C O N T E N T S

Advisory of April 24, 2001, announcing the hearing

WITNESS

Library of Congress, Madeleine Smith, Ph.D., Specialist in Social Legislation, Domestic Social Policy Division, Congressional Research Service

AvMed Health Plan, Bruce Weiss, M.D.

Group Health Cooperative, Cheryl M. Scott

Moon, Marilyn, Urban Institute

Project HOPE, Michael J. O'Grady

UnitedHealthcare, Victor E. Turvey

University of North Carolina at Chapel Hill, Hon. William L. Roper, M.D.

Suffolk County, New York, Robert J. Gaffney, statement

FOURTH IN SERIES ON MEDICARE REFORM:
MEDICARE+CHOICE:  LESSONS FOR REFORM

Tuesday, May 1, 2001

House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.

The Subcommittee met, pursuant to notice, at 2:10 p.m., in room 1100 Longworth House Office Building, Hon. Nancy Johnson [Chairwoman of the Subcommittee] presiding.

Chairwoman JOHNSON. The hearing will come to order.

Mr. Stark is on his way, and we do have members from both sides of the aisle, so I'm going to start with my opening statement. I will read it to him afterwards, if he wants to hear it.

[Laughter.]

Today the Subcommittee continues its series of hearings on ways to strengthen and improve the Medicare program. This is our fourth Subcommittee hearing on Medicare modernization. In other hearings this year, we have undertaken a general overview of reform ideas, explored the impact of Medicare's regulatory burden on providers, particularly on small providers, and discussed the issues we will confront as we add a much needed prescription drug benefit to the program.

In addition, the Ways and Means full Committee has examined the issue of program solvency with Secretary of the Treasury O'Neill, and talked about the administration's health care priorities with Secretary Thompson.

Today's hearing focuses on Medicare+Choice. This important program has significantly expanded the range of health care options available to some Medicare beneficiaries. In fact, 15 percent of the program's beneficiaries are now enrolled in Medicare+Choice, and many of these beneficiaries enjoy reduced cost-sharing obligations, richer benefits, and a more coordinated approach to preventive health care and to disease management.

However, we all know that the program has confronted real implementation problems. Plan pullouts over the past three years have been significant. Premiums have increased and benefits have been cut. Payment systems are complicated and result in inequities that affect both plan participation and the richness of the benefit package offered to enrollees. The regulatory environment has stifled rather than fostered plan development.

Over the past two years, Congress has acted to increase plan payment rates and to decrease the regional variation in rates and benefits afforded to participants, with the goal of stabilizing the program and expanding beneficiary access to a wider array of choices.

However, a real problem remains. This afternoon we will hear from two panels of witnesses who will help us focus on both the strengths of the Medicare+Choice program and the challenges it faces. Our first panel consists of representatives of three health plans participating in the program. These witnesses will talk about the valuable services Medicare+Choice plans offer beneficiaries. I am particularly interested in the innovations in disease management made possible through the coordinated care delivery model at the heart of the Medicare+Choice program.

Our second panel will focus on two of the most complicated challenges facing the Medicare+Choice program: its convoluted payment system and its stifling regulatory environment. Our final witness, Mike O'Grady, will suggest solutions to the program's problems to stabilize it and make it more responsive to the needs of America's seniors.

I look forward to our witnesses' testimony and to working with my colleagues as we develop legislation to ensure that Medicare beneficiaries across the country enjoy real choices in a healthy, competitive system.

I might add for the Committee members, I find one of the most difficult responsibilities to bear, as a Member of Congress, is to stay in touch, be aware of and open to the strengths of the programs that also have very real problems and about which there are real concerns.

If we are to modernize Medicare, we have to modernize Medicare fee-for-service and modernize the Medicare+Choice program, because each of them hamstrings in different areas of the country, and each of them make significant contributions. If we are to provide the best quality health care for our seniors, we have to have both programs strong, growing, and developing, and through each, we will learn different things that then, through their interactions, will fulfill the promise of Medicare, which we currently are not fulfilling, and that is the promise of access to state-of-the-art health care at a price you can afford.

[The opening statement of Chairwoman Johnson follows:]

So I welcome our panelists. I am pleased to start this hearing, and I'm delighted that Mr. Stark has been able to conclude his work that we all have, with our hospitals in town today, and I do--

Mr. STARK. How did you know?

Chairwoman JOHNSON. Because your staff told me. But I just finished with my hospital people, and some from other States, and that's very, very important because we'll never understand the problems if our own providers don't line them out for us in pretty clear terms. Mr. Stark.

Mr. STARK. Thank you, Madam Chair, and thank you for accepting my tardy slip. I thank you for holding this hearing.

I think a lesson we can learn from Medicare+Choice to date is that it's not a program that will solve Medicare's ills. In fact, it has created a number of new problems, including seeing Medicare beneficiaries dropped from their health plans on a yearly basis, something that we never experienced prior to the existence of Medicare+Choice.

I have no quarrel with making private plan options available to Medicare beneficiaries, but the choice to enroll should be a choice. We have for years been paying these plans beyond their costs, and the plans use the excess payments to seek and maintain enrollment by offering extra benefits.

The General Accounting Office (GAO) and the Office of the Inspector General (OIG) of Health and Human Services have confirmed that the actual payment rates for Medicare+Choice plans have risen faster than per capita health care spending since 1997. The experts believe we are now paying private plans at least 98 percent of the fee-for-service costs, without taking into effect any risk selection.

As the Chair will recall, these same HMOs told us they could provide savings to Medicare, which was why the rate was set at 95 percent in the first place. To those who argue that we should be paying these private plans the same amount as the fee-for-service costs, we're already paying more. There is just no sense to that argument.

The GAO estimated that the HMOs were paid 21 percent more in 1998 than would have been paid under traditional Medicare to provide the same covered benefits to the HMO enrollees. That resulted in excess payments, relative to what they would have paid under Medicare, of over $5 billion. That's a thousand bucks a year per beneficiary. That would probably pay for their "Medigap". Actually, I guess they said it was $1,200 per patient, and I guess that could be spent by these managed care plans on additional non-Medicare benefits, as could we, if we had those savings in the fee-for-service Medicare, which most of our beneficiaries are now in.

The administrative costs of the managed care plans ran up to 32 percent, and the OIG found numerous questionable administrative costs that plans had submitted for payment, including in one case $250,000 for meetings and $800,000 in lobbying costs. I'm sure, Madam Chair, you and I didn't eat $800,000 worth of dinners from those managed care plans. And fines, which we paid for, for some reason.

Last year we gave the managed care plans a boost of more than $12 billion over ten years, and Chairman Thomas took the floor and said every dollar that is added must be converted to benefits for individuals. This is not always for providers. It's supposed to be for beneficiaries. But I don't know as we've seen the Chairman's assertion become a reality.

The Health Care Financing Administration (HCFA) found that just four organizations returned to the program, after we raised the payments to them, and more than 65 percent of the money was going to enhance provider networks. So I'm willing to bet that providers will be in here later this year asking for more money again, and we will also hear that the managed care plans are overregulated or inappropriately regulated by an organization that favors their so-called competitor, and I think that's not true. It says here that's pure hogwash, but I would just tell you that I don't think it's true.

Just as major employers run their various health plans--fee-for-service to PPOs, HMOs--under one umbrella, so should HCFA run the plans under one umbrella. To argue that the agency favors one part of the program over another I think is ludicrous on its face and it would be inappropriate and inefficient to try and separate out of the program this managed Medicare+Choice program to a different regulatory agency. If we think we have problems monitoring the quality now, just think of the problems we would have doing it with more than one agency.

So at the end of the day, this much is true. Despite an infusion of reform and resources, enrollment in managed Medicare+Choice is the same now as it was when we started this journey in 1997. Industry consolidation has led to fewer plans participating, and that trend is echoed in the private market and in Medicaid and the Federal Employees Health Benefits Plan as well. Plans admit that money is not always the problem; there are other issues that dictate plan participation.

I would say this experiment has failed, but for reasons other than those that will be given by my colleagues and by our witnesses today. I am also saying let's not repeat this mistake by just restructuring in the name of reform.

I look forward to today's testimony, Madam Chair. Thank you.

[The opening statement of Mr. Stark follows:]

Chairwoman JOHNSON. Thank you, Mr. Stark.

I'm glad you didn't use "hogwash", because good people can differ on these issues, and we do.  Now I would like to recognize Mr. Ramstad for purposes of an introduction.

Mr. RAMSTAD. Thank you, Madam Chair, and thank you for calling this hearing today to discuss the Medicare+Choice program.

Madam Chair and colleagues, it is my pleasure to introduce to the Subcommittee Vic Turvey, who is President of the Midwest Region of UnitedHealthcare. I think everyone on this Subcommittee knows that UnitedHealthcare and its parent company, UnitedHealth Group, are important corporate citizens in my district in Minnesota. I am glad to see United represented at the hearing today.

This is truly an outstanding company that provides a shining example of the high quality, cost-effective health care that the private sector, working with the Federal Government, can bring to Medicare beneficiaries.

I have spent considerable time with United's Medicare+Choice staff, and I know that United's employees are very dedicated. They care about the beneficiaries. Time and time again, I am amazed at the many high quality, innovative programs that United has developed. Certainly UnitedHealthcare and UnitedHealth Group have truly been a national leader in the health care field for seniors, and certainly in the Medicare+Choice program, always looking for new solutions to improve care for beneficiaries in the Medicare+Choice program, and in Medicare in general.

UnitedHealthcare and UnitedHealth Group are certainly very, very important players in Medicare+Choice. They have done it right, simply stated. So I look forward to hearing Vic describe some of United's efforts to enhance Medicare beneficiaries' health care coverage that are above and beyond the traditional programs offerings, and I am pleased again, Vic, to welcome you to the Subcommittee. Thank you for being here today.

I yield back. Thank you, Madam Chair.

[The opening statement of Mr. Ramstad follows:]

Chairwoman JOHNSON. I would also like to recognize Congresswoman Dunn for purposes of introduction.

Ms. DUNN. Thank you very much, Madam Chairman. I want to welcome Cheryl Scott, who is the President and CEO of Group Health Cooperative to the Subcommittee today. She has been with Group Health since 1979, and she assumed her presidency in 1997.

She has served on the boards of the American Association of Health Plans, the Greater Seattle Chamber of Commerce, and the Health Care Forum. Cheryl also teaches as an associate clinical professor in the graduate program in health administration at the University of Washington.

She is recognized as a leader in health care and has focused her community involvement on addressing the uninsured and on education. Cheryl and Group Health have been committed to serving the seniors in Washington State. I commend them for reducing their premiums in the Medicare+Choice program once Congress passed the Benefits Improvement and Protection Act last year.

Madam Chairman, I appreciate having this opportunity to introduce her, and I think we can all look forward to hearing her suggestions to improve the Medicare+Choice program. I yield back.

Chairwoman JOHNSON. I would like to recognize Mr. McDermott for purposes of welcoming.

Mr. MCDERMOTT. I second the remarks of Ms. Dunn, but I also want to say that Newsweek ranked Group Health as the best HMO in the Northwest. It is no surprise to any of us who live there. Congratulations.

I think her testimony is good to listen to, because they have been operating since 1947 with lots and lots of experience in this area. Thank you.

Chairwoman JOHNSON. Thank you, Mr. McDermott.

My welcome to the first panel, which consists of Cheryl Scott, President and Chief Executive Officer of Group Health Cooperative of Puget Sound, Seattle, WA; Victor Turvey, President of the Midwest Region, UnitedHealthcare, Maryland Heights, MO.; and Dr. Bruce Weiss, Vice President, Medical Operations, AvMed Health Plan, Gainsville, FL.  We welcome all three of you and look forward to your comments. Ms. Scott.

Mr. RYAN. Madam Chair?

Chairwoman JOHNSON. Yes, please.

Mr. RYAN. I would just ask unanimous consent to insert an opening statement into the record.

Chairwoman JOHNSON. Certainly, you may. We're glad to have you with us, a new member of our Committee.

[The opening statement of Mr. Ryan follows:]

Chairwoman JOHNSON. Excuse me, Miss Thurman. I didn't realize you wanted to be recognized. My mistake.  Before we proceed, it is my pleasure to recognize Karen Thurman of Florida.

Mrs. THURMAN. Thank you, Madam Chairman.

I just want to say a few things about Dr. Weiss. He is the Chief Medical Officer and Group Vice President of Medical Operations at AvMed Health Plan. Just for our information, that is Florida's oldest and largest not-for-profit health maintenance organization and we believe they provide quality health care coverage for about 325,000 commercial Medicare and Medicaid members Statewide.

However, interestingly, as we go through this hearing today, and as he will cite to you, the Medicare+Choice numbers have actually fallen over the last several years because of changes, actually going from about 75,000 to 30,000 since 1999. But he has done a very good job, I think, of pulling together disease management studies on patients in and around the area, and not only coordinating their health care needs on site, but also their health care needs in home health care with their nursing staff, and providing some expertise that we believe actually gives us an advantage in management of disease control to our constituents.

I might add that they are actually in my district, their operations are there, and just so this Committee will know, we have had good times and bad times together, so I don't want it to be said that we've always had the best relationship, but we have also had a very good working relationship. I think that's kind of what happens in these situations when constituents call.

Dr. Weiss, we're glad to have you here today.

Chairwoman JOHNSON. And I welcome the panelists.  Ms. Scott.

STATEMENT OF CHERYL M. SCOTT, PRESIDENT AND CHIEF EXECUTIVE OFFICER, GROUP HEALTH COOPERATIVE, SEATTLE, WASHINGTON

Ms. SCOTT. Thank you very, very much, and I particularly thank you, Congresswoman Dunn and Congressman McDermott, for your kind words. I means quite a bit.

What I would like to do today is to talk a little bit about Group Health and our philosophy of care, and I want to talk about innovation in a particular way. I really do appreciate the Subcommittee's interest in innovation, the Committee's interest in the patient. Oftentimes, I believe, when we get into the Medicare+Choice debate, we get into technical issues. This is a great opportunity to step back and take a look at what can we do for the beneficiaries, for our consumers, and for our citizens.

A bit about the Cooperative. It is not-for-profit. We take care of about 600,000 citizens in the State of Washington, including 60,000 Medicare beneficiaries. We are the Nation's largest consumer-governed health care organization. Our board of trustees--and I think Mr. McDermott was alluding to it--is elected by the membership.  Therefore, we, and I personally, are accountable to the membership for the care they receive. It's a unique model and a model that we believe in quite strongly.

In terms of Medicare, we have been an active participant in the Medicare program since 1976, so we do have many experiences to talk about.

What I would like to talk about is something that is fundamental to this discussion around innovation, and that is a prepared financing mechanism. Prepayment gives the health care organization an ability to take care of the patient without tying economics to whether a patient is hospitalized, whether there's a physician visit, or whether there's a procedure. Therefore, you can design a whole continuum of care on behalf of that consumer.  That continuum of care, the ability to not only treat disease but also to prevent illness, is an incredible gift, an incredible opportunity, and a choice that we believe, particularly at the Cooperative, obviously, is a choice that is worth making.

It also allows you to really focus on working with physicians and consumers, because they choose to align themselves with health care organizations such as Group Health. Our success in large part is because our physicians and our consumers choose us, and they choose this kind of philosophy of care.

Is this for everyone? No. But it is an option, and a very exciting one, for a lot of people who would like to see their services coordinated on their behalf by a group of physicians accountable to their consumers in terms of their overall health.

So let's talk a little bit about the innovations that we've achieved, and I will give you three examples.

One is called evidence-based care. I think the Subcommittee probably knows this, but on a monthly basis, there are over 30,000--let me repeat--30,000 different citations in the medical literature. How is a practicing physician, let alone a consumer, to know what is the right evidence? What we have been able to do is start an evidence-based program for every single one of our physicians, particularly our primary care physicians.  We actually have a group of doctors, pharmacists, nurses, who go over that literature and then publish, through our intranet, guidelines based on that evidence.

An example of how this works involves a Project HOPE study which said that we should increase our ACE inhibitors--that's for cardiovascular disease--we should increase the dosage and double it. We were able to get that recommendation out to our physicians and actually start to change our practice patterns almost immediately. That is very difficult to do when you're not population-based. That is very difficult to do when you don't have a continuum of care of services or a system of care. It is not impossible, but it's much more difficult to do.

The other thing that we are able to do is every single one of our physicians has a registry, a listing of each of their patients and the chronic care diseases, that they're dealing with. For instance, if I'm a doc at Group Health, I can go to my computer and see in my panel of about 2,000 or 2,500 patients, who has cardiac artery disease, who has diabetes.  In terms of diabetic care, physicians can see whether patients have gotten their eye exams or their foot care exams.

In the case of cardiac artery disease a physician could ask, "Should I bring some patients in now based on this new study? Can I prevent illness before it occurs"?

That notion of technology, by the way, the ability to use automated clinical information systems, is key in terms of both health promotion and also taking care of people who are ill.

But it really goes beyond disease. What we really try to do is manage populations, not diseases. We are really there for the consumer, not necessarily just for the visit, the day, or the hospitalization.

The other issue that I would like to talk about is this notion of the mental and psycho-social issues associated with our seniors. In my written remarks I talked a lot about exercise and fitness. This isn't around attracting healthy seniors and trying to change your risk pool. This is quite the opposite. This is giving people's lives back who have chronic debilitating diseases, and we have numerous programs--you can see in the testimony what those programs are--to give those people their lives back, to give them a sense of pride, to give them a sense of what's right.

Again, that is not tied to a visit a day or a hospitalization or a procedure. That is tied by the basic financing mechanism of prepayment.

Finally, uniquely to Group Health, we do have opportunities because we are a consumer organization.  We are very, very committed to being accountable to our consumers. Again in my testimony you will see many different allusions to the programs that we provide.

Undoubtedly, we need to look at Medicare with new, fresh eyes. The reform debate holds great opportunities for us.  This notion of prepayment, the ability to take care of patients in a different kind of way because we are prepaid, because we can offer a continuum of care, I think that is where the innovation can really flower. Working in partnership with government and with our consumers, I think we can be very, very successful.

Thank you very much.

[The prepared statement of Ms. Scott follows:]

Chairwoman JOHNSON. Thank you. Mr. Turvey.

STATEMENT OF VICTOR E. TURVEY, PRESIDENT, MIDWEST REGION, UNITEDHEALTHCARE, MARYLAND HEIGHTS, MISSOURI

Mr. TURVEY. Thank you, Chairwoman Johnson, and distinguished members of the Subcommittee, for the opportunity to testify today on our experience in the Medicare+Choice program.

I am Vic Turvey, Regional President of UnitedHealthcare, responsible for our Midwest health plan operations, including Medicare+Choice offering in Iowa, Nebraska, Missouri, Wisconsin and Illinois. I am pleased to speak today on behalf of our experience in the program.

UnitedHealthcare and its parent company, UnitedHealth Group, have a longstanding commitment to Medicare beneficiaries. We are the largest provider of health care services to seniors in America. For over 20 years, we have provided seniors and disabled individuals a comprehensive alternative to traditional Medicare benefits, now known as the Medicare+Choice program.

Today, close to 400,000 beneficiaries are enrolled in our Medicare health plans in 63 counties across the country. Through our Evercare program, we provide coordinated care services to an additional 20,000 frail elderly individuals in various care settings. Separately, we provide Medicare supplement or Medigap coverage and hospital indemnity insurance to roughly 3.5 million AARP members nationwide through AARP's Health Care Options programs.

I want to provide you with a snapshot of Medicare+Choice, focusing first on the value we bring to Medicare beneficiaries, and then on issues with the current program structure that are detrimental to our members.

First, we bring value beyond the traditional Medicare program by coordinating the fragmented, diverse elements of the health care system and organizing the delivery of care around the best interests of the patient. We offer innovative services that help our members lead healthier lives by empowering them to make their own choices, working with their physician, supported by information, and the best clinical evidence available.

Since 1996, we have offered beneficiaries a health plan that requires no additional premium beyond the monthly Part B premium. In most markets, members also get coverage for prescription drugs.

Members also benefit from our value-added features such as individually assigned customer service representatives, access to a 24-hour nurse line, and internet-based health information resources and programs that track their special health conditions and remind them to get regularly scheduled diagnostic tests. They also become a part of our care coordination program, where dedicated nurses follow their hospitalizations and make sure that services are understood, accessible and coordinated before, during and after they are in the hospital. These services are unavailable outside of the Medicare+Choice program.

Let me describe some of these services in more detail.

Under care coordination, this allows members to work directly with their physician to determine the best way to coordinate their own health care needs. Care coordination is designed to make it easier to get care while identifying and addressing gaps in care. It encompasses hospital admission counseling, health education, prevention and reminder programs, inpatient care advocacy, phone calls to high-risk members post-hospitalization, identification and support programs for members with complex and chronic illnesses, and long-term assessment and education programs to support members with asthma, cardiovascular disease, and diabetes. We have received many letters over the last two years from members describing how this program has changed their perception of what a health care plan can do for them and what a health care plan ought to be. We have also seen a notably improved health outcome.

Our personal service specialists are individually assigned to each member. They provide them with one name to call to answer any question they may have and to resolve problems. This program helps to provide a familiar face to the health plan. It helps beneficiaries navigate the complexities of the health care system, a service which is particularly important to seniors.

Our Care 24 Program provides members 24 hour a day, seven day a week access to registered nurses, masters-level counselors and lawyers, to get answers to questions about medical issues, personal and emotional health, legal and financial issues, eldercare and other concerns. It also offers recorded messages from a health information library on over 1,000 health topics.

Finally, United Health passport allows members to obtain coverage for routine care when they travel to other UnitedHealthcare Medicare+Choice markets. This is invaluable for "snow birds" that spend part of their year in Florida and other parts of the country.

All of these offerings are underscored by our commitment to support the physician-patient relationship. Our close relationship with physicians, hospitals and other health care providers is critical to improved medical outcomes. Our medical directors, physicians themselves, work closely with network providers to share our data on best practices within their community and in other cities as well. This is comparative information that doctors have generally never had available to them, and they love it.

When physician groups are incented to apply this quality and cost data we provide to them, they can achieve better outcomes at lower cost. While UnitedHealthcare is an industry leader in its ability to develop and distribute outcomes data, several other companies are also developing similar capabilities, so it is not unique to us.

The fundamental point is that this data, combined with proper balanced incentives from health plans, and then aligned with incentives originating from hospital system, is absolutely essential to efforts to improve quality and moderate cost increases.

Now, there are difficulties facing the Medicare+Choice offering. Our experience with physicians, hospitals and other health care providers illustrates one of the most significant problem areas in the current environment. As stated earlier, one of our hallmark offerings is--

Chairwoman JOHNSON. Mr. Turvey, the red light has gone on. I know you're just starting at your recommendations. But if you could just give a very brief overview, I will come back to them in the question period.

Mr. TURVEY. Okay.

Chairwoman JOHNSON. I have read your testimony and I--

Mr. TURVEY. On the recommendations, in summary, here is what we would recommend.

There are four key areas for program improvement: reimbursement, administrative simplification, provider relations, and an allowance for evolutionary benefit design.

Fundamental reform of the reimbursement is necessary to ensure long-term stability and viability of the program. We need a fair and comprehensive payment approach that more closely aligns current medical cost trends and factors in cost variability in different markets.

We need current administrative requirements to be streamlined at HCFA. We believe Congress ought to explore the reasons behind the increased difficulties with hospital and physician plans participation in Medicare+Choice, particularly focusing on plans' limited payment leverage in markets with dominant hospital systems.

Finally, we think reform of the system must recognize the evolutionary nature of the health care system itself, developing a program that allows for change as the system warrants.

We encourage Congress and HCFA to study successful contracting arrangements in the employer sector, such as nonrisk-based alternatives, as the basis for its own contracts with private health plans, in rural areas especially. HCFA could then operate like an employer, who self-funds employer coverage and partnering with health plans to bring value to their offerings by administering and managing the health and operational aspects of the benefit.

We think Medicare+Choice has much to offer, but the problems today are very real, and yet there is a great opportunity for positive change.

Thank you.

[The prepared statement of Mr. Turvey follows:]

Chairwoman JOHNSON. Thank you very much, Mr. Turvey. Dr. Weiss.

STATEMENT OF BRUCE WEISS, M.D., M.P.H., CHIEF MEDICAL OFFICER, AVMED HEALTH PLAN, GAINESVILLE, FLORIDA

Dr. WEISS. Madam Chair and members of the Subcommittee, my name is Dr. Bruce Weiss. I am the Chief Medical Officer for AvMed Health Plans, based in Gainsville, Florida, in the heart of Representative Karen Thurman's district.

AvMed is the oldest and largest not-for-profit HMO in Florida. We serve some 300,000 members, including approximately 30,000 Medicare members, and 10,000 Federal employees and their dependents. AvMed is federally qualified and accredited by both the National Committee for Quality Assurance (NCQA) and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO).

I appreciate the opportunity to participate in today's hearing to describe the nature and scope of disease management programs in managed care plans and specifically the programs my plan offers to all members, especially our Medicare members.

Disease management programs are one of he major enhancements over traditional fee-for-service Medicare that beneficiaries receive by enrolling in Medicare+Choice options. This is from the newest Provider Sponsored Organization (PSO) to the largest HMO. These programs are important elements of every Medicare managed care option--providing coordination of care, promotion of best practices, and patient empowerment.

Numerous studies have demonstrated that well-designed disease management programs have significantly impacted participants' well-being and overall health status. Patients with moderate to severe congestive heart failure have improved their functional status through disease management programs. This means that a patient who is essentially home- or bed-bound can get out and go to church, shop, or visit family. This is a major improvement in their quality of life.

At AvMed, we have eight care or disease management programs, six focusing on the illnesses of our Medicare beneficiaries: congestive heart failure, diabetes, end stage renal disease, chronic wound care, and chronic obstructive pulmonary disease. All of these programs require an investment in staff, materials, and information systems to be successful. Nurses regularly call members to assess their progress. Patients who appear to be deteriorating are referred to their primary care physicians or specialists for assessment and modification of their treatment. Medical problems are identified and addressed earlier, avoiding risk for the patient, hospitalization, and medical costs.

Unfortunately, these programs are labor and resource intensive and, therefore, limited to just a small percentage of our members, focusing predominantly on those at highest risk.

AvMed and others are looking at new technology that will allow us to more efficiently monitor larger numbers of patients with lower administrative costs. Today, we have a pilot program in which each morning our members step on an electronic scale, which weighs the member, asks several key clinical questions, and then electronically transfers this information to AvMed. Those members reporting worsening symptoms or weight gain above limits set by their physicians are contacted by one of our nurses. In addition, this daily information is available to the members' treating physicians in a summary form for ongoing use in managing their care.

It is through ongoing investments such as this that disease management programs are going to reach their full potential and be expanded to include a larger patient base. However, these population-based programs are expensive, require staff and expertise that is generally not available in most physician offices, and is not reimbursable under most fee-for-service plans.

I would like to share with you the experience of one of our members. Mrs. "B" is a delightful 80-year-old North Florida Medicare beneficiary who joined AvMed in February, 2000. She was enrolled in our congestive heart failure program due to heart damage caused by her diabetes.

Last July, her husband died from lung cancer. In January, she fell and developed cellulitis, a serious infection of her leg, for which she was prescribed oral antibiotics. Shortly thereafter, she called our 24-hour Healthy Heart Hotline because her heart symptoms worsened and she was having increased difficulty breathing.

Mrs. "B" had stopped taking her antibiotics because she felt it was making her swell up. Our nurse contacted her physician, who called her and instructed her to resume her antibiotics. A nurse was then sent to her home and found that she had gained over five pounds and that she was only taking half the dose of her prescribed diuretic/water pill. An intravenous dose of a diuretic was given, and during follow-up visits, it was noted that Mrs. "B's" blood sugar was over 350 and that she had not been taking her insulin since her husband's death, since he was the one who was giving her injections.

Arrangements were made for Mrs. "B" and her daughter, also a diabetic, to be seen by her physician in his office, and both were instructed on giving insulin, following a diet, and exercising. Since this visit, Mrs. "B" has moved in with her daughter and both have become more compliant with their diets, managing their diabetes, and exercising.

As the administration and Congress consider options for stabilizing the Medicare+Choice program and pursuing reforms in the Medicare program, it is critically important to ensure that Medicare is administered efficiently and effectively. The regulatory framework should be designed to promote, rather than impede, the implementation of disease management programs that improve health care quality for Medicare beneficiaries.

Again, I thank you for the opportunity to share with you some information regarding the exciting opportunities with disease management.

[The prepared statement of Dr. Weiss follows:]

Chairwoman JOHNSON. Thank you.

I would like to make a comment on the GAO study that my colleague, Mr. Stark, mentioned at the beginning that suggested that Medicare managed care plans were being overpaid.

In 1998, the Medicare+Choice plans were paid at 2 percent more than the fee-for-service sector. That spending was 2 percent above the fee-for-service sector, but that was at a time, remember, when everyone agreed that through the 1997 Balanced Budget Act we had grossly over reduced reimbursement rates. And, frankly, the whole Medicare fee-for-service system was in terrible shape, and if we hadn't moved promptly to increase reimbursements, we would not have thousands of providers that are still alive out there.

So the fact that Medicare+Choice plans were 2 percent above that is, I think, not a testament to overpayment. If you look, and you take the projections that are on the books out, you will see that in coming years, the Federal Employee Health Benefit Plan (FEHBP) will be way up there, California Public Employees Retirement System (CalPERS) will be next, Medicare fee-for-service will be next, and Medicare+Choice plans will be the lowest-cost plan in 2001 and 2002.

So I don't necessarily consider that a good thing, that the Choice plans will be below fee-for-service. I think what we are about here today is to look at the strengths that Choice plans have brought to the issue of health quality for our seniors and then to look at some of the problems that you were running into.

And in that vein of problems that you are running into, Ms. Scott, you didn't get a chance to talk about what the problems that you would like to see solved, having consumed your 5 minutes, a terribly piddling amount of time, however, admittedly, you did not get to talk about the problems that you think it is necessary to solve for you to survive in the Choice arena. Would you enlarge on that, please.

Ms. SCOTT. Thank you for that. I concentrated on prepayment because I think without prepayment and the philosophy of prepayment, the problems we are trying to solve take on technical--

Chairwoman JOHNSON. Actually, just put that prepayment issue--I am very glad you mentioned that. You know, the Federal Government pays States to take children out of the home. That is the way we make foster care payments. We will not pay States to keep children in the home, and that issue of tying payments to place of care is extremely destructive.

And I hadn't really made the parallel until you made such a clear statement about this in your testimony that one of the benefits of the integrated approach is that you get the payment and then you can decide what is the best location, as well as the most costive location for care. That was very well-taken. Thank you.

Ms. SCOTT. Thank you, Congresswoman.

Group Health has four recommendations for the Committee to consider, in terms of issues to stabilize the Medicare+Choice program:

The one is to honor the intent of Congress, when implementing the risk adjuster, and we can get into more of the detail about that. I think there is an appropriate role to have a risk adjuster, particularly in our State. Our State Employees Benefits Board, they work with a risk adjuster with us. We accept that. So we do not question for a minute the need for one. What we question is the mechanisms, and the methods, and the approaches by which to do that. And so that would be one area that we would like to discuss.

Secondly, I think the notion of HCFA and how HCFA is organized. There are very good people in HCFA. Unfortunately, they are siloed, if you will, in different parts of that organization, and so we can't do the best job in terms of a partnership with HCFA. Because of the silos, you do get different regulations. Sometimes they are at cross-purposes with each other. Our recommendation would be can we take a fresh look at how that is organized within HCFA and think through, in a thoughtful way, how we can partner best with HCFA.

I remember the days where there used to be an office in HCFA that did strategy, and pilot projects and demonstration projects, and we are really very interested in testing out new ideas. That would be an affirmative recommendation for this Committee, in terms of its relationships with HCFA.

The third area is HCFA's quality program. Again, it is the theory of unintended consequences. There is absolutely everything right about accountability for quality at Group Health, and I am sure my sister plans here would agree about that accountability. Unfortunately, Murphy's jumps up again on this particular issue of asking a different set of metrics, a different set of process, a different set of approaches around quality management and not necessarily coordinating those with existing accrediting bodies. Our worst fear, obviously, is that will create more administrative hassle, more rework, with not necessarily any beneficiary advantage.

And, finally, I think we do need to think about, and this is very technical, and I apologize, but as you know, seniors get confused by all of the stuff that comes at them. My mom and dad call me up and say, "What does this mean?" They are 86 and 84, and they are pretty good 86- and 84-year-olds, but still it is very, very confusing. So the idea of standardizing language, again, a very good idea, very good intent. The unintended consequence, though, is that we are afraid that is going to become even more confusing for our consumers simply because the standards that HCFA may say, in terms of definitions, may be different than what an employer for people under 65 might be saying. And, again, we have been dealing with different standards.

Chairwoman JOHNSON. We do need to look at that issue.

Because my time is also limited, I want to ask Mr. Turvey, and I hope some of my colleagues will allow you time to go into more specifically your recommendations as to how to overcome the challenges. But you do make, that is, the barriers to your future as a Choice plan, but you made a very interesting statement at the end of your testimony. You say, "To this end, we already have begun to explore options with HCFA that bring the many unique value-based attributes of our product offerings to the more traditional Medicare benefits."

That issue of how can we translate what you have learned and what you have brought to the quality of senior care into the fee-for-service plan interests I think all of us very much. Could you enlarge on that statement.

Mr. TURVEY. Sure. This is a concept that we are considering as a pilot project in Iowa. The scenario we have in Iowa is a rather disorganized or at least not organized group of physicians in rural areas, especially. We are looking to develop a program similar to Medicare+Choice in that area.

These physicians, because they are not organized in large groups, because they don't have a great deal of capital available to them, cannot necessarily take on a significant risk that you would normally transfer to them under a prepayment mechanism or a standard capitation approach. And so we are looking to do something that is more on the order of a gain-sharing approach, where there is very limited economic risk on the downside. What we are looking to do is to set some quality incentives for them. And if they are to hit those quality incentives, then they would qualify for financial incentives, should there be any. So quality is placed first and then the financial side economics secondly. But, basically, it would be a minimal-risk program for them in rural areas to get their feet wet in Medicare+Choice.

Chairwoman JOHNSON. Interesting.  Mr. Stark?

Mr. STARK. Thank you, Madam Chair.

Just a couple of questions to see if--my guess is that all Medicare+Choice is not alike, but, Ms. Scott, in Group Health Cooperative, are you a staff model or are all of your physicians on salary?

Ms. SCOTT. That is a good question, Mr. Stark.  Four hundred thousand of our six hundred thousand consumers are served by the staff model, and--

Mr. STARK. I beg your pardon?

Ms. SCOTT. We have 600,000 members; 400,000 are served by staff model group practice physicians, much like Kaiser, and 200,000 are served by community physicians in different communities throughout the State.

Mr. STARK. And with those 200,000 physicians, do you capitate the primary care doctor?

Ms. SCOTT. We capitate primary care, and then we pay fee-for-service on specialty.

Mr. STARK. And do you downstream the risk to the primary care docs in that 200,000 who are not in a staff model?

Ms. SCOTT. I understand your question. We capitate, but there is no downside risk to the physicians.

Mr. STARK. So there is no disincentive for those physicians to refer out for surgery or something like that.

Ms. SCOTT. No, sir.

Mr. STARK. Do you, in your staff model, do you own your own hospital facilities, for the most part?

Ms. SCOTT. That is another good question. We used to own a lot more hospitals than we do now. We mostly contract with hospitals right now.

Mr. STARK. You are not-for-profit?

Ms. SCOTT. We are not-for-profit. We are a consumer cooperative.

Mr. STARK. Do you have a figure that you announce publicly that you would call an overhead figure or loss ratio or however you want to term it?

Ms. SCOTT. Sure. The term "medical loss ratio" is kind of a crazy term, isn't it?

Mr. STARK. What was the term?

Ms. SCOTT. The term "medical loss ratio" is kind of a nutty term in some ways. Our overhead is approximately 10 to 12 percent, and we shoot for margins, in terms of return back into our programs of 3 percent.

Mr. STARK. Mr. Turvey, does United operate as a staff model or do you--

Mr. TURVEY. No, we are generally referred to as an IPA model or an independent contract.

Mr. STARK. And your primary care docs, do you downstream the risk?

Mr. TURVEY. We do. We do, generally, capitate primary care and pay off of a fee schedule to specialists.

Mr. STARK. A little louder. I am sorry. These mikes are bad. You have got to darn near swallow the microphone. I am sorry.

Mr. TURVEY. We capitate primary care physicians and pay a fee schedule to specialists, although, depending upon the health plan and depending upon the arrangement, we do have some sharing in surpluses and deficits for specialists and hospitals as well.

Mr. STARK. But, basically, the primary care docs are at risk for some amount.

Mr. TURVEY. Yes, they are.

Mr. STARK. And you don't own your hospital or diagnostic facilities, you contract that out, generally?

Mr. TURVEY. We contract with hospitals. We own no hospitals or physician practices.

Mr. STARK. You are a for-profit/nonprofit?

Mr. TURVEY. We are a for-profit publicly held.

Mr. STARK. What would you classify as your overhead in the same--it is hard with a cooperative, but if you add in stockholder return and whatever else you add in, what would you classify your, if you make that public.

Mr. TURVEY. Sure. We just released our first-quarter financials the other day. I think what was released was a medical cost ratio or benefits ratio of 84 percent, 10 percent for administration and 6-percent pretax profit margin, all products combined.

Mr. STARK. Let me try that again.

Mr. TURVEY. An 84-percent medical cost ratio, 6-percent pretax profit, 10-percent administration.

Mr. STARK. Or 16 percent, if I were comparing what Ms. Scott just gave me and what you are giving me, she is saying 10 to 12, you are saying 16.

Mr. TURVEY. That is correct, pretax.

Chairwoman JOHNSON. I thought she said 12-percent overhead and 3-percent profit for 15 percent.

Ms. SCOTT. Excuse me. It is 10 percent, if you will, administrative overhead and 3-percent margin.

Chairwoman JOHNSON. Okay. Thank you.

Ms. SCOTT. So 13-percent total.

Chairwoman JOHNSON. Appreciate it.

Mr. STARK. Dr. Weiss, AvMed Health Plan. How are you structured?

Dr. WEISS. We are not-for-profit. We are an IPA or a network model, where we contract with the community physicians. We do capitate our primary cares, but only capitate them for the services that they provide.

Mr. STARK. Are they at risk for other services?

Dr. WEISS. No, they are not, and the specialists are paid on a fee-for-service basis.

Mr. STARK. And how would you state your overhead in the same terms that--

Dr. WEISS. Our medical cost ratio is 85 percent, our administrative expense is about 11 percent, and we target a margin of between 2 and 4 percent.

Mr. STARK. Thank you very much.  It has been, well, I might as well ask this same question. Dr. Weiss, are you currently being sued by any of the medical associations in these RICO cases?

Dr. WEISS. No, we are not.

Mr. STARK. Anybody else after you for any major--

Dr. WEISS. Not that I am aware of.

Mr. STARK. Wow.  Mr. Turvey, are you a plaintiff in any of these State Medical Association cases?

Mr. TURVEY. I am not familiar with any. Certainly, not within the Midwest Region, the States I am responsible for.

Mr. STARK. It is my understanding the Medical Association of Georgia has named you as a defendant--you are in good company, along with Aetna, Coventry, and Cigna--but if that is not your division, you might not know.  Could I ask, Ms. Scott, is the State of Washington Medical Association after your hide?

Ms. SCOTT. No. Well, they are not suing us. Let us put it that way.

[Laughter.]

Mr. STARK. All right. My time has--

Mr. MCDERMOTT. If the gentleman will yield.

Mr. STARK. I would be glad to. I know you are the only one that is in court in Washington.

Mr. MCDERMOTT. The physicians, the State Medical Association had to be sued by the Group Health Doctors to get into the medical association back in the fifties.

Mr. STARK. Thank you, Madam Chair.

Chairwoman JOHNSON. Mr. Johnson of Texas.

Mr. JOHNSON OF TEXAS. Thank you, Madam Chairman.

Thank you all for being here. I like your comments, "siloed." Maybe HCFA is stuck in the mud, too, what do you think?

[Laughter.]

Mr. JOHNSON OF TEXAS. Mr. Turvey, in your testimony, you point out a new June filing deadline, formerly in the fall, to make accurate financial projections and, thus, appropriate benefit decisions. Given only the first quarter, January through March, data is available right now, at the time for plans to submit their adjusted community rate (ACR) to HCFA, this is the plan's estimate of its costs for covering any additional benefits or additional beneficiary costs.

Based on the adjusted average per capita cost (AAPCC) and the ACR, which will determine those things, you know, more data I think will allow you to submit a more accurate ACR. What do you think an appropriate date should be for ACR submission to HCFA?

Mr. TURVEY. I think October would be reasonable. The reason is, if you are looking at a June deadline, you have got really only that first quarter that is halfway complete. So, if you can bump it back to October, you at least double your amount of credible experience data for the benefits priced in that current year.

Mr. JOHNSON OF TEXAS. That makes sense to me, and that is what most people are saying.  How will this impact the beneficiary enrollment period, in your view?

Mr. TURVEY. I think if we can get HCFA's administrative review streamlined, that should not be problematic at all. At one time, I believe the ACR was done back in the October time frame, so I don't think that should be problematic.

Mr. JOHNSON OF TEXAS. So you think you will be okay if you are given until October to figure it out.

Mr. TURVEY. I think we would, and what is more, because of the more accurate, more complete data, we would be able to sharpen our pencil a little bit better and perhaps offer a little bit better benefit for the cost because we would have to build in less conservatism for the unknown.

Chairwoman JOHNSON. Would the gentleman yield?

Mr. JOHNSON OF TEXAS. Yes, Madam Chair.

Chairwoman JOHNSON. This is a point of real concern to us. The problem with the October 1st date is that you won't necessarily know exactly what Congress is going to do, and to what extent we have addressed some of the barriers that in your testimony you bring to our attention in quite some detail.

If allowed you to make the decision after you are likely to know, then we are talking about your having that data, having made your decision in November, because you aren't likely to know until the end of October, when we should conclude our budget work.

So do you need the November 1st date? And if you made your proposal by November 1st, is there a review process that would still allow us to develop some reasonable rhythm to the open enrollment period?

Mr. TURVEY. Actually, I think we would find it greatly improved if we could back it up to later September. I wouldn't want to go into November. I agree that is really pushing it.

Chairwoman JOHNSON. And you think you can make the decision, even though it might not be completely clear what we are doing?

Mr. TURVEY. Well, that is problematic. You are right.

Chairwoman JOHNSON. I am not going to take this out of Mr. Johnson's time because this is something the Committee really has to be, we have to be realistic about. Now how many plans are going to be able to, briefly, how many of you are going to be able to make the decision about the next year and the year after, if you don't know exactly what we are going to do about reimbursement rates and regulatory barriers?

Mr. TURVEY. I think we are going to have to know as soon as possible. I think what is really at risk here is that there are many health plans in critical markets, where I am sure they don't want to pull out because, as I think you all know, once you pull out of a market, it is very, very difficult to get back in. Your reputation is sullied. You can't just say 6 months later, "Well, we decided to reenter this major market." So plans are very reluctant to leave, thinking when they do, they may be out for a long, long time.

But it is really critical that, as plans make this decision, especially if they are losing a lot of money, and we are, in United Health Care in a few markets, a few major markets, it is going to be very, very important for Congress to come back and say, "Here is what we can do to at least limit your losses, your potential loss, for calendar year 2002," and that could at least buy some time for the health plans to stay in the markets, while some of these other factors, administrative and revenuewise, are being worked on over the intervening months.

Chairwoman JOHNSON. Now, Ms. Scott, you are a cooperative. You are exactly the kind of entity with long experience. Would you agree with Mr. Turvey that it will be hard to make the decision about where to stay in and where to go out?

Ms. SCOTT. I couldn't agree more.

Chairwoman JOHNSON. Would you have to make the decision to leave markets if we don't address some of the barriers that you have identified?

Ms. SCOTT. Thankfully, because of the Beneficiary Improvement Protection Act (BIPA), we are no longer faced with that decision in the State of Washington. There are other States where that is not the case, but in the State of Washington, it did definitely help us. But having gone through market withdrawals in the past, I will tell you the current situation is untenable because you are making decisions with just not enough data.

Chairwoman JOHNSON. Sorry, Mr. Johnson. I will give you another minute or two on your own time.

Mr. JOHNSON OF TEXAS. Bless your heart.

Dr. Weiss, you know, you talk about regulatory problems with HCFA, and it seems that people are jumping out of Medicare+Choice back to fee-for-service because they don't understand it or because you all are reducing your benefits because of regulation or regulatory morass, I guess is what we would call it, and it appears that HCFA has maybe doubled the little tick marks they tick on you every time they check on you. Is this a real problem, and how can we fix that, in your opinion?

Dr. WEISS. Well, the amount of regulatory oversight has increased dramatically in the last several years. We have no problem with accountability, the problem is or, actually, it appears that we are being accountable to multiple entities at the same time, sometimes with conflicting direction.

As far as for us to send a letter to our members, we have to submit the letter to HCFA, waiting sometimes the 45 days before we can send it out. It has had some impacts on implementing programs that we have scheduled and had to adjust the date or hold off doing programs that we think would have had some major benefits.

Also, as far as the scheduling of reviews, we are being reviewed annually by HCFA, and then we are also having all of our accreditation visits coming in. So it seems like we are usually in the accreditation or survey mode, where we are always having staff spending a great deal of time preparing for the next review. In our case, we get three reviews--we will have three reviews in one year between JCAHO, NCQA, and also the Medicare reviews.

Mr. JOHNSON OF TEXAS. How many people do they send in on those reviews?

Dr. WEISS. Medicare sent in about six people last year for the review and the other accrediting bodies will send in a varying number.

Mr. JOHNSON OF TEXAS. Okay. Thank you very much.  Thank you, Madam Chairman. I appreciate the extra time.

Chairwoman JOHNSON. Mr. Kleczka.

Mr. KLECZKA. Thank you, Madam Chair.  Mr. Turvey, let me direct some questions at you, since your United Health is in my Home State of Wisconsin and also covers constituents in Waukesha and Milwaukee. Now, over the past year, you went from 500,000 seniors covered under Medicare+Choice down to about 410,000. Is that somewhat accurate?

Mr. TURVEY. That is correct.

Mr. KLECZKA. Now, is the reason for that 90,000-decrease due to participants leaving the plan or you closing markets in various States?

Mr. TURVEY. It is primarily due to us leaving markets in various States.

Mr. KLECZKA. Evidently, you were losing money so you packed up and left.

Mr. TURVEY. That is correct.

Mr. KLECZKA. You also indicated a short time ago that you are still losing money in various segments of the market that you are in. Would one of those areas be the State of Wisconsin?

Mr. TURVEY. No, I don't believe so. Chicago is our larger concern.

Mr. KLECZKA. So it is your intention, at this point anyway, to continue to offer Medicare+Choice in the State of Wisconsin, and specifically Milwaukee-Waukesha.

Mr. TURVEY. That is our intention.

Mr. KLECZKA. I am sorry. I didn't get the answer. Your answer was? Your answer to that was?  Mr. Stark said, yes, if we would stop eating bratwurst and cheese.

[Laughter.]

Mr. KLECZKA. And since that won't ever happen, I have to rely on you for the correct answer.

Mr. TURVEY. I am sorry. I did not hear the question.

Mr. KLECZKA. All things being equal, you do intend to stay in the Milwaukee market.

Mr. TURVEY. Yes, we do intend to stay, regardless of what you eat up there.

Mr. KLECZKA. The reason I ask is because at one point we had about five providers. We are down to two providers, which would be yourself and Medicare Blue. I am familiar with the Medicare Blue operation. They are losing money writing in this market. I don't know how long they are going to continue.

So the point I am trying to make is this grand experiment of Medicare+Choice is decreasing in popularity and/or is losing money in areas so companies like yourself are pulling out. I think that is an important point to note because if you look at some of the Medicare reforms that we will be looking at, specifically, the Breaux-Frist proposal, it would actually expand Medicare+Choice. And I am saying if, in fact, you are losing money today and pulling out of various markets, and less seniors are now covered, how can we go and save the Medicare program by expanding this somewhat failed experiment?

Now, one of the points you also made was that you are, one of the reforms that you are advocating would be a higher reimbursement. But we were told during a briefing seminar early on in the session, and Mr. Stark made mention of this, that, in fact, the Medicare+Choice is proving to be somewhat more expensive than fee-for-service. Now, if we are going to use the Medicare+Choice to save Medicare and it is more expensive, then we are not going to reach our goal by doing that.

Expand somewhat on one of the reforms being more reimbursement, more capita rates or higher per capita rates.

Mr. TURVEY. Well, I think, first of all, the program is quite popular, and all we have to do for evidence of that is--

Mr. KLECZKA. If it is so popular, how come United Health went from 500,000 to 400,000? That is a 20-percent loss.

Mr. TURVEY. Yes, but it is popular among beneficiaries. And for evidence of that, all you have to do is look at the feedback we get when we leave a market. We don't do it without a great deal of pain and negative feedback from those members. They do love the program. The problem is, as we have seen all along, although we have taken some steps to rectify that in the reimbursement, the reimbursement is still very uneven from market-to-market, and that--

Mr. KLECZKA. And that is something we are trying to reimburse on a congressional level, although we are doing it in such a slow manner. In fact, just to highlight what you have said, Milwaukee-Waukesha, per capita or capitation rate is $553 a month, Dade County, Florida, $834.

While we are on that point, what do you offer your Wisconsin Medicare+Choice beneficiaries above and beyond the fee-for-service program? What services do you offer above and beyond the fee-for-service program?

Mr. TURVEY. We offer the services that I detailed in the testimony, but beyond that we have reduced co-pays.

Mr. KLECZKA. No, no. Give them again. The first thing I would ask is, is there a drug benefit for any of these Wisconsinites? And I would assume, based on the per capitation, that the answer is going to be no.

Mr. TURVEY. The answer is no in Wisconsin.

Mr. KLECZKA. So what, specifically, do you offer a Wisconsinite above and beyond a fee-for-service program?

Mr. TURVEY. Fewer co-pays, and additional benefits, and better medical outcomes, and support services that I detailed in my testimony.

Mr. KLECZKA. What co-pays does the beneficiary save on, specifically?

Mr. TURVEY. Inpatient, outpatient.

Mr. KLECZKA. Which is, what, the $10?

Mr. TURVEY. Generally, $10. I am not real familiar with where Wisconsin is right now, but that is probably about right.

I think the thing to remember, with respect to comparisons to traditional Medicare, is that we offer better outcomes, we offer higher member satisfaction, we offer increased benefits and really at no higher cost. Generally, it is somewhat lower cost. It is popular with the beneficiaries. What this program is not popular with is hospitals who now have had the reimbursement bar raised--

Mr. KLECZKA. Well, that is not totally accurate because it is not popular with constituents who want to stay with the same doctor they have been seeing for the last 40 years, and chances are that that doctor or physician, he or she might be part of your plan. So we are still getting, from our constituents, the fact that they want total choice of provider.

I know my time has expired. Maybe we will get another round. Thank you.

Chairwoman JOHNSON. Well, I certainly would just want to note that joining a Choice plan is an option. And so if your doctor is not in it, as I tell my seniors, don't join it. But often, because they are primarily in the densely-populated areas, the chances are that your doctor and your hospital is going to be in it.

And I think Mr. Turvey's point was that when you look at how upset people were when they had to leave a market, it does tell you they liked participating in their plan. The purpose of this hearing is not to tear anybody down or build anybody up on either side of the Medicare program, but merely--

Mr. KLECZKA. Madam Chair, I don't believe I was tearing anyone up or building anyone up. I was just asking some probing questions.

Chairwoman JOHNSON. I think the implication of your question of what are people getting for it. Yes, they are getting a premium cut, but the real thing they are getting for it is what he went into in great detail in his testimony that has helped implications: coordinated care, the access to a person in the plan so that you can always get your questions answered.

But this issue of coordinated care and disease management, this has to do with the future of Medicare. Seniors with chronic health needs need a different kind of governance and involvement. And I think I don't want to just gloss over that the only thing he is giving patients is a reduction in premium because that isn't the big issue here. The big issue from everyone testifying was disease management, was improved health outcomes.

Mr. KLECZKA. Madam Chair, if I may respond, evidently, you can't read my mind. The reason that I asked that question was because of the low capitation in Wisconsin, that is all these plans can give my constituents and other Wisconsinites. If I would have had additional time, I would have went into the plan offerings in Florida, and I can bet you a dollar to a doughnut, in Dade County, Florida, there is probably some decent drug coverage, but naturally the reimbursement is almost $300 per month more. So--

Chairwoman JOHNSON. Well, one of his recommendations is that they need to have the same increases in reimbursement that we are providing to others and that we are providing bigger increases to hospitals than we are to the managed care plans that have to deal with them.

Mr. Camp? No, Mr. Ramstad, I guess, is next.

Mr. RAMSTAD. Thank you, Madam Chair.

Mr. Turvey, I would like to ask you a question. When we passed the Balanced Budget Act (BBA), Congress was obviously focused on the fairness gap issue to address the unconscionable disparity in county-based health plan payment rates across the country.

I would like to ask you, based on your experience, was it prudent to set up a new payment method separate from fee-for-service payments or did we effectively create a whole new gap with fee-for-service and provider payments?

Mr. TURVEY. I think it was a well-intended move and well advised, but I think it had some unfortunate side-effects. Primarily, there are two things that happened that I noticed. It did not eliminate the disparity among reimbursement from county-to-county. And as Mr. Kleczka suggested with respect to where Milwaukee stands versus Dade Counties or others, I could give you similar stats for Cook County. There are huge variations. So that gap has not been narrowed anywhere near to the extent it should be.

Mr. RAMSTAD. Not to mention the Twin Cities of Minnesota vis-a-vis Dade County.

Mr. TURVEY. That is correct.

Secondly, the increases that went to hospitals, which I think were, to some degree, required, they were needed, they essentially raised the bar to where the hospital could come to us and say, "Now you have got a new target to match with respect to what you have to pay us." There was an arbitrage going on by the hospitals between traditional Medicare and Medicare+Choice. And so, essentially, we had to take our BIPA money and throw most of it to the hospitals, with most of the remainder of that to the physicians, and there was very little left over, contrary to our wishes, for improved benefits.

Mr. RAMSTAD. I would also, Mr. Turvey, like you to elaborate about your suggestions for improving and stabilizing the Medicare+Choice program by experimenting with nonrisk-based alternatives, particularly in low-payment places like Minnesota, where I have watched the program all but disappear in the last several years.

Mr. TURVEY. I think, in order to get utilization to more reasonable levels in areas where utilization is very high, in areas where physicians are not practicing under the best clinical information, that you need to make an investment in these physicians, especially in rural counties, where they are not familiar with much of this, and this information does come at a bit of a cost.

I think, if a program, such as that we are looking at in rural Iowa, could be established, where there was minimal downside risk to a physician for participating, in essence, HCFA would be contracting, let us say, with the United Health Care on what we refer to in the industry as an ASO or Administrative Services Only contract, where there is very little upside, but there is minimal downside as well, we would have the opportunity to engage rural physicians in a contract with very limited risk.

And I think then, over a period of a couple of years, as you take the clinical information that Group Health spoke of and I spoke of earlier, with our physician data sharing, and you get that out to physicians, and you give them some primarily quality based, but then, secondarily, economically based incentives to improve their outcomes, then we will find that, as a byproduct, care becomes more cost effective and cost savings result.

I think that is the model we need for the rural areas, otherwise they are going to say, "We want no part of it. We can't afford to take significant risk. We will just play, but we will play under traditional Medicare."

Mr. RAMSTAD. That is the message we all need to hear, those of us working on this situation here in the Congress.

Let me, finally, ask you about difficulties in contracting with providers, particularly hospital systems, and how United Health dedicated the majority of your new, so-called new, BIPA payments to increase provider reimbursement. Maybe you could share some examples of the types of contract negotiations you have been engaged in with provider groups and why you found it necessary to devote BIPA dollars almost exclusively to providers.

Mr. TURVEY. Really, from the hospital's perspective, they see two things: Number one, with the increased reimbursement, there is a new standard for reimbursement, and they are saying match it or we depart--departicipate. For them, it is an improved bottom line to go to traditional Medicare.

Secondly, by going to traditional and getting out of Medicare+Choice, there are a lot of things they don't have to do. They don't have to be accountable to health plans or HCFA or others for measures of outcomes, especially quality. And I can't tell you how many times I have heard hospitals say, "Quality measures are a little squishy. They are a little elusive, so we if we can't perfectly measure them, let us not," and I think that is wrong. That is what we have seen, and we have seen it in St. Louis, where I have been very specifically familiar with it and involved in those negotiations.

Mr. RAMSTAD. Thank you, again, Mr. Turvey, for your testimony and for being so responsive to these questions.  Madam Chair, my time has expired.

Chairwoman JOHNSON. I am sorry. Mr. Lewis?

Mr. LEWIS. Madam Chair, since I arrived late, I think I should defer to the gentlelady from Florida.

Chairwoman JOHNSON. Congresswoman Thurman.

Mrs. THURMAN. I want to talk about the reimbursement issue a little bit because I find this a fascinating issue because I don't know that it is reimbursement totally. I mean, I think that we have done some things. Last year we did some incentives. Actually, Mr. Turvey, you, in United Health Care, came into Hernando County after we lost all of our Medicare+Choice programs. I don't know what your experience, and maybe you can't answer because that is not your part of the country, but we gave an incentive program. We tried to encourage people to come in there, and you and one other have, at this point, and I don't know what is going to happen. I mean, we are hearing a lot of rumors in the district that you all may be pulling out.

And I know Dade County gets talked about an awful lot up here. That is not the experience for most of Florida. Quite frankly, as Dr. Weiss can tell you, that is not. But there is a problem in my, I mean, I have the same problem with all of this moving around, but then I find situations where companies have gone into these areas getting less reimbursement than another county, and yet they stay in those counties, but pull out in a county that is getting a higher reimbursement. So I don't know what that mixture means, and I would love to hear your comment on that.

And the second thing, and this is, quite frankly, one of the things that I hear most, is the reason we are taking Medicare+Choice programs, I mean, I think, quite frankly, you all do a great job in the private sector. I think the Medicare+Choice program has some real issues on it.

But I think one of the reasons people come into that is because of the prescription drug. It has been mentioned, and I have got a spreadsheet that I have done on all of mine, based on what the prescription drug benefit is and what it isn't, and what are your feelings based on the HMO Medicare+Choice programs that you are seeing?

Do you think people are staying in these programs because of prescription drugs as much as anything, Dr. Weiss?

Dr. WEISS. I think absolutely on the prescription drug benefits. Some of the other benefits, especially as you go to the counties with the higher reimbursement, is the lower premiums or no premiums. When you look at the cost of a Medicare+Choice product in Broward County, which may have a premium and a pharmacy benefit, it is substantially below what a supplement would cost without a drug benefit. As you get into some of the other counties further north and more in your district, the pharmacy benefit is still there, but the premiums go up, and the pharmacy benefit goes down, I think the main draw for most people, is the pharmacy benefit.

Mrs. THURMAN. And, you know, let me ask that, because this is a question that always kind of never gets answered, but I ask it on occasion. I mean, you all are in different parts of the country, but you are also in--well, in your situation, you are mostly in Florida. Mr. Turvey, you are across the country, but you have different associations within your States, different States. You use the same pharmaceutical delivery system as we do in Dade County, as you would in Hernando County. I mean you have got Eckerd's, you have got Walgreen's, you have got K-Mart, you have got whomever is going to offer these things. Why is it that we cannot have the same thing in some other parts if you are doing--I mean, kind of like we have been looking at this whole issue with prescription drugs and best management, and third-party persons. I mean, why can't you all, in fact, contract with these people for the whole State for the cost, giving us the same opportunity to participate in a prescription drug as you do in individual areas? The same companies.

Dr. WEISS. Well, in fact do have the same contracts throughout the State at the same reimbursement rate. What is interesting is the prescribing patterns and habits vary greatly in certain areas of the State. The most expensive area for us historically had been Palm Beach, which is not the highest reimbursement area in the State, but it had substantially higher costs than Dade or Broward Counties. So it appears that the physicians have a much greater ability to impact the cost than the contracts would, because again, we pay the same rate, whether it is in Gainesville, or Lake City, or down in Hollywood or Miami.

Mrs. THURMAN. So it is utilization?

Dr. WEISS. It is predominantly utilization. It is not the reimbursement cost of the pharmaceutical.

Mrs. THURMAN. Mr. Turvey, any one of my three questions.

Mr. TURVEY. Yes. I would say if you are looking for differences of why a pharmacy program can't be as rich in one county as another, why can't it be Statewide, sometimes the difference in hospital rates in a particular county will eat up what would have been available for the pharmacy benefit. So you have got to look to other components as well, or there may be an organized physician group that is a little better at negotiating their capitation. So those other elements can squeeze out the pharmacy piece.

You ask another question too, saying, are people initially attracted by the pharmacy benefits? I think the answer is yes. In my experience, which has been heavily in the St. Louis area, where we have 72,000 members, they sure are. But then they stay for other reasons. They stay for the reasons I went through in my testimony, because they love the program. And recently we had one of our health care providers, an entire system, SSM Healthcare, drop from the system because to them, reimbursement was better under traditional Medicare, and they didn't have to organize their physicians to change their practice patterns for better outcomes, which is work, and is politically intrusive for them. So it is easy just to say, "We will go back to traditional Medicare and we will just run hospitals", and that is what we all were trained to do 10 and 20 years ago. So that is what they are doing.

But what was interesting is there were 12,000 members affected. The vast majority of them are staying with us, even though 60 physicians are no longer available. The other thing that is interesting is some of those physicians, employed physicians, are now rethinking their employment contracts because they want to continue to serve those members.

So it has been a great experiment to see how this plays out, but the fact of the matter is, people love the program, they stay in it, and they will change physicians, and their physicians will give it a second thought too. So we have seen that happen.

Mrs. THURMAN. So part of--so what I guess, the bottom line was--Madam Chairman, I am sorry--then is the fact that it is not just reimbursement, that there are private issues that are out there as well. I mean, I think that has to be on the record because that is all we ever hear about, and quite frankly, that is what we get in those letters that Dr. Weiss referred to, is "Call your Congress person, increase those reimbursement rates." And in fact, I don't know how to respond to that except the fact of the matter is, I think there are other outside issues, and I think we need to let people know that.

Mr. TURVEY. They signed an agreement they were willing to negotiate and live with. That is the bottom line on it.

There is a point I would like to leave everyone with because I think it is fundamentally important to the future of the program and the future of Medicare as well. I guess I would equate the evolution of Medicare+Choice as maybe the auto industry in 1920. You know, clearly, this looked like the way to go with cars, but they were far from perfect. Now looking back 80 years later, you say, "My God, what if we decide to go back to horses?" I mean, it would now look absolutely ridiculous. And here is the parallel. The physician data sharing that sophisticated managed-care companies like Group Health and United and AvMed and others, what they are doing is building on the foundation for significantly better medicine in years to come. The information we give a physician when we say--your pediatrician---"Here is how you are prescribing. Would you like to know how other pediatricians in St. Louis are prescribing within your group, within the city? Would you like to see how they are prescribing in Denver for a particular diagnosis?" This program--a pediatrician is not a good example. Let us say an internist from Medicare. But the same thing applies.

This technology comes from this program and doctors are greatly educated by it, and they become better, more cost-effective practitioners. If the program dies out, this technology dies out with it, or at least is restricted to some segments of the commercial world. This is the promise of better medicine and more cost-effective medicine. And that is why it is incredibly important not to abandon this concept at its infancy. Fix the problems, and let us keep it going, and let us do what we can to keep plans from withdrawing from these critical cities, and time is short.

Chairwoman JOHNSON. Thank you, Karen.  Congresswoman Dunn, Jennifer?

Ms. DUNN. Thank you, Madam Chairman.

Ms. Scott, I want to get your take on a couple of topics. I think I will push a bit more on the reimbursement issue. As you know, health plans in Washington State are reimbursed on a lower rate than health care plans in other States. This is a big problem for us. The goal of the Balanced Budget Act of 1997 was to create greater parity in these reimbursements between health plans, and yet we continue to see great differences in payments. What changes do you think we need to make to the reimbursement formula to insure greater equity and payments between health plans?

Ms. SCOTT. Just building on my colleagues' remarks here, we do see these great disparities, county by county. A couple of reflections for the Committee. Number one, those are historical baseline data that is now five to six years old. They have not been updated. And that is where you see, you are building the Medicare program on a broken chassis, if you will, in terms of reimbursement.

Secondly, one of the things that Congress can obviously do is to get rid of budget neutrality when it comes to the blend. The blend was enacted with goodwill and good purpose to try to deal with those disparities, but as long as budget neutrality is in place, it is a zero sum game, and so that is obviously another way that we can deal with that.

So I think we need to update the data. We need to look at budget neutrality, and to take a look at the blend. I think congresses have been clear that you want the blend. It is really a question of how you implement it.

Chairwoman JOHNSON. Ms. Scott and Congresswoman Dunn, would you yield a minute? Now, on this blend issue, because I don't think that even most members of Congress--

Ms. SCOTT. I am sorry. I cannot hear you.

Chairwoman JOHNSON. On the blend issue, I don't think most members of Congress realize what actually happened, but the blend was supposed to blend your local rate with a national rate. The goal was to bring the people below the national rate up, and to bring the people who were way outliers above the rate, down. But because there were more people below than there were above, the budget neutrality provision meant that you didn't get the blend portion.

Ms. SCOTT. That is correct.

Chairwoman JOHNSON. So you really didn't get the reimbursement increase out there in the real world that we put in the law, because at the end of the chapter, we added budget neutrality.

Ms. SCOTT. And Ms. Dunn is right, that that has been for the State of Washington, sounds like for Chicago and for parts of in Florida, in certain counties, that is why we have this, if you will, arcane disparity, and there are steps that Congress can take to, again, as you say, take the very high counties down a bit and bring the other counties back up to some normalized amount.

Chairwoman JOHNSON. So even in those instances where we offered you 2 percent as a minimum, many didn't get the 2 percent?

Ms. SCOTT. That is correct.

Chairwoman JOHNSON. Yes.

Ms. DUNN. Let me ask you too, Ms. Scott, on a different topic. We have a situation in Washington State that has continued to grow out of hand. HCFA doesn't account for health services that are provided to Medicare beneficiaries who seek care in military facilities, and so the calculation of the reimbursements doesn't go into the reimbursements that we receive.

Two years ago Congress required HCFA to submit a report accounting for the health services furnished by the Department of Defense and by Veterans Affairs to Medicare beneficiaries in both the Medicare+Choice program and the fee-for-service program. We haven't seen that report yet, but I am wondering if you would care to comment on how this exclusion has affected your plan and any thoughts you might have to work out this problem?

Ms. SCOTT. Thank you. What happens, just for those members who don't know what happens, the population of the people in the armed services, and we have many defense bases in the State of Washington, are calculated as Medicare enrollees, but the cost of their care isn't calculated in our average area per capita amount. So you have a numerator and denominator problem, so you have a artificially-depressed reimbursement rate for the State of Washington. That is what Congresswoman Dunn is talking about.

Chairwoman JOHNSON. Excuse me. Is that on the assumption that they are being cared for by the military system?

Ms. SCOTT. And we would be fine if then they would be taken out of the numerator, but they are in the numerator and not in the denominator. That is the inequity. And it is significant. And it is particularly, county by county, in Kitsap County and in Thurston County and in Pierce County, it is very, very significant. Obviously, we have not been able to get the traction within HCFA that we would want, Ms. Dunn. And so I think the answer may be help from Congress in being more explicit about your expectations of that inequity being addressed.

Ms. DUNN. I do have one more question if the gentlelady would yield to me for one question. Thank you very much.

I wanted to go to Mr. Turvey before we are finished here. Mr. Turvey, you point out in your testimony, some of the innovative health benefits that UnitedHealthcare provides. Specifically, your testimony talks about care coordination, long-term assessment, and education programs for diabetes, asthma and cardiovascular disease. You go on to relay your company's effort to personalize services for your member through dedicated customer service representatives, round-the-clock access to nurses, legal experts and counselors. What kind of feedback are you getting on these services? Do they value them? And what sorts of quality indicators do you have regarding how these benefits have either improved the quality or reduced the cost of care?

Mr. TURVEY. It obviously depends upon the benefit you are talking about. The members love them. And they develop an astounding relationship between the personal service specialist and the member. You can measure them through surveys. You can measure them through short-term and long-term disenrollment rates, which for us, our short-term disenrollment rate is about 5-1/2 percent, which is extraordinarily low, and in the areas where we don't have the personal service specialists and plans, we didn't put them in first, we see it significantly higher. So this is a key thing.

Members need someone, a name, a person, not just someone on the other end of the phone, but someone to talk to that they can confide in and say, "Here is my problem." Maybe it is not purely health, but if it is health-related or it is depression-related or it is family-related. And through working through these issues, that is how the bond is there, that is why people stay. And you uncover health issues that you might not otherwise uncover.

Now, you couple that with all the other more clinical activities, such as post-discharge. The PSS or nurse-care coordinator will call someone's home and say, "Now, are you going to the follow-up visit with the doctor? Did you get a prescription filled? Do you have a way to get it filled? We have a van that will take you or get your prescription filled."

That sort of follow up to prevent readmissions and increased costs, we have example after example, but those are the kind of things that, while they are not cheap, members love them, and they do pay off. They pay off in the longer term too. You can't get a six-month payback on them.

Chairwoman JOHNSON. Thank you. Mr. Lewis.

Mr. LEWIS. Thank you very much, Madam Chair.

Mr. Turvey, your company, United Health, has a very visible and large presence in Atlanta and Fulton County, Georgia, my district. And I know that you are head of the Midwest, but do you have any idea what is the status of United Health and Medicare+Choice in Atlanta and Fulton County?

Mr. TURVEY. No, I don't. I know Teri Klein, our CEO there, and I would be happy to call her tomorrow and get an answer for you tomorrow on that, but I don't know offhand.

Mr. LEWIS. I tried to read your testimony, and what do you think is the biggest challenge facing the Medicare+Choice program in the nation?

Mr. TURVEY. I think--well, of course, there are several of them, but I think the biggest one is, in certain counties, huge payment differentials from one county to another. I will give you a brief example of it. In St. Louis we have two rural counties, in Illinois, right around metro St. Louis. One had a 33 percent lower reimbursement until this past year. It was Monroe County, the only county my health plan in St. Louis ever wanted to withdraw from and had to, and then the reimbursement through BIPA came back and bumped it up 29 percent, made it viable. Now, there was no rational reason for it ever being that much lower.

Mr. LEWIS. Would it be different say in St. Louis, and then in Jefferson County, in the city and--

Mr. TURVEY. Oh, yes, it would. Yes.

Mr. LEWIS. I was in St. Louis yesterday.

Mr. TURVEY. But there are huge differences. Just an example, I have got some rates comparing Cook County to others. Now, everybody likes to point to Dade County, so that is a little unfair. But Miami is 34 percent higher. New York City is 28 percent higher.

Mr. LEWIS. Miami is 34 percent, Dade County is 34 percent higher?

Mr. TURVEY. Then Cook County. But it is not just Dade County. New York, 28; Philadelphia, 26; Houston, 20; Detroit, 15; Boston, 14; LA, 11. That 11 percent or even substantially less, on an enrollment of 30 or 40,000 members, means millions and millions of dollars. It is the difference between a program being viable or being shut down, because you can only transfer so many millions of losses to the commercial segment in your town, and stay viable in those product lines as well. And by the way, up to now, that is exactly what we have done.

Mr. LEWIS. What should we be doing? What should the Congress be doing to bring some stability and uniformity I guess? Is that what we want, Madam Chair?

Chairwoman JOHNSON. Yes, stability.

Mr. LEWIS. Stability. What should we be doing? What is your recommendation?

Mr. TURVEY. I think, as she suggested a little earlier, do a good detailed review of the risk assessment methodology. It needs to be improved. And just look at these county-by-county differentials, and it is a real problem. It really is.

I remember when I ran a not-for-profit health plan for ten years in Michigan. There was no way we could ever have a viable program in Grand Rapids, but in Ann Arbor, because of the university's influence there, I had friends who were starting a Medicare program there. They couldn't spend the money. They couldn't come up with enough benefits to file an ACR that would have gotten through HCFA. I mean it was ludicrous.

Now, the gap has been closed, but it is still significant. Now, there are other areas that we have covered, but that is the biggest problem.

Mr. LEWIS. I want to sort of follow up on a question that my colleague and friend from the State of Washington asked, Ms. Dunn, about do you get involved in the whole question of preventive--do you sponsor, I guess, health care fairs and festivals, to help educate? You know, it is very confusing for, not just senior citizens, but when you have several medications. How do people keep up? Do you get involved with the company and outreach?

Mr. TURVEY. We do. We get involved with community outreach. One of the things we have done for people who are homebound, is to have a van service to take them to their physician's office if they have a doctor appointment, because we want them to go there and spend some money and be taken care of, rather than sit at home because they don't have transportation. We get involved in all sorts of clinics, as I think all of my peer plans do here, where you get into the community and you go out and do education, or you pull your medical directors out to do education, where people congregate, in churches--

Mr. LEWIS. Shopping malls.

Mr. TURVEY. In shopping malls, and you do hypertension screenings, for example--

Mr. LEWIS. Churches, synagogues.

Mr. TURVEY. Blacks are prone to hypertension, and in the inner city, we do hypertension screenings, in the malls, in churches, wherever you can get to people and educate them. Education is cheap but vitally important. All of those kind of things we do.

Dr. WEISS. All of the Medicare+Choice plans are required to an assessment on a new enrollee. And so when someone signs up with our plan, in that initial 30 to 60-day period, they do get an assessment, frequently right after they enroll, right after that, just before, or right after they come on the plan. Also most of us do have community-based programs. We have one where we are doing health fairs for our diabetics, and inviting all of our diabetics to come and get all of their screening done on site, having providers come to community locations to do their foot exams, their eye exams, to draw their bloods, to do all of the things to try to minimize the consequences of diabetes, rather than having them go to four or five providers to get this all done.

And that is the whole concept behind trying to do the preventive care and the disease management. You can't just sit back and wait for them to come to you to provide the service. You have to find innovative ways to be able to get these services delivered to them, where they are.

Ms. SCOTT. You know, in the most simple way, if you are prepaid $300 versus if you are prepaid $700, guess what you are going to do with $300 versus what you are going to do with $700. And the investments you have to make to be a good health care organization under the M+C program, and if you are only getting $300, you are not going to be able to do these wonderful things that my colleagues and I have been suggesting. That is where the gap, that is where the issue around the blend, I think, I would agree is probably the most significant questions that is before this Committee.

Chairwoman JOHNSON. Thank you. Mr. English.

Mr. ENGLISH. Thank you, Madam Chair.

Mr. Turvey, in your testimony, you gave a detailed, and for some of us, a familiar criticism of the system of reimbursement in Medicare+Choice. We have elaborated on that a little bit in the course of this discussion. Can I ask you directly, should the current Medicare+Choice contribution be based on the underlying, and for some of us, rather perverse, county spending pattern of the traditional Medicare fee-for-service program, or should we go back to the drawing board and try to find a different way of providing that contribution?

Mr. TURVEY. I guess my most professional answer is to say I would leave that to the actuaries, but I think probably some hybrid would be appropriate, because the example I gave with Ann Arbor, theirs was ridiculously high because you had a huge university center, University of Michigan there. Now, that was wrong. It was inappropriate, but other cities, for example, Grand Rapids, traditionally conservative medicine, much lower expenditure rates, but then it wasn't viable. So some mix between those two cities would have probably made it practical for both cities.

Mr. ENGLISH. Also, Mr. Turvey, in your testimony, you offer some complaints with regard to the new HCFA requirement with regard to standardized beneficiary materials, and in some cases you say "standardization has resulted in inaccurate descriptions and made it difficult for beneficiaries to gain specific information about individual Medicare+Choice benefit offerings." Can I ask you to elaborate on that a little bit?

Mr. TURVEY. When HCFA tries to become too standardized or a direct apples-to-apples comparison, it lacks flexibility to describe some program elements that may be unique such as personal service specialists, Care 24, UnitedHealthcare Passport, these sorts of things. And so it really does the potential member a disservice by not fully describing to them what a program might offer.

Mr. ENGLISH. Ms. Scott, you also, in your testimony, offered a similar criticism of the standardized beneficiary materials. Can you elaborate, do you agree with Mr. Turvey's comments, and do you have any further points to make on this?

Ms. SCOTT. No, I really don't. I think he pretty well described it. It is intent versus impact. The intent is the right intent. The impact is not what we want.

And coming back to how HCFA is organized, if we had one organizational unit within HCFA to problem-solve these issues, I don't think they would be coming to Congress. I think we would be able to deal with these on an administrative basis and not worry you around issues of this level of detail. And I would only offer that, sir, as well as an idea that a lot of this doesn't need to be coming to you, if we had an interface that was effective.

Mr. ENGLISH. Mr. Turvey, you also offer the criticism that the scope of data collected in the encounter data collection seems excessive given the more limited data required for risk adjustment. Would you care to elaborate on that, please?

Mr. TURVEY. Again, that is probably a better question for consulting actuaries, and I would be happy to even field a paper on that to you, but I think it is just administrative overkill and there is a cost to it. The encounter data collected now is well beyond what is required or the risk adjustment formula.

Mr. ENGLISH. Finally, for all three of you, many of us who represent areas on the margins, rural areas, areas with historically lower Medicare fee-for-service reimbursements, have worried about the stability of the Medicare+Choice program, and I know some of your comments have touched on this. But I guess my direct question to all three of you briefly, how far do you believe we should go? How far would you be willing to see us legislate to protect beneficiaries from the disruption of plan withdrawal? What specific safeguards and regulations and protections do you think are appropriate to write into the law to insure against this sort of disruption? Dr. Weiss?

Dr. WEISS. When you are addressing the withdrawal of the plans and the protection, obviously, the members still will be able to continue to see their physicians if Medicare+Choice plan withdraws. So I think some of the protections are already there. It is not the case that their doctor is leaving. It is just that the benefit plan that they may have gotten through one of the Medicare+Choice plans are no longer there. And I believe the physicians will continue to follow their patients, regardless of whether they are in a M+C program or whether they are on the fee-for-service program.

Mr. ENGLISH. Mr. Turvey?

Mr. TURVEY. The best example I could think was where the hospital system I referenced earlier dropped out from our M+C program in St. Louis, and while this was more of an urban setting, the situation was this: they said to us, "You can't enforce our participation through the end of the year, beyond June 30th of this year, through December 31st, and you can't show damages." And in fact, we couldn't show damages because our sharing, our risk-sharing formula was we covered 20 percent of the deficits in their hospital fund. And so actually we were better off saying, "Go away, that's fine." But we didn't want to do it because we didn't think it was the right thing to do and we had a commitment to those members. But We couldn't legally enforce the hospital system to perform.

I think if the Government, HCFA, could have some penalty for them, that would have changed their decision, and those members would have had that program intact in St. Louis through 12-31. They wouldn't be changing physicians right now.

Mr. ENGLISH. We had a rural hospital in my district in precisely the same situation. Ms. Scott.

Ms. SCOTT. I think the stability of the program and how we protect our beneficiaries from year to year, decisions that health plans may make, give us as health plans, some predictability about policy. We don't go in and out willy-nilly and out commitment therefore is that we want to be stable as well. It is very hard to read the tea leaves right now, and because it is hard to read the tea leaves, as businessmen and women, and also as health care vision--you know, people who have a mission vis-a-vis health care, when there is instability and you can't read the tea leaves, you tend to be more conservative.

So the one thing that you can help us with the most is give us a road map. We want to work with you. We are very much engaged in coming up with ideas to see if they work for you, so that there is that stability, because as you run your organization, and as you are mission driven, then with that, you can understand the tradeoffs that you are making, and you can stay in longer, because it has a longer horizon than what we currently have.

Mr. ENGLISH. Thank you, Madam Chair.

Chairwoman JOHNSON. I thank the panel. Your comments have been very helpful, both in terms of the capacity of coordinated care plans, to improve the quality of health care for our seniors and better insight into the regulatory problems and the reimbursement problems that you face, that frankly, do compromise your future. Thank you very much.

Let me call the next panel forward. I am sorry this has been so long, but I do appreciate the members' thoughtful question and the good answers of the panelists.

Madeleine Smith, from the Congressional Research Service; Bill Roper, Dean of the School of Public Health at University of North Carolina; Mike O'Grady, Senior Research Director for the Center of Health Affairs of Project Hope; Marilyn Moon, a Senior Fellow from the Urban Institute.

Welcome, and if we can just start right ahead, Madeleine, we will hear all four members and then go to questions.

Dr. Smith. You will have to speak right into the microphone and be sure to turn it on. Thank you. I am sorry. It is not on yet. And you do have to get very close.

STATEMENT OF MADELEINE SMITH, PH.D., SPECIALIST IN SOCIAL LEGISLATION, DOMESTIC SOCIAL POLICY DIVISION, CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS

Dr. SMITH. Thank you, Madam Chairwoman and members of the Subcommittee for inviting me to testify about payments under the Medicare+Choice program. My name is Madeleine Smith. I am a specialist with the Congressional Research Service.

There are two points that I would like to emphasize about the effects of payment reform under Medicare+Choice:

First, although the number of health maintenance organizations or HMOs in the program has declined, the proportion of Medicare beneficiaries enrolled in managed care has not changed much. In 1997, 14 percent were enrolled, today it is 15 percent. However, enrollment reached almost 17 percent of beneficiaries in 1998. Fewer beneficiaries have access to HMOs, but with the entry of a private fee-for-service plan, a type of Medicare+Choice plan, into the program, access for rural beneficiaries has risen.

Second, variation in payment rates has decreased. In 1997, the highest rate was three-and-one-half times the lowest rate. Today, the highest rate is one-and-three-quarters times the lowest rate. Nevertheless, benefits offered by Medicare+Choice plans still vary widely across the country.

There were at least two main reasons behind reform of the older AAPCC payment method under the Balanced Budget Act of 1997: lack of access to a Medicare HMO in many areas and wide variation in the payments and benefits offered by HMOs. The Medicare+Choice payment rate in a county was set at the highest of three amounts: a floor or minimum amount; a blend or average of local and national rates; and a minimum update.

The floor increased rates in low-payment counties more quickly than would occur through blending. The minimum update cushioned the effects of blending on high-payment counties. After payment reform, the Medicare+Choice program has experienced three waves of plan withdrawals and service area reductions effective at the onset of the Medicare+Choice program in 1999 and annually since then.  Interspersed between announced withdrawals have come two legislative responses.

Why did plans withdraw? Industry representatives believe that inadequate payments are a principal cause. HCFA, the Health Care Financing Administration, contends that withdrawals reflect strategic business decisions that transcend payment rate issues.

A recent report from Interstudy, which studies the HMO industry, indicates HMO failures and withdrawals in the general HMO market in 1999. The industry experienced its first annual decline in enrollment in nearly 30 years as the boom cycle experienced by HMOs in the mid-1990s came to a close.

In response to plan withdrawals, Congress acted twice to increase Medicare+Choice payments. The Balanced Budget Refinement Act of 1999, the BBRA, made a few modest changes to raise future plan payments. The Benefits Improvement and Protection Act of 2000, BIPA, made more substantial changes, most notably raising the floor and increasing the minimum update for one year.

After a little over two years, have problems identified with the old payment rate method been fixed? Lack of access was seen as a consequence of low payment rates. The payment floor raised rates in many counties. Today, more beneficiaries in rural areas have access to a Medicare+Choice plan through Sterling Life Insurance Company, which operates a new private fee-for-service plan. As illustrated in the map to my right, Sterling offers coverage in 25 States and over half of the counties in the country. More than half of beneficiaries living outside metropolitan areas reside in Sterling's service area.

Sterling offers private fee-for-service coverage in the areas colored dark blue and light blue on the map. Sterling competes for Medicare enrollees with HMOs and other coordinated care plans in the light-blue areas. The gold-colored counties are served only by HMOs. No Medicare+Choice plans are available in the white counties.

To summarize, despite large payment increases in some counties and the entry of a private fee-for-service plan, the number of Medicare+Choice plans has decreased significantly overall and fewer beneficiaries have the option of choosing an HMO. Although the proportion of beneficiaries enrolled is slightly higher than it was in 1997, it is lower than in 1998.

Variation in payments has declined from a difference in rates of 3.5 times to 1.75 times. As the payment gap has narrowed, benefits generally have declined. Fewer beneficiaries have access to a plan with a zero premium, especially one that includes drug coverage. Differences in benefits persist today. Some plans still offer full drug coverage for no additional premium, while others do not.

Thank you. This concludes my testimony.

[The prepared statement of Dr. Smith follows:]

Chairwoman JOHNSON. Dr. Roper, welcome.

STATEMENT OF THE HON. WILLIAM L. ROPER, M.D., DEAN, SCHOOL OF PUBLIC HEALTH, UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL (FORMER ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION)

Dr. ROPER. Good morning or good afternoon, excuse me. Madam Chair, it is an honor to appear before you and the Committee and to discuss this important program. I salute your efforts to illuminate this issue and to try to make progress on it.

I am Bill Roper, dean of the School of Public Health, the University of North Carolina, Chapel Hill. I was HCFA administrator in the mid-1980s. And in the mid-1990s, I was senior vice president of Prudential Health Care and had medical management responsibility for our plans nationwide, including those in what is now the Medicare+Choice program. So I come at this from having run the program and then dealt with Medicare+Choice and HCFA later as a health plan.

The items that I would like to talk with you about are in prepared written testimony that I put forward, but I would like to speak more informally to ask you all to consider why the program undertook this notion of a better way to deliver Medicare services to seniors. It begins with the notion that the Medicare program, as originally envisioned in the mid-1960s, is woefully out of date, and the private sector has generated innovative new systems for the delivery of health care that the Medicare program has not generally been able to take advantage of. These are organized health care delivery systems with incentives for quality in the services they deliver and efficient delivery of those services, incentives to foster innovation, et cetera.

When I was HCFA administrator in the mid-1980s, we were trying to launch this program, and I had the opportunity to write an op-ed piece for the Wall Street Journal, entitled, "Medicare's Private Option," and described the notion of allowing beneficiaries choice, not forcing them out of traditional Medicare, but allowing them choice of a variety of private options that took advantage of the innovations in the private health care market, and that began to happen in the late 1980s and early 1990s.

But through that time, again, when I was at HCFA, I was repeatedly asked the question by those representing private health plans, whom I was trying to interest in doing business in this area, I was asked, "Is the Government a reliable business partner? Can we count on HCFA, can we count on HHS to deal with us in a fair and evenhanded way over time so that we can make long-term business decisions in this area?"

And I said, in the mid-1980s, "I think so, but you will have to wait and see." I think any fair judgment of the last 10 years would tell you that the Government is not a reliable business partner for private-sector plans like the ones that you just had testify so eloquently a moment ago.

In my written testimony, I have some recommendations which I commend to you, but they, I can summarize, are:

HCFA should create a single office within it to provide the oversight, and regulation, and guidance for this program. Dispersement across HCFA of responsibility for this program has been a very unfortunate misstep along the way of overseeing the program.

Secondly, the regulatory oversight needs to be streamlined. It does not need to be so cumbersome and so frustratingly burdensome for the plans that are trying to do the right thing for Medicare's beneficiaries.

And, thirdly, HHS and HCFA need to improve their decision-making processes and standardize them and especially make them consistent between the regional offices and HCFA's central offices so that people around the country, when they ask a single question will get the same answer so that people, again, can have a dependable business partner with which they can do business.

I think if those things are done, there is the opportunity for this program to grow and flourish. But I would urge you, as I said at the outset, to consider why you started down this path some years ago. It is not simply to create more laws, and more regulations and so on, but to offer a much better way for Medicare beneficiaries, and I believe that it is still very possible.

Thank you.

[The prepared statement of Dr. Roper follows:]

Chairwoman JOHNSON. Thank you, Dr. Roper. Dr. O'Grady?

STATEMENT OF MICHAEL J. O'GRADY, PH.D., SENIOR RESEARCH DIRECTOR, PROJECT HOPE, BETHESDA, MARYLAND

Dr. O'GRADY. Madam Chairwoman and members of the Subcommittee. My name is Michael O'Grady. I am senior research director at Project HOPE. I appreciate the opportunity to comment today on the Medicare+Choice program.

As you heard today, certainly, there are still a series of problems that plague the Medicare+Choice program. The program still has too few incentives for plans to compete for beneficiaries, providing the best care at the most competitive prices. The program still overpays in some counties and underpays in others. The program still relies heavily on fee-for-service experience to determine payments for plans. In many of our most urban and our most rural counties, fee-for-service experience is not a very good indicator of what an appropriate plan should be.

There are a number of essential points to consider in thinking about how this might be improved, but they all have one central theme, which is getting the incentives right. Compelling incentives are necessary so that plans really do try to offer the best-quality care at the best price.

There is also a need for incentives for beneficiaries to become prudent consumers of their own health care, to shop around between these different plans, to have the information that they need and to see some difference in terms of premiums so they can judge which plan is best for them.

One of the real advantages, as the beneficiaries tend to shop around and tend to be more prudent consumers, is it tends to build up the incentive on the plans to be careful about what they offer and how much it costs. That has an additional advantage to the taxpayers in terms of slowing the growth rate of the program overall.

It is not particularly constructive to blame the plans for responding rationally to the incentives that they are presented with. Some counties they are offered very generous payments, others not very generous at all. They clearly have moved into those counties where the payments are high. They avoided the counties where the payments are low. If the incentives change, plan behavior should change as well.

Now how to improve the incentives to get the highest quality health care at the most competitive price. How to improve plan incentives? By improving the accuracy of the payment formula. Clearly, you have heard in other testimony today about how the payment formula is this sort of overpayment and underpayment.

Now there are two basic approaches that have been discussed in the debate so far. One is the one that we are currently using. Go with fee-for-service, but also adjust it. The floors that we saw first in the BBA and now the two double floors that we have seen coming from BIPA, the idea of you have got this distribution of very low-cost, low-payment counties, very high-payment counties. You truncate that distribution, basically, bringing it up using floors. There is not the same in terms of a ceiling, in terms of truncating the high, but they were limited to a 2-percent growth rate in BBA.

So the one method of doing it is staying with fee-for-service and, in effect, scrunching in the two ends from the high and the low end.

The other proposal that is out there is part of many of the premium support proposals that you have seen out there, which tends to be more likely to use a weighted average approach, where you basically look at the plan premiums, plan cost that operate in whether it is a county or a market, but all, both public and private plans, so you get this average of what is going on. If you have very high-cost endings, where the private plans are able to offer much more inexpensively than fee-for-service, that will have a tendency to bring that payment rate down. If you are in very low cost, where fee-for-service is the lowest, by averaging in all of the plans, you will tend to bring that up again.

Now, right now what we've had, at least pre-BIPA, was we had a situation where plans competed for extra benefits and lower cost-sharing, as you heard from the first panel. BIPA took a first step to allow plans to start to offer actually premium differences. We hear of zero premium plans in Medicare+Choice.

It's a little bit misleading, because they are still paying their full $600 Part B premium. BIPA would allow plans to begin to rebate part of that $600, so that in terms of this idea of a prudent consumer on the beneficiaries part, they can start to shop around. There can be plan competition, not only for additional benefits but also for actually lower premiums.

Now, how to improve the incentives for the government to be more effective, to be a more prudent consumer. A number of the various reform proposals, not only the premium support, the Breaux-Frists and the Breaux-Thomases, but also President Clinton's competitive defined contribution, suggested moving significantly towards a system of more negotiation and bidding rather than the current, somewhat passive, where plans kind of complete an ACR, they send it in, those ACRs are audited after the fact. But there is not much real give-and-take at that point about what benefits are being offered and what premiums are being charged.

BIPA again took a small step in this direction, and there is a provision that brings in the Office of the Actuaries. So that at a minimum you will have the HCFA actuary sitting down with the actuaries from the plans and going over what assumptions did they use, what data did they use, and kind of what went into these benefit offerings and these calculations of premiums.

I have run out of time. Thank you very much.

[The prepared statement of Dr. O'Grady follows:]

Chairwoman JOHNSON. Thank you very much, Dr. O'Grady. Dr. Moon, welcome.

STATEMENT OF MARILYN MOON, PH.D., SENIOR FELLOW, URBAN INSTITUTE

Dr. MOON. Thank you. I also appreciate the opportunity to testify today about this important issue.

I want to take a different perspective and look at Medicare+Choice from the standpoint of beneficiaries. This comes from my experience of having written a column for a number of years for the Washington Post and answering questions about confusion that people have, and from talking to a number of groups that do counseling for seniors and disabled persons in the Medicare program, in particular from the Medicare Rights Center in New York, which runs a national hotline on HMOs.

Using private plans as an optional alternative to traditional Medicare fee-for-service does hold considerable promise for offering services to beneficiaries. Today I think you heard from three very good plans and the ideals from Bill Roper and Michael O'Grady about how to make those plans work better.

My basic concern is that, in practice, we have not seen those kinds of ideal situations in many instances. We have seen a much less than ideal reality. Both good quality plans and beneficiaries can be put at risk when that is the situation.

The organizations that contract with Medicare to provide counseling and information, or who run specific hotlines for beneficiaries, often find a disturbing pattern of denials of care in the Medicare+Choice program for some of the operators. Plans are supposed to cover all Medicare covered services, but hotline clients have included people denied, for example, cancer treatment that has been specifically approved in a national Medicare coverage determination.

Another example shared by the counselors was a patient effectively denied care because for a brain tumor.  He did all of the kinds of research that you would want to do to make sure you know who should give you that care, but was denied being able to go out of network to one of the specialists in that particular kind of brain cancer because they had someone in the network who had performed that operation twice. I think a lot of us would not consider that good quality care.

Another example is of an individual who needed chemo-therapy, whose wife was paraplegic, and the chemotherapy center was too far away for that person to get to. He offered to stay with his son and get care out of network. The plan denied him. He had to disenroll. In that case, he only had to wait a month to get chemotherapy. Eventually, when there's a lock-in, he would have to wait longer than that potentially.

These are examples of ways in which it is important, as we think about changes in the Medicare+Choice program, to remember that some of the issues, such as control over plans, such as oversight and quality monitoring, are extremely important. Unfortunately, not all the plans are as forward thinking as the people that we heard from here today.

If beneficiaries are going to be asked to take greater responsibility for their care, it is important to have in place the appropriate protections and controls for those who are cognitively impaired, frail, non-English speaking, or face other barriers to getting their care. This is likely to be half or more of the Medicare population.

The main attractiveness of plans to beneficiaries, at least initially, is that plans have been able to offer extra services. They have been able to do so, in part, because they can save costs on Medicare covered services, but also in part because they have received cross-subsidies in the form of higher Federal payments. It is the desire of plans to continue to get those subsidies and of beneficiaries to continue to have extra benefits, but this raises a number of equity questions.

In thinking about how to improve Medicare+Choice, I have a few suggestions to offer. First, I will address the two areas that were raised and talked about most today, that is, payments to plans and regulatory changes, and then I will discuss two other issues that beneficiaries need to have raised on their behalf.

The payments to plans, as Mike O'Grady very carefully spelled out here, can be done in different ways. But I think we also heard in the testimony today that there are two strains of thought. Plans say "give us more money to do good things," but the other argument is, "let's have competitive bidding to save costs to the Medicare program." We haven't found a good way to bring those two conflicting goals together.

Certainly beneficiaries in Medicare+Choice would be happy to have you overpay because that would mean they would continue to get higher benefits in the Medicare+Choice plans, but that would be unfair to those who are in traditional Medicare and not able to get those benefits.

I believe, therefore, a first step is to provide a prescription drug benefit that could help to equalize the benefits that people get in all settings, and aid in some of the payment issues.

Secondly, complexity in regulations is certainly a problem.  Everyone has a horror story, and they're all right, I'm sure. But they exist everywhere, not just in HCFA but in the plans themselves. A careful overview of regulations with both plans and beneficiaries' perspective in mind is appropriate.

Finally, we need to spend additional resources on helping beneficiaries understand these programs, understand their advantages and disadvantages, and work on increasing the stability of plan offerings. I don't think the answer is to pay plans more to bribe them to stay in areas. We need to work on finding ways to make the plans more appropriately recognize beneficiaries' the need for stability.

Thank you.

[The prepared statement of Dr. Moon follows:]

Chairwoman JOHNSON. I thank the panelists very much.

I'm going to raise a slightly different issue, and it may not be one on which you would care to comment, but it is central to our discussion of more appropriate payment rates for managed-care plans. It goes to this issue of the disparity between geographic areas.

In a preceding hearing, we had quite an interesting discussion about this, and the opinion of most of the experts there was that the disparities are not driven as much by difference in price for service as in patterns of utilization. One expert pointed out that he thought it was, indeed, unfair for the government to force a change in patterns of utilization on an area, that that should be a matter of medical practice and so on and so forth.

Now, there are some really scary issues about having your reimbursement rate determine what you're going to utilize when in that region the utilization pattern is very much higher. It is particularly disturbing when you look at the fact that the highest rates are where the densest medical capability lies. So, in Boston, where you have a lot of technology, in Miami, where you have a lot of technology, in the centers where you have incredible capability, you also are attracting patients from outside the district. You need that capability. So you don't necessarily want to bring the low areas up to that level. They would be terribly overpaid. And if you force the high areas down to some kind of--which is what the blend is doing, it's an arbitrary policy. But this is one of the problems with it. It arbitrarily brings the top down without looking at the services bought.

I think from the beneficiaries' point of view, this is extremely concerning. The arbitrariness, the mechanicalness, of our efforts to change payment policy to somehow meet our political understanding, and the simplistic understanding of what ought to be an equitable payment rate is very flawed from the point of view of health practice.

I would like you to comment on that in the context of how do we honestly get to some payment structure, some formula, that will enable us to reimburse plans for the genuine costs that they experience in providing care to seniors. Dr. Roper, I will let you go first, since you were the former Administrator of HCFA.

Dr. ROPER. Thank you, ma'am.

You raise the central question in all of this. As the testimony has played out, you can see the vagaries of an administered price system and the challenges that flow from trying to come up with the perfect calculation, when really what the program should be trying to do is say: what does it cost for the efficient delivery of quality health care to the average Medicare beneficiary in a particular local area, when practicing according to national norms of practice style and so on.

That cannot be arrived at, I would assert, by some fancy administrative system with lots of computers. That has to be determined by local doctors in their local area, asking them through a bidding process what the price ought to be for that efficient provision of care in their local area.

Now, you can't do that overnight, but you ought, though, begin heading the program in that direction because, otherwise, the already arcane system is only going to get more encumbered and encrusted with all of the fixes that you are, with good intentions, trying to put in place.

But to answer the other part of your question that you began with, is it appropriate for a national program like Medicare to dictate to doctors how they should practice in a local area, should you force them to follow Jack Winberg's good evidence that practice across the country is quite different and it does not result in better outcomes for greater intensity of care.

I don't think we ought to dictate to doctors how they should practice medicine, but I don't think the Medicare program ought to be foolish, either, and simply to overpay based on historical practices that bear not connection to reality is not a wise thing for the Medicare program to do. Therefore, again, what seems best to me is encouraging us to move towards a system that rewards efficient delivery of care in each local market, and you can only determine that by a bid process.

Chairwoman JOHNSON. Thank you.  Would anyone else wish to comment?

Dr. O'GRADY. Yes, I would like to make one slight comment in terms of having looked at the various reform proposals over the last few years.

There is one part of it that was fairly interesting in President Clinton's proposal, actually, having to do with how they would adjust geographically and how they would take this into account. Given the politics of it, it was a little interesting also because the Clinton approach was more market based than the Breaux-Thomas and some of the others, where they really did take a look at this notion of what were both the public and the private plans doing in a particular area.

In a discussion with the people who worked on that proposal, what they said is--They were driven by certain things, the same kind of concerns you're talking about, where if you look at something like poor Dade County, who keeps getting beaten up in most of these discussions, they are saying that in discussions with various providers in Dade County, it's a situation where many people do not have their extended family. Their children do not live there, they have retired, they have come down. So whether you're working in fee-for-service or for one of the plans, you are somewhat more likely, if you're a physician, to keep that person in the hospital perhaps an extra day, day and a half, than you would if you were in Minneapolis or some other city, where you knew that their son or daughter was going to come and pick them up and take care of them.

So there may be some actual reasons why these sort of bump ups that we see have very reasonable ways to go on. I wouldn't say the full amount in Dade County, but something there. By taking that into account, you would see that sort of extra day in the hospital in both the behavior of the public and the private plans.

Again, there is that attempt to try and capture what you think is really going on in this area, what is the practice pattern, and how do different plans deal with it.

Chairwoman JOHNSON. Dr. Moon.

Dr. MOON. I would like to add just two things, because I think my colleagues have talked very well about some of the challenges of moving in this direction. I agree that you have to do it slowly.

I believe there should also be attention given to a large market comparability. The disparity of plan payments in counties that are next to each other is where a lot of people get upset, because they see those disparities across plans operating in a metropolitan area.  Benefits and even coverage are excluded for some because of payment levels. A blending of those rates as well could be useful.

Secondly, I would add that the idea of moving to a benefit package that's more standardized over time makes enormous sense, but only if we invest in the kinds of information that are necessary to lead to good norms and standards of care. I think we're woefully ignorant of that in many cases. I certainly don't think the national average of spending is the right amount. The question is how on earth do we standardize without good information?

I believe the Federal Government has a role in understanding and pursuing, for example, best practices information and disseminating that to people.

Chairwoman JOHNSON. Thank you.  Congresswoman Thurman.

Mrs. THURMAN. Thank you, Madam Chairman.

Dr. Roper, let me first ask you this question, to reiterate I think something you have already said. You recommended that all Medicare+Choice oversight responsibilities should be consolidated into a single office and--

Dr. ROPER. Yes, ma'am.

Mrs. THURMAN. Similarly, I guess, to what had happened when you were there?

Dr. ROPER. I created such an office, yes, ma'am, in 1986.

Mrs. THURMAN. Who do you think they should report to?

Dr. ROPER. I recognize where your question is headed. My bias is to have that office report to the HCFA Administrator. That's what you have that person there for. I believe that the Secretary and HCFA Administrator are charged with running the Medicare program and they ought to be doing it in a way that is appropriate. If they're not, you get rid of them and get somebody else. But I think separating it out creates another series of problems that may not be for the best.

Mrs. THURMAN. Let me ask all of you this question. Dr. Moon, I think you made an excellent statement just a few minutes ago, because I happen to be in one of those areas in Florida where we have such situations, because I have kind of centered around large urban areas and, quite frankly, in many of those areas their reimbursement is less than what is in the counties next to them. So if you go to St. Pete and Tampa and those areas, I get about right about $450 a patient, and you go to the county next to them, Pasco or Hernando, and they're getting about 500-and-something dollars, about $530 per patient. Yet they get less benefits and they have problems out there.

I was just talking to the Chairwoman and kind of similarly to what I said to the folks before you. Medicare is based on risk, that the 39 million keeps the cost down, has the ability to do that.

Why is it--I know kind of why, because we have set up these territories. But if I live in the State of Florida, quite frankly, I think you deliver health care services in Dade County at a cheaper cost than you do in Hernando County. I just think that's a fact. But yet their reimbursement is higher.

Why could you not do an integrated system throughout the entire State, so that if you had $800 in Dade County but $500 in Pasco, but the same insurance company or the same plan is, in fact, covering them, why couldn't they collapse all of their patients together, give the money that they get, and then be able to provide the services with the same benefit plan than all of this "well, I live in Dade--" You know, Dr. Moon, I've got to tell you, I have a lot of people that move from Miami into my district, and let me tell you how mad they are when they get to the district. You know, "I don't have this plan, this is the same company, I stay signed up with them, I now pay a premium, I don't get a prescription drug"--they don't like it. Tell me what you think.

Dr. ROPER. Were you directing it to anybody in particular?

Mrs. THURMAN. I would like all four of you to answer that. You can start.

Dr. ROPER. That is a very appealing and elegant solution. The problem is, though, to accomplish that means bringing down the amounts that you're paying into Dade County, just to pick on them as an example. To do that requires telling doctors--I'm a doctor--telling doctors that you're going to pay them less than they have been used to getting from time immemorial, and changing the way they practice so that they practice in a more efficient, I would say, modern, up-to-date, data-driven fashion. To do that runs counter to the perceived wisdom the American public has bought into over the last five or six years; that is, how dare anybody try to tell a doctor how to practice medicine.

Mrs. THURMAN. I'm suggesting that you take this kind of blend, so if you keep the $800 in Dade, you keep the $500 in Pasco--because those are kind of your numbers--and you add those all together and have this risk pool because they don't spend all of the money every month for every patient, and you kind of set it up like you do with Medicare. Dr. Smith?

Dr. SMITH. I have two comments about this.

As I know you are aware, under the current law, a governor can, with the consent of the governed, make a single payment area out of the State. In order to do that, the governor would have to convince representatives of Dade County to take a lower payment rate than they do under the current situation.

I think one fact of the Medicare+Choice program that makes it impractical to do this is the competitive nature between plans. If plans can choose the areas in which they want to provide services, they can enter Dade County and not enter your countries. A plan that goes forward and says I will cover the whole State, and I will use some of the payment that I receive in Dade County to subsidize services that I deliver in lower payment counties, will be at a competitive disadvantage to a plan that does not take that position.

Mrs. THURMAN. Unless you said that everybody had to do it.

Dr. SMITH. Unless everybody were forced, unless the playing field were leveled to force everybody to take that position, yes.

Dr. O'GRADY. I would agree with my colleagues here. I would say there is even a greater danger than what Dr. Roper laid out. You would also be alienating the beneficiaries, because you would be telling the beneficiaries in Dade County they were going to see their benefits come down to raise the benefits in the other counties.

Mrs. THURMAN. Not my district.

Dr. O'GRADY. Now you would have this sort of new, standardized benefit package.

Now, the private fee-for-service plan that Madeleine talked about, that, in effect, says for the State we're going to offer this fee-for-service benefit package, so it is--I mean, you're seeing that sort of a dynamic. They will take the payment rates from all the different counties. They certainly have to keep their fingers crossed, that they'll get enough people enrolling from the higher payment counties to balance off the people in the lower payment counties to make the numbers work right.

As far as I know, unless you know differently, they have one benefit package that they're offering across 22, 25 States.

Dr. SMITH. Right. It's a nationwide benefit package with a nationwide premium, so they have pooled half the States.

Chairwoman JOHNSON. This is a very interesting case. One of the things that I have stumbled across in talking to plans is that one of the things they don't like is that they are mandated to treat everybody actually the same. So unless the State of Florida developed a special deal with HCFA, they could not allow a plan to serve all of Florida and pay providers slightly less where, in fact, the costs were less, and pay providers slightly more. I believe they are obliged by law to pay everybody the same, aren't they?  Can they vary payments within their payment area?

Dr. O'GRADY. They negotiate rates, certainly, with different hospitals and different groups of providers.

Chairwoman JOHNSON. Right.

Dr. O'GRADY. I didn't think it was uniform.

Chairwoman JOHNSON. That way, they could actually, if there was a negotiating process, they could actually sustain the rates in Miami if they were appropriate, because some of those rates will be appropriate because Miami has big teaching and research centers that simply are more costly than other facilities.

That is one of the reasons we have to look at how could we blend the concept of negotiation into merging over these different designated payment areas, because they are so arbitrary and are based on data that is so old. We have to find some way to bridge that. I don't think you can merge. I think you have to go over.

Dr. MOON. What you want to do also is start with very defined catchment areas, where people in that area are getting their care. That avoids some of the problems, that people are actually getting very different kinds of care. So it may mean that you do less blending than you would otherwise, and instead of incorporating ten counties, you incorporate only three that are more similar.

If you did that, I think you also have to worry about some requirements on plans participation in those areas, if you give them a blended rate. You might be able to do an experiment in which you essentially say we'll give you a blended rate but you have to agree to participate in all three counties, for example.

Mrs. THURMAN. Madam Chairman, the reason I bring that up is because--you know, whether you take Florida or take it by region or wherever, the fact of the matter is--This is the whole problem I see with the Medicare+Choice program today. It's because of the fact that it is still the taxpayers' dollars, who are, in fact, paying for these Medicare+Choice programs, and they are different, which is what bothers me when we start talking about privatizing any of this. I have no control. I have less control now, today, with the people that I'm representing--and that's why I said, in my county, that doesn't work. It may sound good, but I don't have an answer for them when we talk about reimbursement. So I think we have a legitimate issue here.

Dr. Roper, while I don't disagree, to cut this out in its infancy, I also think that we have learned to walk now. Let's make it so that it's something that has parity for all Medicare+Choice patients and not just a few that happen to live in those areas where it's great, because I'm paying the same tax that they paid and I'm going to get a different benefit than they do.

Dr. ROPER. Quickly, two responses.

Yes, the issues of payment variation are mind-numbingly complex. But you run the whole Medicare program and you face those same issues with Part A payments to hospitals under the reflective payment system, and Part B payments to doctors under the RBRVS system, and direct medical education payments to hospitals under that part of the program. So these disparate things that have arisen because of the way people did something back in the 1960s, that no longer make sense today, are not unique to this particular program, is my first point.

Second point. The alternative, Congresswoman, is greater and greater attempts by you, as very well-meaning, elected Representatives, and the good people over in the Humphrey Building, to micromanage the Medicare program instead of saying we will entrust--And that's what you're doing. You said you couldn't control them, and you're right. But entrust the program to people in the private sector that you then audit and look over their shoulders, and if they don't do the right thing, kick them out of the program.

I think the alternative to that is ever more intense micromanagement of the fee-for-service program.

Mrs. THURMAN. But don't you think if we sent it out there and didn't get the results, that we wouldn't jump right back in and start micromanaging?

Dr. ROPER. You know, I accept your point.

Chairwoman JOHNSON. Mr. Lewis.

Mr. LEWIS. Thank you very much, Madam Chair.

Dr. Moon, in your written testimony you describe a situation regarding Spanish-speaking seniors. Can you share that situation with the Committee, and do you have any ideas on how we can correct these abuses?

Dr. MOON. The particular problem was that a group of Spanish-speaking Medicare beneficiaries were offered a trip to Atlantic City, with the purpose that on the way down they would get some information about joining an HMO. They were asked to sign what they thought was a sheet saying they were going to be sent additional information.

The presentation was in English. They signed an English document and it turns out they all had enrolled in that HMO. Most of them did not know that and continued to go to their old doctors, but got denied payment for the care. The people the counselors found out about, were retroactively disenrolled, but they don't know what happened to everyone.

This is an issues where some of the enrollment practices need better oversight. It is entirely possible that we could have better places where people got information and could enroll, for example in Social Security offices or over the phone to a government official rather than through the plan.

That might also help with the problem when there were a lot of withdrawals last November. Many of the plans fell way behind in getting the information out, so people didn't know if their enrollment "took." They enrolled in several plans when they hadn't gotten a card for three months, for example.

A number of problems need to be addressed to help beneficiaries wend their way through this system. I don't think by any means that we have all the actors in line who have just the beneficiary issues at heart, and I think, in fact, to protect the "good guy" managed care plans, you need to have some of these kinds of controls.

Mr. LEWIS. Earlier, Dr. Moon, in your testimony you stated that we need to spend additional resources, additional money, to explain and to educate people what is in a plan.

If you had all of the unlimited resources, and you had to come up with a plan, what type of blueprint or road map would you provide for the Congress to accomplish--

Dr. MOON. I think this is a tough problem, because a lot of these plans are complicated, and when people are making comparisons, it is difficult to know whether one plan is offering you, for example, a nurse that's going to answer all your questions which is a service you're going to love, as we heard earlier, or someone who is going to tell you that you cannot go to the doctor or you cannot get a particular service provided, which is another role that you can have a telephone person play. It is very difficult to sort out.

We need to fund some independent analyses of private plans.  The Federal Government should help establish some entities that will go out and do consumer reports, and get them started and get them going. The work itself can't be from the government. They can't say that "x" plan is good and "y" plan is bad. Boards of actual consumers, who look and rate these plans could help.

I think a lot of the support for beneficiaries needs to be done on a one-on-one basis in person, rather than through some of the written materials. The idea of health fairs providing roundtable discussions by independent counselors is not a bad idea. You can train the trainers; that is, you can have some of the people that do counseling now go out and train other folks to then deal directly with people.

I know the Medicare Rights Center, for example, has some private money to train people in libraries to provide information, but also train them to understand and be able to deal with the questions. They also go out and train people in senior centers. These are all different ways in which you can get information out to the public.

But most of the activities of that particular organization go on because they get private grants and cobble together money, not because the Federal Government is helping to provide this information.

Mr. LEWIS. I thank you very much, Dr. Moon.

Dr. Roper, given that you support maintaining private options as an option for senior citizens, will you be concerned if a competitive model indirectly forces people into private plans? Would that be a concern of yours?

Dr. ROPER. Pardon me, sir. I didn't understand. Would I be concerned if who forced who?

Mr. LEWIS. If some competitor entity or agency forced people into a private plan.

Dr. ROPER. I would surely be opposed to that. People ought to be making free choices based on what is best for them and their health care needs. And they ought to have the residual option of staying in traditional Medicare.

Mr. LEWIS. Thank you.

Chairwoman JOHNSON. As we conclude, I would just like to have Dr. Roper and Dr. O'Grady discuss this issue of how one should govern Medicare+Choice plans. I think that Dr. O'Grady is on record thinking that the governance should be outside HCFA. This is not an easy issue. If you each would enlarge a little bit on your opinions, I think it would be helpful to the Committee.

Dr. O'GRADY. It is a very tough question, to know exactly how to do this. There's a number of different things. And whether it can be done within the current corporate culture of HCFA, yes, I tend to see that as a very tough row to hoe.

We know that those sorts of decisions, some of the changes, some of the negotiations that Dr. Roper talked about, are currently done under the Federal Employee Health Benefits Plan (FEHBP). You know, a GS-15 at OPM, are they somehow a very different person than a GS-15 at HCFA? Well, they operate in two different agencies with two different corporate cultures. There is no real reason that a GS-15 in Baltimore couldn't do it, but they don't.

HCFA is an organization that, when I've gone and talked to them, there is a lot of ability to be home grown. Many of the people have not had extensive outside experience. They have been with HCFA for the vast majority of their career. So what it would take to get HCFA to the point that they could sort of break out of their current way of looking at things, I guess I am concerned that it would take more than a reorganization, that it would take an infusion of people who had some private sector experience, not just government experience, who had worked for either large HMOs or large insurance companies, or from outside.

HCFA has done some very good work at bringing in people from outside, in terms of medical innovation, and some of their work on consumer information, they have done very good. But to think about their relationship with plans, so they could have more than just HMOs, which they have traditionally had for a long time, but we really haven't seen any PPOs, and we've seen only one fee-for-service, that idea of really having this wide variety, this wide choice for beneficiaries, and to move out of a formula-based approach into a more open negotiation, maybe it could be done. It just looks like a very tough haul to do within the current environment.

Now, one could argue from the other side. If you suddenly opened up tomorrow the new Medicare competitive agency or board or whatever, who would be the most likely people to sign up? Well, there's a fair number of people in Baltimore who might be interested in those jobs. So, to a certain degree, do you try and reform HCFA, do you try and start over again? You know, either way there's pluses and minuses to both.

Dr. ROPER. Michael has done a nice job of "on the one hand and on the other hand." I tend to believe that, of course, as he was saying, the new organization, wherever it's located, needs to be populated by people who know about how the private sector works. They need to be led by political appointees who know how the private sector works and can take advantage of all of those things.

My answer to Miss Thurman a moment ago was, having done all of that, and facing the option of having that person report to somebody other than the HCFA Administrator or reporting to the HCFA Administrator, I would opt to the latter.

If I can take one further moment, though, there is another alternative that has been raised, of moving all of this even outside of the Department of Health and Human Services and have it report to a free-standing board, supposedly to take politics out of the process. My urgent caution to you is that that would not take any politics out of it. It would just change the politics of the process. The notion that the Social Security Administration (SSA) is now depoliticized I think is evidence of that.

Chairwoman JOHNSON. Well, I hear the arguments that you're both making. I would have to say that I'm terribly discouraged with some of the experience that I've had with HCFA over the recent years and consider some of the people that were brought in last year to be very talented and capable people. I worked closely with Dr. Berenson on just trying to get the letters to the nursing homes simple and real. That man was smart and he was determined.

We could not get a letter written that said this patient does not qualify for Medicare. You look today and it's just reference to paragraph this, paragraph that, section so and so, section so and so. This is to my small nursing homes. We talked to him about this and he understood it. He tried and he worked hard, and he's able. To my rural nursing homes, who can only hire the kid who graduated from high school accounting, this won't do. This won't do.

The government in Washington does not get that. I don't care how many appointees you put in at the top, if you're not out there and you don't try to train this kid to do what she can do in terms of accounting, it doesn't work. She puts that letter aside. She knows it's a denial. But she's worried. She told me this herself. "Then I look at it next week. I know it's a denial. I know it's time to move. But I think to myself, I'll call just to be sure." Another week passes.

Remember, the way we're doing nursing home reimbursements at this moment, which is absolutely insane, is that we will not reimburse you for care you delivered in February if your January bills aren't completely signed off and paid.

Now, why the government thinks that that's possible, when they make it so hard to pay bills, I don't know. But that's the system. So if this kid loses courage, January's bills aren't complete, and the February bills can't be paid. Then it compounds and compounds.

That is the kind of bureaucratic problem--I could give you 20 examples of this. I have oncologists out in the sticks who haven't been paid for three months. This represents millions of dollars of oncology drugs. You know how expensive they are, at $10,000 a shot. It's because we have a small problem in Washington that we haven't been able to figure out.

It has nothing to do with oncology. It has nothing to do with reimbursement rates. It only has to do with this bureaucracy talking to that bureaucracy, talking to the bureaucracy out in Connecticut--and I won't use the language that immediately comes to mind. People trying to deliver care to senior citizens in America, who are eligible for that care, can't get it, or won't be able to get it, if we can't solve these problems.

So I appreciate, Dr. Roper, in the best of all possible worlds, I do think it should all be within HCFA. But whether that is possible in today's world, at this time, I really think there is not the evidence to think that it is. So you want coordination in HHS. After all, it's all within one agency. You want accountability, and you definitely want oversight. But you don't want the kind of oversight of the HCFA Audit Division.

You know, I had them in my office a couple of weeks ago, and they said to me--and I appreciate this, and I'm very, very grateful--they said they had decided that a consent decree is not a good mechanism. Well, if you are a sole practitioner out in the woods of Connecticut, and someone comes in and looks at some of your cases and then, instead of sitting down with you and talking with you about why they think you under-coded or over-coded, instead they send you a consent decree, and at the bottom of the paper it says "you ought to get a lawyer", you know, we have lost our cotton-picking minds here in Washington. We forget that we're dealing with very small providers. If we forget that, those seniors will not have access.

So I have spent literally the last three months, and most of last year, on this level of provider problem. That is why I had a hearing on the administrative burden. I am dead serious. I don't care what else we do on the macro issues, we're going to clean up this shop.

And it's not that we don't have good people in HCFA. We do have good people in HCFA. They have been very cooperative and very helpful. They have said to me over and over again, "we're so glad you called. We need to talk to real people out there." So it's not their fault.

The system, if you're setting 10,000 rates and adopting it in 3,000 counties, and we keep adding new technologies, new diagnostic techniques, and now prescription drugs, you can't do it. You can't do it in a way that allows you the time to call the provider. So this is a big issue.

Mrs. THURMAN. Madam Chairman, I concur with your passion. I think you can tell us up here because we are the ones that face those questions and answers all the time, and probably because we sit on this Committee which means we get a lot more of those kinds of requests than others might.

I, quite frankly, think that Dr. Roper was kind of agreeing with what you are saying in a different way, that if you can consolidate them, one person is responsible instead of this bureaucracy or that bureaucracy or another, that one person would have oversight over one particular program--I don't want to put words in your mouth--

Dr. ROPER. Thank you, ma'am, for the opportunity.

If you begin with the assumption that leaving it in HCFA means you continue the morass that has been there, of course, that's a stupid decision. It may well be, Madam Chair, that there is no way to right the wrong without moving it out. If that's the case, then I would be the first to say move it out of HCFA.

Chairwoman JOHNSON. My concern is the level of reality that is a practical reality, in the regulations and in every area, that latent understanding of how people have to do this in the real world, in many areas, has been lacking. One of the reasons is, if you read the detailed testimony of the groups that testified here before us--and they were model plans--they can't stay in if we don't start doing some things.

How did we get there? We got there because, actually, the government's experience in the private sector is so limited that it's very hard to make practical regulatory decisions and provide good oversight.

Just the whole thing that one of them talked about, which he didn't go into detail here, but you read back in the testimony what JCAHO does and we approve of, and then we put a whole different system in place and we don't talk about how they can meld, and we get you caught in between the two quality improvement programs, and the second one we did, we spent time doing, why don't we spend time thinking about JCAHO that's out there and that quality process?

I don't want to damn the people in HCFA. I think they have been absolutely overwhelmed. They don't have state-of-the-art technology. We haven't supported them in the way we needed to, and we have given them so many new responsibilities. Nobody in America really understands what to do to manage the health care sector right now, none of the actors and none of the government agencies.

But, given that, and recognizing that, we can ill-afford to move ahead with such an insensitivity to the practical reality of delivering care to seniors, because if we continue to be so insensitive, there won't be care delivered and we wouldn't be arguing about Medicare+Choice because there will only be fee-for-service and it will be just like Medicaid. It will be so lousy that it will really provide very limited access.

That's my fear. If we don't shape up, we will have a plan just like Medicaid. I can tell you, no woman in New Britain, CN has access to an obstetrician outside of the community health center and the hospital clinic under Medicaid, because reimbursements have dropped so far below cost. So I am concerned about how we do that and we will think this through together.

Thank you very much for your testimony.

[Whereupon, at 5:00 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

Suffolk County, New York, Robert J. Gaffney, statement

Wallace, Samuel B., Washington, DC, statement and attachment