[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
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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\
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\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.
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\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\
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\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
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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\
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\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
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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.
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\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
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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).
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\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
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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\
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\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\
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\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\
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\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.
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\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.
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\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\
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\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.
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\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\
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\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\
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\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\
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\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\
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\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\
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\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.
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\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.
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\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.
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\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)
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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.
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\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
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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.
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\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.
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\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/.
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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.
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\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
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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.
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\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''
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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.
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\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.
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\21\ https://www.healthaffairs.org/do/10.1377/hblog20210928.795755/
full/.
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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.
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\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.
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\23\ https://www.healthaffairs.org/do/10.1377/hblog20210927.6239/
full/.
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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.
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\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.
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\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.
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\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
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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.
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\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\
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\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\
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\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):
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\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
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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):
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\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
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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\
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\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
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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
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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\
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\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
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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'').
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\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
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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.
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\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.
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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.
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\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
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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.''
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\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\
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\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:
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\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\
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\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.''
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\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.
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\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\
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\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
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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\
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\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\
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\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.
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\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.
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\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.
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\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
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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
[all]