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HEARING ON MEDPAC MARCH 2011 REPORT TO CONGRESS

The subcommittee met, pursuant to call, at 1:07 p.m., in Room 1100, Longworth House Office Building, Hon. Wally Herger [chairman of the subcommittee] presiding.

[The advisory of the hearing follows:]

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Chairman Herger.  The subcommittee will come to order.  I want to welcome everyone to the first hearing in the Subcommittee on Health for the 112th Congress.  Today we will be hearing from the Medicare Payment Advisory Commission, MedPAC, on the recommendations from their March 2011 report on Medicare payment policies. 

During this Congress, we must come together to address a fiscal crisis of monumental proportions.  Every program, no matter how important, must be scrutinized to ensure that scarce taxpayer dollars are being used appropriately and efficiently. 

Therefore, I find it fitting that in our inaugural meeting we would hear from MedPAC.  The insight and guidance we receive from MedPAC will be very important as we seek ways to reform the Medicare program and improve the accuracy of provider payments while also ensuring that Medicare beneficiaries have access to high‑quality care. 

Congress relies on MedPAC’s Medicare provider payment recommendations because they are based on sound policy and strong data analysis.  Traditionally Medicare spending has outpaced growth in the economy at large and is a major driver of our long‑term debt.  The Congressional Budget Office projects that Medicare spending will nearly double as a share of the U.S. economy over the next 25 years. 

By 2050 the Big Three Federal entitlement programs ‑‑  Medicare, Medicaid and Social Security ‑‑ are expected to exceed total tax revenue, with Medicare being the largest of the three.  We cannot bring about a fiscally sustainable future if these trends continue. 

MedPAC’s analysis is invaluable in helping us better understand when growth in Medicare spending is appropriate and when Medicare payments need to be adjusted. 

Last year Congress passed a massive health care overhaul law that permanently reduces Medicare payments to a number of providers.  Less than 3 percent of the more than one‑half trillion dollars in cuts from Medicare came from actual delivery reforms. 

We must do better than that, which is why we also rely on MedPAC’s June report to Congress to guide us toward proposals that offer real reform instead of just turning payment dials up or down.  This will help ensure that Medicare savings yield better outcomes for Medicare’s beneficiaries. 

I think I speak for all of us up here, Republicans and Democrats alike, that we are still looking for the silver bullet that will permanently reform the physician payment system in a fiscally responsible manner, and look forward to working with MedPAC to find such a solution. 

I want to offer a warm welcome to our invited witness, MedPAC’s Chairman Glenn Hackbarth.  Thank you for joining us today and I look forward to hearing your testimony. 

I would also like to extend a special word of thanks to MedPAC’s executive director, Mark Miller, and the entire MedPAC staff for their hard work on this report. 

Before I recognize Ranking Member Stark for the purpose of an opening statement, I ask unanimous consent that all members’ written statements be included in the record. 

Without objection, so ordered.

Chairman Herger.  I now recognize Ranking Member Stark for his opening statement. 

Mr. Stark.  Thank you, Mr. Chairman.  I would like to join you in welcoming Glenn and MedPAC.  It is the efforts of MedPAC and their staff that have helped us in the past.  Many of the recommendations in the current law’s provisions are MedPAC’s work, and they have formed a number of the reforms that are in the law that modernize the delivery of health care that Federal rewards value over volume and encourages better coordination. 

They have helped us with ideas to lower their rate of preventable readmissions, the testing of bundled payments, medical homes, and hospital value‑based purchasing. 

We have made difficult decisions in order to rein in rising health care costs, and it would not have been possible without the advice of MedPAC. 

The end result:  A program with improved benefits that lower costs for beneficiaries, create taxpayer savings, and innovations that we hope will improve patient care and strengthen finances for the Medicare solvency for an additional number of years.  This, we think, is better than the program that favors vouchers or shifting of costs to the very beneficiaries who Medicare was created to serve. 

While my Republican colleagues and I have many areas where we disagree, there are several areas where we work together, including Medicare’s broken physician payment system.  The House Democrats passed comprehensive reform for the physician payment system in the last Congress, and I hope getting a long‑term solution is at the top of our to‑do list. 

As this year progresses, I look forward to getting continued input and advice from Mr. Hackbarth and the MedPAC staff, and will continue to rely on your expertise and advice as we undertake our Medicare and oversight responsibilities. 

Thank you, Mr. Chairman. 

Chairman Herger.  Mr. Hackbarth, I would like you to go ahead and proceed with your testimony.  We do have two votes going on now, so I would like to have you give your testimony, and then we will recess until following those two votes, and then we will come back.  If you would proceed with your testimony, please.
 

STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, MEDICARE PAYMENT ADVISORY COMMISSION

Mr. Hackbarth.  Thank you, Mr. Chairman and Mr. Stark.  I especially appreciate the warm welcome and the acknowledgment of the work of the MedPAC staff.  We have a terrific staff and without them we couldn’t do our work. 

As you know, MedPAC is a nonpartisan congressional advisory body, so our goal, our mission, our sole mission is to help you with the difficult decisions that you must make each year.  Each year we produce two reports, a March report which usually focuses primarily on payment updates, and then a June report that ranges more broadly across Medicare issues. 

We have 17 commissioners, as you know.  Six of them have clinical training as either physicians or RNs.  Six of our commissioners have high‑level executive experience with health care delivery organizations; four high‑level government experience; and then six academics who publish frequently in peer‑reviewed journals.  And some of us have more than one of these credentials.

I mention the credentials to emphasize that we are people who have experience in different facets of the Medicare program, and our goal is to bring that experience to bear for the benefit of the program, the beneficiaries it serves, and the taxpayers who finance it. 

Because we have a lot of experience, it doesn’t necessarily mean that we are always right.  We can be right or wrong, like everybody else, but you can be assured that our agenda as a Commission is the same as yours:  high‑quality care for Medicare beneficiaries at the lowest possible cost for taxpayers. 

Despite the diversity of the MedPAC commissioners, we typically have a high degree of consensus on our recommendations.  This March report is no exception.  There are 12 recommendations in our March report that represents a total of 187 “yes” votes, versus only two “no” votes, and three abstentions. 

The March report, as I say, here is the summary of the major recommendations in the March report.  There are recommendations on payment updates for each of the payment systems that Medicare uses. For physicians, hospital inpatient and outpatient dialysis services and hospice services, we are recommending a 1 percent increase in the Medicare rates. For ambulatory surgery centers, a half of 1 percent increase in the rates, and then zero update for skilled nursing facilities, home health agencies, in‑patient rehab facilities, and long‑term care hospitals.

In the case of home health services, we are recommending a rebasing of the rates as we have in the previous year, as well as some changes in the case mix system and a per‑episode copay for Medicare beneficiaries.

And then, as we do each year in our March report, we also do a status report on the Part C Medicare Advantage Program and Part D, the prescription drug program. 

I want to pick up, Chairman Herger, on one of the points that you made in your introduction.  This report is principally about how much the unit prices should change for Medicare services.  But we can’t get to where we want to go in terms of an efficient Medicare program, providing high‑quality care to Medicare beneficiaries at a reasonable cost for taxpayers, if we focus only on the unit prices. 

In addition to that, we must look at the relative values that we pay for different types of services.  We must also look at the payment methods that we use and try new, innovative payment methods that create better incentives for high‑value care.  And then, finally, we must also look at the incentives for Medicare beneficiaries. 

So, Mr. Chairman, those are my summary of comments and I look forward to the opportunity to talk further about our report. 

Chairman Herger. Thank you very much. 

[The statement of Mr. Hackbarth follows:]

Chairman Herger.  Again, as I mentioned earlier, to allow our members to vote, we have two votes going on, we are going to recess and we will reconvene immediately after the second vote.  With that, we stand in recess. 

[Recess.]

Chairman Herger.  The Health Subcommittee of the Ways and Means Committee will reconvene. 

Mr. Hackbarth, I want to thank you for your testimony.  In MedPAC’s report, you recommend that Congress should freeze Medicare rates for inpatient rehabilitation facilities, long‑term care hospitals, and skilled nursing facilities. 

Can you explain what led the Commission to recommend freezing payment rates for these providers? 

Mr. Hackbarth.  Mr. Chairman, the analysis that we go through for each of the provider sectors takes into account a variety of different factors, one of which is their financial margin on Medicare business where that data is available, but we also look at access to capital, the quality of services to Medicare beneficiaries, whether facilities are opening or closing. 

So it is sort of a multifactorial analysis that we go through, so the specifics for each of those sectors varies a little bit.  But in general, what they have in common is that the projected margins are pretty healthy for each of those, and we think that there is ample room for efficient providers of those services to operate within the existing rates, so no increase in the rates is necessary. 

Chairman Herger.  Thank you.  Currently there is no copayment for home health care.  In the March report, MedPAC recommends that most Medicare beneficiaries be required to pay a copayment for each episode of home health care they receive.  The commissioners recommended that exceptions be made for low‑income beneficiaries and those being discharged from the hospital. 

Could you explain why the Commission arrived at this recommendation and the impact it would have on overutilization and fraud? 

Mr. Hackbarth.  Yes.  Well, this is a challenging issue for MedPAC.  This is an issue where we actually did have a dissenting vote and an abstention, which, as I indicated earlier, is fairly unusual for us. 

We concluded, the majority of us concluded, the vast majority of us concluded that a $150 per episode copay was an appropriate and necessary step to help curb unnecessary utilization of home health services.  As you know, home health is an area where utilization has increased rapidly and, in particular, in some parts of the country.  And by its nature, it is a service where there aren’t clear, clinical guidelines as to appropriate use of the service.  And under those circumstances, we think it is an appropriate thing to do to ask the beneficiaries to pay a modest copay.

To put the $150 per episode copay in context, for a beneficiary with a typical number of visits, home health visits in an episode, it would work out to about $8 per visit, so a smaller amount than that same beneficiary would pay for a physician office visit or an outpatient therapy visit.  So it is modest, but we think it is appropriate. 

And I would emphasize the point that you picked up on, which is it is targeted to apply only to beneficiaries who are admitted to home health from the community.  It doesn’t apply to Medicare beneficiaries following a hospital stay or a stay in a skilled nursing facility, and there is also an exemption from the copay for beneficiaries who use four or fewer home health visits. 

Chairman Herger.  Thank you for that. 

Some have expressed concerns that the addition of a home health copayment would drive seniors to other sites of care such as outpatient facilities.  Are seniors currently required to pay a copayment for the care they receive in these outpatient settings? 

Mr. Hackbarth.  Yes, that is true.  They are required to pay copays.  Home health is one of the few services where Medicare beneficiaries are not required to pay a copay. 

And as I indicated in what we thought was an appropriate home health copay, we took into account how much beneficiaries paid for some of these alternative services. 

Chairman Herger.  So in your opinion, home health copayments would not shift a beneficiary to other sites of service? 

Mr. Hackbarth.  That is our expectation, yes.  It would not shift them, yes. 

Chairman Herger.  I thank you again for your testimony. 

Now, the gentleman from California, Mr. Thompson, is recognized for 5 minutes. 

Mr. Thompson.  Thank you, Mr. Chairman.  Thank you, Mr. Hackbarth, for being here. 

In your March 10, 2010 report, you state that Medicare is the single largest payer in regard to Medicare, in regard to health care.  And you also go on to say that for the next decade that that cost is going to slow vis‑à‑vis the previous decade.  I think it was are you looking at 6 percent growth between now and 2019?  It was about almost 10 percent in the past decade.  And I am assuming that part of that reason is because of the health care reform legislation that was passed, and the idea was to pass legislation that bends that cost that we have heard so much about that, and at the same time creating better care, better health, and lower costs. 

There was a very interesting article in the National Journal, I think it was last Friday, that is entitled, Adapt or Else.  And they state that whether it wants to or not, the health care system is being forced to reinvent itself.  The health care law is a clearinghouse of sorts for policies that have circulated among health care analysts for years but struggled to gain traction. 

Isn’t the truth of the matter that much of what was put into the health care reform bill either came from MedPAC advice or proposals that MedPAC itself put forward? 

Mr. Hackbarth.  Well, certainly there were many provisions that were linked to past recommendations of MedPAC. 

Mr. Thompson.  So bundling around hospital administrations? 

Mr. Hackbarth.  Yes. 

Mr. Thompson.  That was one of your recommendations that was in there.

Mr. Hackbarth.  Yes, that is correct.

Mr. Thompson.  Reducing hospital readmissions, that was a MedPAC recommendation? 

Mr. Hackbarth.  Yes. 

Mr. Thompson.  Value‑based purchasing aimed at rewarding quality? 

Mr. Hackbarth.  Yes.

Mr. Thompson.  Primary care investments and expanded primary care reimbursement? 

Mr. Hackbarth.  Yes. 

Mr. Thompson.  Payment accuracy including reducing Medicare Advantage overpayments? 

Mr. Hackbarth.  Yes.

Mr. Thompson.  Adoption of comparative effectiveness research? 

Mr. Hackbarth.  Yes. 

Mr. Thompson.  And expanded fraud fighting authorities?

Mr. Hackbarth.  Yes. 

Mr. Thompson.  Thank you. 

The other question I have is, as you know I think firsthand, I am very concerned about representation for rural areas.  And as cochair of the bipartisan Rural Health Care Coalition, we have been very, very active in trying to bring attention to that issue. 

And rural health care delivery has a lot of unique challenges, shortages of health care providers, and probably spills over into other underserved areas as well, but geographic remoteness, low‑patient volume with disproportionately high Medicare populations, limited access to integrated health care systems, and a lack of electronic networks to efficiently manage health care. 

I understand that it is probably a challenge for you too, and I know you don’t do it personally, but it is a challenge to get that appropriateness, or proportionateness on the Commission.  But in your report, there is not even a mention of the word “rural. ” And I think it is a concern for those of us who live in rural areas and represent rural areas. 

Is there anything that you can tell us that we can look forward to?  Are we going to address this issue?  Are we going to get proportional representation on that board? 

Mr. Hackbarth.  Well, thank you, Mr. Thompson, for raising this.  We have talked about this issue before. 

We share your concern about ensuring access to quality care for beneficiaries in rural areas and assuring appropriate payment for providers in rural areas.  In fact, the very first report that I did, on becoming chairman of MedPAC, is “Medicare in Rural America,” a typically thick MedPAC report.  And in every report since, in every March report since, there are in fact lots of analyses directed specifically at the issue of fair payment for rural providers. 

Let me cite a couple of examples. 

Mr. Thompson.  I said “report,” I meant your testimony.  I apologize for that. 

Mr. Hackbarth.  Okay.  Well, in this March report, let me just highlight a couple of examples that are important.  We have recommended changes in the payment systems for lots of different Medicare providers, but in this particular report we talk about fairness and payment for skilled nursing facilities and home health agencies, and we have made recommendations in changing the case mix system used to allocate those payments. 

Among the benefits from those changes would be increased payments for rural providers of home health services and skilled nursing facility services.  So throughout all of our reports, there are issues like that where we are trying to assure accuracy and fairness in payment, which we think is very important. 

On the specific issue of representation, we have four commissioners that have significant rural experience out of our 17.  We have two physicians and then two people ‑‑

Chairman Herger.  The gentleman’s time has expired.  Thank you. 

The gentleman from Texas, Mr. Johnson, is recognized for 5 minutes. 

Mr. Johnson.  Thank you, Mr. Chairman. 

Thank you for being here today.  I appreciate you saying you are out to get good value for what we spend in Medicare.  I am committed to making sure that Medicare has provided high‑quality care while at the same time being wise with taxpayer dollars. 

Your report mentions the variations between Medicare payments for the same services in different settings.  Medicare generally pays more for a service in a hospital than in an ambulatory surgical center. 

Does this create an incentive for care to be provided in one setting over another, based on higher reimbursement? 

Mr. Hackbarth.  Yes, that is our concern, Mr. Johnson, and it is a growing concern.  And we see some shift towards hospital‑based services that may be driven, at least in part, by higher payment levels.

Mr. Johnson.  Are you looking to do something about it? 

Mr. Hackbarth.  We are, in fact.  It is a tricky issue to deal with for a variety of reasons, but in particular, because the patients are often different.  So it can be the exact same service ‑‑ for example, some type of ambulatory surgery ‑‑ but the patients that go to the hospital are sicker on average.  They have more underlying conditions.  They are at higher risk of a bad event.  So they are done at the hospital outpatient department so that they are closer to backup in case something goes wrong. 

And so if you go to equal payment, you have to make sure that it is properly risk‑adjusted for the different types of patients seen in the different settings. 

Mr. Johnson.  Yes, I understand that, but you ought to be able to work that problem I think. 

Mr. Hackbarth.  And we are working on that, and I hope we will be making some recommendations. 

Mr. Johnson.  Thank you.  So you have got a plan for studying these payment variations? 

Mr. Hackbarth.  Yes, sir. 

Mr. Johnson.  I appreciate that.  Our health care delivery system needs to focus on the right procedures to the right patient at the right time and place.  Does the current payment system make that hard to achieve? 

Mr. Hackbarth.  It does.  It creates incentives often for more costly services than are absolutely necessary for patients and, as we just discussed a minute ago, sometimes not in the lowest cost, most efficient setting. 

Mr. Johnson.  Okay.  We know you are interested in combating waste, fraud and abuse in the Medicare system, and we have heard about the problems across all areas of the country, including reports of alleged fraud in home health services occurring near my district in Dallas.  Secretary Sebelius has said that her Agency is setting up new checks to screen providers before they are ever accepted into the system. 

Can you comment on what progress has been made in becoming more proactive rather than reactive in preventing fraud? 

Mr. Hackbarth.  Well, we are not specifically engaged in the operational side of enforcement, but we have recommended that the Secretary monitor home health use for unusual patterns, very high levels of use, and that the Congress give the Secretary the authority to do things like limit new providers, limit payment when abberant patterns of home health use are found. 

And so our contribution to this has been to mostly identify some of these very unusual patterns.  So in some areas of the country, you will see home health use that is like seven times the national average, and we think that sort of analysis is a useful screening tool for the Secretary and the Justice Department to use. 

Mr. Johnson.  Do you think she has taken your statistics and done anything with them? 

Mr. Hackbarth.  Our understanding is that they are intensifying their focus on Medicare fraud in general, but in particular in the home health area. 

Mr. Johnson.  That is an interesting word you chose, “intensify.” 

Thank you, Mr. Chairman, I appreciate the time. 

Chairman Herger.  Thank you.  The gentleman yields back. 

The gentleman from New Jersey, Mr. Pascrell, is recognized for 5 minutes. 

Mr. Pascrell.  Thank you, Mr. Chairman.  Mr. Chairman, I think that Glenn Hackbarth brings some unique qualities to our committee in that the recommendations from MedPAC, many of them were incorporated into the affordable health care bill, which is now the law of the land. 

And so when people talk about they made cuts but they didn’t get into the entitlements where the real money is, we all know Social Security did not add to the debt; and now they miss the point about the health care legislation, because one‑third of it dealt with Medicare and Medicaid, addressing the entitlement but specifically adopting many of your recommendations.  That is a fact of life. 

We can point out chapter and verse where the recommendations the Commission made are in there.  This is entitlement reform. 

And what was the purpose of your recommendations?  Well, if you read your report, and not just read what somebody else said about it, but if you read your report, you are saying that this is ‑‑ you didn’t use the word “reform,” this is changing how we look at Medicare and Medicaid. 

So one of the fundamental problems we face in health care deliverance ‑‑ I mean, no use putting a system together if we don’t have the people to deliver it.  So we spend quite a bit of time on workforce.  I know when we are putting the legislation together, quite a bit of time, doctors and nurses, how to get more doctors and nurses.

We know about the shortages.  But you are going to cripple the system, regardless of what the system is and how we want to deliver it to the patient, if you don’t have the personnel that is properly trained, updated, et cetera. 

You offer two solutions, both of which were involved or implemented, put into the health care reform, which we hope will be implemented:  the idea of a payment reform, like paying for quality outcomes and delivery system reforms, such as medical homes and the accountable care organizations.  You were very, very specific. 

Do you think that these reforms, these two reforms, will help improve the delivery of health care for Medicare beneficiaries and, more importantly, do you think that these are essential changes to Medicare itself? 

Mr. Hackbarth.  Well, it is certainly our hope and expectation that those two reforms would both improve quality of care for Medicare beneficiaries and, we hope, also reduced the cost.  In each case, medical homes and ACOs, there are a lot of important issues to be worked out.  And each idea, I am sure, will evolve over time, but we think that they are promising steps. 

Mr. Pascrell.  Mr. Chairman, I want to bring to your attention something.  Most of these reforms and changes were never scored, never scored’, which means we do not have a true picture of the amount of savings when we move from pay‑per‑service to proper care and help for the patient. 

We don’t know really what the results will be.  That was never scored by CBO.  And I would contend to you, if you look at your recommendations, and you look at very specifically the Health Care Reform Act, that you can find areas where it doesn’t take too much to conclude that there must be a savings from moving away from fee for service and into those specific things which you just mentioned. 

Would you agree with me? 

Mr. Hackbarth.  Well, certainly that is why we recommended them is that we think by moving away from straight fee‑for‑service payment, changing the incentives for providers, helping them focus on value, changing the organization of care delivery, can result in better care at lower cost. 

Mr. Pascrell.  So those editorials and those politicians and Congressmen on both sides of the aisle, I am going to ask you the question; let me make the statement, and it is like when did you stop beating your wife this time? 

Chairman Herger.  The gentleman’s time has expired.

Mr. Pascrell.  Can I finish the question? 

Chairman Herger.  Very quickly, please.

Mr. Pascrell.  Then I will try to answer it.  The question is, the editorials and those Congressmen on both sides of the aisle who said, very specifically, that we need to get to entitlement in order for us to have true cuts in the budget ‑‑

Chairman Herger.  The gentleman’s time has expired. 

You can ask if we get a second round, or you can submit in writing. 

Chairman Herger.  Again, the gentleman’s time has expired. 

I might also mention several of these issues that you brought up were scored, but they scored so small they weren’t listed.

Mr. Pascrell.  Many of them were not, Mr. Chairman.  I will go over them one by one with you if you wish.

Chairman Herger.  The gentleman’s time has expired.

Mr. Pascrell.  Thank you, Mr. Chairman. 

Chairman Herger.  With that, the gentleman from Georgia, Dr. Price, is recognized for 5 minutes.

Mr. Price.  Thank you, Mr. Chairman. 

In your assessment of the handout that we got, you have the volume growth increasing significantly.  Can you cite for us the main drivers of that volume briefly? 

Mr. Hackbarth.  So, Dr. Price, you are referring to this one?

Mr. Price.  I think this one. 

Mr. Hackbarth.  Right.  So the principal drivers are the top line, the red line, is spending per Medicare beneficiary.  So a small piece of it is due to the annual updates and payment rates.  That is the lowest line, sort of gold update line. 

The difference between the red line and the yellow line is due to changes in the volume and intensity of service.  So more visits, more procedures, more imaging tests, things of nature.

Mr. Price.  What would you say would be the ‑‑ are there incentivizations in the program itself that drive that volume? 

Mr. Hackbarth.  Well, the amount that we pay for a service can influence volume, and one of the issues that we ‑‑

Mr. Price.  Anything else? 

Mr. Hackbarth.  Differences in, you know, burden of illness from year to year can affect volume.  Changes in technology as new technology develops; concerns about malpractice can be a factor in volume growth.

Mr. Price.  Would you say that there are folks out there in the community, in the medical arena, that are working to decrease those costs as well on their own? 

Mr. Hackbarth.  Sure.  Absolutely.

Mr. Price.  And when we as a government or as a society identify those, shouldn’t we use some of those as best practices? 

Mr. Hackbarth.  Absolutely.  As somebody who ran a large physician practice, that was one of the things that we tried to do most often was learn from colleagues and practices.

Mr. Price.  Exactly.  That is kind of the hallmark of health care, isn’t it, to find what works best and use it. 

Mr. Hackbarth.  It is best.

Mr. Price.  Then I would like you to address, please, the issue of physician‑owned facilities, hospitals, ambulatory surgery centers.  All of the reports that I have seen and read and all of my personal experience leads me to believe that they are one ‑‑ oftentimes drive the highest quality of care at the greatest efficiency and the lowest possible cost per patient.  Yet we as a society disincent and, in fact, punish them for doing what they are doing. 

How would you address that? 

Mr. Hackbarth.  Well, it is a tricky issue, Dr. Price.  On the one hand, I ran a large multispecialty practice where we brought all kinds of services in‑house; and so we were self‑referring through our colleagues, and we thought that was good for patients. 

On the other hand, there are instances where that sort of self‑referral can cause problems.

Mr. Price.  Then shouldn’t we be addressing, then, the self‑referral, as opposed to saying you can’t have any of those things anymore? 

Mr. Hackbarth.  Yes.

Mr. Price.  Do you disagree with the fact that physician‑owned entities out there oftentimes have the highest quality at the lowest cost per patient? 

Mr. Hackbarth.  No, I don’t disagree with that.  I think that can often be the case.

Mr. Price.  Do you agree or disagree with the statement that we as a Congress and as a government have put in place policies that will actually diminish the ability of those kinds of services to be in existence? 

Mr. Hackbarth.  Yes, there are some policies.  But here is the tricky part about it.  The problem isn’t physician ownership per se or self‑referral per se; it is the combination of self‑referral with fee‑for‑service payment that rewards more volume and intensity, and often missed pricing of services that creates real substantial profit opportunities.

Mr. Price.  So I hear you say, then, that if we had a level playing field and allowed physician‑owned entities to compete with other entities, level playing field, same pricing mechanism and the like, the same reimbursement mechanism, that you would be supportive of that opportunity; is that right? 

Mr. Hackbarth.  The first step is to try to get the prices right so there aren’t undue profit opportunities. 

The second step is to try to move to new payment systems that don’t reward volume intensity, but reward better care.

Mr. Price.  Mr. Chairman, let me just say if I may, because my time is very, very brief, I think we are missing a huge opportunity by not rewarding those individuals that actually provide the highest quality of care at the lowest possible cost; and, in fact, we are punishing those individuals for doing what they are doing.  And I look forward to my second round. 

Chairman Herger.  I thank the gentleman.  The gentleman’s time has expired. 

The gentleman from Washington, Mr. Reichert, is recognized for 5 minutes. 

Mr. Reichert.  Thank you, Mr. Chairman.  Welcome, thanks for being here today. 

There is a movement among employers toward what people have called a value‑based benefit design where preventive primary and chronic disease care is cheaper for employees and things like high‑end imaging and unnecessary emergency room visits, which we sort of touched on a little bit already, or high‑cost drugs, those things that have been identified as not having I guess any, proven value, are more expensive. 

These coverage programs are combined with wellness programs and incentives for things like improved physical activity and nutrition.  There are some great examples from Washington State, including Group Health, Costco, Boeing, which all use different approaches to providing very structured, purposeful health care to their employees. 

Medicare, by comparison, seems to be behind the curve a little bit.  Some have said maybe even in the dark ages.  But Medicare Advantage offers promise, though, for coordinated care.  Would you agree with that? 

Mr. Hackbarth.  Yes, I would. 

Mr. Reichert.  And MedPAC has encouraged Congress and CMS to add pay‑for‑quality components to the fee‑for‑service payment system in Medicare, but this is just one step.  Could Medicare actually change its benefit structure to be more innovative and value‑based? 

Mr. Hackbarth.  Yes.

Mr. Reichert.  It even sort of goes to the doctor’s question of best practices.

Mr. Hackbarth.  Yes.  In fact, it is an issue that is currently on the MedPAC agenda, and we will have a chapter on the subject in our June report this coming June, and we are looking hopefully to moving towards some recommendations on redesign of the Medicare benefit package.

Mr. Reichert.  Would it be possible for you to share some of those ideas that you are looking at today? 

Mr. Hackbarth.  Well, we are not to the point of concrete recommendations.  We are drawn to the idea of value‑based insurance design.  In fact, one of the MedPAC commissioners, Mike Chernew, is one of the leading academic thinkers behind the value‑based insurance design movement.

Mr. Reichert.  So your discussion and your recommendations, how long has that discussion been ongoing? 

Mr. Hackbarth.  Well, on this particular issue, I think we had one session last year, and then we had a session in February, and then our upcoming meeting in a couple of weeks. 

Mr. Reichert.  So your awareness of this issue and discussion was started last year.  You have had another meeting since, so we are sort of behind the curve here on this issue.  So we have gone a year; what is the expectation on your recommendations being presented, published? 

Mr. Hackbarth.  Well, you know, I don’t want to get in front of my colleagues and presume a final conclusion. 

As I say, I think we will have a chapter in our June report.  It could ‑‑ it won’t include recommendations, bold‑faced recommendations, but it could have some clear directional signals.  And then if we have agreement in June, we would come back next year and potentially consider ‑‑

Mr. Reichert.  It could be a while before we see a value‑based system, then, in Medicare? 

Mr. Hackbarth.  It will.  And, of course, it would require legislation to change.

Mr. Reichert.  All right.  What could Congress do to help you speed the process up or probably, more likely, slow it down? 

Mr. Hackbarth.  Well, we are well aware of the interest in Congress in the issue, and there is a lot of interest among MedPAC commissioners.  So it isn’t for for a lack of interest or effort, but it is a complex issue to change the Medicare benefit package.

Mr. Reichert.  So are we looking at 2 years, 3 years, 4 years? 

Mr. Hackbarth.  Well, I would hope, if we are going to make recommendations, that it would be in our next cycle.  We operate upon a September‑to‑June cycle so we would take them up in the fall.

Mr. Reichert.  When is your next meeting? 

Mr. Hackbarth.  In 2 weeks.

Mr. Reichert.  Is it a public meeting? 

Mr. Hackbarth.  All of our meetings are public.

Mr. Reichert.  Could you provide me with the date and time of the meeting, please? 

Mr. Hackbarth.  Oh, absolutely.

Mr. Reichert.  Thank you.  I yield back, Mr. Chairman. 

Chairman Herger.  The gentleman yields back.  The gentleman from California, the ranking member, Mr. Stark, is recognized for 5 minutes. 

Mr. Stark.  Thank you, Mr. Chairman.  Glenn, thank you again for all the good work that MedPAC does. 

I know Mr. Herger has been concerned about copayment for certain beneficiaries that use home health services.  It is my understanding that home health users are older, poorer, more frail, more likely to be female, than the overall Medicare population, and I am concerned about putting further cost‑sharing on this population.  I gather some MedPAC commissioners were as well, given that the Commission, as I understand it, was not unanimous on this proposal. 

What were the concerns of those who didn’t support the idea? 

Mr. Hackbarth.  Mr. Stark, they are much like what you just described; that the copay would fall disproportionately on a vulnerable portion of the Medicare population, which was an issue that all of us, including those of us who voted “yes” on the recommendation, took very seriously.  And so what we tried to do was tailor our recommendation in ways that would minimize although not eliminate that impact. 

And it is also important to keep in mind, as you well know, that using copays is not new in Medicare; it is the norm in Medicare.  And they inevitably fall on users of services who tend to be sicker and the like. 

So it is always a challenging balancing act.  We think by having a modest copay, $150 targeted on admissions from the community, that we have tailored in a way that minimizes the adverse impact. 

Mr. Stark.  Okay.  And I know that you have a long history, MedPAC does, of recommending parity in payments between Medicare Advantage and the fee‑for‑service side.  And your recent report summarizes your earlier recommendations about Medicare Advantage and the estimates that Medicare Advantage plans are paid, on average, 113 percent of the traditional fee for service. 

Didn’t private managed care plans originally come into Medicare saying they could do more for less; in other words, for 20 years they were paid 95 percent of our fee‑for‑service rate, I believe, or thereabouts, and over time we have actually moved from demanding they do better and trying to demand that they break even. 

You have long recommended that there be a financial neutrality between Medicare Advantage and fee for service.  I think that is correct. 

Mr. Hackbarth.  That is correct. 

Mr. Stark.  And the Affordable Care Act takes steps to begin to bring financial neutrality between those two programs.  Can you tell us what MedPAC is seeing in the 2011 landscape in terms of Medicare Advantage availability, enrollment, and premiums?

Mr. Hackbarth.  Yeah.  Well, enrollment is up.  The number of plans is down somewhat, and the reduction is primarily due to the reduction in private fee‑for‑service plans.

Mr. Stark.  Okay.

Mr. Hackbarth.  Because of the requirement enacted, not in PPACA, but several years ago in MIPPA, that fee‑for‑service plans could not operate if there were coordinated care, coordinated network plans available.  So some of the private fee‑for‑service plans have left the program, and that is the single biggest factor in reduction in the number of available plans. 

Membership is, as I say, up in the most recent numbers. 

Mr. Stark.  Again, thank you very much for your advice to this committee.  We appreciate it, appreciate the work you do.  Thank you, Mr. Chairman.

Chairman Herger.  I thank the gentleman who yields back. 

I now recognize for 5 minutes the gentleman from Pennsylvania, Mr. Gerlach, to inquire. 

Mr. Gerlach.  Thank you, Mr. Chairman.  I have a question with regard to your recommendations relative to radiologic and other imaging services.  Can you briefly give me a summary of what your recommendations there are? 

Mr. Hackbarth.  Well, on the specific issue of the imaging in this report, I don’t think we made any specific recommendations in this report.  In the past, in previous reports, we have made a number of recommendations related to how the price for imaging services is set.  In some instances we think those prices have been too high, and we have recommended specific changes to reduce price. 

Mr. Gerlach.  I understand that there is a professional component and a technical component to the reimbursement structure.

Mr. Hackbarth.  That is correct. 

Mr. Gerlach.  That there has already been an adjustment downward for the technical component.  Is there also a recommendation that you want to implement to also reduce the professional component of that reimbursement for radiological services? 

Mr. Hackbarth.  We have looked at recommendations for reducing the professional component as well.

Mr. Gerlach.  What is that based on? 

Mr. Hackbarth.  For duplication of work would be an example.  When two tests are done on the same patient at the same time, the amount of work is reduced because you don’t have to do some things twice.  It is the same patient at the same time, and that may justify reduction in the professional component.

Mr. Gerlach.  Okay.  So you are obviously concerned about utilization overall, and therefore by reducing the professional component aspect of that, you can reduce utilization? 

Mr. Hackbarth.  Well, certainly there are indications that when the price is too high, you get more utilization.  People go to areas that are more profitable, they invest in equipment if there is significant profit in that area.  So it is very important to keep the prices right, as close to the cost of delivery as possible.

Mr. Gerlach.  Is there an understanding in your review process of how the services come about to begin with?  For example, if a radiologist ‑‑ I am thinking of one in one of my hospitals who does a service based upon a referral from another physician ‑‑ if there is a reduction in the professional component of that radiologist’s service but the radiologist didn’t initiate the service, the radiologist just took a referral, how would a referral‑based system, cutting the professional component for service based on a referral from somebody from the outside, how would that affect utilization? 

Mr. Hackbarth.  So what you are suggesting, I just want to make sure I understand the situation.  So this is a radiologist who has received a referral for imaging service.  And you are saying if their professional component is reduced? 

Mr. Gerlach.  Yeah.  As I understand, what you are talking about is reducing the professional component for that service.

Mr. Hackbarth.  Again what we have talked about are making adjustments in very specific instances; for example, when you are doing multiple images on the same visit.

Mr. Gerlach.  Okay.

Mr. Hackbarth.  Then we think there are some economies in doing it that way, and it is appropriate to reduce the professional component in instances like that. 

We have not just said across the board, oh, let’s reduce imaging services because we think we want to try to suppress utilization.  We take a much more targeted approach than that.

Mr. Gerlach.  Is it only in cases of multiple services or imaging work being done with one patient at one time that you are suggesting that change?

Mr. Hackbarth.  Specifically on the work component, I think it is multiple services.  There have been, in the physician fee schedule also, changes in the practice expense for physician services that have changed the payment levels for different types of service.

Mr. Gerlach.  Okay.  And in coming up with this recommendation, who did you talk to within the profession to get a sense of how patients come to undertake those imaging ‑‑ have those imaging services undertaken, both referral and, in some instances, the physician is able to do imaging on his own or her own, based upon how they are set up as a practice.  Who did you talk to in essence to come up with the conclusion that there ought to be a change in the professional component of those services of being reimbursed? 

Mr. Hackbarth.  Well, one of the things that I am most proud of in that MedPAC is that we do reach out to all of the relevant professional associations.  As you well know, in this particular area there are also some coalitions of people in the imaging field, professional physicians and imaging equipment manufacturers.  And we hear, believe me, often from those people and exchange ideas.  All of our recommendations, when we make them we have open public discussion.  Draft recommendation is discussed in a public meeting.  We solicit input from affected parties on those recommendations before we finally act.  We have a very open process. 

Chairman Herger.  The gentleman’s time has expired. 

Mr. Gerlach.  Thank you.  I yield back.

Chairman Herger.  The gentleman from California, Mr. Nunes is recognized for 5 minutes.

Mr. Nunes.  Thank you, Mr. Chairman.  I would like to yield 5 minutes to the gentleman from Georgia, Mr. Price.

Mr. Price.  I thank my friend from California for yielding, and I appreciate the continued response that you give me. 

I want to follow up on the comments that Mr. Gerlach was just making, or the line of questioning on the multiple tests.  For example, if a patient is coming for a certain MRI procedure, one procedure, the costs of that procedure that are borne by the facility and by the physician involved in interpreting that are pretty much fixed, correct? 

Mr. Hackbarth.  On the interpretation side or the technical component related to the equipment?

Mr. Price.  Both. 

Mr. Hackbarth.  Well, the cost of operating the equipment is influenced by the volume of service provided.  So you make a capital expenditure.  The more you use that equipment, the lower your unit cost for the capital expense, you spread it over more units.

Mr. Price.  The machine doesn’t know whether it is one patient or two patients who are getting the two different procedures, right?  The volume is the number of procedures itself; it is not how many patients there are.

Mr. Hackbarth.  That is right.  It doesn’t matter whether they are distinct patients or not.

Mr. Price.  All right.  You have a patient coming in for an MRI of a cervical spine and a patient coming in for an MRI of a lumbar spine.  Those two procedures are separate, distinct, and require the use of the machine itself, the technical side; and the interpretive side physician is using his or her best knowledge and information and expertise to interpret that.  You wouldn’t say that that had a volume component, would you?

Mr. Hackbarth.  In terms of interpreting ‑‑

Mr. Price.  Yeah. 

Mr. Hackbarth.  No.

Mr. Price.  Okay.  So the physician side ought to be fixed you just said, right? 

Mr. Hackbarth.  Professional.

Mr. Price.  We ought not decrease physician reimbursement based on whether or not it is one patient or two patients.

Mr. Hackbarth.  Well, based on whether it is one versus two, no.  But as new technology, imaging being one example, becomes more widely used, more frequently used, I do think it is reasonable for the cost per unit of service, as the experience level goes up, to go down.

Mr. Price.  That ‑‑

Mr. Hackbarth.  That happens in almost every market for every service in the economy.

Mr. Price.  I might be able, if it was two C‑spine MRIs on the same patient, at the same time; but we are talking about two different procedures on the same patient, requiring the same use of the machine, and the different brain power of the physician involved to interpret it.  And so it is astounding to us ‑‑ unless your goal is to simply decrease the cost, not worry about the quality and the access ‑‑ if your goal is simply to decrease the cost, then that might make sense.  But if you are interested in maintaining access to care and maintaining quality to care, then many of us believe that you are cutting right at the core of it. 

Mr. Hackbarth.  A couple points are key here, Dr. Price.  First of all, the method for setting the relative values.  As you know, MedPAC does not do that, CMS does not do that.  An AMA‑sponsored RUC does that.  So it is people from the professional societies sit down together and determine the relative values for the work element.

Mr. Price.  If a specialty society says no, that is not the appropriate reimbursement for this procedure, do they have any ultimate authority in that? 

Mr. Hackbarth.  There is a very elaborate process.

Mr. Price.  Who makes the final decision? 

Mr. Hackbarth.  The ultimate decision on the fee schedule is in CMS.

Mr. Price.  There you go.

Mr. Hackbarth.  But in the vast majority of cases, they adopt the recommendations from the AMA‑sponsored RUC.

Mr. Price.  Can you name a single procedure?  Because the cost that the government reimburses physicians, pays physicians for the care, allows for the access to care, right? 

Mr. Hackbarth.  That is true.

Mr. Price.  Okay.  So can you name a single procedure for which physicians are being reimbursed in real dollars more today than when they were 15 years ago? 

Mr. Hackbarth.  Not off the top of my head.

Mr. Price.  Yeah.  And I would love to have you get back, because I don’t think there is one.  I say that in all sincerity and honesty.  What we are doing is drastically limiting the access, availability, of patients ‑‑ your mom, your folks, seniors across this country ‑‑ to access to care because of how we are dealing with reimbursement issues.  That is where we ought to be looking for ‑‑

Mr. Hackbarth.  What I would like do is, if we could put this slide up.  Medicare payments to physicians have been going up quite rapidly in fact.

Mr. Price.  If I may, Mr. Chairman, the payment per ‑‑ for a procedures for physicians, for visitation, the cost of a patient to come to an office for a visit is drastically reduced from where it was 15 years ago.

Mr. Hackbarth.  Yeah.

Mr. Price.  Right? 

Mr. Hackbarth.  I am not trying to be argumentative.

Mr. Price.  Nor am I.

Mr. Hackbarth.  But there is an important point here, Mr. Chairman.  The unit prices you and I would agree ‑‑ the increase in unit prices, the price per office visit, the price per procedure, has gone up relatively slowly.  That is that bottom line on this graph.  But the amount of income that physicians get from Medicare has gone up rapidly, the red line.

Mr. Price.  In real dollars, the inflation‑adjusted dollars, that line goes below the access, as you well now.

Mr. Hackbarth.  The red line represents a 5‑1/2 percent increase, average increase per year per beneficiary, since the year 2000. 

Chairman Herger.  The gentleman’s time has expired.

Mr. Price.  Thank you. 

Chairman Herger.  If time permits, we may try to go for a second round of questioning. 

Now the gentleman from Oregon, Mr. Blumenauer, is recognized for 5 minutes.

Mr. Blumenauer.  Thank you, Mr. Chairman.  Welcome, Doctor, a Northwesterner here. 

Before I get to my questions, though, I want to just allow you to finish your thought that you had with my good friend from Georgia, because we watch a certain amount of different impulses.  There are some who suggest that the solution to exploding Medicare costs is to basically voucher this and index it at a level that is dramatically below the cost of inflation, medical inflation, something that would be the curve going down, down.  And if there are problems associated ‑‑ and you folks try and split the difference.  I mean, you are cognizant of the problems, you deal with practice patterns, you recommend year after year, after year, after year, to Congress and the administration things that could help bend that cost curve.  There is quite a bit of bipartisan pushback over the years.  I mean, that is not political, that is just ‑‑ because people get pinched and they don’t want to reduce that cost. 

My impression is that, as we constructed the Affordable Care Act, that we actually included most of the recommendations over the ‑‑ they don’t maybe have the teeth that some would like, they don’t implement them instantly.  There are too many, maybe pilot projects and test this, but they are there. 

I am curious if you want to just finish answering the question, because if the spending per beneficiary is going up compounded over 5 percent per year, it suggests that there are a whole lot of procedures and a whole lot of more expensive somethings that are going on there.  And I just want to make sure you are able to complete your thought.

Mr. Hackbarth.  All right.  So I guess I would summarize our view on this with a few points. 

One is, overall, it is our sense that there is enough money in the physician fee schedule; Medicare pays enough for physician services overall to assure adequate access for Medicare beneficiaries.  However, we are concerned about how the money is distributed. 

We think we pay too much for some types of services and too little for other types of services.  Primary care would be an example where we are worried that the payments are too low.  So we think some redistribution of the payments is appropriate. 

And then finally we think it ought to be a high‑priority goal for Medicare to move to new payment systems that don’t just reward more volume and intensity, but reward higher value care for both Medicare beneficiaries and the program. 

I would agree that just holding down the unit price increase, the way the yellow line has, is not the best way to get good care for Medicare beneficiaries. 

Mr. Blumenauer.  And that, of course, is why we attempted to have a comprehensive approach that incorporated these elements in, and hopefully they can be implemented sooner rather than later, after they are tested, to be able to make a system that does reward health care value over volume.

Mr. Hackbarth.  Right. 

Mr. Blumenauer.  I find it a little bit ironic that some of my Republican friends talk about massive cuts in, for example, Medicare Advantage, when in fact it is a move to try and deal with the quality of the system.  And they propose to replace it with something that would be far more draconian than any modest adjustment in Medicare Advantage.

Mr. Hackbarth.  Mr. Blumenauer, if I may, could I just pick up on ‑‑

Mr. Blumenauer.  Well, I only have 30 seconds left, and I gave 3 minutes to you.

Mr. Hackbarth.  You were generous, I am sorry, go ahead. 

Mr. Blumenauer.  But there is just one area that I wanted to leave for your review, because we are watching palliative care and hospice kind of merge, and there is an opportunity for us to be able to give higher quality care for our people.  We used to talk about in the last 6 months of life, but we are finding because of palliative care, because of changes in treatment patterns, sometimes people in “hospice” live longer than people who are given intensive treatments, ICUs and chemo, expensive and really painful chemotherapies. 

I am wondering if there is a way going forward that we can work with you to think a little bit about the recalibration of what hospice care means, ways that better meet the needs of patients and families, actually might end up being less expensive but certainly better care.

Chairman Herger.  The gentleman’s time has expired. 

Mr. Blumenauer.  Thank you. 

Chairman Herger.  The gentlelady from Tennessee, Ms. Black, is recognized for 5 minutes. 

Mrs. Black.  Thank you, Mr. Chairman. 

Mr. Hackbarth, I want to go to the issue of outpatient settings.  And your report verifies something that I have heard within the district, in that there is a significant variation in the amount of Medicare payments for similar services that are provided in outpatient settings, with Medicare generally paying more for services that are furnished in a hospital outpatient department than in an ambulatory surgical center or in a physician’s office.  And this variation of course results in an undesirable financial incentive, such as those ambulatory surgical centers being organized as more a hospital outpatient department, at least in part, to receive the higher payments. 

Does the Commission have a plan for studying this?  And if so, do you have a sense for where those policy options will be that may result from this review? 

Mr. Hackbarth.  Yes.  It is an issue that we are actively looking at.  We are concerned that the disparities in payment for the same service, based on the location where it is provided, can cause problems.  And there is some evidence that, in fact, it is causing problems.  As you indicate, people are converting to hospital status simply to get the benefit of the higher payment, and clearly that is a problem. 

As I indicated earlier in response to Mr. Johnson’s question, it is a little bit tricky in the sense that, although the service might be the same ‑‑ for example, a given ambulatory surgical procedure ‑‑ the patients receiving it could be different between the ASC and the hospital outpatient department.  I know this from experience, having run a large group.  We did surgery in both ASCs and hospital outpatient departments.  And we would send, quite consciously, the more difficult patients to the hospital outpatient department; same surgery, but the riskier patients, because of comorbidities and the like.  And we wanted them to be at the hospital in case something went wrong and we needed backup. 

Because they were sicker patients, we paid the hospital more for the same surgical procedure that we paid the ASC.  It was an adjustment in effect for the higher risk of the patient. 

So what we need to do is move towards equal rates for the same service on a risk‑adjusted basis.  And that last part is the tricky part in this that we are looking at. 

Mrs. Black.  Thank you.  And that certainly makes sense.  But at the current time where you look at apples to apples, it doesn’t appear to be that way.  So I think that certainly is a wise thing to take a look at. 

Additional question.  In your latest report the Commission notes that beneficiaries who receive the Part D low‑income subsidy, they account for nearly 22 percent of all enrollees, and yet more than half – of them reach the doughnut hole. Further, these low‑income subsidy enrollees account for about 2 million of the 2.4 million enrollees who reached that Part D catastrophic spending cap in 2008. 

Your report also notes that average per‑capita spending for the low‑income subsidy enrollees were double that of the non low‑income subsidy enrollees.  And I know that these low‑income enrollees are probably for the most part sicker, and they require more medication, but this disparity really is very alarming. 

Do you have any recommendations on how we might be able to better control the cost for this population? 

Mr. Hackbarth.  We have not looked specifically at that.  We have done some research that suggests that there may be differences in risk that aren’t fully captured by the existing risk‑adjustment systems, and that may be a reason for the higher utilization.  Because you are talking about a low‑income population, the tool of using copays to try to limit access utilization is not one that is really available to serve people that don’t have much income and appropriately need to be protected from excessive copays.  If we don’t do that, then there is the risk that they won’t get needed drugs, and we will have higher costs. 

Mrs. Black.  I don’t discount that, but I think what I have seen in my experience as an emergency room nurse is that when people have an opportunity to have a smorgasbord, or more services available for them, they tend to overutilize those services just because they are available.  And I am not casting any stones there.  Because if we all go into a buffet, we eat a whole lot more food at the buffet than we would if we ordered an individual plate. 

And so trying to get at how do you do a better job while making sure that the services that are being required are actually services that are really needed and not just being utilized because they are there.

Chairman Herger.  The gentlelady’s time has expired.  The gentleman from Wisconsin, Mr. Kind, is recognized for 5 minutes. 

The ranking member is recognized.

Mr. Stark.  Mr. Chairman, I ask unanimous consent to put in  this National Journal article from Mr. Thompson.

Chairman Herger.  Without objection.

[The information follows:]

Chairman Herger.  The gentleman from Wisconsin for 5 minutes. 

Mr. Kind.  Thank you.  Thank you, Mr. Chairman, and thank you, Mr. Hackbarth and your staff, for the update that you are giving us today.  And I think this is a very important hearing, just hearing the recommendations that you are making.  We appreciate all the work that you put into this and the effort to provide us guidance and where we are going to go with the Medicare program. 

Now, I notice in your January 2011 report, you reported on various geographic variations in the health care system, utilization variation.  And you found in that report that one area that was high, one are of utilization tended to be high in all areas of utilization.  In fact, you specifically noted that the area with the greatest service use, Miami, is nearly twice the level of utilization than the least use area, which is my hometown of La Crosse, Wisconsin.  And yet in the report then and today, you are not making any recommendations on how to deal with this geographic payment variation or utilization variation around the country. 

I am wondering why you are not being a little more explicit in the recommendations, and will you in the future provide greater guidance in this area? 

Mr. Hackbarth.  We think, Mr. Kind, that the best way to reward high‑value health care delivery, whether it is in La Crosse or perhaps a provider in Miami, is through changing the payment system, moving away from fee‑for‑service payment to new payment methods.

Mr. Kind.  I agree.  But are you going to come up with specific proposals on how do that? 

Mr. Hackbarth.  We have made many proposals, medical home, ACOs, bundling around hospital admissions, many of them picked up in PPACA.  And so we think payment reform is the best way to move to value. 

Mr. Kind.  Most of that is already in the Affordable Care Act.

Mr. Hackbarth.  That is correct.

Mr. Kind.  Again, relying on your recommendations in the past.  But what about systematic reform ‑‑

Mr. Hackbarth.  There is a lot of discussion in recent years about geographic variation.  And one of the points that I think has been missed in that we can talk about regions of the country, and Florida is more expensive than Wisconsin, but there is variation within Wisconsin, there is variation within Florida.  And so if you apply a geographic approach and say we want to reward Wisconsin and penalize Florida, there is going to be a lot of collateral damage.

Mr. Kind.  I agree, and that is the point.  And that is the point that many of us have been trying to make for the last 2 or 3 years is this geographic variation is occurring within congressional districts, within communities themselves.  So it is less Wisconsin versus Florida as it is from individual providers, no matter where you find them. 

And that is the point on payment reform.  And you even recognize on page 4 of your March report ‑‑you are right ‑‑ we recognize that managing updates and relative payment rates alone will not solve a fundamental problem with the current Medicare fee‑for‑service payment system; that providers are generally paid more when they deliver more services, without regard to the quality or value of those additional services. 

I think that is going to be the key and the ultimate verdict on health care reform.  If we can move to a different reimbursement or payment system, outcome and value, and that I think will solve a lot of the problems. 

As far as the cost curve that we were just talking about, but also the quality of care that we are striving for out there, and I was hoping MedPAC throughout the years would have been a little more affirmative in the recommendations in how we can get there other than through pilots and ACOs and medical homes and bundling, which is all necessary and good, but something more dramatic in proposal.

Mr. Hackbarth.  Well, the challenge that we have ‑‑ you know, everybody says that fee for service is bad because there are rewards of volume and intensity of service.  And for sure, that is true.  But from my perspective the worst legacy of fee for service is that we have a fragmented delivery system.

Mr. Kind.  Right. 

Mr. Hackbarth.  Where people don’t work together to improve care for patients.  In too many instances they operate separately, they don’t communicate well, they don’t coordinate well.  And the difficult thing about payment reform is that you can change payment methods, but there has to be somebody at the other end to receive it.

Mr. Kind.  Right.

Mr. Hackbarth.  There has to be a reorganization.

Mr. Kind.  I agree.  And you are probably aware that, again, under the Affordable Care Act, two things are going to happen, both through the Institute of Medicine.  They are going to have an update for the first time in the Medicare reimbursement formula, using real data, realtime instead of the proxy data, which I think is long overdue. 

But secondly and most importantly, they have embarked on a 2‑year study now to come up with an actionable plan to change fee‑for‑service to a fee‑for‑value reimbursement system.  That then can go to the administration, and the IPAT Commission for implementation, which again I think is going to be key.  That is already moving forward under health care reform, which again I think is going to be the key to sustaining the system that we have in a much more affordable basis but getting better outcomes, too. 

The thing with the accountable care organizations, medical homes bundling, that is fine for pilots, but it is basically saying you need to structure yourself in this fashion to be rewarded, instead of saying you will be rewarded for value and outcome of care; you figure it out as far as what is the best approach to achieve it.  Because, obviously, smaller groups are going to have a little more difficulty than the larger providers to form in ACOs or some type of medical home model, wouldn’t you agree? 

Mr. Hackbarth.  Yeah.  In fact one the challenges with small providers, for example, physicians in solo practice, is it is difficult to assess their performance because of small ‑‑

Chairman Herger.  The gentleman’s time has expired. 

Mr. Kind.  That is right.  Thank you.

Chairman Herger.  We have ‑‑ everyone has asked a question, maybe there are a couple of members who would like to ask a second question, so we will begin to move to that.  The gentleman from Georgia, Dr. Price, for 5 minutes.

Mr. Price.  Thank you, Mr. Chairman.  I look forward ‑‑ there are so many questions.  I look forward to being able to provide some for you and respond in writing. 

The Part A, primarily hospital services, Part B, primarily physician services, is described.  What percent of Part B is physician reimbursement? 

Mr. Hackbarth.  Actually to M.D.s as opposed to other health professionals? 

Mr. Price.  Yes. 

Mr. Hackbarth.  It is about 12 or 13 percent of total spending for physicians.  Is that the number you are looking for?

Mr. Price.  Yes.

Mr. Hackbarth.  Or what share of Part B is physicians?

Mr. Price.  Well, both.  But 12 or 13 percent is fine, because I think there is this sense by many that if you just whack away, and whack away, and whack away at the docs, that you will be able to control the cost.  And in fact if we continue as a society to whack away at what the physicians are able to gain for their services, for their caring, compassionate, and knowledgeable services, we will truly harm the access to quality care in this country, because physicians are saying, “I can’t do that anymore, I can’t do that anymore.” 

And that is what I hear from my colleagues, former medical colleagues at home and across the country, who say ‑‑ what I was trying to get to with the previous line of questioning, on not having any ‑‑ any significant increase in reimbursement.  And all insurance pegs itself to Medicare now, basically, in terms of reimbursement.  So the Federal Government controls the payments to physicians for virtually every single procedure in this country.

I want to talk about a couple other items in the short time that I have available.  You mentioned about the RUC, having the availability to have significant input into the cost ‑‑ payment for physician services; also agreed that it was CMS that had the final say. 

Mr. Hackbarth.  Right.

Mr. Price.  The RUC itself, as I understand it, has significant responsibility from the 90 percent of the costs ‑‑ the payment for the services that are provided.  That number may or may not be right.  About half of Medicare visits are through primary care, yet the number of primary care physicians on the RUC is in the teens, and maybe even lower, maybe even single digits in terms of a percent.  How do you reconcile that?

Mr. Hackbarth.  Well, certainly that has been a sore point among primary care physicians, that that they felt they have been underrepresented and that the process is skewed against them in various ways.

Mr. Price.  Isn’t that part of the problem, though, of setting up the kind of apparatus that we currently have, is that you rarely if ever can get to the right answer, because you rarely have the right people in the room. 

Mr. Hackbarth.  Yeah.  Medicare has very complicated payment systems, as you know.  Better than most people, I am aware of not only the complexity but also some of the weaknesses.  The problem, however, is that it is not like we can say, Oh, it is these Medicare‑administered prices or prices set by the competitive market.  As you just indicated, private insurers tend to say, Oh, Medicare’s way is better than what we were using, so we are going to adopt Medicare’s
fee schedule. 

Mr. Price.  So what we have is essentially price‑fixing from the Federal Government.

Mr. Hackbarth.  It is a difficult system, but there aren’t clear, better alternatives.  One point on the ‑‑

Mr. Price.  If there are clear, better alternatives, then I look forward to that discussion.

Mr. Hackbarth.  Well, I would look forward to that as well.  But let me just make one point how private insurers use the Medicare system.  Typically what they use is the relative values, but they set their own conversion factor. 

Mr. Price.  Let me talk about ‑‑

Mr. Hackbarth.  But the price is not the same.

Mr. Price.  That is true.  It is 90 percent or 110 percent or 130. 

Let me talk about one of those relative values and that is the E&M codes, evaluation and management; the doc visit codes, if you will.  My understanding ‑‑ what evidence or what science went into the setting of those codes?  Are you aware of the initiation of the ‑‑

Mr. Hackbarth.  Well, the original system back in the early nineties was based on an extensive research project done by Bill Showell at Harvard to set initial relative values.  And then the RUC process was established for purposes of maintaining the system.

Mr. Price.  And “maintaining” is the right word.  Because there hasn’t been, as I understand it, a critical evaluation of the E&M codes and what we are incenting in terms of office visits and ‑‑

Mr. Hackbarth.  Well, actually by law there is a 5‑year review.  Each 5 years they do a comprehensive review of the work values.  That doesn’t mean every single code, but it is a far‑reaching review of the work. 

Mr. Price.  And it compares to what has been ‑‑ I would suggest it compares to what has been the occurrence as opposed to looking at whether or not we are getting the desired ‑‑

Mr. Hackbarth.  In fact, a critical question in the whole system is do we want to base the prices for different services on estimates of the cost of producing them, or do we want to take into account the value of the service to patients?

Mr. Price.  Which brings me to a value question.  All of the values comments seem to imply that every single patient can have an ideal outcome regardless of the diagnosis and regardless of the clinical status.  How do you pay for value in a patient who has a terminal disease, is at the end of life, and needs caring, compassionate care for that?  It will have a lousy outcome. 

Mr. Hackbarth.  Well, when I talk about pay for value, I am talking about, number one, looking at populations served and not individual cases, as I think you are pointing out.  Individual cases, sometimes there are unavoidable bad results.  That is not a sign of poor care.  So you look across broader populations, you risk‑adjust for the underlying conditions, and you use measures that take into account things like patient satisfaction; it is not just outcomes.  You know, a terminal patient could receive good care, and acknowledge it is high‑quality, humane care, even though it is a bad outcome.

Mr. Price.  Thank you. 

Chairman Herger.  The gentleman’s time has expired. 

The gentleman from Washington, Mr. McDermott, is recognized for 5 minutes.

Mr. McDermott.  Thank you very much, Mr. Chairman.  I was sitting down in my office watching this on the television, and I decided I better come up here and ask a question.

Mr. Hackbarth.  Okay.

Mr. McDermott.  Because I think the least known committee in the medical industrial complex in the United States is the RUC and the impact that they have. 

And I would like to submit for the record a graph from the Medical Group Management Association, Annual Physician Compensation Productive Survey.  It is 1992 to 2008. 

[The information follows:]

Mr. McDermott.  And you can see when the RUC started, and the top line is the specialist’s income and the bottom line is primary care. 

And so I started looking at the RUC and figuring out who is on the RUC and how do they do this, and they clearly submit their recommendations to CMS.  And nine times out of ten, or more than that, maybe 95 times out of 100, the CMS accepts their recommendation; is that correct? 

Mr. Hackbarth.  That is correct, yes.

Mr. McDermott.  So it is not being set by CMS, but is being set by a private committee controlled by the American Medical Association; is that correct?

Mr. Hackbarth.  That is correct.  I would point out that what we have recommended ‑‑ and this was 2 or 3 years ago now ‑‑ is that CMS take a more assertive role and not just be a passive receiver of recommendations, but be more directive in what they need to look at, and change the dynamic that otherwise exists within the RUC.  And they have taken some steps in that direction.  That was the answer.

Mr. McDermott.  I would like to submit another article for the record, which is from the New England Journal of Medicine, dated 22 March 2007, which says that in 2006 the RUC recommendations ‑‑ well, MedPAC went up on 227 services and down on 26. 

[The information follows:]

Mr. McDermott.  So there has never been any bending of the curve on the basis of the RUC; is that correct? 

Mr. Hackbarth.  And that is precisely our concern.  The dynamics of the RUC are that there are lots of incentives to identify a service for higher payment.  There is very little incentive to collect data to document Oh, my service ought to go down. 

And so what we have said is that CMS needs to redress that imbalance in incentives within the RUC by directing them to look at particular services that are likely to be overvalued.

Mr. McDermott.  Do you think it might be better just to collect your own data and never mind the RUC?  I mean, why should the medical association be setting their own fees?  How are you ever going to get control of costs if you let the fox decide what the keys to the hen house are going to be used for? 

Mr. Hackbarth.  Well, what we have recommended is a hybrid approach where CMS does not turn over the keys to the fox, is much more assertive in the process, but then takes advantage of the expertise of the relevant specialties to provide input to that process.  So it is a rebalancing of the system, we think mirroring professional expertise with data analysis done by CMS.

Mr. McDermott.  How about a rebalancing of the components inside the RUC?  My looking at the list, depending how you look at people and what you can figure out is that mostly it is special ‑‑ or it is a balance heavily weighted towards specialists, not towards primary care physicians.

Mr. Hackbarth.  And that, too, is a concern of ours and certainly it is a concern of many of the primary care physicians in the relevant professional societies.

Mr. McDermott.  It seems to me that the biggest problem that those of us who are supporting of the President’s plan still have about what is going on, is that controlling costs is still not very well done.  We have done well at access, in including more people through the exchanges and that sort of thing, but the question is ultimately going to be how come we are spending 16 percent of GDP, or 17 percent of GDP, and the Swiss are spending 11 percent, and the French are spending 12 and whatever? 

Where is that 5 percent coming from is what I have been looking at trying to figure out.  And I keep coming back to the fact that Medicare allowed usual and customary fees in the original legislation, and we are continuing it with RUC is simply an extension of that as I see it.  Am I misreading the facts? 

Mr. Hackbarth.  No.  We believe how Medicare pays for services is an important contributor to the level of expenditure and the rate of growth.  If we ever want to reduce the rate of growth, let alone reduce the level of expenditure, if we ever want to improve the value we get for our Medicare expenditures, we need to change the payment methods. 

Chairman Herger.  The gentleman’s time has expired. 

Mr. McDermott.  Thank you, Mr. Chairman.

Chairman Herger.  The gentleman from New Jersey, Mr. Pascrell, is recognized. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

Mr. Chairman, I looked over the report from the Centers for Medicare and Medicaid Services, the CMS report of April 22nd of 2010, that also is an interesting document.  And I just wanted to clarify something we started to get into before on the previous question. 

Clearly the CBO and the CMS scored all the legislative language.  I misspoke, but I am trying to get to the point, I didn’t finish my point.  It did score all of the words in the  970 pages or so of that health care reform bill in that bill, in the act.  They did not give as much credit, though, the point I am trying to make, to delivery system reforms that we believe, those of us who support the legislation, support the act, will lead to better care at lower costs. 

Mr. Hackbarth.  Right.

Mr. Pascrell.  We had the ‑‑ Mr. Chairman, we had the CMS actuary here, if you remember, in this room last month.

Mr. Hackbarth.  Right.

Mr. Pascrell.  I asked him why these provisions weren’t worth ‑‑ weren’t credited with more savings.  If you look at the chart, they go ‑‑ each one of the provisions, and you see a lot of zeros, of course, and you see a lot of low numbers and some other things, but things we were talking about before the pilot testing for pay for performance. 

The technical corrections to hospital value‑based purchasing, support the patient‑centered medical homes, which is only a small part of this.  There is the whole list in the report which we were provided.  It is very, very clear. 

The question, what we are saying, those of us who support the legislation in the act, why we think these things will lead to better care and lower costs?  Plus, why the hell did we put the bill together in the first place?  We had the actuary here and I asked why those provisions weren’t credited with more savings than the charts would indicate.  So you can score it and not give credit for the savings.  I don’t think that is a score that ‑‑ you know, we probably wait for the results because we didn’t get any results.  They said, We don’t have enough information.

Mr. Hackbarth.  Right.

Mr. Pascrell.  Is that correct? 

Mr. Hackbarth.  That is my understanding of what they did.

Mr. Pascrell.  Now, he answered this; he answered that he believed in their potential to save Medicare money, he stated for the record, but that he didn’t have enough data to estimate the amount of savings they would be given.  How am I doing so far? 

Mr. Hackbarth.  I think you have accurately described the situation.  The concepts can be sound.  The concepts have to be turned into operational payment systems and then you have to get providers to convert to those new payment systems.  There are certain connections there ‑‑

Mr. Pascrell.  Not unlike the changes we made to Medicare since its beginning in the sixties.  We made dramatic changes to the Medicare program.  Made dramatic changes when we prognosticate, when we went out from the point that we were at.  So this is not unusual, this is not something that we say, Well, is it going to be in 2022?  I mean the charts here go up to 2019.  I think they are very optimistic, but I hope that all of us recognize these provisions. 

These provisions, the breadth and the width of Medicare and Medicaid entitlement changes, we are changing business in the Health Care Act, aren’t we, Mr. Hackbarth? 

Mr. Hackbarth.  That is certainly the goal.  That is why we recommended various provisions that we did that were included in the law.  We think they have the potential to change.

Mr. Pascrell.  Okay.  So if these ideas in health care reform which would move us towards paying for the quality of care rather than the quantity of care, something my friend from Wisconsin keeps talking about, I would assume everybody understands, I know there will be pushbacks from the medical profession.

Chairman Herger.  The gentleman’s time has expired. 

Mr. Pascrell.  And you have heard them.  Cannot be identified as entitlement reform, then what the heck can be?  Thank you, Mr. Chairman.

Chairman Herger.  The gentleman’s time has expired. 

Mr. Hackbarth, the Commission intends to consider different approaches to updating physician payments in an attempt to provide options aimed at fixing the SGR problem.  Can you preview the timing and the substance of the Commission’s work on this pressing issue? 

Mr. Hackbarth.  Yeah.  Our hope is that we will have recommendations in the fall, draft recommendations in September, final recommendations for vote within the Commission in October.  That is a hope. 

We have got to obviously do a lot of work between now and then and forge a consensus on what to do.  The work we think is urgent.  It is motivated by a growing concern among MedPAC commissioners that the SGR is a growing threat to access to services for Medicare beneficiaries. 

I want to be clear; we don’t see wide‑scale evidence of that right now, but our concern is that the repeated difficult process of trying to avert large‑scale cuts in physician payments, doing that over and over, sometimes multiple times in the same year, the cumulative effect of that exercise is undermining both physician and beneficiary confidence in the Medicare program. 

So for a long time I have been able to sit before the subcommittee and say, yeah, SGR is a problem that we don’t see an imminent threat to access.  We think we are getting closer to that tipping point.  And so we are looking at options for potentially addressing that. 

Just if I may, Mr. Chairman, just one last point.  I don’t want to create the false expectation that we may come up with a new payment system that is not going to have a budget score attached to it; that the big SGR budget problem is going to go away.  I don’t think that there is a rational policy option that will make that number go away. 

I think the question for the Congress is not whether we are going to spend more than the SGR baseline says.  I think everybody in this room, the CMS actuary, the Medicare trustees, everybody, knows we are going to spend more than the SGR says we will.  The only question now is whether we are going spend more by making last‑minute adjustments, plowing more money into the existing payment system, or whether we are going to spend more strategically to achieve important goals for the Medicare program. 

We think that the latter course is the wise course, and so my hope is that we can develop a package that will have a cost, a budget cost to it, but will achieve some important goals for Medicare reform going forward.  That is our goal. 

Now whether I can, you know, get the consensus within MedPAC, I won’t know until we are further into the process, but that is the mind‑set that I have. 

Chairman Herger.  All right.  I thank you for your comments.  And I am sure you know this is a bipartisan major concern that, as members of the committee each of us deal with as we talk with our physicians.  It is one that we need to place; and it is important for to you know, as I am sure you do, that this is a high priority of us, of this committee, and certainly of this subcommittee. 

And, again, I want to thank our witness for your testimony today. 

As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  Mr. Hackbarth, if any questions are submitted, I ask that you respond in a timely manner.  With that, the subcommittee is adjourned.

[Whereupon, at 2:57 p.m., the subcommittee was adjourned.]

MEMBERS SUBMISSIONS FOR THE RECORD:

Rep. Stark
Rep. McDermott 1
Rep. McDermott 2

SUBMISSIONS FOR THE RECORD

American College of Radiology
The American Health Care Association