what Medicare would have spent on those same beneficiaries in 
traditional FFS.

    The gap between MA payments and FFS spending primarily reflects 
three factors. First, policymakers set MA payments above FFS spending 
levels in low-FFS-
spending counties to ensure access to MA plans and the extra benefits 
offered to MA enrollees in those counties. Specifically, the benchmark 
for each county equals a percentage of the projected average per capita 
FFS spending for the county's beneficiaries. Counties are ranked based 
on their per capita FFS spending and then divided into four quartiles. 
Benchmarks are set at 115 percent of county FFS spending for the 
quartile of counties with the lowest FFS spending, 107.5 percent and 
100 percent for counties in the next 2 quartiles of FFS spending, and 
95 percent for counties in the quartile with the highest FFS spending. 
In addition to increasing Medicare payments, this quartile system 
creates cliffs between counties that result in inequitable benchmarks, 
where counties with similar FFS spending levels can have very different 
MA payment rates. Second, MA plans are paid more if they serve sicker 
beneficiaries, but aggressive coding by MA plans and a lack of 
incentives for providers to similarly code under traditional FFS has 
led to a poorly calibrated risk adjustment system that leads to higher 
Medicare spending. Third, MA plans are rewarded for achieving a higher 
star rating through the quality bonus system, but the Commission has 
found that the MA quality bonus program boosts plan payments for most 
MA enrollees, does not meaningfully reflect plan quality in local 
areas, and should be reformed to better achieve its goals while 
reducing Medicare spending.

    Overall, beneficiaries clearly find MA an attractive option through 
which to receive their Medicare benefits, as evidenced by the program's 
strong enrollment growth. However, since Medicare spends more to cover 
beneficiaries in MA than it does in FFS, the shift toward MA worsens 
Medicare's sustainability and makes the need for structural 
improvements to MA more urgent. To encourage efficiency and innovation, 
MA plans need to face appropriate financial pressure similar to what 
the Commission recommends for health-care providers in the traditional 
FFS program.

    To that end, over the past few years the Commission has made three 
recommendations that would eliminate or reduce what we consider to be 
the most significant policy flaws in the current program:

    Account for coding differences between MA and FFS. Medicare's 
payments to MA plans are risk-adjusted to account for differences in 
enrollees' health status, so that plans are paid less for their 
healthier enrollees and more for their sicker enrollees. The adjustment 
for each enrollee is partly based on the diagnoses that providers code, 
which gives MA plans an incentive to record more diagnoses that is 
largely absent in FFS. To some extent, these structural differences 
mean that diagnostic coding may be more complete in MA than in FFS (and 
in some MA plans relative to others). The payment incentive to code 
more intensely creates risk adjustments that are not comparable between 
MA and FFS. Furthermore, some plan sponsors put a disproportionate 
effort into documenting more diagnoses, giving them an unwarranted 
competitive advantage over other plans in their market. Without 
rendering a judgment on the accuracy of MA coding (though some plans 
likely push the bounds of accuracy and the Commission strongly supports 
efforts to promote program integrity), the key issue is that coding in 
FFS and MA is not comparable. By law, CMS lowers payments to MA plans 
in recognition of these coding differences, but these reductions have 
never accounted for the full extent of the coding differences between 
MA and FFS.

    As a result, the more intense coding in MA relative to FFS leads to 
higher payments to plans and raises program spending. This year, we 
found that coding differences mean that payments to MA plans are about 
3.6 percent higher than they would have been if MA enrollees were 
treated in FFS Medicare. In 2020, coding differences boosted payments 
to plans by about $12 billion. This coding intensity undermines the 
incentives for plans to improve quality or reduce costs, and the 
variation in coding intensity across plans generates inequity by giving 
an advantage to plans that code more extensively.

    In 2016, the Commission recommended a three-pronged approach to 
fully account for the impact of coding differences: (1) develop a risk-
adjustment model that uses 2 years of diagnostic data instead of just 
one year (this would make the FFS diagnostic data more complete and 
reduce the marginal benefit for MA plans of coding additional 
diagnoses), (2) exclude any diagnoses that are documented only on a 
health risk assessment, and (3) apply a coding adjustment that 
eliminates any remaining differences in coding between FFS Medicare and 
MA plans (Medicare Payment Advisory Commission 2016). At the time, CBO 
estimated that these recommendations would reduce Medicare spending by 
between $1 billion and $5 billion over 5 years.

    Replace the quality bonus program. The MA quality bonus program 
(QBP) provides higher payments to plans that have a rating of 4 stars 
or better on a 5-star scale. Over the years, the Commission has 
identified several flaws in the QBP. First, the QBP uses too many 
quality measures, and many of them are process measures rather than 
measures that focus on outcomes and patient/enrollee experience. 
Second, the star ratings are determined at the MA contract level, which 
may cover very large geographic areas and thus may not be a reliable 
indicator of the quality of care provided in an individual's local area 
and may not sufficiently capture variation in quality among subgroups 
of beneficiaries. This problem has been exacerbated by plan sponsors 
consolidating contracts to artificially improve their star ratings, an 
issue that has been partially addressed by legislation. Third, the QBP 
is financed with additional dollars above and beyond the cost of 
providing the Medicare benefit, in contrast to FFS quality payment. 
Lastly, an evaluation of quality in MA would ideally be based in part 
on a comparison with the quality of care in FFS, but the data needed to 
compare MA with FFS is lacking.

    The Commission has concluded that the current state of quality 
reporting no longer provides an accurate description of the quality of 
care in MA, either over time, among MA plans, or relative to FFS 
Medicare. With almost half of eligible beneficiaries now enrolled in MA 
plans, it is imperative that beneficiaries be able to compare MA and 
FFS quality, including alternative payment models in FFS such as 
Accountable Care Organizations (ACOs), and to compare the performance 
of the plans available in their area. Policymakers also need better 
information on the quality of care to monitor MA and FFS performance, 
evaluate MA payment policy, and assess other elements of the MA program 
such as network adequacy.

    In 2020, the Commission recommended replacing the QBP with a value 
incentive program that would:

        Use a small set of population-based outcome and patient/
enrollee experience measures that, where practical, aligns across MA 
plans and ACOs. To avoid undue burden on providers, measures should be 
calculated or administered largely by CMS, preferably with data that 
are already being reported, such as claims or encounter data.

        Evaluate quality at the local market level to provide 
beneficiaries with information about the quality of care in their local 
area and provide MA plans with incentives to improve the quality of 
care provided in every geographic area.

        Account for differences in enrollees' social risk factors so 
plans with higher shares of enrollees with social risk factors are not 
disadvantaged in their ability to receive quality-based payments.

        Finance the MA quality system in a budget-neutral manner to be 
more consistent with Medicare's FFS quality payment programs, which are 
either budget neutral (financed by reducing payments per unit of 
service) or produce program savings because they involve penalties 
(Medicare Payment Advisory Commission 2020).

    Quality bonuses account for about 3 percent of overall Medicare 
payments to MA plans in 2022, so replacing the QBP with a budget-
neutral program would generate substantial program savings. In 2020, 
CBO estimated at the time that these recommendations would reduce 
Medicare spending by more than $10 billion over 5 years.

    Establish benchmarks that allow the Medicare program to share in 
the efficiencies generated by Medicare Advantage. In contrast to the 
traditional FFS program, where Medicare pays providers fixed rates per 
service, Medicare pays MA plans a fixed rate for each enrolled 
beneficiary. Plan payment rates are determined by plan bids and 
benchmarks that are based on local FFS spending. Plans that bid below 
the benchmark (which nearly all do) receive some of the difference as a 
rebate that plans must use to provide extra benefits in the form of 
lower cost sharing, lower premiums, or supplemental benefits. Those 
benchmarks are increased (usually by 5 percentage points) for plans 
that receive the quality bonus.

    This year, MA plans are able to provide the Part A and Part B 
benefit package at a lower cost than the FFS program; the average bid 
equals 85 percent of FFS costs. Medicare customarily has mechanisms 
that allow it to benefit from the savings that providers or plans 
generate when they become more efficient. For example, the ACOs that 
operate in FFS have shared-savings arrangements with Medicare. In MA, 
Medicare benefits from plans operating more efficiently by keeping some 
of the difference between plan bids and benchmarks. However, the 
savings generated by this mechanism are more than offset by the 
combined effect of high benchmarks and quality bonuses. As a result, 
the Commission contends that the benchmark system should be revised to 
allow the Medicare program, its beneficiaries, and taxpayers to share 
in the savings that MA plans are able to achieve.

    Specifically, last year the Commission recommended that the 
Congress enact a new policy that calculates benchmarks using a 
relatively equal blend of local area FFS spending and national FFS 
spending, makes rebates a fixed percentage of the difference between 
the benchmark and a plan's bid (this percentage would be at least 75 
percent; under the current system, the percentage varies based on a 
plan's star rating), and incorporates a discount rate that reduces all 
benchmarks by at least 2 percent. This approach would allow the 
Medicare program to capture some MA efficiencies, while not being 
overly disruptive to MA plans' ability to earn rebates and offer 
supplemental benefits to their enrollees (Medicare Payment Advisory 
Commission 2021). At the time, CBO estimated that this recommendation 
would reduce program spending by more than $10 billion over 5 years.
The Prescription Drug Benefit (Part D)
    Under Part D, Medicare subsidizes about three-quarters of the cost 
of a basic outpatient drug benefit and provides a low-income subsidy 
(LIS) that covers much of the cost sharing and premiums for low-income 
beneficiaries. About 75 percent of Medicare beneficiaries are currently 
enrolled in Part D. Unlike Part A and Part B, all Part D benefits are 
delivered through private plans--stand-alone prescription drug plans 
(PDPs) and Medicare Advantage--Prescription Drug (MA-PD) plans that 
provide combined medical and drug coverage. Consistent with the growth 
in MA enrollment, the share of Part D beneficiaries enrolled in MA-PDs 
has risen steadily over time.

    Part D has a complicated, three-part benefit design. In the first 
part of the benefit, beneficiaries may face a deductible and pay cost 
sharing that equals 25 percent, on average. Part D plans receive 
capitated payments that largely finance coverage in this stage of the 
benefit. Beneficiaries with drug costs that exceed the initial part of 
the benefit then enter a second part known as the coverage gap, where 
they still face cost sharing of 25 percent but coverage is largely 
financed by manufacturer discounts on brand-name drugs or the LIS. The 
third part is a catastrophic benefit for beneficiaries with very high 
drug spending. In this stage, beneficiaries pay cost sharing of 5 
percent (those who receive the LIS pay nothing) and coverage is largely 
financed by Medicare through cost-based reinsurance.

    When Part D started in 2006, most spending was attributable to 
brand prescriptions for widely prevalent conditions such as high 
cholesterol and depression. Blockbuster drugs for such conditions lost 
patent protection toward the end of that decade, and many Part D 
enrollees switched to generic versions of their medicines. As this 
occurred, manufacturers turned to developing orphan drugs, biologics, 
and other high-priced specialty drugs for smaller patient populations. 
These broader changes to the prescription drug market, combined with 
Part D's unusual structure, have led us to raise several concerns about 
the program:

        Part D plans bear little liability for spending after the 
initial stage of the benefit. In the coverage gap, plans are 
responsible for just 5 percent of brand spending for enrollees without 
the LIS and bear no liability for LIS enrollees. In the catastrophic 
stage, plans cover only 15 percent of spending. When post-sale rebates 
and discounts that plans collect on some brand-name drugs are taken 
into account, plan sponsors may actually reduce their costs by covering 
a more expensive medication over a generic.

        The manufacturer discounts on brand-name drugs in the coverage 
gap have lowered out-of-pocket costs for some beneficiaries, but they 
also artificially lower the prices for brand-name drugs relative to 
generics, which reduces incentives to use generics.

        The shift toward high-cost drugs has effectively turned Part D 
from a program that relies on capitated, risk-bearing plans to one that 
largely relies on cost-based payment. In 2007, Medicare's capitated 
payments to Part D plans were more than twice as large as its cost-
based reinsurance payments ($17.6 billion vs. $8.0 billion). By 2020, 
reinsurance payments were nearly five times larger ($47.8 billion vs. 
$10.2 billion).

        The growth in spending on high-cost drugs has also increased 
the number of beneficiaries who reach the catastrophic stage of the 
benefit. Beneficiaries who reach this stage and do not receive the LIS 
may still incur substantial out-of-pocket costs.

    In 2020, the Commission addressed these concerns by recommending 
major changes to the Part D program (Medicare Payment Advisory 
Commission 2020). These changes would substantially redesign the 
program's benefit structure, restore the role of risk-based, capitated 
payments that was present at the start of the program, and provide some 
resistance on drug price increases. This redesign would:

        Eliminate the coverage gap and the discounts that 
manufacturers provide on brand-name drugs during that part of the 
benefit. These changes would create a benefit where plans would be 
responsible for 75 percent of spending for benefits between the 
deductible and the catastrophic threshold, with enrollees responsible 
for the remaining 25 percent through cost sharing. (The Medicare 
program would continue to pay most of the cost sharing for enrollees 
who receive the LIS.)

        Provide enrollees with greater financial protection by 
eliminating cost sharing in the catastrophic part of the benefit, thus 
creating an annual cap on out-of-pocket costs.

        Reduce Medicare's reinsurance in the catastrophic part from 80 
percent to 20 percent and require manufacturers to provide a discount 
of at least 30 percent on high-priced medicines. Plans would be 
responsible for the remaining 50 percent. These changes would shift 
insurance risk from Medicare to plan sponsors and drug manufacturers.

        Improve the ability of plans to manage drug spending more 
effectively by establishing a higher copayment amount under the LIS for 
nonpreferred drugs and by giving plans greater flexibility in covering 
drugs in the protected classes.

    In tandem with these changes, CMS would need to recalibrate its 
risk-adjustment system for Part D payments to ensure that they 
adequately account for differences in enrollees' health status. Since 
plans would bear more insurance risk in the catastrophic stage of the 
benefit under these reforms, policymakers could also consider modifying 
the Part D risk corridors to temporarily provide plans with greater 
protection during a transition to the new benefit structure.

    In 2020, CBO estimated that this package of recommendations would 
reduce program spending by more than $10 billion over 5 years.
                               conclusion
    Medicare spending is expected to more than double over the next 
decade due to a combination of higher enrollment driven by the 
retirement of the baby boomers and continued growth in per capita 
spending in all parts of the program. This spending growth will strain 
the solvency of the HI trust fund and the sustainability of the general 
revenue--financed SMI trust fund. By design, consistent with the 
Commission's statutory charge, I have discussed only the spending side 
of Medicare's sustainability problem. The recommendations I have 
discussed today touch on some key areas where the Commission contends 
that reforms are both urgently needed and could be implemented in a way 
that reduces program spending, continues to pay providers and health 
plans adequately for delivering services, and ensures that 
beneficiaries have good access to care.

References

Boards of Trustees, Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds. 2021. 2021 annual report 
of the Boards of Trustees of the Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds. Washington, DC: Boards of 
Trustees.

Congressional Budget Office. 2021a. Baseline projections--Medicare. 
Washington, DC: CBO. https://www.cbo.gov/system/files/2021-07/51302-
2021-07-medicare.pdf.

Congressional Budget Office. 2021b. An update to the budget and 
economic outlook: 2021 to 2031. Washington, DC: CBO. https://
www.cbo.gov/system/files/2021-07/57218-Outlook.pdf.

Medicare Payment Advisory Commission. 2016. Report to the Congress: 
Medicare payment policy. Washington, DC: MedPAC.

Medicare Payment Advisory Commission. 2020. Report to the Congress: 
Medicare and the health-care delivery system. Washington, DC: MedPAC.

Medicare Payment Advisory Commission. 2021. Report to the Congress: 
Medicare and the health-care delivery system. Washington, DC: MedPAC.

                                 ______
                                 
    Prepared Statement of Amy Kapczynski, Professor and Faculty Co-
   Director, Global Health Justice Partnership and Law and Political 
                    Economy Project, Yale Law School
    Chair Warren, Ranking Member Cassidy, and distinguished members of 
the subcommittee, I appreciate the opportunity to testify about the 
important topic of the future of Medicare financing.

    My name is Amy Kapczynski, and I am a professor of law at Yale Law 
School, as well as a faculty co-director of the Yale Global Health 
Justice Partnership and the Law and Political Economy Project. I teach 
and write about intellectual property law, innovation policy, and law 
and political economy. My research has had a particular focus on the 
pharmaceutical industry and organization of biomedical research and 
development in the U.S.

    The focus of my remarks today will be on the problem that high drug 
prices pose for the Medicare program and for Medicare beneficiaries. At 
the root of this problem is the monopoly power that companies can exert 
through patents and other market exclusivities. As I will describe, the 
vast majority of Medicare's rising drug expenditures are attributable 
to high-cost, monopolized medicines. Ensuring the stable financing of 
Medicare, and the health and well-being of Medicare beneficiaries, 
requires concerted legislative action to ensure fair pharmaceutical 
prices.

    There is a great deal of talk in Washington today about inflation. 
I urge you to consider why drug price inflation--which we know how to 
handle, and which hurts so many vulnerable Americans--has been allowed 
to persist without congressional action. To protect Medicare, and to 
protect Americans, Congress should pass strong legislation to curb 
price increases and ensure that medicine prices reflect genuine 
investment and therapeutic value, and also consider measures to address 
patent-abuse and other anticompetitive conduct in the industry.
 high drug prices are a critical problem for americans and for medicare
    High drug prices in the U.S. are a major problem today, both for 
patients and for the sustainability of our health insurance system. 
From 1980 to 2018, pharmaceutical spending increased more than tenfold 
in real terms (i.e., excluding economy-wide inflation).\1\ U.S. 
spending on prescription drugs reached $535.3 billion in 2020.\2\ 
Pharmaceutical spending accounts for at least 14 percent of overall 
U.S. health-care spending.\3\
---------------------------------------------------------------------------
    \1\ Congressional Budget Office, Prescription Drugs: Spending, Use, 
and Prices 1 (2022).
    \2\ Eric M. Tichy, ``National Trends in Prescription Drug 
Expenditures and Projections for 2021,'' 78 Am. J. Health-System 
Pharmacy 1294, 1295 (2021), https://www.ncbi.nlm.nih.gov/pmc/articles/
PMC8365501/pdf/zxab160.pdf. CMS also produces an estimate of U.S. 
pharmaceutical spending. See Centers for Medicare and Medicaid 
Services, National Health Expenditures 2020 Highlights 2 (2021) 
(estimating U.S. pharmaceutical spending at $348.4 billion). However, 
the CMS estimate only captures drug spending in retail outlets. 
Although estimates of retail--i.e., pharmacy-dispensed--drugs come in 
around 9 percent of total health-care spending, including non-retail 
drugs increases estimates by as much as 50 percent. CMS counts this 
form of spending as ``physician, hospital, and nursing home services,'' 
making traditional estimates of stand-alone drug spending problematic. 
See Rena M. Conti et al., ``Projections of U.S. Prescription Drug 
Spending and Key Policy Implications,'' JAMA Health Forum (2021), 
https://jamanetwork.com/journals/jama-health-forum/fullarticle/2776040.
    \3\ Tichy, supra note 2, at 1294; see also Charles Roehrig, 
Projections of the Prescription Drug Share of National Health 
Expenditures Including Non-Retail, Altarum Research Brief (June 13, 
2019), https://altarum.org/publications/projections-prescription-drug-
share-national-health-expenditures-including-non-retail-0 (finding 
total prescription drug spending to be 13.9 percent not the more oft-
quoted 9 percent figure); Aaron S. Kesselheim, Improving Competition to 
Lower U.S. Prescription Drug Costs, Washington Center for Equitable 
Growth (February 18, 2020) (suggesting that the share is closer to 20 
percent, or even 25 percent for some private insurers).

    Price increases beyond the pace of inflation are commonplace, for 
example with net prices increasing by 60 percent from 2007 to 2018.\4\ 
More than 100 drugs saw price increases beyond inflation in 2021.\5\ 
The average new cancer drug in the U.S. today is priced at more than 
$175,000, and this price does not in any logical way track benefits or 
R&D costs.\6\ The U.S. is also distinctive among other wealthy 
countries. We lack comprehensive tools to ensure fair prices, and as a 
result have prices that are on average 256 percent higher than all 
other OCED countries.\7\
---------------------------------------------------------------------------
    \4\ Inmaculada Hernandez et al., ``Changes in List Prices, Net 
Prices, and Discounts for Branded Drugs in the U.S.,'' 2007-2018, 323 
JAMA 854 (2020), https://jamanetwork.com/journals/jama/fullarticle/
2762310.
    \5\ Patients for Affordable Drugs, A New Year Brings the Same Old 
Bad Behavior by Big Pharma (2022), https://
patientsforaffordabledrugs.org/2022/01/12/a-new-year-brings-the-same-
old-bad-behavior-by-big-pharma; see also Dena Bunis, Prescription Drug 
Price Increases Continue to Outpace Inflation, AARP (June 7, 2021), 
https://www.aarp.org/politics-society/advocacy/info-2021/prescription-
price-increase-report.html (describing how ``prices for 260 commonly 
used medications whose prices AARP has been tracking since 2006 
increased 2.9 percent while the general rate of inflation was 1.3 
percent'').
    \6\ Vinay Prasad, Kevin De Jesus and Sham Mailankody, ``The High 
Price of Anticancer Drugs: Origins, Implications, Barriers, 
Solutions,'' 14 National Reviews Clinical Oncology 381 (2017), https://
doi.org/10.1038/nrclinonc.2017.31.
    \7\ Andrew W. Mulcahy et al., Rand Corporation, International 
Prescription Drug Price Comparisons: Current Empirical Estimates and 
Comparisons With Previous Studies (2021), https://www.rand.org/pubs/
research_reports/RR2956.html.

    Unsurprisingly, high drug prices are also one of the leading 
concerns of voters today.\8\ More than two-thirds of Americans across 
political affiliations say, for example, that lowering high drug prices 
should be a high priority for the current administration.\9\ Almost two 
in five (39 percent) of Americans did not take a prescription drug as 
prescribed because of cost.\10\ One in five (21 percent) reported 
taking on debt or declaring bankruptcy in order to pay for their 
prescriptions.\11\ The same percent also reported struggling to pay for 
basic needs such as food or shelter as a result of their prescription 
drug spending.\12\
---------------------------------------------------------------------------
    \8\ Liz Hamel, Public Opinion on Prescription Drugs and Their 
Prices, Kaiser Family Foundation (2021), https://www.kff.org/health-
costs/poll-finding/public-opinion-on-prescription-drugs-and-their-
prices/.
    \9\ Dan Witter, In U.S., Most Say Reducing Cost of Care High 
Priority for Biden, Gallup (January 28, 2021), https://news.gallup.com/
poll/328757/say-reducing-cost-care-high-priority-biden.
aspx.
    \10\ Katie Adams, ``Rising Costs Force 39% of Americans to Skip, 
Ration Meds, Survey Says,'' Becker's Hospital Review (March 22, 2021), 
https://www.beckershospitalreview.com/pharmacy/rising-costs-force-39-
of-americans-to-skip-ration-meds-survey-says.html (citing a survey of 
roughly 1,000 Americans conducted by GoodRx).
    \11\ Id.
    \12\ Id.

    The effects of the costs of treatment are so dramatic and clear to 
clinicians that some oncologists have even coined the term ``financial 
toxicity'' to describe the consequences of high treatment prices on 
cancer patients.\13\ Indeed, recent estimates indicate that medical 
debt has become the single leading source of delinquent consumer debt 
in the U.S., surpassing credit cards, utilities, and phone bills over 
the last decade.\14\
---------------------------------------------------------------------------
    \13\ Cathy J. Bradley, K. Robin Yabroff and Ya-Chen Tina Shih, ``A 
Coordinated Policy Approach to Address Medical Financial Toxicity,'' 7 
JAMA Viewpoint 1761 (2021), https://jamanetwork.com/journals/
jamaoncology/fullarticle/2784986; see also Scott D. Ramsey, et al., 
``Financial Insolvency as a Risk Factor for Early Mortality Among 
Patients With Cancer,'' 34 Journal of Clinical Oncology 980 (2016) 
(finding an association between medical debt and early mortality among 
cancer patients).
    \14\ Raymond Kluender, Neale Mahoney and Francis Wong, ``Medical 
Debt in the U.S., 2009-2020,'' 326 JAMA 250 (2021), https://
jamanetwork.com/journals/jama/fullarticle/2782187. Kluender and 
coauthors estimated that the amount of medical debt currently in 
collections--a tiny fraction of the total medical debt burden--to be 
$140 billion. In contrast, an earlier study estimated medical debt in 
collections in 2016 to be $81 billion. See Michael Batty, Christa Gibbs 
and Benedic Ippolito, ``Unlike Medical Spending, Medical Bills In 
Collections Decrease With Patients' Age,'' 37 Health Affairs 1257 
(2018), https://doi.org/10.1377/hlthaff.2018.0349.

    Another vivid example of the problem is insulin, a drug that type 1 
diabetics must take regularly or face life-threatening consequences. In 
the past 2 decades, the cost of analogue insulins has skyrocketed, even 
as the drugs themselves remain unchanged. For example, Novolog, an 
insulin that has been on the market since 2001, saw its price rise by 
353 percent between 2001 and 2016.\15\ The human costs are severe. 
Researchers have found that as many as 1 in 4 patients now do not take 
insulin as prescribed due to its unaffordability.\16\
---------------------------------------------------------------------------
    \15\ The Endocrine Society, ``Addressing Insulin Access and 
Affordability: An Endocrine Society Position Statement,'' 106 J. 
Clinical Endocrinology and Metabolism 935, 936 (2021).
    \16\ Darby Herkert et al., ``Cost-Related Insulin Underuse Among 
Patients With Diabetes,'' 179 JAMA Internal Medicine 112 (2019).
---------------------------------------------------------------------------
         high drug prices have a significant impact on medicare
    The impact of high drug prices on Medicare specifically is well-
documented. Medicare covers retail prescription drugs through Part D, 
drugs provided in physicians' offices and hospital outpatient 
departments through Part B, and inpatient and nursing facilities 
through Part A. These programs cover an estimated 27 percent of all 
U.S. drug spending.\17\
---------------------------------------------------------------------------
    \17\ Office of Health Policy, Office of Assistant Secretary for 
Planning and Evaluation, Medicare Part B Drugs: Trends in Spending and 
Utilization, 2016-2017 (2020), https://aspe.hhs.gov/sites/default/
files/migrated_legacy_files//197396/Part-B-Drugs-Trends-Issue-
Brief.pdf.

    These expenditures make up a significant part of Medicare budgets. 
Between 2006 and 2017, drug spending through Medicare Part D rose from 
9 percent of total benefit payments to 14 percent.\18\ This in part 
reflects increases in drug prices that significantly outpaced 
inflation.\19\ Indeed, among Medicare Part D drugs, the median price 
increases were 3.5 times the rate of inflation.\20\
---------------------------------------------------------------------------
    \18\ Juliette Cubanski and Tricia Neuman, Kaiser Family Foundation, 
The Facts on Medicare Spending and Financing (July 2017), https://
collections.nlm.nih.gov/master/borndig/10171
7009/Issue-Brief-The-Facts-on-Medicare-Spending-and-Financing.pdf; see 
also Xavier Becerra, Report to the White House Competition Council 
(2021), https://aspe.hhs.gov/sites/default/files/2021-09/
Competition%20EO%2045-Day%20Drug%20Pricing%20Report%209-8-2021.pdf 
(``Medicare spending on drugs is growing faster than Medicare spending 
on other services: 5.9 percent annually on Part B Fee-for-Service drugs 
and Part D, compared to 5.3 percent for the program as a whole. Drug 
spending per beneficiary on Medicare Part B, which covers drugs 
administered in physician offices and hospital outpatient departments, 
has increased roughly 8 percent each year since 2006, and nearly 10 
percent from 2017-2018, compared to about 6 percent annually for 
overall Part B spending. Medicare Part B drug spending has been growing 
even more sharply in recent years. With no cap on out-of-pocket 
spending in Medicare Part D, beneficiaries who need expensive drugs or 
many different drugs to treat chronic conditions can be hit 
particularly hard: in 2019, nearly 1.5 million beneficiaries had out-
of-pocket spending above the catastrophic threshold that is currently 
set at $6,550, with 3.6 million beneficiaries having had out-of-pocket 
spending above the catastrophic threshold in at least 1 year over the 
10 year period from 2010-2019.'').
    \19\ Drug prices outpaced inflation in half of all Part D-covered 
drugs (1,646 drugs) between July 2018 and July 2019. Juliette Cubanski 
and Tricia Neuman, Kaiser Family Foundation, Price Increases Continue 
To Outpace Inflation for Many Medicare Part D Drugs (2021), https://
www.kff.org/medicare/issue-brief/price-increases-continue-to-outpace-
inflation-for-many-medicare-part-d-drugs/. The inflation rate in this 
article is based on CPI-U.
    \20\ Id.

    High drug prices thus are a major challenge for Medicare financing. 
One study estimated that reducing the prices paid by Medicare for only 
brand-name drugs to those paid by other government providers such as 
the Veterans Health Administration would decrease taxpayer 
contributions by at least $11 billion each year.\21\ Similarly, the CBO 
has estimated that various legislative proposals that would allow the 
government to negotiate drug prices through Medicare would save the 
program anywhere from $80 to nearly $500 billion over 10 years.\22\
---------------------------------------------------------------------------
    \21\ Marc-Andre Gagnon and Sidney Wolfe, Public Citizen, Mirror, 
Mirror on the Wall: Medicare Part D Pays Needlessly High Brand-Name 
Drug Prices Compared With Other OECD Countries and With U.S. Government 
Programs (2015), https://www.citizen.org/wp-content/uploads/2269a.pdf.
    \22\ See Congressional Budget Office, Division A--Prescription Drug 
Pricing Reduction Act of 2019 (2020), https://www.cbo.gov/system/files/
2020-03/PDPRA-SFC.pdf; Report from Phillip L. Swagel, Director, 
Congressional Budget Office, to Frank Pallone Jr., Chairman, House 
Committee on Energy and Commerce (December 10, 2019), https://
www.cbo.gov/system/files/2019-12/hr3_complete.pdf (Budgetary Effects of 
H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act); see also 
Lovisa Gustafsson and Rachel Nuzum, The Case for Drug-Pricing Reform--
The Cost of Inaction, Commonwealth Fund (May 26, 2021), https://
www.commonwealth
fund.org/blog/2021/case-drug-pricing-reform-cost-inaction (describing 
generally various possible reforms and their potential for significant 
cost-savings).

    High drug prices are not just a problem for the fiscal 
sustainability of the program. They are also a major problem for 
Medicare beneficiaries because they translate into greater cost-sharing 
burdens. Medicare patients are on the hook for a percentage of their 
treatment costs due to coinsurance obligations, which apply even after 
they have met their deductibles and out-of-pocket maximums. These sums 
can be exorbitant when drugs cost as much as $75,000 per year.\23\ On 
top of this, Medicare deductibles have risen faster than inflation, 
including for the Part D drug program.\24\ And increases in premiums 
can also be driven by the introduction of expensive new medicines, as 
this year's 14.5 percent increase in Part B premiums shows.\25\
---------------------------------------------------------------------------
    \23\ Michelle Andrews, ``Doughnut Hole is Gone, But Medicare's 
Uncapped Drug Costs Still Bite Into Budgets,'' Kaiser Health News 
(March 29, 2019), https://khn.org/news/doughnut-hole-is-gone-but-
medicares-uncapped-drug-costs-still-bite-into-budgets/.
    \24\ Mark Miller, ``How to Cope With Medicare's Rising Costs,'' New 
York Times (December 22, 2021), https://www.nytimes.com/2021/12/22/
business/medicare-retirement-costs.html?smid=
url-share.
    \25\ Dena Bunis, ``AARP Urges Feds to Lower 2022 Part B Premiums,'' 
AARP Health (January 25, 2022), https://www.aarp.org/health/medicare-
insurance/info-2022/part-b-premium-increase-reassess-alzheimers-
drug.html.

    For seniors on Medicare who have common, chronic conditions (like 
diabetes and high blood pressure), out-of-pocket costs rose by over 40 
percent between 2009 and 2019.\26\ Note that this figure understates 
the true cost of the price increase because the overall costs of 
medication are shared by all Medicare beneficiaries through their 
premiums. Even so, this increase far outstripped the overall inflation 
rate over that period.\27\ This increase was driven not by exogenous 
factors like supply shortages or labor costs, but by the development of 
new, patent-protected drugs without generic competitors. The same 
researchers found that costs for patients whose conditions were treated 
with generic drugs saw out-of-pocket costs fall during the same period, 
while those who were treated with brand drugs lacking generic 
competitors saw the largest increases.\28\
---------------------------------------------------------------------------
    \26\ Reshma Ramachandran, Tianna Zhou and Joseph S. Ross, ``Out-of-
Pocket Drug Costs for Medicare Beneficiaries Need to Be Reined in,'' 
STAT News (January 7, 2022), https://www.statnews.com/2022/01/07/out-
of-pocket-drug-costs-for-medicare-beneficiaries-need-to-be-reined-in.
    \27\ The overall inflation rate in the period was roughly 19 
percent, according to U.S. Bureau Labor Statistics, CPI Inflation 
Calculator (last visited January 31, 2022), https://www.bls.gov/data/
inflation_calculator.htm (calculating the rise in CPI-U from January 
2009 to January 2019).
    \28\ Ramachandra, supra note 25.

    A 2021 study published in the Journal of the American Medical 
Association found that 11 percent of Medicare beneficiaries reported 
delaying care due to concerns about cost, 11 percent reported 
difficulty paying medical bills, and 16 percent reported at least one 
of these problems.\29\ The burden, predictably, fell hardest on the 
poor and those with multiple chronic conditions.\30\ Since then, the 
problem has continued to worsen, with the most recent evidence showing 
dramatic increases in the number of Americans skipping treatment due to 
cost concerns.\31\ According to one study, approximately 112,000 
Medicare beneficiaries will die each year by 2030 due to skipping 
treatment because of high costs.\32\
---------------------------------------------------------------------------
    \29\ Jeanne M. Madden, et al., ``Affordability of Medical Care 
Among Medicare Enrollees,'' JAMA Health F., December 2021, doi:10.1001/
jamahealthforum.2021.4104; see also Michael Karpman, et al., Urban 
Institute, In the Years Before the COVID-19 Pandemic, Nearly 13 Million 
Adults Delayed or Did Not Get Needed Prescription Drugs Because of 
Costs (2021), https://www.urban.org/research/publication/years-covid-
19-pandemic-nearly-13-million-adults-delayed-or-did-not-get-needed-
prescription-drugs-because-costs; Juliette Cubanski et al., Kaiser 
Family Foundation, The Financial Burden of Health Care Spending: Larger 
for Medicare Households Than for Non-Medicare Households (2018), 
https://www.kff.org/fb23909/.
    \30\ Beneficiaries who make less than $50,000 per year were twice 
as likely to delay care as those who make more than $50,000, and those 
with four or more chronic conditions were twice as likely to delay care 
as those with one or no chronic conditions. Madden, supra note 28, at 
6.
    \31\ ``New Poll: Major Spike in Percent of Americans Skipping 
Medical Treatment Due to Cost,'' West Health (December 14, 2021), 
https://www.westhealth.org/press-release/2021-healthcare-in-america-
report-2/. A poll by Gallup and West Health found that one-fifth of 
Americans in 2021 reported negative health consequences after they or a 
family member delayed care due to cost. The rate of delayed care was 
comparable between Medicaid beneficiaries (37 percent) and the 
uninsured (39 percent), and Black adults were twice as likely as White 
adults to personally know someone who died after delaying their medical 
care. Although the study did not separately provide results for 
Medicare beneficiaries, research has generally confirmed that the 
financial burdens associated with health care are at least as high if 
not higher among Medicare beneficiaries compared to the general 
population. See supra notes 21-29.
    \32\ Council for Informed Drug Spending Analysis, High Drug Prices 
and Patient Costs: Millions of Lives and Billions of Dollars Lost 
(November 18, 2020), https://www.cidsa.org/publications/xcenda-summary 
(CIDSA is a non-partisan group of experts funded by West Health).
---------------------------------------------------------------------------
           the high drug price problem is a monopoly problem
    Why are prices so high in the U.S.? The core of the problem is 
quite simple: drug companies have exclusive rights that permit them to 
set high prices, and unlike almost every other wealthy country, the 
U.S. has no concerted system to constrain this monopoly power to ensure 
fair prices.\33\ Companies also engage in anticompetitive conduct that 
exacerbates the problem.
---------------------------------------------------------------------------
    \33\ Aaron S. Kesselheim, Jerry Avorn and Ameet Sarpatwari, ``The 
High Cost of Prescription Drugs in the United States: Origins and 
Prospects for Reform,'' 316 JAMA 858 (2016), https://doi.org/10.1001/
jama.2016.11237.

    The drug industry's high prices reflect a specific kind of monopoly 
problem. Even without industry concentration, government-backed rights 
create forms of market power that allow companies to set high prices, 
particularly in a context of widespread insurance and even mandates to 
cover monopolized products.\34\ For example, the U.S. Government allows 
many kinds of patents on drugs, including not only patents on new 
molecules or active ingredients, but also patents on new dosages, 
formulations, and minor modifications of a chemical compound like a 
salt or isomeric form.\35\ All of these patents last 20 years, and 
allows patentees to exclude others from making, using, importing, or 
selling the covered inventions. Companies can create ``thickets'' of 
such patents, ring-fencing lucrative medicines to forestall 
competition. Other forms of market exclusivity are also granted at the 
regulatory interface, such as data exclusivity that prevents generic or 
biosimilar drug registration based on originator data for a certain 
number of years.
---------------------------------------------------------------------------
    \34\ Rachel Sachs, ``Delinking Reimbursement,'' 102 Minnesota Law 
Review 2307 (2018) (noting that Federal law also requires that Medicaid 
and Medicare ``cover most, and in many cases all, FDA-approved drugs,'' 
and that private insurers are also required to cover many drugs, 
mandated by the ACA's ``essential health benefits'' requirement and 
many State laws).
    \35\ Amy Kapczynski, Chan Park and Bhaven Sampat, ``Polymorphs and 
Prodrugs and Salts (Oh My!): An Empirical Analysis of `Secondary' 
Pharmaceutical Patents,'' 7 PLOS ONE e49470 (2012), https://doi.org/
10.1371/journal.pone.0049470.

    This is why though most prescriptions in the U.S. are for generic 
drugs, spending is heavily concentrated on patented medicines. Brand-
name drugs, for example, account for three-quarters of drug spending 
overall.\36\ And a small number of newer medicines without generic 
competition comprise the bulk of our spending. Medicare offers an 
example. Just 7 percent of drugs in Medicare Part D drive 60 percent of 
spending.\37\ Medicare, of course, is forbidden by law from negotiating 
for lower prices for medicines.
---------------------------------------------------------------------------
    \36\ Aaron Kesselheim et al., ``The High Cost of Prescription Drugs 
in the United States: Origins and Prospects for Reform,'' 316 JAMA 858 
(2016).
    \37\ Juliette Cubanski, et al., Kaiser Family Foundation, 
Relatively Few Drugs Account for a Large Share of Medicare Prescription 
Drug Spending (2021), https://www.kff.org/medicare/issue-brief/
relatively-few-drugs-account-for-a-large-share-of-medicare-
prescription-drug-spending/.

    Although the pharmaceutical industry has historically argued that 
exclusive rights and high prices are needed to compensate for R&D, 
there is growing recognition that prices are not set in relation to 
R&D.\38\ Rather, prices are set in relation to what market can bear, 
and that turns not on R&D costs but on the amount of market power a 
company can exercise.
---------------------------------------------------------------------------
    \38\ See, e.g., U.S. Department of Health and Human Services, 
Prescription Drugs: Innovation, Spending, and Patient Access (2016), 
https://aspe.hhs.gov/sites/default/files/migrated_
legacy_files//192456/DrugPricingRTC2016.pdf (``Drug manufacturers often 
point to high drug development costs as a justification for high drug 
prices and understanding the R&D costs and time to develop a new drug 
is important. However, the relationship between R&D costs and drug 
prices is subject to a number of misconceptions. In reality, the prices 
charged for drugs are unrelated to their development costs. Drug 
manufacturers set prices to maximize profits. At the time of marketing, 
R&D costs have already occurred and do not affect the calculation of a 
profit-maximizing price.'').

    So, we see that the largest pharmaceutical companies spend 
significantly more on marketing than they do on R&D even during a 
global pandemic, with some exceeding R&D twofold.\39\ We see old 
drugs--with no new innovation, like analogue insulins--rising in price. 
And we see companies engaging in exploitative and anticompetitive 
conduct, lining their pockets not by investing in breakthrough 
innovations, but by investing in patent lawyers to engage in ``life-
cycle management'' by creating patent thickets rather than investing in 
new drugs.\40\
---------------------------------------------------------------------------
    \39\ AHIP, New Study: In the Midst of COVID-19 Crisis, 7 Out of 10 
Big Pharma Companies Spent More on Sales and Marketing Than R&D (2021), 
https://www.ahip.org/news/articles/new-study-in-the-midst-of-covid-19-
crisis-7-out-of-10-big-pharma-companies-spent-more-on-sales-and-
marketing-than-r-d.
    \40\ Kerstin N. Vokinger et al., ``Strategies That Delay Market 
Entry of Generic Drugs,'' 177 JAMA Internal Medicine 1665 (2017).

    We know also that it is government funding, not industry funding, 
that is disproportionately likely to lead to breakthrough 
medicines.\41\ The unfortunately reality is that high drug prices are 
not guaranteeing us investment in the right kind of innovation.\42\ The 
silver lining is that it is possible to act on high prices without 
undermining innovation, and indeed while improving innovation 
incentives by ensuring that only real innovation is rewarded.
---------------------------------------------------------------------------
    \41\ See Aaron S. Kesselheim, Yongtian Tina Tan and Jerry Avorn, 
``The Roles of Academia, Rare Diseases, and Repurposing in the 
Development of the Most Transformative Drugs,'' 34 Health Affairs 286 
(2015) (``We studied the developmental histories of 26 drugs or drug 
classes approved by the Food and Drug Administration between 1984 and 
2009 that were judged by expert physicians to be transformative (in two 
cases, the first drug in a transformative class was approved before 
1984). Most of the 26 were first approved early in the study period; 
only four were approved in 2000 or later. Many were based on 
discoveries made by academic researchers who were supported by Federal 
Government funding. Others were jointly developed in both publicly 
funded and commercial institutions; the fewest number of drugs had 
originated solely within pharmaceutical industry research programs.''); 
Aaron S. Kesselheim, ``Public Sector Financial Support for Late Stage 
Discovery of New Drugs in the United States: Cohort Study,'' 367 BMJ 1 
(2019), https://www.bmj.com/content/bmj/367/bmj.l5766.full.pdf; 
Ekaterina Cleary, Matthew Jackson and Fred Ledley, Government as the 
First Investor in Biopharmaceutical Innovation: Evidence From New Drug 
Approvals 2010-2019 (Institute for New Economic Thinking, Working Paper 
No. 133, 2020), https://www.ineteconomics.org/research/research-papers/
government-as-the-first-investor-in-biopharmaceutical-innovation-
evidence-from-new-drug-approvals-2010-2019.
    \42\ Unlike government, which funds research in order promote 
public health, corporations assign their research funds based on 
marketability and profit, rather than therapeutic benefits. As a 
result, research in the most important biomedical sectors is 
chronically underfunded. See Massimo Florio, ``Biomed Europa: After the 
Coronavirus, a Public Infrastructure to Overcome the Pharmaceutical 
Oligopoly,'' 92 Annals of Public Cooperation Economics 387, 388 (2021); 
see also Son Le, et al., ``Reaching for Mediocrity: Competition and 
Stagnation in Pharmaceutical Innovation,'' 64 International Review of 
Law and Economics 1 (2020) (describing substantial underinvestment by 
private firms in developing novel drugs, but overinvestment in 
marginal, ``me too'' drugs).

            patent abuse: patent thickets and pay-for-delay
    Consider the problem of ``patent thickets.'' Patent thickets occur 
when pharmaceutical firms file numerous patents on an existing product 
in order to create barriers to competition and to extend effective 
patent life. In a study of all new molecular entities approved in the 
U.S. from 1998 to 2005, colleagues and I showed that ``secondary'' 
patents (for example, on formulations, methods of treatment, or 
isomers) are extremely common in the industry--in fact, more common 
than patents on chemical compounds.\43\ We also showed that where both 
compound patents and secondary patents existed, the latter added 
between 4 and 5 years of nominal additional patent term.\44\ A more 
recent study looked at biologic drugs litigated from 2010 to 2020 and 
found that only 6 percent of patents on biologics covered innovative 
new molecules. Most others instead covered associated manufacturing 
processes, alternative uses of a medicine, and formulations.\45\
---------------------------------------------------------------------------
    \43\ See Amy Kapczynski, Chan Park and Bhaven Sampat, supra note 
34, at 4.
    \44\ Id.
    \45\ Ed Silverman, ``Patent Thickets Are Thwarting U.S. 
Availability of Lower-Cost Biosimilar Medicines, Study Finds,'' STAT 
News (January 18, 2022), https://www.statnews.com/pharmalot
/2022/01/18/patent-biosimilar-abbvie-biologic/.

    One of the most infamous examples of patent thicketing is Humira, 
the world's best-selling drug. AbbVie, the drug's manufacturer, filed 
over 130 patents related to the drug's manufacturing methods and 
formulations just a few years before the patent's expiration date.\46\ 
Conveniently, AbbVie tripled the price of Humira, a drug used to treat 
arthritis, between 2006 and 2017.\47\ This is not a unique tactic. One 
study found that on average, across the top twelve grossing drugs in 
the United States, there are 125 patent applications filed per drug, 
with associated prices increasing by 68 percent between 2012 and 
2018.\48\
---------------------------------------------------------------------------
    \46\ Patricia Kelmar, U.S. Public Interest Research Group, Hacking 
Through Thickets of Drug Patents to Get to Affordable Medicine (2021), 
https://uspirg.org/blogs/blog/usp/hacking-through-thickets-drug-
patents-get-affordable-medicine.
    \47\ Id.
    \48\ IMAK, Overpatented, Overpriced: How Excessive Pharmaceutical 
Patenting Is Extending Monopolies and Driving Up Drug Prices (2018), 
https://www.i-mak.org/wp-content/uploads/2018/08/I-MAK-Overpatented-
Overpriced-Report.pdf.

    The same study finding extreme patent thickets around the top 
twelve grossing drugs in the United states also observed ``38 years of 
attempted patent protection blocking generic competition sought by 
drugmakers for each of these top grossing drugs.''\49\ These 
anticompetitive measures help prop up prices, especially of the most 
profitable drugs where this kind of evergreening is the most 
common.\50\
---------------------------------------------------------------------------
    \49\ Id. at 2.
    \50\ The Drug Prices Team, ``Evergreening'' Stunts Competition, 
Costs Consumers and Taxpayers, Arnold Ventures (September 24, 2020), 
https://www.arnoldventures.org/stories/evergreening-stunts-competition-
costs-consumers-and-taxpayers.

    Pay-for-delay tactics are another form of anticompetitive practice 
that increase drug prices. Reverse payment patent settlements, the most 
frequently cited example of pay-for-delay tactics, take place during 
patent litigation when generic firms decide to abstain from entering a 
market in exchange for large sums of money from a brand-name 
manufacturer. This benefits the patent-holder by staving off open 
competition for a period, and the patent holder then turns over some of 
the spoils to the generic company. The ulcer drug Zantac provides an 
example. Glaxo--the drug's manufacturer--agreed to pay the generic firm 
seeking entry a large, undisclosed sum (some estimate a number upwards 
of $100 million) in exchange for an extended period without competition 
which, at the time, yielded Glaxo $2 billion a year.\51\
---------------------------------------------------------------------------
    \51\ C. Scott Hemphill, ``Paying for Delay: Pharmaceutical Patent 
Settlement as a Regulatory Design Problem,'' 81 NYU Law Review 1553, 
1568-69 (2006).

    The Federal Trade Commission estimated in 2010 that ``pay-for-delay 
agreements would cost consumers $35 billion over the next 10 
years.''\52\ More recent estimates have suggested that pay-for-delay 
tactics deals cost roughly $26 billion a year.\53\ Pharmaceutical 
companies have also innovated a number of other illegitimate ways to 
prevent competition, including denying generic manufacturers access to 
drug samples necessary for bioequivalence testing, misusing risk 
evaluation and mitigation strategies, and filing citizen petitions with 
the U.S. Food and Drug Administration (FDA).\54\ The 2019 CREATES Act 
targeted two such strategies, sample blockades and safety protocol 
filibusters, and shows that concerted congressional action can help 
curb such activity.\55\
---------------------------------------------------------------------------
    \52\ Robin Feldman et al., ``Pharmaceutical `Pay-for-Delay' 
Reexamined: A Dwindling Practice or a Persistent Problem?'', 71 
Hastings Law Journal 959, 961 (2020).
    \53\ Symposium, ``Assessing Strategies to Delay Generic Drug 
Entry,'' 11 NYU Journal of Intellectual Property and Entertainment Law 
60, 71 (2021).
    \54\ Aaron S. Kesselheim, ``Strategies That Delay Market Entry of 
Generic Drugs,'' 177 JAMA Internal Medicine 1665 (2017).
    \55\ Michael Kades, The CREATES Act Shows Legislation Can Stop 
Anticompetitive Pharmaceutical Industry Practices, Washington Center 
for Equitable Growth (May 27, 2021), https://equitablegrowth.org/the-
creates-act-shows-legislation-can-stop-anticompetitive-pharmaceutical-
industry-practices/.

           this is ``inflation'' that we know how to address
    There is a great deal of concern in Washington today about 
inflation. In closing, it is worth noting that this is fundamentally 
inflationary environment, and has been for a long time. I'd like to 
stress two things about inflation in this context.

    First, some have cast doubt on the idea that there is a 
relationship between monopolies and inflation. This is one domain where 
the link is perfectly clear. Opportunities for monopoly power have 
increased in recent decades, as exclusive rights have expanded, as 
firms have innovated new ways to abuse their market power, and as 
insurer mandates to cover pharmaceuticals have expanded. It is 
generally agreed that increases in monopoly power will cause increases 
in prices.

    The problem is exacerbated by certain features of this market, 
including the fact that medicines are essential and often do not have 
good substitutes, and that third-party payers can both spread costs and 
obscure price increases (and so interfere with concerted responses and 
accountability). Intellectual property law is being exploited to allow 
monopolists to increase real prices without corresponding increases in 
quality, and without jeopardizing market share.

    The only thing that really checks the ability of monopolies to 
raise drug prices is political pressure, and ultimately the willingness 
of the government to intervene.\56\ This is particularly true when 
their biggest buyer--Medicare--is barred from even negotiating what it 
pays.
---------------------------------------------------------------------------
    \56\ See Rena M. Conti, ``How Do Commercial Insurance Plans Fare 
Under Proposed Prescription Drug Price Regulation?'', JAMA Health 
Forum, December 2021, https://jamanetwork.com/journals/jama-health-
forum/fullarticle/2787467 (explaining why drug companies, despite being 
monopolists, might not always price their drugs at the profit 
maximizing level out of the gate in order to reap second-order benefits 
like public and political goodwill, thereby preserving their ability to 
hike prices down the road).

    This is also a sector where inflated prices are causing enormous 
pain, as described earlier. And yet, for many years--and still, as we 
sit here today--this chamber has taken no serious action. Why is this 
not treated as an emergency, given the urgency for people's lives? And 
given that the government has clear, sector-specific tools that are 
well mapped out to address the problem? Many would also argue sector-
specific approach to inflation is better than taking economy-wide 
---------------------------------------------------------------------------
action, for example through the Fed.

    We also know how to curb inflation in this sector. The path is 
extremely well mapped out, particularly when as compared to other 
sectors of the economy. Other countries have successfully curbed drug 
prices, implementing many different versions of fair pricing regulation 
that are well studied. Congress has now had years of legislative 
hearings, taking evidence about those experiences and considering draft 
legislation. It is past time to act, to pass serious legislation to 
curb high drug prices and anti-competitive practices in the industry.
                            recommendations
    I close with several recommendations. In order to protect the 
future of the Medicare program, and Medicare beneficiaries, Congress 
should:

        Pass legislation that curbs high launch prices, by enabling 
HHS negotiators to establish fair prices, either through negotiation or 
administratively. Inputs to fair prices should include measures of R&D 
expenditures, public funding, investment risk, and therapeutic benefit 
of the drug. These negotiations must be backed by strong enforcement 
measures, such as the ability to allow generic competitors into the 
market if a company refuses to sell at the established price.

        Pass legislation to penalize price spikes, to prevent price 
gouging on existing drugs.

        Explore legislation that would curb anti-competitive patent 
thicketing and that would strengthen rules against pay-for-delay 
settlement deals that delay generic entry.

        Provide the FTC with more resources and authority to address 
anticompetitive conduct in this sector.

                                 ______
                                 
      Prepared Statement of Susan Rogers, M.D., FACP, President, 
                Physicians for a National Health Program
 part 1: the first phase of medicare privatization--medicare advantage
    To understand how Direct Contracting works and why it threatens 
Medicare's future, it's important to understand the first wave of 
traditional Medicare privatization through Medicare Advantage.

    Traditional Medicare (TM) reimburses providers directly at a set 
rate for services provided to beneficiaries (fee-for-service); 
beneficiaries have free choice of any doctor or hospital. Because of 
TM's simplicity, the program spends 98 percent of its funds on patient 
care, with only 2 percent spent on administration.

    In contrast, Medicare Advantage (MA) is a version of Medicare run 
mainly by commercial insurers for profit. MA insurers act as middlemen 
between Medicare and providers: Medicare pays MA insurers via 
``capitation,'' a lump-sum payment per enrollee per month. MA insurers 
then pay providers a fee-for-service for enrollees' care, and keep what 
they don't spend on care as overhead and profit. Medicare requires MA 
insurers to spend 85 percent \1\ of their revenues on care (called a 
``medical loss ratio''), keeping the other 15 percent as overhead and 
profit. Because of MA insurers' profit and administrative waste, 
taxpayers spend $321 \2\ more per year to cover a senior through an MA 
plan compared to TM.
---------------------------------------------------------------------------
    \1\ https://www.kff.org/private-insurance/issue-brief/health-
insurer-financial-performance-through-september-2020/.
    \2\ https://www.kff.org/medicare/press-release/payments-to-
medicare-advantage-plans-boosted-medicare-spending-by-7-billion-in-
2019.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Medicare Advantage is a highly profitable segment for 
commercial insurers. Gross margins for Medicare Advantage plans 
averaged $1,608 \3\ per enrollee per year between 2016 and 2018, nearly 
double the average gross margins for individual and group market plans.
---------------------------------------------------------------------------
    \3\ https://www.kff.org/report-section/financial-performance-of-
medicare-advantage-individual-and-group-health-insurance-markets-issue-
brief/.

    Medicare Advantage insurers maintain these high profits in two 
ways: (1) maximizing the payments they receive from Medicare, and (2) 
---------------------------------------------------------------------------
minimizing what they spend on patient care.

    First, MA insurers maximize payments from Medicare by making their 
enrollees appear sicker than they really are. Medicare's capitation 
payments to MA insurers are based on each enrollee's ``risk score''--
the sicker the enrollee, the higher the score and the payment. However, 
MA insurers engage in a kind of fraud called ``upcoding,''\4\ 
exaggerating \5\ and even fabricating diagnoses to inflate enrollees' 
risk scores. Insurers use sophisticated AI software to scan patient 
records for upcoding opportunities, pay \6\ doctors to document 
additional diagnoses, and even send insurer-employed nurses to seniors' 
homes \7\ to upcode. Some MA insurers now buy provider practices \8\ 
outright, allowing them to control the diagnostic coding process.
---------------------------------------------------------------------------
    \4\ https://www.healthaffairs.org/doi/full/10.1377/
hlthaff.2016.0768.
    \5\ https://pubmed.ncbi.nlm.nih.gov/32925467/.
    \6\ http://medpac.gov/docs/default-source/reports/
mar21_medpac_report_to_the_congress_sec.
pdf#page=410.
    \7\ http://medpac.gov/docs/default-source/reports/
mar21_medpac_report_to_the_congress_sec.
pdf#page=410.
    \8\ https://www.healthaffairs.org/do/10.1377/hblog20210927.6239/
full/.

    Note that risk scores and capitation payments do not account for 
the actual care provided to the patient, only the number and severity 
---------------------------------------------------------------------------
of diagnoses in a patient's record.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Fraudulent upcoding caused risk scores of patients in MA plans 
to be 19 percent higher \9\ compared to those in TM; as a result of 
upcoding, researchers estimate that Medicare overpaid MA insurers by 
more than $106 billion \10\ from 2010 through 2019.
---------------------------------------------------------------------------
    \9\ https://www.npr.org/sections/health-shots/2021/11/11/
1054281885/medicare-advantage-overcharges-exploding.
    \10\ https://khn.org/news/article/medicare-advantage-overpayments-
cost-taxpayers-billions-researcher-says/.

    Next, MA insurers retain revenues by avoiding payment for costly 
care. First, MA insurers aggressively market their plans to healthier 
(i.e., less costly) seniors with perks like gym memberships that would 
not benefit older or sicker beneficiaries, often called ``cherry-
picking'' enrollees. Then, MA insurers reduce medical expenses by 
restricting patients to narrow networks of specialists, imposing 
thousands of dollars in hidden fees for costly care like chemotherapy, 
and limiting care through pre-authorizations and denials. These 
barriers to care often force beneficiaries to switch from MA plans back 
to TM when they require costly or complex care. This type of ``lemon-
dropping'' causes a large percentage of dying patients to switch from 
MA to TM in their last year of life.
  part 2: the next phase of medicare privatization--direct contracting
    A majority \11\ of seniors and disabled Americans choose 
traditional Medicare (TM) over Medicare Advantage (MA) because they 
value the free choice of providers and the power to manage their own 
care. However, under the Medicare Direct Contracting (DC) pilot 
program, millions of beneficiaries who actively chose TM are being 
automatically enrolled into third-party Direct Contracting Entities 
(DCEs) without their full knowledge or consent.
---------------------------------------------------------------------------
    \11\ https://www.kff.org/medicare/issue-brief/a-dozen-facts-about-
medicare-advantage-in-20
20/.

    Even though DC represents a radical change to TM, most 
beneficiaires--and, until recently, most members of Congress--have 
never heard of the DC program, and for good reason. The program was 
created by the Center for Medicare and Medicaid Services (CMS) 
``Innovation Center,''\12\ which was established by the Affordable Care 
Act in 2010 to test and implement health payment models without 
congressional approval.
---------------------------------------------------------------------------
    \12\ https://innovation.cms.gov/.
---------------------------------------------------------------------------
Direct Contracting Business Model
    The DC pilot program was developed in 2019 during the Trump 
administration to further privatize traditional Medicare using some of 
the same elements as Medicare Advantage, such as capitation payments, 
risk scores, and a profit-based incentive model. Instead of paying 
doctors and hospitals directly for seniors' care, Medicare gives DCE 
middlemen a monthly capitation payment to cover a defined portion of 
each beneficiary's medical expenses. DCEs are then allowed to keep what 
they don't pay for in health services, a dangerous financial incentive 
to restrict and ration seniors' care.

    There are different models of DCEs, but they all assume some level 
of ``risk sharing,'' meaning they keep as profit some or all of what 
they don't spend on care, or take as a loss some or all of what they 
spend beyond the capitation payment. The DC payment model is similar to 
MA in that it incentivizes DCEs to both increase capitation payments by 
``upcoding'' diagnoses, and to decrease expenses by spending as little 
as possible on patient care.

    The opportunity for profit is much higher in the DC program 
compared to MA, where insurers are required to spend 85 percent of 
their revenues on patient care (called a ``medical loss ratio''), and 
are allowed to keep up to 15 percent of Medicare's payments to them as 
profit and overhead. However, DCEs don't have such guardrails on health 
spending. In fact, former CMS officials estimate that DCEs have an 
``implicit but irrelevant'' medical loss ratio requirement of 
approximately 60 percent,\13\ meaning they are expected to keep 
approximately 40 percent of what Medicare pays them as profit and 
overhead.
---------------------------------------------------------------------------
    \13\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    There are three types of DCEs: Geographic (GEOs), Professional 
---------------------------------------------------------------------------
Direct Contracting, and Global Direct Contracting.

    1.  Geographic DCEs (GEOs) are the most extreme of the three 
models, with the potential to fully privatize traditional Medicare. 
Under the GEO model, every TM beneficiary living in a number of large 
geographic regions is auto-assigned \14\ into a DCE, with no right to 
opt out. GEO DCEs assume 100-
percent risk (profits and losses) for a beneficiary's medical services. 
Under pressure from health-care advocates, the GEO pilot was paused by 
the Biden administration in early 2021.
---------------------------------------------------------------------------
    \14\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.

    2.  Professional DCEs assume a 50 percent risk-sharing arrangement 
with CMS, and can also participate in ``primary care capitation,''\15\ 
receiving a monthly payment from CMS for primary care services only, at 
an amount determined by each enrollee's risk score.
---------------------------------------------------------------------------
    \15\ https://www.aafp.org/about/policies/all/capitation-primary-
care.html.

    3.  Global DCEs assume 100-percent risk via two payment options 
from CMS: primary care capitation or total care capitation, for all 
services provided by the DCE and its contracted ``preferred'' 
---------------------------------------------------------------------------
providers.

    Virtually any type of company can apply to be a DCE, including 
commercial insurers, venture capital investors, and even dialysis 
centers. Applicants are approved \16\ by CMS without input from 
Congress or other elected officials.
---------------------------------------------------------------------------
    \16\ https://innovation.cms.gov/media/document/gpdc-model-general-
faqs.

    At the end of 2021, the pilot involved 53 DCEs \17\ in 38 States, 
DC, and Puerto Rico, potentially covering 30 million \18\ of the 36 
million TM beneficiaries. Of the 53 DCEs, 39 are ``global'' (100-
percent risk sharing), and 14 are ``professional'' (50-
percent risk sharing). A majority of DCEs (28 of 53 total \19\) are 
controlled by investors--not providers. Of the investor-owned DCEs, six 
are owned by four different MA insurers, and are approved to operate in 
19 States, with potential access to more than 20 million \20\ TM 
beneficiaries.
---------------------------------------------------------------------------
    \17\ https://innovation.cms.gov/media/document/gpdc-model-
participant-announcement.
    \18\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.
    \19\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.
    \20\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.

    Experts predict \21\ that MA insurers will dominate the DCE 
segment, given MA's national network and experience with capitation, 
risk-sharing, and upcoding schemes.
---------------------------------------------------------------------------
    \21\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.
---------------------------------------------------------------------------
Impact on Patient Choice
    TM beneficiaries are ``aligned'' to DCEs in two ways. First, DCEs 
are allowed to proactively market to seniors, asking TM beneficiaries 
to voluntarily enroll. More commonly, Medicare will ``auto-align'' 
beneficiaries to a DCE based on the beneficiaries' existing 
relationship with a DCE-affiliated primary care provider. To auto-align 
beneficiaries, Medicare will annually conduct ``prospective 
alignment,''\22\ automatically searching 2 years of each TM 
beneficiary's claims history--without their knowledge or consent--for 
any recent encounters with a DCE-affiliated provider. TM members are 
allowed to opt out of having their data shared with the DCE (though 
few, if any, would know of their right to do this), but cannot opt out 
of being aligned into the DCE.
---------------------------------------------------------------------------
    \22\ https://innovation.cms.gov/media/document/dc-financial-op-
guide-overview.

    If a senior is auto-aligned into a DCE, their only way to remove 
themselves from the DCE is to change primary care providers. Changing 
primary care providers is a difficult task for most patients, but is 
especially challenging for medically vulnerable patients and those 
residing in rural or other underserved areas. In addition, asking 
seniors to change providers undermines Traditional Medicare's promise 
---------------------------------------------------------------------------
of free choice in providers.

    Currently, DCE-aligned patients are allowed to get medical care 
outside of their DCE's network (i.e., from a specialist); those out-of-
network providers are then paid directly by Medicare at Medicare-
contracted rates, and CMS ultimately reconciles those costs back to the 
patient's DCE. Therefore, the DCE has a financial incentive to steer 
patients to specialist providers within the DCE's network, where the 
DCE has direct influence over the payment model.

    DCEs are expected to have a big impact on physician practices. 
Given that alignment into a DCE is determined by a TM member's primary 
care physician, DCEs are actively recruiting medical groups and 
physicians into their network. Researchers have documented \23\ a quiet 
explosion of Wall Street investment in primary care practices, which 
historically produce little or no profit. But investors who understand 
the DCE model--including the upcoding game perfected by Medicare 
Advantage--know that owning a DCE physician practice could result in 
massive profits over time. And DCEs owned by commercial insurers may 
try to move enrollees into their MA plans.
---------------------------------------------------------------------------
    \23\ https://www.healthaffairs.org/do/10.1377/hblog20210927.6239/
full/.
---------------------------------------------------------------------------
Status of the Direct Contracting Pilot Program
    The DC program officially began on April 1, 2021 and the Global and 
Professional pilots are scheduled to run for 6 years.\24\ CMS also 
allowed an additional, previously approved cohort of DCEs to launch in 
early 2022. The agency has--for now--paused acceptance of new 
applicants, but may open it up again for the 2022-23 cohort.
---------------------------------------------------------------------------
    \24\ https://innovation.cms.gov/media/document/gpdc-model-general-
faqs.

    The CMS Innovation Center recently said \25\ that, ``All Medicare 
FFS [traditional Medicare] beneficiaries will be in a care relationship 
with accountability for quality and total cost of care by 2030,'' 
signaling their intention to rapidly expand the DCE program to cover 
all TM beneficiaries in the next 8 years.
---------------------------------------------------------------------------
    \25\ https://innovation.cms.gov/media/document/cmmi-strategy-
webinar-slides.

    Dr. Donald Berwick, a former Administrator of the Centers for 
Medicare and Medicaid Services, and Dr. Richard Gilfillan, former 
Deputy Administrator of the Centers for Medicare and Medicaid Services 
and Director of the Center for Medicare and Medicaid Innovation, 
together published a pair of articles for the journal Health Affairs 
explaining \26\ the dangers of the DC program, prompting a national 
debate on direct contracting.
---------------------------------------------------------------------------
    \26\ https://www.healthaffairs.org/do/10.1377/hblog20210927.6239/
full/.

    In recent months, a grassroots movement \27\ of physicians, 
seniors, and community and health advocacy groups have called for an 
immediate end to the DC program. Advocates argue that, if left 
unchecked, DC could essentially privatize traditional Medicare without 
the consent of its own enrollees, or even a vote by Congress.
---------------------------------------------------------------------------
    \27\ https://pnhp.org/direct-contracting-entities-handing-
traditional-medicare-to-wall-street/.

    In January, 54 members of Congress sent a letter \28\ to Health and 
Human Services Secretary Xavier Becerra demanding an end to the DC 
program, stating that, ``This model disrupts the sanctity of 
traditionally public Medicare benefits by giving control of beneficiary 
care to private interests.''
---------------------------------------------------------------------------
    \28\ https://jayapal.house.gov/wp-content/uploads/2022/01/Medicare-
DCE-Letter.pdf.

    Physicians for a National Health Program welcomes a robust debate 
not only on Medicare Direct Contracting but on the role of profit-
seeking middlemen in any publicly funded health program. Medicare's 
other privatization project--Medicare Advantage--has demonstrated that 
injecting a profit motive into patient care doesn't save money or 
improve care; instead it leads to higher costs for taxpayers and more 
---------------------------------------------------------------------------
barriers to care for patients.

    Traditional Medicare is our Nation's most important and popular 
health-care program; it has proven its value for more than half a 
century as a lifeline for America's seniors and younger adults living 
with disabilities. Medicare is not a playground for Wall Street 
investors. Instead of selling it off to the highest bidder through the 
MA and DC programs, we call on Congress to strengthen Medicare by 
improving its benefits, eliminating costs for beneficiaries, and 
expanding it to cover everyone in the U.S.

                                 ______
                                 
             Prepared Statement of Hon. Elizabeth Warren, 
                   a U.S. Senator From Massachusetts
    Good afternoon, and welcome to today's hearing before the 
Subcommittee on Fiscal Responsibility and Economic Growth.

    I'm pleased to be working with Ranking Member Cassidy on the 
hearing ``The Hospital Insurance Trust Fund and the Future of Medicare 
Financing.'' That title may sound a little dry, so let me be more 
direct: this hearing is about Medicare finances--both how to strengthen 
the current system and how to pay for expanded coverage to include 
vision, dental, and hearing.

    The short version is this: the Medicare system is hemorrhaging 
money on scams and frauds. It is critical that we stop the flow, and, 
if we do, the system will have more than enough money to operate at its 
current level and increase coverage.

    Where do we begin? Well, how about with giant drug manufacturers. 
In 2019, total Medicare spending on prescription drugs was $220 
billion. Since Medicare is a very high-volume buyer, you would think 
that the Medicare program would be getting a great deal on pricing. But 
you would be wrong. Because Medicare cannot negotiate prices, drug 
companies are able to rake in billions in profits.

    Now, that's bad enough. But the drug companies have more ways to 
juice their profits. They use anticompetitive tactics like pay-for-
delay, product hopping, and patent thickening--all while antitrust 
regulators turn a blind eye. It's enough to gag a maggot.

    There's so much we could do to improve Medicare finances. For 
example, we could save Medicare as much as $130 billion over 10 years 
just by strengthening enforcement of our antitrust laws and ending 
one--just one--type of the industry ripoffs.

    Or consider another option: we could rein in greedy private 
insurers that take advantage of the Medicare Advantage program. Now, 
Medicare Advantage was a backdoor effort to privatize the Medicare 
program. It was built on vague promises of cost savings. But instead, 
it has cost Medicare almost $150 billion extra over the past 12 years, 
because greedy private insurers are gaming the program's rules--
including its risk adjustment process, its benchmark policy, and its 
quality bonus program--all to squeeze more money out of Medicare and to 
drive up the costs for taxpayers. Medicare could save nearly $800 
billion over 10 years just by ending these scams.

    Together, just those few changes alone would save Medicare over 
$900 billion over 10 years. And just to put that in perspective, the 
estimated shortfall in the hospital insurance trust fund is $517 
billion between 2026 and 2031, and the cost of extending Medicare 
coverage to include dental, vision, and hearing to the program is just 
under $360 billion. In other words, we don't need to cut Medicare 
benefits, we need to cut out the scams that are bringing Medicare down.

    The number of corporate vultures hoping to feed on Medicare 
continues to grow. Even today in the Biden administration, CMS has 
invited the same insurers that are already scamming Medicare and dozens 
of new investor-owned organizations to cover traditional Medicare 
beneficiaries through a new privatized Direct Contracting model that 
lets them pocket, get this, as much as 40 percent in profits. This 
invites fiscal disaster, and I hope this administration will reverse 
this decision.

    Yes, we need to make changes to Medicare, but not the cuts and 
privatization that my Republican colleagues have sought in past efforts 
to, quote, ``reform'' Medicare. No. Instead of undermining the system 
and the benefits that we deliver, we need to crack down on greedy drug 
manufacturers, on private insurers, and on private equity firms. We 
need drug price negotiation, and we need better oversight of the 
Medicare Advantage program so that for every dollar spent, a Medicare 
beneficiary actually gets a dollar's worth of value. And with more than 
$900 billion that we could save, we need to expand Medicare coverage to 
include dental, vision, and hearing benefits for all of our seniors and 
people with disabilities who are part of the program. That is how we 
build a healthier America.

    Now, I look forward today to discussing these issues. I appreciate 
all of our witnesses who are joining us today, and I look forward to 
hearing about their experiences and insights.

                                 ______
                                 

                             Communications

                              ----------                              


                                  AARP

                             601 E St., NW

                          Washington, DC 20004

                             (888) 687-2277

AARP, on behalf of our nearly 38 million members and all older 
Americans nationwide, appreciates the Senate Finance Subcommittee on 
Fiscal Responsibility and Economic Growth's bipartisan effort to 
examine the Medicare Part A Hospital Insurance Trust Fund and the 
future of Medicare financing. Medicare faces long-term financial 
challenges that must be addressed. The 2021 Medicare Trustees' Report 
estimates that the Hospital Insurance (HI) Trust Fund, which funds Part 
A and is mainly financed by payroll taxes, will be solvent until 2026. 
Continued increases in medical costs, rapid changes in medical 
technology, and an aging population--which will add 21 million 
enrollees to the program by 2030--require that we consider policies to 
secure Medicare for future years. Medicare must remain a strong, 
broadly supported social insurance program so that it can continue to 
provide critically needed benefits to protect current and future 
generations.

It should be noted that HI Trust Fund insolvency means that Medicare 
will not be able to fully pay for the services financed by Part A; it 
does not mean Medicare is ``going broke'' or running out of money. In 
2026, current projections indicate that the Trust Fund will still be 
able to cover over 90 percent of Part A billed services. Medicare Part 
B and Part D will continue to be fully funded by the Supplemental 
Medical Insurance (SMI) Trust Fund, which is financed through general 
revenues and premiums. While we must strive to avoid HI insolvency, 
this must be done through responsible reforms rather than reductions to 
Medicare benefits.

As described in AARP's Medicare Financial Outlook: What Do Trust Fund 
Solvency Projections Mean?,\1\ throughout Medicare's history, Congress 
has enacted numerous policy changes that have affected the Trust Fund 
by reducing Medicare's spending compared with previous projections. 
Other policy changes have repeatedly extended the Trust Fund's solvency 
by expanding the Trust Fund's revenue. Policymakers should again look 
to similar policy approaches to address solvency challenges.
---------------------------------------------------------------------------
    \1\ Komisar, Harriet. Medicare Financial Outlook: What Do Trust 
Fund Solvency Projections Mean? Washington, DC: AARP Public Policy 
Institute. May 2020. https://doi.org/10.26419/ppi.00102.001.

Past experience shows that a combination of policy interventions--
rather than one single solution--can substantially improve Trust Fund 
solvency. Previous Medicare adjustments typically included several 
policy modifications implemented together to improve Trust Fund 
projections over time (reflecting a combination of Medicare policies as 
well as economic changes not related to Medicare). For example, the 
Balanced Budget Act of 1997 reduced spending growth by decreasing the 
annual updates to hospital payments, modifying payment methods for home 
health care and skilled nursing facilities, and shifting some home 
health spending from Part A to Part B. In addition, the Act increased 
Trust Fund income from payroll taxes. As a result, in 1998, the 
Medicare Trustees' Report projected insolvency to occur in 10 years, up 
---------------------------------------------------------------------------
from their projection of only 4 years in the prior year's report.

In a more recent example, the Trustees increased the estimated Part A 
solvency period by 12 years, reflecting numerous changes enacted in the 
2010 Affordable Care Act. These changes reduced spending for hospitals 
and other Part A services and increased Trust Fund revenue by 
establishing a higher payroll tax on earnings over a specified amount, 
beginning in 2013.

The testing and implementation of new payment innovations and person-
centered care pilots and demonstrations have the potential to identify 
new approaches that, when scaled, could reduce unnecessary spending and 
slow spending growth. Scaling such approaches could improve the 
solvency outlook over time and lower the Trustees' current 
projections.\2\ Still, other policy changes may be needed to strengthen 
the Part A Trust Fund for the future.
---------------------------------------------------------------------------
    \2\ Lind, Keith. Savings Expected from Slowdown in Medicare 
Spending. Washington, DC: AARP Public Policy Institute. February 2017.

The most substantive action Congress can take right now to improve the 
Medicare program's finances is to address prescription drug pricing. 
Passing prescription drug reforms, like those contained in the Build 
Back Better Act, would save nearly all Medicare beneficiaries money in 
their pocket and save the Medicare program billions of dollars each 
year. Lower prices, and better health outcomes and reduced 
hospitalizations resulting from improved medication adherence, would 
---------------------------------------------------------------------------
benefit both the HI and SMI Trust Funds.

Congress can also improve Medicare's program-wide finances by 
addressing Medicare Advantage (MA) payments. AARP believes Medicare 
payments should be neutral with respect to coverage options. Congress 
should set and maintain benchmarks upon which MA plan payments are 
based so they are more in line with Original Medicare costs. As MedPAC 
has recommended, Congress should periodically evaluate the impact of 
the MA reimbursement methodology to ensure reasonable private health 
plan participation in the Medicare program and appropriate Medicare 
payments to participating plans.

Beyond these immediate improvements, a wide variety of incremental 
changes in Medicare policy could extend the Trust Fund's solvency. 
History shows that relatively small payment modifications to slow 
spending growth can have a significant positive impact on the Trust 
Fund. Policies to increase Trust Fund revenue that have been adopted 
numerous times throughout Medicare's history should also be considered 
again, including raising new revenue or redirecting revenue from 
existing sources. As has always been the case, sustaining Medicare for 
the future will require continued attention to reducing unnecessary 
spending, addressing quality of care improvements and ensuring adequate 
revenue.

Medicare continues to provide critical health coverage for older 
Americans, and measures to address Medicare's long-term financial 
outlook are necessary to protect access to high quality care and 
prevent simply shifting costs to current and future Medicare 
beneficiaries. We urge you to work together on the necessary 
combination of policies to the program's finances and payments to 
maximize the value of every dollar spent.

Thank you for the opportunity to provide AARP's perspective on 
improving Medicare's current and future finances. We look forward to 
working with you to address this important issue and ensure continued 
access to affordable health benefits for older Americans.

                                 ______
                                 
                     Alliance for Retired Americans

                          815 16th Street, NW

                          Washington, DC 20006

                     https://retiredamericans.org/

The Alliance for Retired Americans appreciates the opportunity to 
submit comments to the Senate Committee on Finance Subcommittee on 
Fiscal Responsibility and Economic Growth regarding the hearing titled, 
``The Hospital Insurance Trust Fund and the Future of Medicare 
Financing.'' The Alliance wholeheartedly supports efforts to eliminate 
waste and reduce drug costs in order to improve Medicare benefits and 
the system's finances. We oppose proposals that shift any additional 
costs to beneficiaries.

Founded in 2001, the Alliance is a grassroots organization representing 
more than 4.3 million retirees and seniors nationwide. Headquartered in 
Washington, DC, the Alliance and its 39 state chapters work to advance 
public policy that strengthens the health and retirement security of 
older Americans.

The August 2021 Medicare Trustees Report projects that the Medicare 
Part A Hospital Insurance Trust Fund will become insolvent in 2026. 
After that, the program would be able to pay 91% of the claims. This is 
unchanged from the previous year despite the COVID-19 pandemic. This 
hearing focused on a number of ways to reduce Medicare spending to 
improve its finances and expand its benefits, and we would like to 
comment on them.
Drug Price Negotiations
It is past time for Congress to pass legislation allowing the Secretary 
of Health and Human Services to negotiate lower drug prices under 
Medicare and allowing private insurers to use this pricing.

Americans pay the highest prices in the world for prescription drugs, 
and prices on hundreds of drugs have already increased by 5% in 2022, 
far outpacing inflation. Seniors, who take the most prescription drugs 
to stay healthy, bear the brunt of these prices.

Nearly a quarter of Americans and 20% of seniors report not being able 
to afford their prescriptions. As a result, millions of Americans 
report not taking a prescription as prescribed by their doctor and are 
instead not filling prescriptions, skipping doses, or taking fewer 
doses than directed.

The prices are not sustainable or justified. The recent Aduhelm debacle 
shows that there is no justification for such high prices. After 
initially launching its Alzheimer's drug, Adulhelm at $96,000 a year, 
Biogen cut its price in half after controversy over the drug approval 
process and concerns over the safety of the drug resulted in low sales. 
While drug companies have justified their high launch prices and yearly 
price increases as needed to fund research and development, the House 
Oversight and Reform Committee found in a July 2021 Staff Report that 
the world's leading drug companies spent more on payout to investors 
than in research and development. Americans also overwhelmingly support 
allowing the federal government to negotiate lower prices as evidenced 
by numerous public opinion surveys. A Kaiser Family Foundation poll 
conducted in October 2021 found over 80% of American adults support 
drug negotiations, including 95% of Democrats and 71% of Republicans. 
The Alliance for Retired Americans supports the Medicare drug price 
provisions in the Build Back Better Act, which would save nearly $300 
billion. These savings should be invested back in the Medicare program.
Patent Abuses
Congress should enact legislation to curb patent abuses. Pharmaceutical 
companies use numerous tactics to extend patent terms, including the 
use of patent thicket, pay-for-delay agreements, parking exclusivity, 
evergreening and other measures that reduce competition and keep prices 
high.

Patent extensions cost the Medicare program billions of dollars. For 
example, AbbVie Pharmaceutical filed over 250 patents on Humira and 
used patent thicket--a group of overlapping patents--to extend its 
patent on the drug. The extension of Abbie's patent from 2016-2019 cost 
the Medicare program over $2 billion. In addition, since AbbVie's 
patents on Humira were set to expire in 2017, the company reached an 
agreement through a pay-for-delay deal with its competitors Novartis 
and Amgen to delay the entry of those companies' biosimilars in the 
United States until 2023. That delay agreement is costing American 
taxpayers $19 billion.
Medicare Advantage
While Medicare Advantage (MA) may be a good alternative for people who 
do not have a supplemental policy and cannot afford Medicare's co-pays, 
the program, which was supposed to save money, actually costs taxpayers 
far more than traditional Medicare.

In 2019 alone, the government paid MA plans $7 billion more than 
traditional Medicare, and the cost to insure a beneficiary in a MA is 
$321 per year more than traditional Medicare.

This is due to several factors, including risk adjustment scores, star 
rated bonus payments and physician upcoding, which occurs when 
physicians use codes with higher reimbursement levels when diagnosing 
the severity of their patient's illness. Regardless of the reason, we 
urge Congress to direct CMS to hold MA plans to the commitments they 
made.

These higher reimbursement rates also affect every beneficiary, 
regardless of whether they are enrolled in an MA plan, through higher 
Medicare Part B premiums.

To strengthen the Medicare System and its long-term solvency, Congress 
and the federal government must increase oversight of the MA program 
and stop overpayments.
Medicare Vision, Dental and Hearing Benefits
The Alliance supports expanding Medicare coverage to include vision, 
dental and hearing. These services are integral to maintaining an 
individual's health and providing these benefits can reduce costs under 
Medicare in the long run.

Lack of dental coverage can exacerbate chronic conditions like 
diabetes, cardiovascular and kidney disease. In 2016, half of all 
Medicare beneficiaries did not see a dentist, and the 20% that did, 
spent $1,000 for dental services. A private dental benefit, similar to 
Medicare Advantage, is not an acceptable alternative. All beneficiaries 
should receive guaranteed dental benefits, including those on the 
traditional Medicare program.

Similarly, while Medicare currently provides coverage for hearing and 
balance exams, it does not cover hearing services and hearing aids. 
Fifty percent of Americans who are 60 or older have a meaningful 
hearing impediment. Research has linked hearing loss to falls, 
dementia, cognitive decline, social isolation, and reduced quality of 
life. These conditions increase an individual's total out of pocket 
health spending by an average of $2,500 annually, according to one 
analysis.

Lastly, Medicare does not cover eyeglasses and contact lenses. It only 
covers vision services related to certain diseases such as glaucoma, 
cataracts and diabetes retinopathy. Expanding these services will help 
improve the quality of life and safety of all beneficiaries.
Cost-Sharing
We were distressed to hear several senators and witnesses discuss 
increased cost sharing as a way to change beneficiary behavior or 
utilization of their guaranteed health benefits.

Patients cannot control whether they become ill, and most do not have 
the medical expertise to make decisions about their care and treatment.

Medical diagnosis and treatment decisions are appropriately made by 
physicians, not patients today. While some seniors and disabled 
beneficiaries may possess the medical knowledge and cognitive ability 
to make decisions about treatment options or when to seek care, many do 
not. The idea that if beneficiaries had more ``skin in the game'', they 
would make smarter choices about their care helping reduce costs to the 
program is flawed.

Second, most Medicare beneficiaries can't afford to pay more. Contrary 
to what some in Congress believe, Medicare beneficiaries are not well 
off and even paying a ``little more'' in premiums will affect their 
income security.

Only 5% of Medicare beneficiaries are considered to be higher income--
meaning they have incomes of $88,000 or above--and those beneficiaries 
already pay more for their Part B and Part D premiums.

In 2019, half of all Medicare beneficiaries had annual incomes below 
$29,650 and one in four had incomes below $17,000. Older adults already 
spend 14 percent of their income on medical expenses whereas the 
average American household spends 5% of their income on health care.

Third, while increased cost sharing may initially reduce demand for 
care and government spending, it would come at a high cost to 
beneficiaries, many of whom may forgo treatment due to higher costs. In 
the long run, the government could end up spending more if such 
individuals experience complications or require more costly care later.
Premium Support
We were also disappointed to hear the Committee and witnesses discuss 
premium support. This proposal fundamentally alters the 56-year old 
Medicare program and threatens to erode the health benefits retirees 
have earned over a lifetime of work. While supporters assert that this 
proposal will continue to offer beneficiaries access to traditional 
Medicare, experience with MA plans has shown that private plans tend to 
siphon off healthier beneficiaries leaving the sickest and most frail 
beneficiaries in the Medicare program.

While the premium support model provides for some risk adjustment--
adjusting payments to reflect the average health status of enrollees--
the increased payment will be insufficient to cover the full increase 
in costs. Over time, costs under traditional Medicare will become so 
expensive that it will be unsustainable.

On behalf of our more than 4.3 million members, the Alliance for 
Retired Americans appreciates the opportunity to submit this testimony 
on this critically important issue.

                                 ______
                                 
                     American Academy of Actuaries

                      1850 M Street, NW, Suite 300

                          Washington, DC 20036

                         Telephone 202-223-8196

                         Facsimile 202-872-1948

                    https://www.actuary.org/homepage

     Statement of Rina C. Vertes, MAAA, FSA, Chairperson, Medicare 
  Committee; and Cori E. Uccello, MAAA, FSA, FCA, MPP, Senior Health 
                                 Fellow

The American Academy of Actuaries is a 19,500-member professional 
association whose mission is to serve the public and the U.S. actuarial 
profession. For more than 50 years, the Academy has assisted public 
policymakers on all levels by providing leadership, objective 
expertise, and actuarial advice on risk and financial security issues. 
The Academy also sets qualification, practice, and professionalism 
standards for actuaries in the United States.

On behalf of the Medicare Committee of the American Academy of 
Actuaries (``Academy''), we are pleased to provide the following 
statement for the record on Medicare's financial condition for the 
Senate Committee on Finance, Subcommittee on Fiscal Responsibility and 
Economic Growth. We appreciate the Subcommittee's focus on this 
important issue and allowing us the opportunity to submit our 
statement, which focuses on the findings of the most recent Medicare 
Trustees Report, released in 2021.\1\ The Trustees Report contains 
actuarial analysis, methodology, and assumptions for the program.
---------------------------------------------------------------------------
    \1\ Our statement reflects information in our September 2021 issue 
brief, Medicare's Financial Condition: Beyond Actuarial Balance, 
https://www.actuary.org/sites/default/files/2021-09/
MedTrustees_IB_9.21.pdf.

Each year, the Boards of Trustees of the Federal Hospital Insurance 
(HI) and Supplementary Medical Insurance (SMI) trust funds submit a 
report to Congress on the Medicare program's financial condition. The 
program is operated through two trust funds. The HI trust fund 
(Medicare Part A) pays primarily for inpatient hospital services. The 
SMI trust fund includes accounts for the Medicare Part B program, which 
covers physician and outpatient hospital services, and the Medicare 
---------------------------------------------------------------------------
Part D program, which covers the prescription drug program.

The Medicare Trustees Report is the primary source of information on 
the financial status of the Medicare program, and the Academy proudly 
recognizes the important contribution that members of the actuarial 
profession have made in preparing the report. Academy members play a 
vital role in providing information to the public about the important 
issues surrounding the program's solvency and sustainability.

The Medicare program faces three fundamental financing challenges:

      Income to the HI trust fund is not adequate to fund the HI 
portion of Medicare benefits;

      Increases in SMI costs increase pressure on beneficiary 
household budgets and the federal budget; and

      Increases in total Medicare spending threaten the program's 
sustainability.

The trustees conclude: ``The projections in this year's report continue 
to demonstrate the need for timely and effective action to address 
Medicare's remaining financial challenges--including the projected 
depletion of the HI trust fund, this fund's long-range financial 
imbalance, and the rapid growth in Medicare expenditures.''

Due to Medicare's critically important role in ensuring that Americans 
age 65 and older and certain younger adults with permanent disabilities 
have access to health care, it is important for policymakers to address 
the challenges that threaten the program's long-term solvency and 
financial sustainability. The longer corrective measures are delayed, 
the worse the financial challenges will become and in turn, the greater 
the burden that is likely to be imposed on beneficiaries and taxpayers.

Given the impending depletion of the HI trust fund in 2026, 
policymakers are rightly focused on addressing challenges to HI 
solvency. However, it is important to recognize that assessing 
Medicare's financial status goes beyond the focus on HI depletion. 
Projected increases in SMI expenditures will require significant 
increases in beneficiary premiums and general revenue contributions. 
Moreover, Medicare's sustainability challenges go beyond solvency. 
Sustainability also reflects whether the program is meeting the needs 
of its beneficiaries--in terms of adequate benefit coverage and 
affordable out-of-pocket costs--as well as whether it is addressing 
racial and ethnic health disparities. Policies should aim to ensure 
that Medicare beneficiaries have access to high-quality health care 
that is affordable both to them and to the nation as a whole.

 Medicare HI Trust Fund Income Falls Short of the Amount Needed To Fund 
                    HI Benefits

Medicare's trust funds account for all income and expenditures. The HI 
and SMI programs operate separate trust funds with different financing 
mechanisms. General revenues, payroll taxes, premiums, and other income 
are credited to the trust funds, which are used to pay benefits and 
administrative costs. Any unused income is required by law to be 
invested in U.S. government securities for use in future years. In 
effect, the trust fund assets represent loans to the U.S. Treasury's 
general fund. The HI trust fund, which pays for hospital services, is 
funded primarily through earmarked payroll taxes.

According to the projections in the 2021 Medicare Trustees Report, 
which are based on current law:

      HI expenditures are projected to exceed HI revenues. After 
experiencing small surpluses in 2016 and 2017, a deficit returned in 
2018, 2019, and 2020. The large deficit in 2020 was mostly due to 
accelerated and advance payments to providers from the trust fund; 
these payments will be repaid to the trust fund over the next several 
years, which will lead to a much smaller deficit in 2021 and a surplus 
in 2022. Deficits are projected to return in 2023 and persist for the 
remainder of the projection period. As a result, the HI trust fund 
assets will need to be redeemed. When the federal government is 
experiencing unified budget deficits, funding the redemptions requires 
that additional money be borrowed from the public, thereby increasing 
the federal deficit and debt.

      The HI trust fund is projected to be depleted in 2026. At that 
time, tax revenues are projected to cover only 91% of program costs, 
with the share declining to 78% in 2045 and then increasing to 91% in 
2095. There is no current provision allowing for general fund transfers 
to cover HI expenditures in excess of dedicated revenues.

      The projected HI deficit over the next 75 years is 0.77% of 
taxable payroll. Eliminating this deficit would require an immediate 
27% increase in standard payroll taxes or an immediate 16% reduction in 
expenditures--or some combination of the two. Delaying action would 
require more severe changes in the future.

The trustees acknowledge that the estimates based on current-law 
projections could understate the seriousness of Medicare's financial 
condition, because actual Medicare expenses might exceed current-law 
estimates. In particular, the trustees and the chief actuary point to 
scheduled reductions in provider payments that may not occur. Current 
law requires downward adjustments in payment updates for most non-
physician providers to reflect productivity improvements; these 
adjustments might not be sustainable in the long term. Current law also 
requires updates for physician services that are not expected to keep 
up with physician costs. In the Statement of Actuarial Opinion that 
accompanies the report, the chief actuary of the Centers for Medicare & 
Medicaid Services (CMS) specifically states, ``Should these price 
updates prove to be inadequate, beneficiaries' access to and the 
quality of Medicare benefits would deteriorate over time, or future 
legislation would need to be enacted that would likely increase program 
costs beyond those projected under current law in this report.''

At the request of the trustees, the CMS Office of the Actuary developed 
an alternative analysis that provides an illustration of the potential 
understatement of 
current-law Medicare cost projections if the productivity adjustments 
were phased down gradually beginning in 2028 and physician updates were 
more consistent with cost growth. Although the illustrative alternative 
projections are not intended to be interpreted as the official best 
estimates of future Medicare costs, they do, as noted in the Trustees 
Report, ``help illustrate and quantify the potential magnitude of the 
cost understatement.''

Under the alternative scenario, the HI trust fund still would be 
depleted in 2026. However, the projected deficit over the next 75 years 
would be 1.61% of taxable payroll--compared to 0.77% under current law. 
Eliminating this deficit would require an immediate 55% increase in 
standard payroll taxes or a 29% reduction in expenditures--or some 
combination of the two.

 Increases in SMI Costs Increase Pressure on Beneficiary Household 
                    Budgets and the Federal Budget

The SMI trust fund includes accounts for the Medicare Part B program, 
which covers physician and outpatient hospital services, and the 
Medicare Part D program, which covers the prescription drug program. 
Approximately one-quarter of SMI spending is financed through 
beneficiary premiums, with federal general tax revenues covering the 
remaining three-quarters.\2\
---------------------------------------------------------------------------
    \2\ Premiums for Medicare parts B and D are income-related. 
Standard premiums are set to cover approximately 25% of program costs. 
Higher-income beneficiaries pay higher premiums, ranging from 35% of 
program costs to 85% of program costs.
    Many Part D beneficiaries will receive low-income premium 
subsidies, lowering their premiums below 25% of program costs. In the 
aggregate, beneficiary premiums will cover only about 15% of total Part 
D costs in 2021. State payments on behalf of certain beneficiaries will 
cover about 10% of costs and general revenues will cover the remaining 
73% of costs.

The SMI trust fund is expected to remain solvent due to its financing 
being reset each year to meet projected future costs. As a result, 
increases in SMI costs will require increases in beneficiary premiums 
and general revenue contributions. Increases in general revenue 
contributions will put more pressure on the federal budget. SMI general 
revenue funding is scheduled to nearly double from 1.8% of gross 
---------------------------------------------------------------------------
domestic product (GDP) in 2021 to 3.1% in 2095.

Premium increases similarly will increase the burden on beneficiaries, 
especially when considered in conjunction with increasing beneficiary 
cost-sharing expenses. The average beneficiary expenses (premiums and 
cost-sharing) for parts B and D combined are currently nearly one-
quarter of the average Social Security benefit. These expenses are 
projected to increase to 40% of the average Social Security benefit by 
2095. These expenses do not include cost-sharing under Part A.

The 2021 Medicare Trustees Report projects that total SMI spending will 
continue to grow faster than GDP. The total spending will increase from 
2.5% of GDP in 2021 to 3.2% of GDP in 2030 and to 4.4% of GDP in 2095.

Spending under the illustrative alternative analysis would be higher, 
especially in the long term, reflecting the phase-down of productivity 
adjustments for non-
physician provider payments and higher physician updates in the long 
range. SMI spending projected in the alternative analysis would 
increase from 2.5% of GDP in 2021 to 3.2% of GDP in 2030 and to 5.5% of 
GDP in 2095.

 Increases in Total Medicare Spending Threaten the Program's 
                    Sustainability

A broader issue related to Medicare's financial condition is whether 
the economy can sustain Medicare spending in the long run. To help 
gauge the future sustainability of the Medicare program, the trustees 
consider the share of GDP that will be consumed by Medicare. With 
Medicare spending expected to continue growing faster than GDP, greater 
shares of the economic growth will be devoted to Medicare over time, 
meaning smaller shares of the economy will be available for other 
priorities.

Under current law, Medicare expenditures as a percentage of GDP will 
grow from 4.0% of GDP in 2020 to 6.5% of GDP in 2095. However, under 
the CMS Office of the Actuary alternative scenario, total Medicare 
expenditures would increase to 8.5% of GDP in 2095.


        Table 1: Total Medicare Expenditures as a Percent of GDP
------------------------------------------------------------------------
    Calendar Year       2021 Report       2021 Alternative Projection
------------------------------------------------------------------------
2020                             4.0                                4.0
2030                             5.1                                5.1
2040                             6.1                                6.2
2050                             6.2                                6.7
2060                             6.3                                7.1
2070                             6.5                                7.7
2080                             6.6                                8.2
2090                             6.5                                8.4
2095                             6.5                                8.5
------------------------------------------------------------------------
Source: 2021 Medicare Trustees Report, CMS Office of the Actuary

Conclusion

Consistent with prior trustees reports, the 2021 Medicare Trustees 
Report stresses the serious financial challenges facing the Medicare 
program. The HI trust fund is projected to be depleted in 2026. 
Medicare spending is projected to grow faster than the economy--
increasing the pressure on beneficiary household budgets and the 
federal budget and threatening the program's sustainability.

As noted by the trustees, Medicare's financial challenges could be more 
severe than projected under current-law assumptions. The report's 
Medicare spending projections are considered understated to the extent 
that the Affordable Care Act's provisions for downward adjustments in 
non-physician provider payment updates to reflect productivity 
improvements and long-range physician payment updates being held below 
physician costs are unsustainable in the long term. If Medicare 
projections are calculated using assumptions that the productivity 
adjustments are phased down and physician updates are more in line with 
their costs, Medicare's financial condition is shown to be even worse 
than under the projected baseline.

The trustees note the urgency of addressing Medicare's financial 
challenges, stating:

        The Board of Trustees believes that solutions can and must be 
        found to ensure the financial integrity of HI in the short and 
        long term and to reduce the rate of growth in Medicare costs 
        through viable means. The sooner the solutions are enacted, the 
        more flexible and gradual they can be. Moreover, the early 
        introduction of reforms increases the time available for 
        affected individuals and organizations--including health care 
        providers, beneficiaries, and taxpayers--to adjust their 
        expectations and behavior. The Board recommends that Congress 
        and the executive branch work together with a sense of urgency 
        to address these challenges.

Medicare's challenges are not solely financial. Medicare beneficiaries 
are a diverse segment of the broader population with diverse health 
care needs, and certain beneficiary populations--such as those with a 
disability or multiple chronic conditions--are particularly vulnerable 
to having high health care needs. Many beneficiaries have limited 
resources to rely upon should they be faced with high out-of-pocket 
health costs. Aside from the addition of the prescription drug program 
(Medicare Part D) in 2006, Medicare's fee-for-service benefit package 
has remained mostly unchanged; some services are not covered and 
beneficiary out-of-pocket costs are not capped. Therefore, any changes 
aiming to improve Medicare's financial condition should be considered 
in light of how the changes would impact the program's ability to meet 
the health care needs of beneficiaries and whether the changes would 
encourage beneficiaries to seek cost-effective care.

Changes are needed to improve Medicare's solvency and sustainability. 
Delaying corrective measures would increase the burden that might be 
imposed on beneficiaries and taxpayers. Any changes aiming to improve 
Medicare's financial condition should be considered in light of how 
they would impact the program's ability to meet the health care needs 
of beneficiaries.

                                 ______
                                 
                  American Medical Association et al.
The undersigned organizations write to express our collective support 
for value-based payment arrangements and alternative payment models 
(APMs) as a means to help prolong the solvency of the Medicare trust 
fund. According to the most recent Medicare Trustees' Report to 
Congress, Medicare program assets will be depleted by 2026.\1\ This 
should sound the alarm to Congress and be a reason to update existing 
law to both encourage new providers to enter into APMs and keep 
existing providers participating in these models. We offer explanations 
below as to why Congress should promote value-based care and offer 
recommendations for how that can be done.
---------------------------------------------------------------------------
    \1\ https://www.cms.gov/files/document/2021-medicare-trustees-
report.pdf.

To avoid depleting resources and prolong the Medicare trust fund, 
Congress in 2010 created the Medicare Shared Savings Program and Center 
for Medicare and Medicaid Innovation (CMMI) as part of the Patient 
Protection and Affordable Care Act. In 2015, Congress passed the 
Medicare Access and CHIP Reauthorization Act (MACRA) to promote 
participation in the Shared Savings Program and other APMs created by 
CMMI. The overall goals of these two laws were to foster a value-based 
payment system in health care where providers would be incentivized to 
---------------------------------------------------------------------------
provide higher quality care at a lower cost.

So far, value-based care is taking root in our health care system, 
improving patient care and successfully bending the cost curve. The 
Centers for Medicare and Medicaid Services (CMS) estimates that 
Medicare Part A and B spending will grow by approximately 0.7 percent 
below the rate of inflation between 2021 and 2030.\2\ This is a 
positive sign that recent payment reform efforts have taken hold. Since 
2012, accountable care organizations (ACOs) have saved Medicare $13.3 
billion in gross savings and $4.7 billion in net savings.\3\ While that 
may sound small in comparison to Medicare's overall spending, data from 
the Medicare Payment Advisory Commission, researchers at Harvard 
University, and the analytic firm Dobson DaVanzo and Associates show 
that ACOs are lowering Medicare spending annually by 1 percent to 2 
percent.\4\, \5\, \6\ Knowing Medicare Parts A 
and B cost $636 billion in 2018, a 2 percent reduction in spending 
would save nearly $200 billion when compounded over a decade, assuming 
Medicare spending would grow at 4.5 percent per year without ACOs.\7\
---------------------------------------------------------------------------
    \2\ https://www.cms.gov/files/document/2021-medicare-trustees-
report.pdf.
    \3\ https://www.naacos.com/highlights-of-the-2020-medicare-aco-
program-results.
    \4\ https://www.medpac.gov/wp-content/uploads/import_data/
scrape_files/docs/default-source
/reports/jun19_ch6_medpac_reporttocongress_sec.pdf.
    \5\ https://www.nejm.org/doi/full/10.1056/NEJMsa1803388.
    \6\ https://www.naacos.com/studyofmsspsavings2012-2015.
    \7\ https://www.kff.org/medicare/issue-brief/the-facts-on-medicare-
spending-and-financing/.

Further evidence that ACOs lower spending comes from the impact 
analysis of the proposed ``Pathways to Success'' rule in August 2018, 
in which the CMS Actuary used claims data to look at spending in ACO 
markets versus non-ACO markets. The agency estimated the overall impact 
of ACOs, including ``spillover effects'' on Medicare spending outside 
of the ACO program, lowered spending by $1.8-$4.2 billion in 2016 
alone.\8\ When ACOs lower spending across the fee-for-service system, 
this also lowers payments to Medicare Advantage plans since those 
payments are based, in part, on fee-for-service spending.
---------------------------------------------------------------------------
    \8\ https://www.govinfo.gov/content/pkg/FR-2018-08-17/pdf/2018-
17101.pdf.

We also know value-based payment models improve quality. In an August 
2017 report, the HHS Inspector General reported that in the first three 
years of MSSP ACOs improved their performance on 82 percent of the 
individual quality measures compared to their baseline.\9\ After the 
first 3 years 98 percent of ACOs met or exceeded quality standards. In 
the same report the Inspector General found that ACOs outperformed fee-
for-service providers on 81 percent of quality measures. A study 
published in the January 2017 issue of Health Affairs found that 
Medicare ACOs lowered hospital readmissions faster than hospitals not 
affiliated with an ACO.\10\
---------------------------------------------------------------------------
    \9\ https://oig.hhs.gov/oei/reports/oei-02-15-00450.asp.
    \10\ https://www.commonwealthfund.org/publications/journal-article/
2017/jan/aco-affiliated-hospitals-reduced-rehospitalizations-skilled.

APMs, including ACOs, uphold patient rights and regularly evaluate 
patient satisfaction. Importantly, patients maintain their freedom of 
choice within traditional Medicare, allowing them to see any willing 
provider. In ACO models, there are no networks or prior authorization. 
In fact, patients in many APMs receive more benefits under traditional 
Medicare such as home visits for care management or post- hospital 
care, cost sharing support, and chronic disease management rewards. 
Often, patients must be notified they are being seen by a provider 
practicing in an APM. Providers in APMs are also held to quality 
measures to ensure the best patient care and incentive payments can't 
---------------------------------------------------------------------------
be received without hitting a threshold for high-quality care.

The committee should be focused on leveraging knowledge gained over the 
last decade of work in value-based payment to promote a more fiscally 
sustainable health system. APMs focus on value over volume with a 
commitment to driving wellness and whole-person care. Providers in APMs 
place a premium on identifying high-need patients, with an emphasis on 
delivering proactive, preventive care, chronic disease management, care 
management, and better transitions of care along with a myriad of other 
tactics that yield better patient outcomes.

We encourage the Committee to consider the bipartisan Value in Health 
Care Act (H.R. 4587), which would go a long way to address incentives 
for APM participation.\11\ The bill would increase shared savings rates 
for ACOs to restore them to the levels when the MSSP was launched, 
modify risk adjustment to be more realistic and better reflect factors 
participants encounter, remove the arbitrary high and low revenue ACO 
distinction that creates an inequitable path to risk, remove ACO 
beneficiaries from the regional benchmark to ensure ACOs are not 
penalized as they achieve savings for their assigned populations, among 
other changes.
---------------------------------------------------------------------------
    \11\ https://www.congress.gov/bill/117th-congress/house-bill/
4587?q=%7B%22search%22%3A
%5B%22Value+in+Health+Care+Act%22%2C%22Value%22%2C%22in%22%2C%22Health%2
2%
2C%22Care%22%2C%22Act%22%5D%7D&s=1&r=1.

Importantly, it would also extend the Advanced APM bonus that Congress 
created in MACRA for an additional six years and gives the HHS 
secretary greater discretion to determine thresholds providers must 
reach to receive those bonuses. These bonuses have been instrumental in 
encouraging participation inrisk-based APMs but expire at the end of 
this year. Congress must act to prolong these bonuses and encourage 
more providers to enter into APMs to extend the benefits we describe 
---------------------------------------------------------------------------
above to more Medicare beneficiaries.

Unfortunately, the pace of APM adoption has not been as fast as 
Congress desired when MACRA was passed in 2015. Today, there are more 
than 30 million traditional Medicare patients still in unmanaged, 
uncoordinated care. Last week, CMS released data showing a very modest 
year-over-year growth in ACO participation, continuing a troubling 
trend of flat participation in MSSP. Greater incentives are needed for 
providers to participate in APMs, to outweigh the risk, uncertainty, 
and sizeable upfront and ongoing investments needed to participate. 
Congress can play a strong role in rebalancing those incentives and 
encouraging growth in Medicare programs that promote better patient 
outcomes at lower cost.

We appreciate the opportunity to express our views on the Fiscal 
Responsibility and Economic Growth Subcommittee, U.S. Senate Finance 
Committee hearing regarding the Hospital Insurance Trust Fund and the 
Future of Medicare Financing. We support the efforts of the 
Subcommittee to ensure that the Medicare program remains solvent and 
look forward to working with the Committee on this important topic.

American Medical Association        AMGA

America's Physician Groups          Association of American Medical 
                                    Colleges

Health Care Transformation Task 
Force                               Medical Group Management 
                                    Association

National Association of ACOs        Premier Healthcare Alliance

                                 ______
                                 
                        Center for Fiscal Equity

                        14448 Parkvale Road, #6

                       Rockville, Maryland 20853

                     [email protected]

                    Statement of Michael G. Bindner

Chairman Warren and Ranking Member Cassidy, thank you for the 
opportunity to submit these comments for the record to the Committee on 
Finance on Medicare reform.

The Hospital Trust Fund (Medicare Part A), even though it has no cap, 
is funded by a payroll tax that leaves non-wage income on the table. 
Wages have mostly declined, while the top 4% of filers (who take home 
33% of Adjusted Gross Income) receive only half of their income from 
wages. The other half is not touched (and is a product of the labor of 
the lower 96%).

It is no wonder that the fund is endemically close to falling below 
revenue. Raising the HI payroll tax to 5% would balance the fund 
forever--but it leaves too much of AGI on the table.

Among the elderly and severely disabled, there is a constant battle 
between nursing homes and hospitals for cost avoidance, with patients 
in the middle.

There is certainly much more to be said, and I count on the listed 
witnesses to say it. I am sure that some of them have interesting 
proposals for reform. I have my own, which I will now detail.

HI cannot be treated as one component without affecting all other 
components. This is especially the case as some form of single payer 
system is inevitable. Whether you call the public option Expanded 
Medicaid or the real thing, the entire system is in need of change. 
More detailed analysis of single-payer options can be found in 
Attachment One.

Universal coverage, starting with a public option under the Affordable 
Care Act, with eventual evolution to some type of single-payer system 
seems like our best path. A public option will only pass if pre-
existing condition reforms are abolished with public option enrollment 
being automatic upon rejection.

The public option must be subsidized, replacing Medicaid for the 
disabled and those not requiring long-term nursing care. Long-term care 
should be removed from states and replaced with a new federal Medicare 
Part E.

The profit motive, with the need to constantly increase profits to 
attract Wall Street investment or keep stock prices growing will lead 
to an ever increasing number of people who will be considered 
uninsurable, thus relying on the public option.

Most healthcare systems will provide services to both comprehensive 
insurance beneficiaries, the retired, the disabled and those with the 
public option. In other words, Medicare for All is our future, with the 
only exception being firms abandoning the system and providing their 
own doctors while making arrangements with local hospitals and 
specialists--essentially creating local HMOs.

The major issue here is funding, although more efficiency will reduce 
prices. Costs are already minimized by the for profit and by 
governmental medical care (which often uses for profit networks). To 
repeat, with a shout, the issue is price, not cost!

The problem with the Affordable Care Act is that much of its funding 
came from taxes on capital gains and income falling on the top third of 
taxpayers. In other words, the upper and upper-middle classes. IRS data 
shows that about half of Adjusted Gross Income for these classes is 
from non-wage income. Membership in these classes is limited to the top 
4% of taxpayers.

This is politically unacceptable, as the multiple attempts to repeal 
the ACA have shown. Broad based taxes are necessary and should be 
bipartisan. Any political promise to the contrary must be broken. No 
votes will be lost to either party by doing so. Few members of the 
middle or working classes will shift their allegiance to the other 
party because of tax policy changes.

Members of the current majority party will simply not give up on their 
political home because their taxes go up. One of the key reasons for 
party identification among frequent voters is economic policy--not the 
details but a belief in who should be taxed. Progressives will never 
join the Republican Party for a campaign promise not kept.

The stupidest myth in American history is the belief that anyone held 
George H.W. Bush to account for breaking his ``no new taxes'' pledge. 
They did not vote for Perot because of it--his voters were sending a 
message to the entire system and drew from both parties. If anyone 
believes that any Bush voter shifted to Bill Clinton for violating the 
NNT pledge, I have a collection of bridges over the Potomac you may be 
interested in purchasing.

Payroll taxes are regressive, so they should not be used to fund the 
public option, et al. Indeed, all Medicare taxation should be shifted 
to a less regressive consumption tax. This tax is less regressive 
because it takes from profit and wages in equal measure. Taxing only 
wages or only capital leads to either too much progressivity or too 
little.

The only question is how to collect these taxes. If it is more 
important to give exporters (and overseas customers) an economic break, 
the standard border adjustable goods and services tax is best.

To preserve the private option--either for comprehensive insurance or 
employer-
provided care--a subtraction (aka net business receipts) value-added 
tax is best. Such a tax should also include distribution of (more 
generous) child tax credits.

Paying these taxes through employers, rather than the Internal Revenue 
Service, corrects the economic failure that simply relying on privately 
negotiated wages creates while taking away the ``stink of welfare'' 
found in the American Recovery Plan Act's distribution mechanism.

The provisions in the Affordable Care Act creating surtaxes to fund 
healthcare must be repealed, as should both dividend, interest and 
capital gains taxation (as well as rent) currently collected through 
personal income taxes. Instead, tax transactions, rather than people at 
the same rate now paid for the highest rate for long-term capital 
gains. The current rate (including ACA taxes) is just short of 23.8%. 
The proposed rate is 28.8% (adding proposed surtaxes for high incomes).

Much money is spent on campaign contributions to continue going back 
and forth between these rates. I have little hope for compromise--
although splitting the difference between 26% and 27% seems reasonable.

What would such a tax pay for, if not healthcare? Fund the military--
especially overseas deployments which serve our security and economic 
interests abroad, repayment of the Social Security Trust Fund and begin 
funding Net Interest rather than rolling it over into new debt. The 
international economic system can only favor the Dollar and U.S. Debt 
for so long. Every empire falls. The question is, who will lose the 
most if American debt becomes worthless?

Please see the second attachment for more detail on our proposed tax 
reform plan.

Using data from the Federal Reserve Survey of Consumer Finance, the top 
10% of households indirectly hold 56% of debt held in Federal Reserve 
and Bank Assets and Long Term Investments and 77% of mutual fund and 
direct debt holdings. According to the Pareto Rule, half of each of 
these fund pools is owned by the top 1% of households. They have the 
most to lose if the debt crashes. Use an Asset Value Added Tax (on 
transactions) to decrease what is becoming an unworkable level of debt.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

Attachment One--Single-Payer, June 12, 2019

There is no logic in rewarding people with good genes and punishing 
those who were not so lucky (which, I suspect, is most of us). Nor is 
there logic in giving health insurance companies a subsidy in finding 
the healthy and denying coverage for the sick, except the logic of the 
bottom line. Another term for this is piracy. Insurance companies, on 
their own, resist community rating and voters resist mandates--
especially the young and the lucky. As recent reforms are inadequate 
(aside from the fact of higher deductibles and the exclusion of 
undocumented workers), some form of single-payer is inevitable. There 
are three methods to get to single-payer.

The first is to set up a public option and end protections for pre-
existing conditions and mandates. The public option would then cover 
all families who are rejected for either pre-existing conditions or the 
inability to pay. In essence, this is an expansion of Medicaid to 
everyone with a pre-existing condition. As such, it would be funded 
through increased taxation, which will be addressed below. A variation 
is the expansion of the Uniformed Public Health Service to treat such 
individuals and their families.

The public option is inherently unstable over the long term. The profit 
motive will ultimately make the exclusion pool grow until private 
insurance would no longer be justified, leading again to single-payer 
if the race to cut customers leads to no one left in private insurance 
who is actually sick. This eventually becomes Medicare for All, but 
with easier passage and sudden adoption as private health plans are 
either banned or become bankrupt. Single-payer would then be what 
occurs.

The second option is Medicare for All, which I described in an 
attachment to yesterday's testimony and previously in hearings held May 
8, 2019 (Finance) and May 8, 2018 (Ways and Means). Medicare for All is 
essentially Medicaid for All without the smell of welfare and with 
providers reimbursed at Medicare levels, with the difference funded by 
tax revenue.

Medicare for All is a really good slogan, at least to mobilize the 
base. One would think it would attract the support of even the Tea 
Partiers who held up signs saying ``Don't let the government touch my 
Medicare!'' Alas, it has not. This has been a conversation on the left 
and it has not gotten beyond shouting slogans either. We need to decide 
what we want and whether it really is Medicare for All. If we want to 
go to any doctor we wish, pay nothing and have no premiums, then that 
is not Medicare.

There are essentially two Medicares, a high option and a low one. One 
option has Part A at no cost (funded by the Hospital Insurance Payroll 
Tax and part of Obamacare's high unearned income tax as well as the 
general fund), Medicare Part B, with a 20% copay and a $135 per month 
premium and Medicare Part D, which has both premiums and copays and is 
run through private providers. Parts A and B also are contracted out to 
insurance companies for case management. Much of this is now managed 
care, as is Medicare Advantage (Part C).

Obamacare has premiums with income-based supports and copays. It may 
have a high option, like the Federal Employee Health Benefits Program 
(which also covers Congress) on which it is modeled, a standard option 
that puts you into an HMO. The HMO drug copays for Obamacare are higher 
than for Medicare Part C, but the office visit prices are exactly the 
same.

What does it mean, then, to want Medicare for All? If it means we want 
everyone who can afford it to get Medicare Advantage Coverage, we 
already have that. It is Obamacare. The reality is that Senator Sanders 
wants to reduce Medicare copays and premiums to Medicaid levels and 
then slowly reduce eligibility levels until everyone is covered. Of 
course, this will still likely give us HMO coverage for everyone except 
the very rich, unless he adds a high-option PPO or reimbursable plan.

Either Medicare for All or a real single-payer would require a very 
large payroll tax (and would eliminate the HI tax) or an employer paid 
subtraction value-added tax (so it would not appear on receipts nor 
would it be zero rated at the border, since there would be no evading 
it), which we discuss below, because the Health Care Reform debate is 
ultimately a tax reform debate. Too much money is at stake for it to be 
otherwise, although we may do just as well to call Obamacare Medicare 
for All.

The third option is an exclusion for employers, especially employee-
owned and cooperative firms, who provide medical care directly to their 
employees without third party insurance, with the employer making HMO-
like arrangements with local hospitals and medical practices for 
inpatient and specialist care.

Employer-based taxes, such as a subtraction VAT or payroll tax, will 
provide an incentive to avoid these taxes by providing such care. 
Employers who fund catastrophic care or operate nursing care facilities 
would get an even higher benefit, with the proviso that any care so 
provided be superior to the care available through Medicaid or Medicare 
for All. Making employers responsible for most costs and for all cost 
savings allows them to use some market power to get lower rates.

This proposal is probably the most promising way to arrest health care 
costs from their current upward spiral--as employers who would be 
financially responsible for this care through taxes would have a real 
incentive to limit spending in a way that individual taxpayers simply 
do not have the means or incentive to exercise. The 
employee-ownership must ultimately expand to most of the economy as an 
alternative to capitalism, which is also unstable as income 
concentration becomes obvious to all.

The key to any single-payer option is securing a funding stream. While 
payroll taxes are the standard suggestion, there are problems with 
progressivity if such taxes are capped and because profit remains 
untaxed, which requires the difference be subsidized through higher 
income taxes. For this reason, funding should come through some form of 
value-added tax.

Timelines are also concerns. Medicare for All is be done gradually by 
expanding the pool of beneficiaries, regardless of condition. Relying 
on a Public Option will first serve the poorest and the sickest, but 
with the expectation that private insurance will enlarge the pool of 
those not covered until the remainder can safely be incorporated into a 
single-payer system through legislation or bankruptcy.

Attachment Two--Tax Reform, Center for Fiscal Equity, December 7, 2021

Individual payroll taxes. Employee payroll tax of 7.2% for Old-Age and 
Survivors Insurance. Funds now collected as a matching premium to a 
consumption-tax-based contribution credited at an equal dollar rate for 
all workers qualified within a quarter. An employer-paid subtraction 
value-added tax would be used if offsets to private accounts are 
included. Without such accounts, the invoice value-added tax would 
collect these funds. No payroll tax would be collected from employees 
if all contributions are credited on an equal dollar basis. If employee 
taxes are retained, the ceiling would be lowered to $100,000 to reduce 
benefits paid to wealthier individuals and a $16,000 floor should be 
established so that Earned Income Tax Credits are no longer needed. 
Subsidies for single workers should be abandoned in favor of radically 
higher minimum wages. If a $10 minimum wage is passed, the employee 
contribution floor would increase to $20,000.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $100,000 per 
year, will range from 7.2% to 57.6%. This tax will fund net interest on 
the debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction.

Our proposed brackets have been increased from $85,000 to $100,000 
because this is the income level at the top of the 80% of tax paying 
households who earn the bottom third of adjusted gross income. Earners 
above this level are considered middle class. Likewise, the top 1% of 
income earners are at the $500,000 level, which will be used as the 
start of the highest rate.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises, IPOs, inherited, gifted and donated assets will be marked to 
market, with prior tax payments for that asset eliminated so that the 
seller gets no benefit from them. In this perspective, it is the 
owner's increase in value that is taxed. As with any sale of liquid or 
real assets, sales to a qualified broad-based Employee Stock Ownership 
Plan will be tax free. These taxes will fund the same spending items as 
income or S-VAT surtaxes.

This tax will end Tax Gap issues owed by high income individuals. A 26% 
rate is between the GOP 23.8% rate (including ACA-SM surtax) and the 
Democratic 28.8% rate as proposed in the Build Back Better Act. It's 
time to quit playing football with tax rates to attract side bets. A 
single rate also stops gaming forms of ownership. Lower rates are not 
as regressive as they seem. Only the wealthy have capital gains in any 
significant amount. The de facto rate for everyone else is zero. For 
now, however, a 28.8% rate is assumed if reform is enacted by a 
Democratic majority in both Houses.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.

      Employer paid educational costs in lieu of taxes are provided as 
either employee-directed contributions to the public or private 
unionized school of their choice or direct tuition payments for 
employee children or for workers (including ESL and remedial skills). 
Wages will be paid to students to meet opportunity costs.

      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee-ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits). Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon-Added Tax (C-AT). A Carbon tax with receipt visibility, which 
allows comparison shopping based on carbon content, even if it means a 
more expensive item with lower carbon is purchased. C-AT would also 
replace fuel taxes. It will fund transportation costs, including mass 
transit, and research into alternative fuels (including fusion). This 
tax would not be border adjustable unless it is in other nations, 
however in this case the imposition of this tax at the border will be 
noted, with the U.S. tax applied to the overseas base.

Tax Reform Summary

This plan can be summarized as a list of specific actions:

1.  Increase the standard deduction to workers making salaried income 
of $350,00 and over, shifting business filing to a separate tax on 
employers and eliminating all credits and deductions--starting at 7.2%, 
going up to 28.8%, in $50,000 brackets.

2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

3.  Employers distribute the child tax credit with wages as an offset 
to their quarterly tax filing (ending annual filings).

4.  Employers collect and pay lower tier income taxes, starting at 
$100,000 at 7.2%, with an increase to 14.4% for all salary payments 
over $150,000 going up 7.2% for every $50,000- up to $250,000.

5.  Shift payment of HI, DI, SM (ACA) payroll taxes to employers, 
remove caps on employer payroll taxes and credit them to workers on an 
equal dollar basis.

6.  Employer paid taxes could as easily be called a subtraction VAT, 
abolishing corporate income taxes. These should not be zero rated at 
the border.

7.  Expand current state/federal intergovernmental subtraction VAT to a 
full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

8.  Change employee OASI of 7.2% from $18,000 ($20,000 for $10 minimum 
wage) to $100,000 income are optional taxes for Old Age and Survivors 
Insurance.

                                 ______
                                 
                      Center for Medicare Advocacy

                    1025 Connecticut Avenue, NW #709

                             Washington, DC

                             (202) 293-5760

                     https://medicareadvocacy.org/

The Center for Medicare Advocacy (Center) is pleased to provide a 
statement for the record for the above-referenced hearing. The Center, 
founded in 1986, is a national, non-partisan education and advocacy 
organization that works to ensure fair access to Medicare and to 
quality health care. At the Center, we educate older people and people 
with disabilities to help secure fair access to necessary health care 
services. We draw upon our direct experience with thousands of 
individuals to educate policy makers about how their decisions affect 
the lives of real people. Additionally, we provide legal representation 
to ensure that people receive the health care benefits to which they 
are legally entitled, and to the quality health care they need.

Overview

The annual release of the Medicare Trustees report, which projects the 
fiscal health of the Medicare program, focusing on the Part A Trust 
Fund, often serves as an impetus for calling for Medicare changes and 
cuts. The latest report, released in August 2021, projects that the 
Part A Trust Fund will be depleted by 2026--unchanged from the previous 
projection, despite the impact of the COVID-19 pandemic.

The solvency of the Trust Fund is often misunderstood and misconstrued. 
Even if the Trust Fund were to be depleted as projected, the program 
would still be able to pay out approximately 90% of Medicare Part A 
benefits. While not ideal, this is far from ``bankruptcy'', which is 
often alleged by those seeking to cut Medicare spending. Further, the 
date of projected insolvency is an estimate, and could easily change 
again--as it has many times before.

The Trust Fund largely reflects the health of the economy. At various 
times since 1970, the trustees have projected Trust Fund insolvency in 
as few as four years or as many as 28 years. While the Part A Trust 
Fund is mostly funded by payroll taxes, Medicare Part B, which would 
cover these expanded benefits, is funded by a certain percent of 
general revenues and premiums, and therefore cannot ``go broke.''

Recent discussions in Congress surrounding the Build Back Better Act 
have created a rare opportunity to make meaningful improvements to 
Medicare and other critical programs. Yet the associated costs and 
concerns about the Medicare Trust Fund are often raised as barriers to 
doing so. Despite many misconceptions, the proposed dental, hearing, 
and vision benefits would have been covered under Medicare Part B, not 
through Part A and the Trust Fund. Further, as the Center and others 
have asserted, it is highly likely that spending to expand Medicare 
coverage to include dental, hearing and vision coverage would actually 
yield savings to the Medicare program in other areas.\1\
---------------------------------------------------------------------------
    \1\ See, e.g., CMA Alert, ``Medicare Is at a Crossroads--Time to 
Dispel Myths Hindering an Historic Expansion of Benefits'' (September 
2, 2021), available at: https://medicareadvocacy.org/stop-the-myths-
about-expanding-medicare-benefits/.

Medicare's fiscal solvency can be strengthened through various means. 
Below, we provide an excerpt from a May 2021 issue brief written by 
Center for Medicare Advocacy Visiting Scholar Marilyn Moon which 
outlines potential Medicare funding solutions. We also focus, below, on 
one option for reducing programmatic spending--addressing ongoing 
Medicare Advantage overpayments.

 Center for Medicare Advocacy Report: ``Ensuring Medicare's Financial 
                    Health''

In a May 2021, the Center released an issue brief titled ``Medicare and 
Revenue--Looking Back, Looking Forward''\2\ by Center Visiting Scholar 
Marilyn Moon. In this report, we examined how Medicare has operated 
over time, how well it is doing at present, and what changes have been 
used in the past to keep the program financially strong. Below is an 
excerpt of this report focusing on both short-term and longer-term 
solutions to Medicare funding (omitting citations):
---------------------------------------------------------------------------
    \2\ Center for Medicare Advocacy, ``Medicare and Revenue--Looking 
Back, Looking Forward,'' by Center Visiting Scholar Marilyn Moon (May 
2021), available at: https://medicareadvocacy.org/medicare-and-revenue-
looking-back-looking-forward/. Also see, e.g., CMA Alert, 
``Commonwealth Fund Issues Series of Articles Addressing Medicare's 
Fiscal Solvency--Introductory Statement by Marilyn Moon'' (February 11, 
2021), available at: https://medicareadvocacy.org/m-moon-medicare-
solvency/.

        Short-term solutions. In the near term, funding decisions need 
        to recognize the short-term economic problems from the pandemic 
        and not expect to bolster the Part A trust fund through the 
        usual approaches. General tax increases do not make sense as 
        the economy is recovering. But there could be proposals to help 
        pay for some of these pandemic costs (for people of all ages) 
        through new and temporary revenue sources. Looking for ways to 
        level the unequal burdens that this health and financial crisis 
        has imposed may include special surcharges on incomes--
        especially seeking to tax those who have profited during this 
        period. This might not only mean taxes on higher income people 
        in general, but also a temporary surtax on ``excess'' profits 
        made by those who were fortunate enough to work in areas that 
        thrived during this period. While many businesses and workers 
        experienced difficulties in functioning while health concerns 
        required stringent limitations on activities, others were in a 
        position to benefit. Such an excess profits surcharge might 
        compare incomes before and during the pandemic to determine 
        whether there are feasible ways to reduce some of the 
        inequality attributable to the enormous disruptions this 
        disease imposed on the way that the economy functions. These 
---------------------------------------------------------------------------
        revenues could help bolster Medicare's higher costs.

        Some other more minor changes in tax laws could also be 
        considered. Key among these would be to dedicate at least a 
        portion of the existing Net Investment Income Tax which was 
        passed as part of the Affordable Care Act to the Part A Trust 
        Fund. Although it was justified in the legislation as a way to 
        help finance Medicare, none of that revenue was dedicated to 
        the Part A Trust Fund. This tax on those with higher incomes is 
        expected to bring in approximately $350 billion to the U.S. 
        Treasury over the next 10 years and at least some of it could 
        be earmarked for Part A. (Closing other tax loopholes might 
        also be an option and are discussed below.)

        Solutions over the longer term. To ensure stable financing for 
        Medicare over time, it is important to look at the two largest 
        sources of revenues that support the federal government: 
        payroll taxes and personal income taxes. As noted above, both 
        are important current sources of financing for Medicare and 
        over time, general revenues have grown and will continue to 
        grow as a share of the total even if no policy changes are 
        made. Each has advantages and disadvantages.

        Payroll taxes have always been popular among the general 
        public, likely because they are simple, administered by 
        employers with no filing requirements by most workers, and 
        because they are dedicated to Social Security and Medicare 
        which remain popular programs. Taxpayers see a direct link 
        between their taxes and these key sources of retirement and 
        disability protections. Traditionally, the payroll tax has been 
        criticized by economists, largely because of its lack of 
        progressivity. Assessed only against wages--and for a long time 
        with an upper limit on the wages subject to tax--the burdens of 
        the tax fall more heavily on persons with lower incomes. On the 
        one hand, progressivity for the Medicare portion of the payroll 
        tax improved when the taxable wage cap was eliminated and when 
        additional requirements for higher income taxpayers and 
        beneficiaries to pay more were added to the program. But, wages 
        have also declined as a share of incomes for Americans over the 
        years, with income from interest and dividends rising 
        particularly for those with higher incomes. This worsens the 
        progressivity of the tax to some degree.

        Nonetheless, a modest increase in the payroll tax could raise 
        substantial new revenues to Medicare's Part A Trust Fund, 
        extending its life substantially and keeping the dedicated 
        nature of the tax that funds most of Part A. For example, a 
        Congressional Budget Office estimate in 2020 indicated that a 
        one percentage point increase (0.5 percent each on employers 
        and employees) would raise nearly $900 billion between 2021 and 
        2030. Introducing such a change through a more gradual increase 
        in that rate over time as the economy recovered would bring in 
        less, but still provide substantial support for the Part A 
        Trust Fund. And since general revenues by law will naturally 
        increase over time to fund Parts B and D, this approach would 
        mean that both types of taxes will expand to fund Medicare over 
        time.

        An alternative would be to add personal income taxes to the 
        funding for Part A (presumably as a dedicated amount to retain 
        the Trust Fund nature of this part of the program). Income 
        taxes are applied to all types of income, including wages, 
        capital gains, and interest and dividends. This would mean that 
        there would be no extra burden on individuals whose incomes 
        come mainly from wages, but that the burden would be more 
        evenly spread across all income sources. This breaks the 
        historical link between wages and retirement benefits, but that 
        has changed to a considerable degree over time anyway.

        Another variation of this approach would be to specifically 
        target certain types of income to be devoted to the Part A 
        Trust Fund. Closing various tax loopholes (for both personal 
        and corporate income taxes) and increasing IRS enforcement 
        capabilities are often popular proposals and have been 
        advocated for a variety of purposes. The Congressional Budget 
        Office has offered a number of options for increasing revenue 
        in this way, often with a particular focus on capital gains 
        treatment in the personal income tax. For example, a tax on 
        capital gains could be used to explicitly supplement the 
        existing payroll tax and hence implicitly enhance the 
        progressivity of taxation. This would avoid raising taxes 
        further on wages and instead tax income from capital--often 
        associated with those with higher incomes. But it would also 
        fall disproportionately on older taxpayers who are more likely 
        to own stocks and bonds than younger persons with similar 
        incomes. That could be viewed as a positive by those who would 
        like to see seniors pay a greater share of the costs of 
        Medicare, but it would further add to the shifting of the 
        burden of costs onto this group as was noted above. Another 
        loophole closer might be to eliminate existing exclusions from 
        tax offered to various business structures. For example, 
        including income from S Corporations and limited partnerships 
        in various tax bases such as the Net Investment Income Tax has 
        been proposed. Although it would affect only a very small 
        number of people, such a change could raise over $200 billion 
        over a ten year period.

 Medicare Savings Could be Achieved by Correcting the Imbalance in 
                    Medicare Advantage Payment

Overpayments to Medicare Advantage (MA) plans continue to negatively 
impact Medicare's finances. The Medicare Payment Advisory Commission 
(MedPAC) noted in their March 2021 report to Congress \3\ that Medicare 
payments to MA plans average 104% of spending in traditional Medicare. 
MedPAC stated in a press release announcing the report that Medicare 
paid MA plans an estimated $317 billion in 2020 (not including payments 
to cover Part D expenses):
---------------------------------------------------------------------------
    \3\ MedPAC, March 2021 ``Report to the Congress: Medicare Payment 
Policy,'' available at: https://www.medpac.gov/document/march-2021-
report-to-the-congress-medicare-payment-policy/.

        This level of payment reflects Medicare payments that were 
        higher for MA enrollees than the program would have spent for 
        similar beneficiaries in traditional FFS Medicare, continuing a 
        long-standing trend. Using plan bid data for 2021, we estimate 
        that MA payments will be 101 percent of FFS spending. However, 
        for several years, the Commission has expressed concern that 
        enrollees in MA plans have higher risk scores than similar 
        beneficiaries in FFS because of plans' more intensive coding 
        practices that result in excess payments to plans. Accounting 
        for coding intensity, in 2021, we estimate that Medicare 
        payments to MA plans actually average 104 percent of FFS 
        spending (quality bonuses in MA account for an estimated 2 to 3 
        percentage points of MA payments in 2021). Medicare payments to 
        MA plans continue to exceed FFS spending levels, despite the 
        fact that plan bids in 2021 decreased to 87 percent of FFS, in 
---------------------------------------------------------------------------
        aggregate--a record low.

        In prior work, we identified some MA policies that need 
        immediate improvement. The Commission previously recommended in 
        2017 that CMS reduce excess payments stemming from plans' 
        coding practices, which would improve equity across plans and 
        produce savings for Medicare. In 2020, the Commission also 
        recommended replacing the MA quality bonus program with a value 
        incentive program that would more accurately characterize the 
        quality of care in MA. Currently, the Commission is assessing 
        an alternative MA benchmark policy that would improve equity 
        and efficiency in the MA program [emphasis added].

Echoing MedPAC's findings, in August 2021 the Kaiser Family Foundation 
(KFF) released a report \4\ outlining how Medicare spending is higher 
and growing faster per person for beneficiaries in MA than in 
traditional Medicare. Despite most plans submitting bids below the 
local benchmarks, KFF notes that the MA program ``has never generated 
savings relative to traditional Medicare'' and while higher payments 
have led to coverage of some limited extra benefits for plan enrollees, 
``the higher payments have also led to higher Medicare spending than 
would have occurred under traditional Medicare and higher Medicare Part 
B premiums paid by all beneficiaries, including those in traditional 
Medicare.''
---------------------------------------------------------------------------
    \4\ Kaiser Family Foundation, ``Higher and Faster Growing Spending 
Per Medicare Advantage Enrollee Adds to Medicare's Solvency and 
Affordability Challenges'' (August 2021), available at: https://
www.kff.org/medicare/issue-brief/higher-and-faster-growing-spending-
per-medicare-advantage-enrollee-adds-to-medicares-solvency-and-
affordability-challenges/.

---------------------------------------------------------------------------
The KKF report concludes, in part:

        As more Medicare beneficiaries enroll in private plans, 
        differences in Medicare payments across Medicare Advantage and 
        traditional Medicare will lead to even higher Medicare 
        spending, and more generous benefits for beneficiaries in 
        Medicare Advantage than traditional Medicare. That higher 
        spending increases Part B premiums paid by all Medicare 
        beneficiaries, including those who are not in a Medicare 
        Advantage plan, and contribute to the financing challenges 
        facing the Medicare [Part A] Trust Fund. Further, these 
        projections raise questions of equity between Medicare 
        Advantage and traditional Medicare because the faster growth in 
        spending per Medicare Advantage enrollee, compared to 
        traditional Medicare beneficiaries, is in part due to rising 
        rebates to private plans, which cover the cost of benefits not 
        available to traditional Medicare beneficiaries. Although 
        taking steps to address the fiscal challenges facing Medicare 
        are not front and center in current Medicare policy 
        discussions, policymakers may soon be on the lookout for 
        options to achieve Medicare savings to fund other spending 
        priorities or extend the solvency of the Medicare [Part A] 
        Trust Fund. This analysis suggests that reducing the difference 
        in payments between Medicare Advantage and traditional Medicare 
        would generate savings, with the potential for reductions in 
        extra benefits for Medicare Advantage enrollees.

In other words, all Medicare beneficiaries are subsidizing the limited 
dental, hearing, vision and other benefits only available through MA 
plans, to the minority of beneficiaries who choose MA, or for whom MA 
plans are the sole retiree option. The Center asserts that it is time 
we spread this funding around in a more equitable way, to benefit all 
Medicare beneficiaries--both those in private plans and those in 
traditional Medicare. To continue with the status quo would be 
``unnecessary and unfair'' to the Medicare program as a whole.\5\
---------------------------------------------------------------------------
    \5\ See, e.g., CMA Alert, ``Policy-Makers Should Review 
Overpayments to Medicare Advantage when Considering Medicare Fiscal 
Solvency'' (March 18, 2021), available at: https://
medicareadvocacy.org/policy-makers-should-review-overpayments-to-
medicare-advantage-when-considering-medicare-fiscal-solvency/.
---------------------------------------------------------------------------

Conclusion

It is clear that policymakers must confront long-term fiscal challenges 
facing the Medicare program. While various health policy experts have 
raised MA overpayments as a potential source of addressing the 
program's fiscal solvency, wasteful spending on private MA plans is 
often overlooked by policymakers--particularly those issuing the 
loudest warnings of the program's impending fiscal doom.

We appreciate the opportunity to submit this statement for the record. 
For additional information, please contact David Lipschutz, Senior 
Policy Attorney, [email protected] at 202-293-5760.

                                 ______
                                 
               Statement Submitted by Clive Fields, M.D.
Chairwoman Warren, Ranking Member Cassidy, and distinguished members of 
the Subcommittee, thank you for the opportunity to submit this 
statement about the future of Medicare and approaches to strengthen the 
Hospital Insurance Trust Fund while providing better healthcare to 
Medicare beneficiaries.

I am the Chief Medical Officer and a co-founder of VillageMD, which 
currently serves 1.6 million patients at 250 Village Medical clinics in 
19 U.S. markets. Our company has a bold founding principle: changing 
primary care in the United States so that our country can be the global 
leader in health outcomes regardless of background and income. We're 
investing in primary care to keep people healthy and prevent chronic 
conditions from occurring, and to lower costs across the board.

Healthcare experts have argued for years that we should move away from 
the dysfunctional, unsustainable \1\ fee-for-service Medicare 
reimbursement system and toward value-based models that incentivize 
better health outcomes such as reduced hospitalizations and post-acute 
care costs.
---------------------------------------------------------------------------
    \1\ https://www.commonwealthfund.org/blog/2021/putting-medicare-
solvency-projections-perspective.

The Direct Contracting model program is one of the federal Center for 
Medicare and Medicaid Innovation's most promising value-based programs. 
VillageMD is proud to be one of the leading Direct Contracting Entities 
(DCEs) in the model program. Our doctors appreciate that it puts 
primary-care providers at the center of care teams and rewards 
physicians who build ongoing relationships with patients. By providing 
payments for each person in a provider's care based on their disease 
burden, the program incentivizes patients' overall health, rather than 
providing medical services piecemeal. Patients retain freedom of choice 
---------------------------------------------------------------------------
to see any Medicare provider.

By not focusing on volume, primary-care providers can spend the time 
needed to provide high-quality care, especially for patients with 
chronic conditions who require comprehensive care plans. In the U.S., 
nearly $4 trillion per year \2\ is spent on healthcare, and more than 
85% \3\ of this amount is tied to patients with chronic disease. 
Keeping those people healthier longer is a potential source of 
tremendous savings for the healthcare system and can allow people to 
live more fulfilling lives. Coordination of care across multiple 
settings facilitates a long-term partnership with the patient, 
prerequisites for improved management of chronic conditions.
---------------------------------------------------------------------------
    \2\ https://jamanetwork.com/journals/jama/article-abstract/
2752664?guestAccessKey=bf8f9802
-be69-4224-a67f-
42bf2c53e027&utm_source=For_The_Media&utm_medium=referral&utm_cam
paign=ftm_links&utm_content=tfl&utm_term=100719.
    \3\ https://www.cdc.gov/chronicdisease/about/costs/index.htm.

Primary-care practices are receiving increased investment due to the 
Direct Contracting model, which is encouraging providers to build 
clinics and create access in underserved rural and urban communities. 
VillageMD has committed to launch Village Medical at Walgreen's 
primary-care practices in more than 500 medically underserved areas, 
which will serve millions of Americans on Medicaid and Medicare in care 
---------------------------------------------------------------------------
deserts.

The Direct Contracting model draws upon private-sector approaches to 
risk-sharing arrangements and payment and reduces administrative 
burden. Risk adjustment means the provider is paid more if the patient 
is sicker because it will take more time, effort and cost to treat the 
patient. One of the benefits of risk adjustment is that it centers 
attention on the diagnosis of the patient instead of creating 
meaningless tasks and measurements to determine payment that do not add 
value for the patient.

VillageMD has demonstrated that primary care-centric management can 
lead to considerable cost reduction with over $61M in gross savings 
generated from 2018-2020 in its longest standing and largest ACO. With 
Village Medical patients able to book a same day appointment and over 
15% of available appointments after hours or on weekends, VillageMD has 
shown that proactive and accessible primary care generates cost savings 
by reducing admissions (close to 5% year over year) and skilled nursing 
visits (over 9%) for ACO participants, all while generating improved 
quality of care. In fact, four preventative measures saw greater than a 
40% improvement from 2018 to 2020. Colon cancer screenings increased by 
almost three-fold, which means thousands of additional Medicare 
Beneficiaries received preventative colon cancer screenings.

Critics of Direct Contracting suggest that DCEs will engage in 
aggressive diagnostic ``upcoding'' and mis-categorize patients to 
qualify for higher risk-adjusted payments. Actually, DCEs are subject 
to multiple coding limitations \4\ and Direct Contracting risk 
adjustment is not undermined by the complicated regulations and 
litigation \5\ that limit government action on mis-coding in Medicare 
Advantage. The opportunity to improve risk adjustment oversight and 
educate providers on effective coding practices is a reason to keep the 
Direct Contracting program, not end it prematurely.
---------------------------------------------------------------------------
    \4\ https://innovation.cms.gov/media/document/gpdc-py2022-risk-adj.
    \5\ https://www.govinfo.gov/content/pkg/USCOURTS-caDC-18-05326/pdf/
USCOURTS-caDC-18-05326-0.pdf.

DCEs are ineligible for shared savings without achieving CMS's quality 
benchmarks.\6\ Relative to prior existing initiatives, the Direct 
Contracting payment models include a stronger set of quality measures 
that focus more on outcomes and beneficiary experience than on process.
---------------------------------------------------------------------------
    \6\ https://innovation.cms.gov/media/document/gpdc-py2022-qual-
meas-meth.

There are going to be starts and stops on the path to a Medicare system 
that better serves patients, but value-based care is ultimately the key 
to improved health outcomes and lower costs to the system. By creating 
networks of providers, integrating their referrals, and assessing 
patient utilization and outcomes, value-based programs like Direct 
Contracting present the best existing opportunity to reform volume-
based fee-for-service Medicare and, in so doing, extend Medicare's 
---------------------------------------------------------------------------
solvency.

In the long term, the key to success in value-based models like Direct 
Contracting is providing quality care that is personalized, preventive, 
comprehensive and equitable. This is the first year of a planned six-
year model program. During that time, CMS will determine whether it 
delivers high-value care to patients and savings for the Medicare 
system. That evaluation should be based on data, not politics.

                                 ______
                                 
              Foothills Coalition for Universal Healthcare
I would like to offer this committee my feedback on the hearing chaired 
by Senator Warren that just completed being broadcast today February 
2nd. I would also appreciate a link to the replay so that I can share 
this hearing with others.

Everything the witnesses had to say was right on the mark. Most 
importantly Dr. Susan Rogers, MD, FACP

President Physicians for a National Health Program from Chicago, IL. 
She was 100% right that our traditional Medicare system is being sold 
out to profiteering entities to the detriment of the trust funds 
solvency.

The government must put a stop to the MA and DCE spread before it's too 
late and the system is totally bankrupt and many seniors will have died 
in the process as a result of a lack for quality healthcare, denials of 
coverage and resulting medical bankruptcies.

We must not allow this to continue. Our government is supposed to be 
working for the citizens of this country NOT for the profits of the 
drug industry and the corporate profit making entities attempting to 
take over behind the scenes. If our government truly cares and I mean 
truly cares about the patients and not the profiteers they will solve 
these issues now and not let them continue to make our healthcare 
system worse than it already is. We cannot afford to allow this to 
continue another day.

It's time for a National Healthcare Program that truly provides quality 
care to the patient and not profits to the industries controlling it.

Respectfully submitted.

Terry Brady
Chair
https://www.facebook.com/profile.php?id=100072402669140
360-588-6103 or 916-740-9519

                                 ______
                                 
                    Letter Submitted by Rob Hoffman
U.S. Senate
Committee on Finance
Subcommittee on Fiscal Responsibility and Economic Growth

A 25 year acupuncture practitioner doing the best I can to help the 
working class of this country heal.

Stop Self-serving Hospital and Insurance company executives who 
continue stealing from the working class of this country.

They've done plenty of damage already.

Kindly,

Rob Hoffman

                                 ______
                                 
                 Letter Submitted by Pat Kanzler, R.N.
Hi.

I am 69, on Medicare, and I rejoiced when I found I was on it, because 
I no longer had to fight over network problems, and my provider and I 
would decide my best course, not a nonmedical middle man/woman.

How dare you allow Wall Street or financial hawks to privatize 
Medicare?

I am an R.N., and I see up close and personal what happens, health care 
goes down, profits go up, and that is not what health care is all 
about, it is about wellness, it is about humanity not consumers, it is 
about citizens!

I watch the elderly die or go bankrupt. I watch a revolving door of 
people who leave well, but come back in the hospital ill because they 
cannot afford medication or treatments. I watch people lose faith in 
science and medicine because they no longer can afford to see a health-
care provider and believe all sorts of conspiracy theories, and the 
taking over of Medicare by making it a business will not make it 
better, but make it worse for people, but good for profits.

Please stop the privatization of Medicare, this from someone on the 
front lines. Perhaps I am not a business guru, but Medicare as is, run 
by the government, is far more efficient, Medicare's administration 
rates are far better than the ilk from for-profit DCEs or insurance 
companies.

I am firmly against profit over patients.

Pat Kanzler, R.N.

                                 ______
                                 
                Letter Submitted by Dr. Richard McGowan
As a physician who cares for Medicare beneficiaries and as an American 
citizen who someday may rely on the coverage of Medicare as a patient, 
please accept my statement against CMS Innovation Centers' dangerous 
and deceptive practice of privatizing Medicare through the use of the 
for-profit intermediaries known as Direct Contracting Entities or DCEs.

Not only are DCEs threatening to bankrupt traditional Medicare, which 
if anything needs to be expanded to cover more people and more services 
right now, it is doing so without the consent of patients who are 
automatically being enrolled into these third party management plans.

DCEs incentive placing harmful restrictions on the care delivered to 
Medicare beneficiaries so that managers can profit from money not spent 
on patient care. The practice of ``up coding,'' or making patients 
appear sicker on paper than they actually are to procure more funds 
from Medicare undermines the mission of Medicare and leads to further 
fraud and abuse of our health-care system at the expense of patient 
care, for the benefit of Wall Street profiteers.

This is completely shameful, violating the trust of Medicare 
beneficiaries for our most popular health program in this country and 
is occurring without Congressional authorization.

I urge CMS, Secretary Xavier Becerra, members of the Senate Finance 
Committee and the Subcommittee on Fiscal Responsibility and Economic 
Growth to act to end Direct Contracting Entities and the fraudulent 
abuse of the public trust immediately, seek to provide recourse to 
patients who have already been defrauded and harmed by this practice 
and overhaul the Center of Innovation at CMS so deceptive practices 
like these do not occur in the future.

Sincerely,

Dr. Richard McGowan

                                 ______
                                 
                  Letter Submitted by Ellen Mullarkey
Dear Senators Warren and Cassidy,

I have heard this analogy about health care insurance that I would like 
to share with you in case you have not used it.

When you go out for a dinner reservation would you be willing to wait a 
long time to be seated at your table? Once seated, would you like to 
find out that you only have 5-10 minutes to eat? Would you like to be 
given a bill that includes additional charges from a middleman who pays 
the restaurant for you, but refuses to give you an appetizer or a 
desert?

I think that might be an easier way to present insurance to people.

Thank you for the hard work you are doing for this committee, which was 
apparent in the meeting today. I am a Family Nurse Practitioner with a 
doctorate nursing from Georgetown. I worked for 5 years at Optum 
dealing with Medicare Advantage patients. Optum would hold training 
sessions on how to ``code'' for the visit. This also included the 
correct documentation to verify the code. They were more worried about 
your coding than patient care.

One point you did not have time to address is the short time that 
providers are allowed to visit patients. Right now you are expected to 
see a patient in 5-10 minutes. That is criminal. You can't listen to 
heart sounds, review medications, and document in that time frame. As a 
nurse practitioner at Optum we were allowed to spend 15 minutes with 
patients. My office had two other physicians that I worked with. We had 
a large flow-chart in one office that kept track of the hospital 
admissions of our patients for the month. Mine was always less, even 
when adjusted at a visits per provider rate. The doctors I worked with 
were very good and I believe that the reason for my lower admission 
rate is that I spent more time with the patients, they trusted me. So 
please, allow providers to spend 15 minutes at least, with a patient.

I have worked in Ontario, Canada as a critical care nurse and my level 
of satisfaction with my job was much better because I didn't have to 
worry about my patient being charged for an extra syringe. In Ontario, 
you have to lose weight before they do knee surgery; control your blood 
sugar before you start breast cancer treatment. These patients have 
skin in the game and it leads to better outcomes. Although I paid 
higher taxes in Ontario, I did not have to pay for health insurance, 
which made my take home pay the same. I never had to pay out of pocket 
for a surgery or a provider visit. None of my neighbors were bankrupt 
because of health bills.

Dr. Cassidy is correct when he states that consumers need to understand 
the choices they are making. Every large healthcare organization I have 
worked for has ``Information sessions'' for choosing your health 
benefits. When we can't figure it out-the country has a problem!

It was mentioned several times that there are some programs that 
actually give patients money back every month. The patients that I have 
seen get those programs are using the extra $100.00 for other basic 
needs. These plans have lower coverage and you need to save the $100.00 
to pay the extra monthly costs associated with your medications or 
equipment that is not covered. Those plans are for the healthy not for 
anyone who is on medicare.

The comment about getting an air conditioner and a TV for a man boils 
down to the fact that your health is based on your zip code and not 
your genetic code. Social determinants of health must be addressed but 
I assume that is outside of your committee.

The Society of Actuaries published a report in 2020 that compared a new 
model of primary care ``Direct Patient Care'' to ``Fee for Service'' 
and the Direct Patient Care model was found to be more cost effective. 
There was a 53.6% reduction in outpatient ER visits and a 22.2% 
reduction in outpatient procedures. I am in the process of starting my 
own practice under this model. It is cheaper than concierge care and 
more like a gym membership. I will not take insurance but I will 
provide the paperwork for the patient to submit the bill to their 
insurance. The initial cost is a $150.00 visit where I come to your 
home/office for 50 minutes. One gets 12, 30-minute telemedicine visits 
a year for price set by your age.

18-24 yrs $65.00 a month.
25-50 yrs $75.00 a month.
51-64 yrs $80.00 a month.
65 and older $85.00 a month.

Many people have jobs without insurance so I am going to see if this 
model works or not. I will encourage everyone to have catastrophic 
insurance or a wrap around plan.

Thank you again for all of your work in finding solutions to improve 
access to health care.

Ellen Mullarkey, DNP, APRN, FNP-BC

                                 ______
                                 
             Letter Submitted by Diane J. Peterson, et al.
Regarding the February 2, 2022, testimony delivered by Dr. Susan Rogers 
of Physicians for a National Health Program, we agreed that Congress 
and/or President Biden must halt the intensification of health care 
chaos posed by Direct Contracting Entities.

These Direct Contracting Entities are detrimental to the welfare of 
American patients and an affront to those of us whose payroll taxes 
have funded the Medicare and Medicaid programs.

We ask Congress and/or President Biden to nullify the control Direct 
Contracting Entities currently have over Medicare patients and American 
health-care delivery.

We further desire strong preventive measures on any further operations 
they may attempt to control or ``benefit'' patients or health care 
providers.

We are politically engaged Minnesotans who have coordinated our 
activism on health care policy since October 2015. We promote 
accountability in the Minnesota Medicaid program and we support 
Traditional Medicare.

Diane J. Peterson, St. Paul         Sharon Schmidt, Savage

John Kolstad, Minneapolis           Paul Tuveson, Woodbury

Dawn Tuveson, Woodbury              Charles Stander, St. Paul

Paula Overby, Eagan                 Elly Clark, North Oaks

Allan Hancock, Brooklyn Center      Carol Mellom, St. Paul

Julie Gelle, Sandstone              Scott Killerud, Willow River

Paul Busch, St. Paul                Jim Brown, Mankato

Rick Rayburn, Willow River

                                 ______
                                 
        Letter Submitted by Sharon Schmidt and Diane J. Peterson
In addition to completely opposing Direct Contracting Entities which 
have begun to do Medicare Direct Contracting, we object to the 
existence of the Center for Medicare and Medicaid Innovation.

That agency undermines the principle of government accountability 
because it exists outside the control of Congress. Therefore, we call 
for the abolishment of the Center for Medicare and Medicaid Innovation 
because it allows Medicare Direct Contracting by investors interested 
in purely financial gain.

Medicare Direct Contracting, and the parent organization for that 
abomination, the Center for Medicare and Medicaid Innovation, should be 
dissolved immediately and similar schemes should be outlawed in our 
nation.

Sharon Schmidt
Diane J. Peterson

                                 ______
                                 
                  Statement Submitted by Peter Shapiro
My name is Peter Shapiro. I am on the board of Healthy California Now 
and a delegate to the Alameda Labor Council, representing the 
California Alliance for Retired Americans. I am reluctantly enrolled in 
a Medicare Advantage plan, one that I would have dropped in a New York 
minute had Congress seen fit to expand traditional Medicare to include 
dental, vision, and hearing. Unfortunately, I could not pay for any of 
those things out of pocket without significant financial hardship. 
Hearing aids in particular are expensive and must be periodically 
replaced.

At least my decision to enroll in Medicare Advantage, however 
reluctant, was one I was allowed to make for myself. The prospect of 
seniors like myself being moved from traditional Medicare into a 
private insurance plan without even being informed, let alone 
consulted, is appalling to me. But the real problem is the rationale 
for this move, which is uninformed at best and disingenuous at worst.

It is widely acknowledged that health care costs in this country are 
out of control and that, by many indicators, our health care outcomes 
are significantly poorer than those of other countries that spend far 
less money. I believe there is a fairly simple explanation for this: 
the United States is unusual if not unique its reliance on private 
insurance and the extent to which market incentives drive the delivery 
of health care.

Yet rather than attacking the problem at its source, we have allowed 
ourselves to be drawn into a specious debate over how providers should 
be compensated. More specifically, the use of fee for service in 
Medicare payments has been targeted as the main cost driver in our 
system, or at least the main one worth targeting. The assumption is 
that fee for service encourages unnecessary treatment, and people are 
actually going to the doctor more than they should. Diverting Medicare 
patients into private Accountable Care Organizations paid through risk-
adjusted capitation is being proposed as a solution.

I make no claims to expertise, but any reasonably well-informed person 
can question whether this notion stands up under scrutiny. The problem 
with our health care system is not that people are getting too much 
treatment; it's that too many of us can't get it when we need it. 
Falling life expectancy and unacceptably high rates of infant and 
maternal mortality ought to tell us as much.

The Committee might consider the review of Japan's health care system 
in a recent report of the Commonwealth Fund. Japan has a single payer 
system; the role of private insurance is purely supplemental and, from 
a financial point of view, fairly insignificant. Without exception, 
providers are compensated on a fee for service basis. People in Japan 
are actually more likely to seek medical treatment than people in this 
country. Yet their system costs far less than ours, and by most metrics 
its outcomes are better.

The problem with capitation in a competitive, market driven system is 
that it encourages health plans to look for ways to pick and choose 
their patients in order to maximize profits. Those who cost more money 
to treat are discouraged from enrolling; those who are healthier are 
given a host of enticements to attract their business. The result is a 
system that is inherently discriminatory and tends to divert resources 
away from where they are most needed.

In recognition of this, repeated attempts have been made to devise a 
risk adjustment algorithm that compensates appropriately for patients 
who will likely prove more costly to treat. Several studies are 
available that look at how these attempts have worked out in practice. 
All of them concluded that they were largely useless at achieving their 
stated goal. Computer science has not yet developed an algorithm that 
can effectively substitute for clinical judgment.

What Medicare's experiments in risk adjustment have done, however, is 
impose new burdens of documentation upon primary care physicians, who 
often lack the resources (to say nothing of the time) to manage the 
additional paperwork. Worse, it has encouraged the use of upcoding to 
``game'' the system. Kaiser Foundation Health Plan is currently being 
investigated by the Justice Department for some particularly egregious 
behavior in this regard, claiming treatments that were not only 
unnecessary but apparently never even took place.

As someone who strongly believes in Medicare as originally conceived by 
Congress as a model of how to deliver health care efficiently and 
equitably, I am deeply disturbed by the growing trend toward 
privatization of a precious public resource. I find it troubling that 
the Direct Contracting Entities which are being set up to channel 
Medicare enrollees into private plans have attracted the attention of 
private equity firms that have no history of engagement with health 
care delivery but are ever on the alert for lucrative new investment 
opportunities.

Instead of encouraging this trend, Congress should rededicate itself to 
expanding Medicare coverage and access, so that seniors like myself who 
have spent their working lifetimes paying into the system will no 
longer need to supplement their coverage with private plans.

                                 ______
                                 
                  3M Health Information Systems, Inc.

                      1425 K Street, NW, Suite 300

                          Washington DC 20005

Chairwoman Warren, Ranking Senator Cassidy, M.D., and distinguished 
Members of the Subcommittee, thank you for the opportunity to submit 
comments for the record for this important hearing on the Medicare 
Hospital Insurance Trust Fund and the Future of Medicare Financing. 
Nearly 40 years ago, 3M supported monumental steps to shore up the 
Medicare Trust Fund to protect vital coverage for America's seniors, 
and we remain committed to supporting efforts to protect the solvency 
and effectiveness of the program for its beneficiaries today. Building 
on the integrity of solid, time-tested ways to reduce cost and quality 
variation, we recommend five ways for Medicare to broaden quality 
oversight initiatives, reduce performance variation, and extend the 
solvency of this important healthcare program.

 What Has Worked: Time-Tested and Proven Methods to Drive Efficiency 
                    and Quality

Some 40 years ago, the Medicare Part A hospital insurance trust was 
approaching insolvency.\1\ In a bipartisan fashion, Congress and the 
Administration came together and implemented the Medicare Inpatient 
Prospective Payment System (IPPS) for fiscal year 1984. Adoption of the 
IPPS program reduced annual expenditures for hospital care in 1990 by 
$18 billion against originally projected spending at the time of 
implementation--some $37 billion in today's dollars and representing a 
20% decrease in annual hospital Medicare expenditures.\2\
---------------------------------------------------------------------------
    \1\ Board of Trustees of the United States Federal Hospital Trust 
Fund. 1982 Annual report of the board of Trustees of the federal 
hospital insurance trust fund. House document 97-166, 97th Congress, 
2nd session. Washington, DC: Government Printing Office, 1982.
    \2\ Russell, Manning. (1989). ``The Effects of Prospective Payment 
on Medicare Expenditures.'' The New England Journal of Medicine, 
320(7).

After 40 years of examining the impacts of IPPS, two key elements are 
credited for enabling its success--elements that can and should be 
---------------------------------------------------------------------------
replicated again today. These two important factors include:

      Focus on Variation. Before the implementation of IPPS, there was 
a sixfold variation in the average amount Medicare paid to individual 
hospitals for the treatment of an acute myocardial infarction (heart 
attack) with no plausible justification for that level of variation.\3\ 
Such variation meant that opportunities for improvement existed, 
thereby creating the potential for cost savings. A major objective of 
IPPS was the elimination of variation in the cost per hospital 
admission. Basing payment on the national cost per inpatient stay 
essentially standardized payment across hospitals and eliminated 
variation in payments that had no plausible justification.
---------------------------------------------------------------------------
    \3\ Schweiker R.S., Hospital Prospective Payment for Medicare. 
Report to Congress. December 1982.

      Create Clear Financial Incentives for Efficiency. When IPPS was 
implemented, it was done in a budget neutral fashion. There were no 
reductions in payment levels associated with IPPS. IPPS used the 
Diagnosis Related Groups (DRGs) patient classification system was used 
as the unit of payment in IPPS. A fixed DRG based payment bundle that 
included all services provided during an inpatient hospital stay was 
used to create the financial incentive for the efficient and effective 
use of hospital resources. Savings came from reforming how hospitals 
were paid. Hospitals responded to the financial incentives and lowering 
the cost of hospital care, thereby allowing a dramatic reduction in the 
annual hospital inflation adjustment factor without creating a 
---------------------------------------------------------------------------
financial crisis for hospitals.

The DRGs that are the underpinning of the IPPS were developed as a 
management tool for hospitals. They allowed hospitals ``motivate 
physicians to use hospital and other resources economically''\4\ and 
``document the relationship between medical and administrative 
decisions.''\5\ The DRGs brought industrial methods of cost and quality 
control to the hospital industry to create the basis for ``control of 
the production process.''\6\
---------------------------------------------------------------------------
    \4\ Enthoven. A.C. ``Cutting costs without cutting the quality of 
care.'' New England Journal of Medicine 298(22):1230, June 1. 1978.
    \5\ Griffith, J.R., W. Hancock and F.C. Munson (eds.). Cost Control 
in Hospitals, p. 5. Ann Arbor: Health Administration Press. 1976.
    \6\ ``AUTOGRP: An Interactive Computer System for the Analysis of 
Health Care Data,'' Mills, Fetter, Riedel, Averill, Medical Care, Vol. 
14, No. 7, July 1976.

Clear Incentives--Three Components. To be an effective management tool 
requires them to be based on a clinically credible language of 
---------------------------------------------------------------------------
performance improvement that meets three essential requirements:

    b  Clinically credible and actionable: The determination of 
performance should be limited to those beneficiaries whose clinical 
circumstances indicate that there is reasonable likelihood that the 
quality problem or delivery system failure could have been prevented 
(e.g., readmission for a post op wound infection following orthopedic 
surgery). Improved performance requires real behavior change so the 
performance measures must be clinically credible and actionable. It is 
counter-productive for achieving behavior change if a performance 
measure includes beneficiaries over which a provider has no influence 
or control (e.g., readmission for an appendectomy following orthopedic 
surgery).

    b  Comprehensive: Successful quality improvement efforts require 
behavior changes that typically mean changes to organizational culture. 
Such cultural changes cannot occur in isolated areas but need to be 
organization-wide.\7\ This means that the full scope of a performance 
measure, not just isolated examples, need to be included (e.g., 
inclusion of all types of complications as opposed to inclusion of just 
a few types of complications or ``never events'').
---------------------------------------------------------------------------
    \7\ Walker, B., Soule, and S., ``Changing Company Culture Requires 
a Movement, Not a Mandate,'' Harvard Business Review, June 20, 2017.

    b  Language of performance: The DRGs were the method of risk 
adjustment in IPPS. The categorical structure of the DRGs allowed 
performance benchmarks (the DRG price) to be set for each risk category 
(each DRG), thereby creating the language of performance expectations. 
The use of real-world benchmarks for judging performance is essential 
because even the best performing hospitals will have a residual rate of 
quality and delivery system failures. Similarly, the risk adjustment of 
the performance measures in the hospital episode of care payment bundle 
should be based on discrete clinically credible risk categories that 
allow hospital performance in each risk category to be compared to 
national benchmarks thereby creating a clinically credible language of 
---------------------------------------------------------------------------
performance expectations.

These three requirements may seem obvious, but they have been rarely 
met in existing pay for performance or value-based payment systems. For 
example, the current payment adjustment for Medicare hospital 
readmissions is limited to just a few clinical areas and is all-cause 
so readmissions over which a hospital has no reasonable control are 
included.\8\ The Medicare hospital value based purchasing system has 
largely failed to produce significant savings or improve quality of 
care \9\ because it has been based on a constantly changing multitude 
of performance measures that are combined into a payment adjustment 
that is complex and difficult for hospitals and beneficiaries to 
understand. Furthermore, risk adjustment has been expressed in the form 
of mathematical equations that are not inherently understandable and do 
not represent a clinically credible language of performance.
---------------------------------------------------------------------------
    \8\ Averill, R., Goldfield, N., and Hughes, J.S., ``Medicare 
Payment Penalties for Unrelated Readmissions Require Second Look,'' 
HFMA, October 2013, pp. 96-98.
    \9\ https://www.gao.gov/products/gao-16-9.
---------------------------------------------------------------------------

 Next Steps: Transformational Reforms Across Medicare to Drive 
                    Performance and Reduce Wasteful Spending for 
                    Another 40 Years

The rapid success of IPPS in controlling Medicare Hospital expenditures 
did have an unintended consequence. It removed the urgency to move to 
the next phase of hospital incentive-based cost control. When IPPS was 
proposed, HHS acknowledged that payment by DRG controlled the unit cost 
of a hospital admission but provided no incentives to control the 
volume of admissions or other services related to a 
hospitalization.\10\ Some forty years ago, the adoption and growth of 
Medicare Advantage was not predicted, nor was the advancements in 
technology and care that has lead to the expansion of care provision in 
ambulatory settings.
---------------------------------------------------------------------------
    \10\ Schweiker R.S., Hospital Prospective Payment for Medicare. 
Report to Congress. December 1982.

3M recommends the following five steps to bring the lessons learned 
from the past 40 years to drive transformational performance and 
---------------------------------------------------------------------------
outcomes improvements today across all of Medicare.

      Expanding the DRG Inpatient Payment Bundle to a Hospital Episode 
of Care Payment Bundle. A fundamental lesson from IPPS is that bundled 
payments can be used to create the financial incentive for the 
efficient and effective use of hospital resources. Importantly, 
successful bundled payment systems must simultaneously be a management 
tool that can facilitate behavior change and performance improvement 
with an effective communication of incentives in the system. As noted 
by CMS in 2001, ``the success of any payment system that is predicated 
on providing incentives for cost control is almost totally dependent on 
the effectiveness with which the incentives are communicated.''\11\ The 
IPPS DRGs created a language that linked the clinical and financial 
aspects of care, enabling the effective communication of cost 
containment incentives across the entire hospital--essentially, a 
``product with a price.''
---------------------------------------------------------------------------
    \11\ Federal Register. Vol. 66, No. 87, Proposed Rules, May 4, 
2001. p. 22668.

The next phase of provider incentive-based cost control needs to 
incorporate incentives to control the volume and variability of 
services associated with a hospitalization. This requires expansion of 
payment bundles to include care decisions and services prior to and 
after the inpatient stay, essentially transforming the inpatient DRG 
payment bundle to a hospital episode of care payment bundle. Poor 
performance on the measures in a hospital episode of care payment 
bundle represent unnecessary or preventable quality and delivery system 
---------------------------------------------------------------------------
failures.

      Value-Based Care that Improves Patient Outcomes and Helps Reduce 
Beneficiary Expenses. In a successful, comprehensive value-based 
program, beneficiaries have some basic expectations from the care and 
care management they are receiving:\12\
---------------------------------------------------------------------------
    \12\ Millwee, B., Goldfield, N., Averill R., and Hughes, J.S., 
``Payment System Reform: One State's Journey,'' Journal of Ambulatory 
Care Management, Vol. 36 #3, pp. 198-208.

          Avoidance of unnecessary hospital admissions.
          Prevention against avoidable complications or 
mortality.
          Avoidance of unplanned readmissions or ED visits 
after hospital discharge.
          Provision of in-home post-discharge care rather 
than needing residential post-acute care facility after hospital 
discharge.
          Care provision that yields results similar 
quality outcomes compared to like- patients with similar health status 
and burden of illness.

Substantial performance variation across care provision of these 
beneficiary expectations across providers and plans equate to 
opportunities for improvement exist that can substantively improve 
quality of care and delivery system effectiveness for beneficiaries. 
Substantial patient outcome variation between patients with similar 
illness burdens and risk scores identifies potential areas to target to 
reduce inequities within the healthcare system or unmet social 
determinants of health (SDOH), which are conditions affecting health 
and quality-of-life-risks and outcomes in the places where people live, 
learn, work, and play.

Providers and Medicare Advantage plans can influence or have direct 
control over performance for each of these basic beneficiary 
expectations and failure to meet those expectations is indicative of a 
delivery or care management system that is not functioning as intended. 
An effective outcomes-based program should target these key drivers of 
volume and variability, including:

          inpatient and outpatient complications;
          readmissions;
          admissions through the ED;
          return emergency department visits;
          surgical mortality;
          admissions to a PAC facility; and
          site neutral shift of procedures to outpatient 
surgery.

Fortunately, many of these performance measures are effectively in use 
today, such as those evaluating readmissions \13\ and complications 
\14\ and methods of risk adjustment \15\ that meet these requirements. 
These measures are successfully being utilized in the payment systems 
of numerous state Medicaids and other and other payers. For example:
---------------------------------------------------------------------------
    \13\ Goldfield, N., McCullough, E., Hughes, J., Tang, A., Eastman, 
B., Rawlins, L., and Averill, R. ``Identifying potentially preventable 
readmissions.'' Health Care Finance Rev. 2008;30(1):75-91.
    \14\ Hughes, J.S., Averill, R.F., Goldfield, N.I., Gay, J.C., 
Muldoon, J., McCullough, E., and Xiang, J. ``Identifying potentially 
preventable complications using a present on admission indicator.'' 
Health Care Finance Rev. 2006;27(3):63-82
    \15\ Averill, R.F., Goldfield, N.I., Muldoon, J., Steinbeck, B.A., 
and Grant, T.M. ``A closer look at All-Patient Refined DRGs.'' J AHIMA. 
2002;73(1):46-49.

          Maryland. An incentive payment system related to 
complications in Maryland has yielded a reduction in complications of 
over 50%.\16\
---------------------------------------------------------------------------
    \16\ Health Services Cost Review Commission, Baltimore, MD. (2016, 
January 13). Final Recommendation for Modifying the Maryland Hospital-
Acquired Conditions Program for FY 2018. Retrieved from https://
hscrc.maryland.gov/documents/HSCRC_Initiatives/QualityImprovement
/MHAC/RY2018/MHAC-Final-Rec-RY18.pdf.

          New York. The recently released final evaluation 
by an independent evaluator of New York Medicaid's Delivery System 
Reform Incentive Payment (DSRIP) program found that avoidable hospital 
use was significantly reduced with potentially avoidable readmission 
rates down by over 18% and potentially avoidable admission rates down 
by over 26%.\17\ It also reported a 3.5% reduction in potentially 
avoidable ER visits. Ultimately, these efforts help stabilize NY 
Medicaid managed care spending down from its annual double digit 
increase before the program started to a roughly 1.9% increase over the 
5 years of the program. As stated in the December 14th letter from 
Danielle Daly, Director Division of Demonstration Monitoring and 
Evaluation, to Brett Friedman, Acting State Medicaid Director, NYSDOH. 
``The report also presented a thorough examination of lessons learned 
from the DSRIP program that will help support future delivery system 
reform and quality improvement projects both in New York and 
elsewhere.''
---------------------------------------------------------------------------
    \17\ Blueprint for Change: DSRIP's Independent Evaluator Finds 
Program a Success, Goals Reached--HSG.

          Texas. The Texas Medicaid public reporting 
website \18\ allows enrollees to see overall and regional performance, 
specific health plan performance-overall and by region, over time 
periods to make informed decisions on where to enroll or go for 
services. Texas Medicaid's Pay for Quality program uses potentially 
avoidable admissions, readmissions, and complications performance data 
to set efficiency payments to plans and hospitals and redistribute up 
to $225M annually based on performance metrics. In addition, under 
Texas' new quality-based auto-enrollment program, enrollees are 
directed to higher value health plans using the outcomes measures as 
part of that value scoring process.
---------------------------------------------------------------------------
    \18\ Texas Healthcare Learning Collaborative (https://
thlcportal.com/home).

      Aligning Incentives Across All Medicare. Lessons from IPPS and 
these states can inform how to drive further value in an outcomes-based 
quality program, provide greater insights for patients, and reduce 
healthcare system spending. For example, measures used successfully 
across states for their value-based care programs could be used to 
update both the Medicare Hospital Readmissions Reduction Program (HRRP) 
and Hospital Acquired Condition Reduction Program (HAC) as well as the 
Medicare Advantage STARS ratings with greater insights into provider 
and plan outcomes performance. This would provide consistency for 
beneficiaries as well as providers who are often challenged with 
---------------------------------------------------------------------------
conflicting incentives across payers.

      Matching Today's Shifts in Patient Care. Where care is provided 
today is significantly different than it was forty years ago. Thanks to 
new treatment approaches, technology advancements, financial 
incentives, and patient preferences,\19\ there has been significant 
growth in ambulatory services, including hospital outpatient 
departments (HOPDs), ambulatory surgery centers (ASCs), physician 
offices, urgent care centers, and more. Medicare payments to providers 
can vary significantly depending on the site where the service is 
provided. For example, the same procedure performed as a hospital 
inpatient, in a HOPD or an ASC have different payment levels and 
different impacts on beneficiary financial liability. Similarly, 
medical services provided in an HOPD and a physician office have 
different payment levels. Site neutral payments can be an effective 
means of reducing Medicare expenditures, but steps will be needed to 
reflect the resource requirements met in each type of care setting. In 
addition, an inpatient/outpatient site neutral payment system would 
require the identification of equivalent categories of procedures in 
both the inpatient and outpatient setting. The inherent complexity of 
inpatient care, especially for multiple procedures during a hospital 
stay, and the significant differences between the inpatient coding 
system for procedures (ICD-10-PCS) and the outpatient coding system for 
procedures (CPT) present a challenge for creating equivalent categories 
of procedures. However, research has demonstrated that identification 
of equivalent categories of procedures in both the inpatient and 
outpatient setting can be done for a wide range of procedures.\20\
---------------------------------------------------------------------------
    \19\ Healthcare Consumerism Driving Growth in Outpatient Services 
(https://revcycle
intelligence.com/).
    \20\ the-shift-to-outpatient-surgery-geographic-variation-and-site-
neutral-payments.pdf (3m.com)

      Looking at Clinical and Social Risk Together. To better 
understand health equity and social influencers of health, clinical and 
social risks should not be considered in isolation. Rather, clinical 
and social risks should be viewed together to get a complete patient 
---------------------------------------------------------------------------
picture.

          Overlaying clinical and social risks helps to 
identify high risk patients to facilitate prevention and care 
management to drive health and avoid catastrophic health event.
          It allows for an effective communication through 
a language for payers and providers to use to describe and understand 
patient burden of illness and expected resource needs.
          It sets up a way to monitor the effectiveness of 
care provision, identify instances of poor care delivery, and surface 
areas for collaboration with community-based organizations.

Payers and providers often feel like they are drowning in data--but 
there are ways to improve data collection via existing data streams to 
make it all more meaningful and impactful. There is a need for social 
risk data to be brought into the medical record, not through an 
additional or burdensome reporting scheme, but in a structured, 
organized way to enable insights into the interactions between clinical 
and social risk.

Capturing SDOH related information with SDOH z codes is one important 
step to begin capturing and using social risk information. SDOH z codes 
can inform the allocation of resources to meet the needs identified, 
including funding essential to the primary care infrastructure and 
coordinating with community-based organizations. Importantly, we 
believe it is critical to adjust for SDOH on top of a payment system 
and not bury it within risk adjustment. Inclusion of factors relating 
to equity or disparities in the method of risk adjustment increases the 
chance of perpetuating structural biases because performance 
differences across racial subgroups will be hidden in the analysis, as 
discussed above. Such differences in performance need to be 
highlighted, not eliminated by risk adjusting for them. Including race 
in the risk adjustment could essentially perpetuate low performance 
expectations for some racial groups.
Summary
The Medicare Program faces another transformational opportunity to 
build off lessons learned to extend the life of the program and lives 
of the people it serves. Medicare's comprehensive inpatient payment 
reforms some 40 years ago provide the playbook for today through a 
singular focus on efficiency.

To do this today, Medicare must once again focus on variation and 
create clear financial incentives for efficiency. To create clear 
incentives, performance measures employed should be comprehensive, 
clinically credible and actionable, and based on a language of 
performance. To be effective, a limited list of outcomes-based measures 
should be used that target key drivers of volume and variability during 
a hospital episode.

Specifically, 3M recommends

    1.  Expanding the DRG inpatient payment bundle be expanded to a 
hospital episode of care payment bundle that includes care decisions 
and services prior to and after the inpatient stay,
    2.  Using value-based care programs based on tested and proven 
measures that focus on the nexus of quality and care outcomes as well 
as help surface instances of health inequities or presence of social 
determinants of health,
    3.  Aligning incentives across all Medicare offerings,
    4.  Updating payment models to match today's shifts in patient site 
of care choices, and
    5.  Incentivizing better capture and use of social data into the 
current data stream.

Bottom line, transformational changes to payment and quality programs 
will ensure beneficiaries, regardless of whether they choose 
traditional fee-for-service Medicare or Medicare Advantage or whether 
they seek care inside a hospital, ambulatory provider, or even through 
telehealth, receive value-driven care that improves or maintains their 
health and reduces unnecessary spending by beneficiary or Medicare.

Thank you again for this opportunity to submit comments. We look 
forward to working with the Committee on ensuring the solvency of the 
Medicare program for decades to come. We would be happy to present 
additional findings and would welcome the opportunity to answer any 
questions. Please contact Megan Ivory Carr at [email protected] for any 
additional information.

 Appendix--Additional Detail Related to Performance Measures that 
                    Should be Included in a Hospital Episode of Care 
                    Payment Bundle

Hospital Admissions. With respect to inpatient admissions, hospitals 
can influence or have direct control over admission through the 
emergency department and the surgical site of service. While ED costs 
for patients who are admitted are already bundled into the DRG payment 
amount, the decision to admit has a much larger financial impact (over 
70% of hospital admission are through the ED). Even though there are 
policies aimed at limiting short stays such as the two midnight 
rule,\21\ there remains wide variation across hospitals in the rate of 
low severity medical admissions from the ED.\22\ With technological 
advances the scope of procedures that can be performed in a lower cost 
outpatient setting (site neutral procedures) has steadily increased. 
There is wide variation across hospitals in rate at which site neutral 
procedures are being performed in an outpatient setting.\23\
---------------------------------------------------------------------------
    \21\ https://www.cms.gov/newsroom/fact-sheets/fact-sheet-two-
midnight-rule-0.
    \22\ 3m-his-medicare-regional-variation-case-study.pdf.
    \23\ the-shift-to-outpatient-surgery-geographic-variation-and-site-
neutral-payments.pdf (3m.com).

Complications and Mortality. Post admission complications that occur 
during a hospital stay can result in the assignment of a higher paying 
DRG. In addition, complications during an inpatient stay are associated 
with an increase in readmissions.\24\ For surgical patients there is a 
reasonable expectation that a patient will survive the procedure. The 
majority of surgical mortality occurs after discharge. Therefore, 30-
day post procedure mortality is a more appropriate mortality measure 
than during the admission in which the procedure was performed. There 
is wide variation across hospitals in the inpatient complication rate 
\25\ and post procedure mortality rate.\26\
---------------------------------------------------------------------------
    \24\ 3m-his-medicare-regional-variation-case-study.pdf.
    \25\ 3m-his-medicare-regional-variation-case-study.pdf.
    \26\ Averill, R.F., Fuller, R.L., and Mills, R.E. (2020, 
September). ``Surgical mortality as a measure of hospital quality.'' 3M 
Clinical and Economic Research. https://multimedia.3m.com/mws/media/
2044672O/surgical-mortality-hospital-quality.pdf.

Unplanned Readmissions and Post Discharge ED Visits. There is wide 
variation across hospitals in the readmission rate and post discharge 
ED visit rate.\27\ Readmissions have a direct impact on the overall 
hospitalization rate and any visit to the ED can result in a hospital 
admission.
---------------------------------------------------------------------------
    \27\ 3m-his-medicare-regional-variation-case-study.pdf.

Residential Post Acute Care (PAC) Facility Admissions. PAC site of 
service decisions and PAC quality of care problems have a substantial 
impact on the volume of services related to a hospital admission. 
Hospitals have influence over the need for PAC facility admission and 
the PAC facility selected. Poor quality in a PAC facility can lead to 
an increase in hospital admissions and ED visits. There is wide 
variation across hospitals in the rate at which patients are discharge 
to a PAC residential facility.\28\ The inclusion performance measures 
related to admissions through the ED, site neutral shift of procedures 
to outpatient surgery, inpatient complications, surgical mortality, 
readmissions, return emergency department and admissions to a PAC 
facility would expand the IPPS payment bundle to a hospital episode of 
care payment bundle that aligns with beneficiary expectations.
---------------------------------------------------------------------------
    \28\ Averill, R.F., Fuller, R.L., and Mills, R.E. (2021, June). 
``Geographic variation in post-acute care facility-admissions.'' 3M 
Clinical and Economic Research. https://multimedia.3m.com/mws/media/
2051382O/report-geographic-variation-in-post-acutecare-facility-
admissions.pdf.

Determining the hospital episode of care bundled payment. A single DRG 
like hospital episode of care payment bundle amount would not be 
feasible. The diversity of services included in the hospital episode of 
care payment bundle makes it difficult to establish a stable all-
inclusive hospital episode of care payment amount.\29\ Instead, 
performance variation in these performance measures can be used to 
adjust the standard DRG payment amount, thereby creating incentives 
that are equivalent to a hospital episode of care payment bundle. With 
the exception of surgical mortality, all these performance measures 
have a known financial impact based on the existing payment system 
(e.g., the cost a readmission is known). This avoids use of arbitrary 
payment adjustment factors. The adjustment factor for each performance 
measure would be determined by comparing performance to national risk 
adjusted benchmarks and adjusting IPPS payments based on variation from 
the national benchmarks thereby, creating the equivalent of a hospital 
episode of care bundle. Such an approach would also provide hospitals 
more precise comparative management information than a single hospital 
episode of care payment amount. While the performance measures included 
in the hospital episode of care payment bundle may appear 
straightforward, the implementation details are critically important. 
CMS has been moving in the direction of bundled episode payments with 
payment adjustments based on complications and readmission performance. 
However, the implementation by CMS of these payment adjustments has 
been narrow, not clinically credible and actionable, and has not 
significantly impacted system-wide performance.
---------------------------------------------------------------------------
    \29\ Vertrees, J., Averill, R., Eisenhandler, J., Quain, A., and 
Switalski, J. ``Bundling Post-Acute Care Services into MS-DRG 
Payments.'' Medicare Medicaid Res Rev. 2013;3(3):E1-E19.

**Note on Beneficiary Expenses. Incentives for performance improvement 
can be strengthened by beneficiary engagement in selecting providers 
based on reported performance. Current IPPS incentives are limited to 
the hospital with virtually no financial consequences for 
beneficiaries. As a byproduct of a hospital episode of care payment 
bundle, there will be a more direct financial impact on beneficiaries 
with fewer post-acute care expenses that usually translate to less out-
of-pocket expenses. Where possible, the expansion to a hospital episode 
of care payment bundle should focus on performance measures that align 
with beneficiary expectations for the functioning of the delivery 
---------------------------------------------------------------------------
system.

                                 ______
                                 
                    Letter Submitted by Andrew Tuck
U.S. Senate
Committee on Finance
Subcommittee on Fiscal Responsibility and Economic Growth

Dear Members of the Senate Finance subcommittee,

Thank you for holding and televising the hearing on February 2nd, that 
let more people know about the DCE programs and what these entities 
will do to end Traditional Medicare. I am writing to URGE you to stop 
the DCE pilot project.

As someone who has been insured by Traditional Medicare, I have never 
had to fear that my doctors would be tempted by self-interest to 
withhold from me needed treatment or diagnostic tests to keep more 
money for themselves. DCE introduces conflicts of interest into the 
medical care for patients. It puts my trust in my doctors in danger. It 
introduces a profit-making entity into the relationship between doctor 
and patient.

While DCEs were set up to encourage doctors to form DCEs, it turns out 
the groups running the DCEs are financial and investment companies. We 
know what happened to the rationing and quality of care with Medicare 
Advantage plans.

Traditional Medicare allows a relationship of mutual respect between 
doctor and patient. If you allow DCEs to continue, you will have 
betrayed the promise of high quality and available medical care which 
has been promised to us in our old age. Don't destroy the trust we had 
that Traditional Medicare, a compact between patient and CMS, would 
always be there, and that 98% of allocated funds will go to patient 
care. Please stop the DCE program and save Traditional Medicare as we 
know it.

Andrew Tuck

                                 ______
                                 
            Letter Submitted by Carol and Richard Van Deusen
I had a doctor for 30 years who retired early because practicing 
medicine was no longer possible for him. The profession he felt moved 
from being a profession to a business. He was a wonderful doctor and 
all he wanted to do was to serve his patients.

What I learned from listening to the hearing is that the future for 
traditional Medicare is changing. The plan is to enroll Seniors into a 
program run by a third party, run by an enterprise called Medicare 
Direct Contracting (DC). This is occurring unbeknownst to seniors who 
are affected.

I googled ``DCE: Building new opportunities for healthcare 
organizations to enter into advanced value-based payment options with 
CMS''.

It seems with Direct Contracting the field can attract investors and 
Hedge Fund managers having nothing to do with healthcare. They are 
private companies who want to make a profit. This will eliminate my 
trust that my doctor is recommending the best treatment for me, and not 
one that will make money for the group that owns the DCE.
With Medicare Advantage plans at least there are rules in place and 
they are owned by reputable insurance agencies that specialize in 
healthcare. DCEs not so.

Why must Healthcare in one of the richest countries in the world be a 
for-profit business and not the right of all citizens to receive the 
best healthcare?

Richard and Carol Van Deusen

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