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Hearing on Expiring Medicare Provider Payment Policies

September 21, 2011










September 21, 2011


Printed for the use of the Committee on Ways and Means




PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia

RON KIND, Wisconsin

JON TRAUB, Staff Director
JANICE MAYS, Minority Staff Director




Advisory of September 21, 2011 announcing the hearing

Rich Umbdenstock
President, American Hospital Association

Stephen Williamson
President, American Ambulance Association

Robert Wah, MD
Chairman, Board of Trustees, American Medical Association

Justin Moore
Vice President of Government Affairs, American Physical Therapy Association

A. Bruce Steinwald
President, Steinwald Consulting




Wednesday, September 21, 2011
House of Representatives,
Subcommittee on Health,
Committee on Ways and Means,
Washington, D.C.

The subcommittee met, pursuant to call, at 2:01 p.m., in Room 1100, Longworth House Office Building, Honorable Wally Herger [Chairman of the Subcommittee] presiding.

[The advisory of the hearing follows:]


Chairman Herger.  The subcommittee will come to order. 

Today, we are going to hear about a number of Medicare provider payment provisions that will soon expire unless Congress intervenes.  But just because Congress must act does not mean it should do so blindly. 

This hearing offers us, and more importantly the American people, a chance to consider whether Congress should spend more than $2 billion to reauthorize these additional payments for another year.  Just as importantly, it affords interested parties the opportunity to make their case as to whether or not these payments should continue. 

In undertaking this review, I am hopeful that we can learn whether or not these payment policies, some of which are more than a decade old, are in need of reform or can be allowed to expire and become the temporary policies they were originally intended to be. 

When these policies were created, many were billed as short‑term or one‑time payment adjustments.  However, Congress has extended most of them on an annual basis for the last decade.  In most cases, the payments have simply been extended five times or more without any changes to the underlying policy.  Often Congress has reauthorized these provider payments in the “doc fix” bills which, unfortunately, more often than not pass late in the year, affording us little time to examine the policies and determine if they are still serving their intended purpose. 

It is my hope that by beginning to closely study these provisions now, members of the subcommittee will have ample time to learn about these policies and whether they are
worthwhile for providers and beneficiaries. 

The witnesses appearing before us this afternoon are well positioned to explain these provisions, as they represent the very providers who benefit from these additional payments.  In some cases, the witnesses themselves continue to work as providers in their given field.  I welcome their testimony and trust it will offer members an in‑depth look at each of the expiring provisions and its impact on the affected provider groups. 

I am encouraged that some members of our panel will offer a recommendation for ways Congress can improve these policies.  And I thank them for being forward thinking.  I believe such reforms are long overdue, given that some of these policies date back to 1997 and have never been updated.  I am especially pleased that several witnesses will share their ideas as to how Congress could offset the cost of extending these policies. 

We will also hear from a former GAO official who will encourage members to consider whether these additional payments actually benefit Medicare beneficiaries.  It is important that we hear this side of the story as well because at the end of the day, we must ensure that the policies we support have a positive impact on seniors, especially since many of them result in higher premiums. 

It is important to keep in mind that extending these provisions cost money, more than $2 billion every year they are reauthorized.  As Members of Congress, we have been entrusted with the enormous responsibility of being good stewards of the taxpayers’ hard‑earned dollars.  A $100 million extension may not seem expensive in the context of a Medicare program that spends more than one‑half trillion dollars every year, but it is a large sum of money nonetheless.  History shows that Congress has continued to extend these policies year in and year out, which raises the question:  Given that these additional payments do not appear to be temporary, isn’t the true cost of the annual $2 billion extender package actually $25 billion when measured over Congress’ standard 10‑year budget window? 

Today more than ever, Congress must show fiscal responsibility both in what is passed and how it is passed.  We simply cannot afford to continue spending money we do not have in a program that is going bankrupt. 

Before recognizing Ranking Member Stark, I ask unanimous consent that all members’ written testimony be included in the record. 

Without objection, so ordered. 

I now recognize Ranking Member Stark for 5 minutes for the purpose of his opening statement. 

Mr. Stark.  Thank you, Chairman Herger, for holding this hearing to review the provider extenders.  I would note that there are a couple of provisions that help low‑income people that also need extension at a cost of a couple of billion dollars and is not part of today’s meeting. 

But looking at the entire package, some of those provisions, like therapy cap exception and the continuation of the QI program, ensure critical access to needy Medicare beneficiaries.  Other provisions were enacted to address a perceived payment problem for a particular provider at a particular time.  And I look forward to hearing our witnesses’ thoughts on which of these provisions fit into which categories. 

Extenders are generally written on legislation preventing a pending cut in physician payment due to the broken Medicare payment formula, or SGR, as it has been called here.  I would be curious also to hear from the witnesses today their thoughts on the role of the new supercommittee for deficit reduction and what role they will play as we work to resolve SGR and other extenders. 

I would argue that the Medicare savings that we are able to find should first go to fix shortcomings in Medicare and not just get dumped into the general pot.  Paying physicians fairly is important to the future of the program.  There may be specific extenders needed to preserve beneficiary access.  So we need to learn exactly what payment changes to the delivery system before we take more money out of the system and we need to resolve Medicare savings before the savings leave the program. 

I will ask each of the witnesses in their remarks for their comments on what we should do with these savings. 

I thank you again.  I thank the witnesses for joining us today. 

I yield back the balance of my time. 

Chairman Herger.  Thank you, Mr. Stark. 

Today, we are joined by five witnesses who will discuss the details of each of the expiring Medicare provider payment policies.  We will hear both the pros and the cons of extending these policies.  Our witnesses in the order they will testify are Rich Umbdenstock, president, American Hospital Association; Steven Williamson, president, American Ambulance Association; Dr. Robert Wah, chairman, Board of Trustees, American Medical Association; Justin Moore, vice president of Government Affairs, American Physical Therapy Association; and Bruce Steinwald, president, Steinwald Consulting. 

You will each be recognized for 5 minutes. 

Mr. Umbdenstock, will you begin, please.


Mr. Umbdenstock.  Thank you very much. 

Good afternoon, Chairman Herger, Ranking Member Stark, distinguished members of the subcommittee.  I am Rich Umbdenstock, president and CEO of the American Hospital Association.  On behalf of our more than 5,000 hospital members, health systems, and other health care organizations, and our 42,000 individual members, the AHA appreciates the opportunity to testify regarding certain expiring Medicare provider payment provisions and their importance to Medicare beneficiaries.  And we applaud the committee for holding this meeting. 

Over the years, Congress has enacted several provisions to address the special challenges rural hospitals encounter in delivering health care services to the communities they are committed to serve.  The AHA urges the committee to recognize that the circumstances that made those provisions necessary still exist.  And so does the need for these provisions. 

I would like to focus on three areas in particular:  Section 508 hospital classifications, outpatient hold harmless provisions, and lab services for rural hospitals. 

First, the area wage index is greatly flawed in many respects.  It is highly volatile from year to year; self‑perpetuating, in that hospitals with low‑wage indices cannot increase wages to become competitive in the labor market; and they are based on unrealistic geographic boundaries.  Section 508 of the Medicare Prescription Drug Improvement and Modernization Act of 2003 allows about 100 qualifying hospitals to receive wage index reclassifications and assignments that provide them with the resources to attract and retain the workforce they need to best serve their beneficiaries.  Its provisions will expire October 1 of this year, and we believe it should be extended. 

Second, Congress made certain rural hospitals with 100 or fewer beds eligible to receive an additional payment known as hold harmless transitional outpatient payments, or TOPs.  TOPs were meant to ease these hospitals’ transition from the prior reasonable cost‑based payment system to the outpatient prospective payment system.  Concerned about the financial stability of these small rural hospitals, Congress extended the provision each year and has also expanded it to vulnerable sole‑community hospitals.  Hospitals that receive TOPs have Medicare payments averaging only about 82 percent of their costs.  If this provision expires, that figure will go down to 75 percent of their costs.  We urge Congress to extend and make these payments permanent before they expire at the end of this year. 

Third, despite their small size and smaller patient base, hospitals in qualified rural areas, or so‑called super rural communities, still have to maintain a broad range of basic services to meet the health care needs of their communities.  These include laboratory services.  And hospitals may be the only source of these critical services for many miles.  The Medicare Modernization Act of 2003 included a provision requiring reasonable cost reimbursement for outpatient clinical laboratory tests furnished by hospitals with fewer than 50 beds in these qualified rural areas.  The Accountable Care Act and the Medicare and Medicaid Extenders Act reintroduced and extended these provisions, but they are now due to expire on June 30, 2012. 

In the absence of these provisions, reimbursement for hospital outpatient clinical lab services in these super rural communities would revert to rates under the clinical laboratory fee schedule.  The AHA recommends that Congress permanently extend the application of reasonable cost reimbursement methodology for hospital outpatient clinical laboratory services in these communities. 

We also support allowing independent laboratories to continue to bill separately for the technical component of physician pathology services furnished to patients in hospitals with existing “grandfathered” agreements with independent laboratories.  These hospitals would otherwise have to set up expensive and burdensome billing arrangements in order to pay the independent labs directly for their services, despite the fact that the Medicare hospital payments do not incorporate payment for these kinds of technical component services. 

More detail on each of these requests and recommendations and additional areas of concern to the AHA is provided in my testimony.  I thank the committee for your attention today.  I hope you will recognize the unique challenges of delivering quality health care in rural areas by extending these expiring Medicare provider payment provisions. 

Thank you very much.

[The statement of Mr. Umbdenstock follows:]

Chairman Herger.  Thank you. 

Mr. Williamson for 5 minutes. 


Mr. Williamson.  Chairman Herger, Ranking Member Stark, and members of the House Ways and Means Subcommittee on Health, I greatly appreciate the opportunity to provide testimony today on the need to extend current Medicare ambulance relief.  My name is Stephen Williamson.  I am president of the American Ambulance Association.  I am also president and CEO of Emergency Medical Services Authority for Tulsa and Oklahoma City. 

Ambulance services are a crucial component of our local and national health care system.  Ambulance service providers provide health care to patients regardless of their ability to pay.  When there is an accident at home and a loved one is in need of medical care, we know to dial 911 and an ambulance will be on its way.  In many smaller communities, the ambulance service provider is the only readily available access to emergency medical care. 

Ambulance service providers are facing significant financial difficulty due in part to a Medicare ambulance fee schedule that is underfunded.  In May of 2007, the Government Accountability Office found that ambulance service providers are paid 6 percent below cost and 17 below cost in remote areas to provide ambulance services to Medicare patients. 

This is primarily the result of a structural flaw in the design of Medicare ambulance fee schedule.  This error was especially damaging for the sector in which Medicare patients make up approximately 50 percent of the total patients served.  Additionally, since the GAO report was released, Medicare reimbursement has been reduced by another 2 percent through a reduction in our inflation update and policy changes to CMS regarding payment for fractional mileage. 

From the patient care side, ambulance service providers are rendering more sophisticated care.  This improves patient outcomes and saves the Medicare program money but increases the cost to the ambulance service provider, which are not reimbursed. 

Congress has recognized the challenges facing ambulance service providers and implemented Medicare ambulance relief.  Ambulance service providers currently receive a temporary 2 percent Medicare increase for ground ambulance services that originate in an urban area; 3 percent in a rural area; and a 22.6 percent bump to the base rate in extremely remote or super rural areas.  These increases have been crucial for an industry made up predominantly of small businesses that operate only slightly above the break‑even point under the best of circumstances. 

Medicare ambulance relief has meant that a majority of ambulance service providers can continue to provide quality health care.  Medics are receiving training and new technologies and enhanced procedures that can make dramatic difference in the initial hours of critical care.  Without relief, a number of providers will have to cut back on the number of medics, scale back their service area, or discontinue service.  The immediate result is longer response times. 

The American Ambulance Association recognizes the significant difficult financial decisions facing
policymakers.  Our association has taken a number of steps to ensure ambulance service providers are providing quality, efficient care to Medicare beneficiaries.  While our industry has one of the lowest payment error rate percentages, we are helping CMS to identify and root out waste and abuse in the Medicare program.  We acknowledge that systematic reforms must also be considered to ensure the continued viability of the Medicare program and help reduce the deficit. 

The American Ambulance Association notes the recent proposal released by the Health Care Leadership Council as worthy of consideration.  It identifies the type of changes that are necessary to help achieve significant savings within Medicare which could be primarily used to offset ambulance and other provider relief.  Two recommendations, the implementation of medical liability reform and the creation of Medicare exchange, have particular promise. 

The current temporary Medicare ambulance relief is working exactly as intended.  It is allowing the majority of ambulance service providers to maintain current levels of high‑quality critically needed emergency and nonemergency ambulance service.  The loss of relief, compounded by additional recent cuts in reimbursement, would change the delicate balance and negatively impact access to care, especially in the super rural areas.  Extension of relief will result in better patient care and ensuring that an ambulance will respond quickly when you call 911. 

I appreciate this opportunity to testify and would be happy to answer any questions you may have for me.  Thank you. 

[The statement of Mr. Williamson follows:]

Chairman Herger.  Thank you. 

Dr. Wah is recognized.


Dr. Wah.  Thank you, Mr. Chairman, Ranking Member Stark, and members of the committee.  My name is Robert Wah.  I am the chair of the American Medical Association Board of Trustees and a reproductive endocrinologist and obstetrician/gynecologist.  I practice and teach at the Walter Reed National Medical Center in Bethesda and the National Institutes of Health. 

The AMA, the largest physician organization, and our patients, thanks the chair and members of the subcommittee for your leadership in examining the extension of Medicare payment policies for various expiring provisions.  I will address four provisions that the subcommittee is examining today. 

First is the physician work GPCI, which adjusts payments for geographic differences in the cost of providing services for physician work.  In other words, this is a
cost‑of‑living adjustment related to the physician’s locality.  Adjustments to the GPCIs are required by law to be budget neutral, which means that increasing the GPCI for one set of localities would lead to cuts in all other localities.  The AMA has long advocated that the adjustments to the work GPCI should not be constrained by budget neutrality requirements. 

The Institute of Medicine, or IOM, is in the process of studying how to improve the accuracy of the data sources and methods used for making geographic adjustments in provider payments.  The first of these three IOM reports was released in June.  It is critical that changes to the GPCI component be based on the most current, valid, and reliable data. 

The AMA believes that once all three reports are released, they should serve as a starting point for Congress to examine geographic adjustments for physician work and practice expenses and ensure that an equitable policy is implemented. 

Next, Congress has also intervened on numerous occasions to extend a 5 percent increase in payments for certain Medicare mental health services.  These payments have been very important for ensuring access to mental health services by our patients.  The AMA’s CPT Editorial Board is reviewing descriptions of all psychological services.  Following that, the AMA/Specialty Society RVS Update Committee, or RUC, will review the valuation of these services and make related recommendations to CMS.  We will share those results with the subcommittee to assist you in your evaluation. 

Next, Congress has, with bipartisan support, also intervened to extend the ability of independent laboratories under certain conditions to bill Medicare directly for the technical component of pathology services provided to hospital patients.  Without this grandfather provision, Medicare beneficiaries and our patients could experience limited access to surgical services, especially in rural areas, due to the lack of availability of tissue analysis taken out at surgery done by these labs.  Bipartisan legislation to make the grandfather provision permanent is currently pending before Congress.  We urge congressional consideration of that legislation. 

Finally, Congress has intervened to increase Medicare payments for DXA scans for osteoporosis of bones.  CMS has asked the AMA RUC to review the valuation of DXA scans as well, which is likely to occur in January 2012.  We will share the results of this review with the committee to guide your further consideration of this issue. 

The AMA appreciates the subcommittee’s concern about the costs associated with extending expiring provisions.  Additional funding that has been allocated for many of these services, however, has been necessary in the absence of a complete overhaul of the Medicare physician payment system.  To avoid coming back year after year, Congress needs to undertake comprehensive reform of the Medicare physician payment system, beginning with the immediate and full repeal of the SGR, the granddaddy of the extender problem.  Until then, extender payments for these expiring provisions are needed to maintain access to these important services. 

New policies for the expiring provisions should be included as part of the new Medicare physician payment system, for which the AMA recommends a three‑pronged approach.  We have previously shared these recommendations with the subcommittee, and we would be happy to work with you as you try to make them a reality. 

The AMA is eager to continue to work with members of the subcommittee and Congress to lay the groundwork for Medicare physician payment reform.  And we are grateful to Chairman Herger and the subcommittee for calling this important hearing today. 

Thank you.  And I am happy to answer any questions. 

[The statement of Dr. Wah follows:]

Chairman Herger.  Thank you. 

Mr. Moore, you are recognized for 5 minutes.


Mr. Moore.  Chairman Herger, Ranking Member Stark, and members of the Health Subcommittee, on behalf of the American Fiscal Therapy Association and its 82,000 members, thank you for the opportunity to provide testimony on expiring Medicare provider payment policies. 

I am Justin Moore, a licensed physical therapist and currently the Vice President of Government Affairs at APTA.  Several of the expiring payment policies under Medicare impact physical therapists, including the sustainable growth rate, rural payment policies, and the Medicare cap on outpatient physical therapy, occupational therapy, and
speech/language pathology.  We will focus today’s testimony on the therapy caps by providing the background of this policy, its impact on patient and providers, and a potential solution to this issue. 

In addition to our membership and the patients we serve, APTA is also working in coordination with the Therapy Cap Coalition, an advocacy community of over 50 patient and professional organizations whose common objective is to permanently repeal the caps.  This coalition appreciates the current leadership of Representative Gerlach and Javier Becerra to repeal the therapy caps. 

The therapy caps are primarily a beneficiary issue and secondly a payment policy issue for therapists.  As part of the Balanced Budget Act, Congress authorized a $1,500 cap on outpatient therapy services under Medicare Part B.  From 1999 to 2006, Congress passed three moratoriums on the therapy caps.  In 2006, Congress reformed the moratorium policy by authorizing an exceptions process to the therapy cap that initially decreased its cost.  Congress has extended this exceptions process five times.  And the current exceptions process is valid through the end of this year. 

If Congress allows the exceptions process to expire, beneficiaries will not receive the services that are medically necessary unless they seek treatment from a hospital outpatient department or pay out of pocket for their care.  Without the exceptions, it has been estimated that 15 percent of the beneficiaries that access therapy services, or 640,000 Medicare beneficiaries, would reach that cap and have their access to therapy services reduced or eliminated. 

In particular, the therapy cap has a disproportionate impact on older, more chronically ill beneficiaries and those from underserved areas.  Without the exceptions process, these patients would likely regress in their health status and create additional Medicare expenditures to address their health care needs. 

Congress has long known that allowing the therapy caps to go into effect would have a profound impact on patient care.  The pattern of yearly extensions without an exit plan is not in the best interest of patients, physical therapists, or the Medicare program.  APTA believes the therapy cap exceptions process must be extended in 2011 but further recommends that reforms to the payment system and the benefit are needed for the long‑term fiscal health of the program. 

The original legislative intent of BBA authorized the therapy caps but called for an alternative payment methodology to eventually replace those caps.  APTA proposes to Congress that we extend a refined exceptions process for 2012, 2013, and 2014, and instruct CMS to develop a per‑visit payment system for outpatient therapy services that controls the growth of therapy utilization, with implementation by January 1, 2015. 

APTA has begun work on a reform patient system for
outpatient physical therapy services that we believe would strike the balance between ensuring access to services while improving payment accuracy for therapist services under Medicare. 

APTA is developing a reform payment system that would transition the current system to a per‑visit system based on the severity of the patient and the intensity of the therapist’s clinical work and judgment.  The therapy evaluation would provide a prediction of the episode of care and the estimated rehab potential for the patient.  APTA is working with stakeholders in the therapy and rehabilitation community to refine this system. 

We believe the system has potential long‑term cost savings through increased compliance with other areas of payment policy under the Medicare therapy benefit, advancing efforts toward quality reporting and the adoption of health information technology, standardization of practice patterns through assessment tools and registries, and a diminished potential for fraud and abuse.

APTA stands ready to work with the committee to reform the payment system for therapy services and refine the benefit to ensure the integrity of these services.  We commend the committee for this hearing on expiring Medicare policies and encourage an extension of the therapy cap exceptions process, a movement to a reformed payment statement, and refinements to the therapy benefit. 

Thank you.

[The statement of Mr. Moore follows:]

Chairman Herger.  Thank you, Mr. Moore. 

Mr. Steinwald is recognized for 5 minutes.


Mr. Steinwald.  Thank you, Chairman Herger. 

Mr. Stark, nice to see you again. 

Members, thank you for having me here today.  

I might as well get it right on table; my role is to be the skunk at the picnic.  But I welcome the opportunity, because I am very concerned about Medicare’s financial situation and the unsustainable trend line that it is on. 

I became a health economist in the1960s, about the time that Medicare was enacted, and now I am a Medicare beneficiary myself. 

It has been well established by the Congressional Budget Office and others how the Medicare spending problem is not only a Medicare problem, but it is a deficit problem and a national debt problem.  And for those reasons, I think that any discussion of health policy and Medicare issues, including the issue before the committee today, ought to have affordability as one of the principal criterions that you apply when you consider whether you should extend some of these expiring provisions. 

There are three reasons I think that Congress should be very skeptical about these extensions.  One, Mr. Chairman, you mentioned yourself, is they are costly in their own right.  They are deceptively costly.  They don’t look like they are all that expensive, taken one at a time, but if you looked at them, as you do, in a package over a 10‑year budget window, they would be on the order of $25 billion.  And even that is an underestimate considering that many of these provisions have a lifetime of more than 10 years. 

There are two other reasons, though, that I think are equally important.  One is, when you make exceptions, you undermine the integrity of Medicare’s payment systems.  Congress worked very hard since 1983 when it put in the
inpatient prospective payment system to move away from inflationary cost reimbursement and in the direction of a reimbursement system that allows providers to understand what they will be paid for a given service and therefore manage their cost to that payment.  When you make exceptions, you undermine that incentive.  You encourage providers to seek exceptions rather than to seek efficiencies.  And, of course, you create a constituency for the continuation of the exceptions and for other providers to say, where is my exception, if they are not so blessed. 

A third reason is, we all know that the incentives of
fee‑for‑service payment lead to more volume and more complex services.  And that is a major contributor to spending.  Again, once you make exceptions, it tends to undermine some of the limited checks and balances that the Medicare program has to make sure that the services that it pays for are reasonable and necessary for patient care.  Exceptions tend to undermine that. 

I included a number of examples in my written statement.  Let me touch on one or two of them.  I serve on the Institute of Medicine committee that Dr. Wah mentioned in his statement.  That committee is looking at Medicare’s geographic payment adjustments for hospital and physician services.  Fully 37 percent of hospitals are currently paid for under some kind of exception to the basic payment formula, 37 percent.  That includes the 508 exceptions, but it is not limited to that.  There are other kinds of exceptions as well. 

It needn’t be that way.  There are ways to improve the payment formulas for hospitals and physicians and other Medicare providers.  But, once again, it dilutes some of the energy to finding those payments if you are expending your energy finding exceptions and getting them extended as opposed to improving the payment system. 

Many of the rural provisions seem to ‑‑ they prop up rural payments, but they also create exceptions that have the same problems that I have already mentioned.  I especially don’t like floors in either the inpatient or the physician payment systems, floors on the geographic adjustments.  It perpetuates this idea of a Lake Wobegone world in which no one can be below average.  And it has the effect of messing up payments for all providers, not just a limited few. 

In order to not take any more time, let me just say, I am sorry to play this role, but I do think that Congress should be very, very cautious about extending these provisions.  It should set a very high bar.  There should be compelling evidence of a beneficiary need for any of these extensions.  And Congress should think about whether we want the exception to be extended or whether or not we want an improvement in the payment formula. 

That ends my oral statement.  I am happy to answer any questions. 

[The statement of Mr. Steinwald follows:]

Chairman Herger.  Thank you. 

Mr. Umbdenstock, it is my understanding that hospitals that go through the standard wage reclassification program must reapply every 3 years.  As part of this process, hospitals must prove to CMS that they have increased their wages and are paying wages that are similar to those of nearby hospitals. 

I have had a case in my own district where a hospital lost its reclassification and millions of dollars in Medicare payments because its wages did not meet the required threshold.  Is it fair that Section 508 hospitals do not have to reapply like other hospitals do and are simply given the higher wage rate if Congress extends the policy? 

Mr. Umbdenstock.  Thank you, Mr. Chairman. 

I do think that it is important to understand that the original reason for Section 508 was because these were areas and hospitals in areas near higher‑paid areas that failed to qualify in that criteria, kind of near‑miss situations.  So they have already demonstrated that they are close to the wages ‑‑ more similar to the wages in the areas into which they are reclassified than the one in which they are presently residing.  So, under this program, it does fill that kind of gap for them. 

Now, as this provision moves along, we certainly do want to see it extended once again to take care of that problem.  But it is their first intention to go through the regular wage process, wage adjustment process, to see if they can qualify there before they turn to this. 

Chairman Herger.  Is it fair that Section 508 hospitals do not have to prove that they are in fact using extra money to increase wages to nurses and other patient care and staff? 

Mr. Umbdenstock.  Well, that is ‑‑ the wage and benefits are two‑thirds of a hospital’s annual budget.  And it is the hardest place for them to keep up now because of shortages of personnel and increasing market competition for those people.  So that is where moneys are going for the average hospital.  They are all facing significant shortages and use this money for that purpose. 

Chairman Herger.  Again, unlike these other hospitals, they don’t have to prove it.  That it is something that has been automatic.  Is that not correct? 

Mr. Umbdenstock.  I would have to ask my staff to
double‑check me before I give an answer. 

That is correct; they do not.  Thank you. 

Chairman Herger.  You testified also that there are 258 rural hospitals that benefit from the outpatient hold harmless payment.  But according to CMS, there are more than 900 rural hospitals that are potentially eligible for the hold harmless payment but have not received it because their aggregate outpatient PPS reimbursement is higher than their costs.  Can you explain why the outpatient PPS is sufficient for some similarly situated rural hospitals but not for others? 

Mr. Umbdenstock.  No, I don’t think that there is a particular across‑the‑board explanation for that or rule of thumb.  I think these are situations where they find their costs to be significantly more than the payment and need that type of assistance in order to try to narrow that gap; 258 is the number of hospitals as of 2010 that have qualified for that.  But I would have to get back to you, sir, on exactly why ‑‑ if there were major reasons why the others were not ‑‑ were so much more above that. 

Chairman Herger.  Thank you.  I would appreciate it.  If you would do that, please. 

Mr. Steinwald, you note in your testimony that Congress should be cautious about extending these payment policies.  By what criteria should each extender be judged, in your estimation? 

Mr. Steinwald.  Yes, Mr. Chairman.  Thank you.  I would say three criteria:  The one I mentioned before is affordability, the extent to which an extension might contribute to Medicare’s financial spending problem. 

And let me say offsets are nice.  I appreciate you have asked the witnesses to think about offsets to the extension of expiring provisions, but Medicare needs savings, Mr. Chairman.  I wouldn’t let the availability of offsets reduce your skepticism about the need to extend these expiring provisions. 

Then I think there ought to be a compelling beneficiary need at the foundation of an extension.  And I think you ought to be looking at whether or not an exception is the way to address it or an improvement in the payment system is a better way. 

Chairman Herger.  Thank you. 

Mr. Stark is recognized for 5 minutes. 

Mr. Stark.  Thank you, Mr. Chairman. 

First of all, I think you all heard this before, but I am charged with asking you that if there is anybody among you who feels that any savings that we get should first go toward strengthening the Medicare program and not go to the general deficit reduction.  Anybody disagree with that on the panel? 

Let the record show, Mr. Chairman ‑‑ you disagree with that, Mr. Steinwald? 

Mr. Steinwald.  Well, when you said any savings should strengthen the Medicare program.

Mr. Stark.  The Medicare savings. 

Mr. Steinwald.  I would disagree with the blanket statement that any savings should strengthen.  I think Medicare does need savings that contribute to reducing the deficit. 

Mr. Stark.  You would pick and choose. 

Dr. Wah, as I understand it ‑‑ you mentioned the GPCI issue ‑‑ physicians are paid, one, for the medical procedure and, two, generally for office expense, in other words, the cost of rent, malpractice insurance, help in the office, and so forth.  Is there any reason that a physician should be paid, let’s say, for a tonsillectomy any more or less in New York than in Wapakoneta, Ohio?  Same procedure.  Same training.  I would assume that that part of the physician reimbursement should be standard across the country. 

Dr. Wah.  I believe ‑‑ thank you for that question.  I think what you are asking, in the current environment, because we have a resourced‑based payment system, what you are describing is essentially the basis for the way we are doing it.  In other words, what resources does it take to deliver the service? 

Mr. Stark.  No, that is a separate payment.  I am just saying that a doctor is trained and I presumed licensed to perform a procedure.  Pick whichever one you want; removing a plantar wart or whatever.  Is there any reason that that shouldn’t be the same payment across the country? 

Dr. Wah.  If we could isolate that part out. 

Mr. Stark.  Oh, we do that now. 

Dr. Wah.  I know there is a number of attempts to try to do that accurately, but there are some problems with that.  So there are ‑‑ there is the belief that if we could just get to the part where, as you say, taking off the wart or taking out the tonsil is the same, regardless where in the country it is, we should reimburse that exactly the same.  I think that is what you are advocating.

Mr. Stark.  I don’t think there is any reason that it would be different. 

Now, the cost of operating the practice, as I said before, insurance, rent, that differs all over the country.  We have attempted to adjust that for the physicians.  But I just wanted, if we could establish somehow that for a particular procedure across the country, pay the same.  Then we get to the issue of facilitating the physician’s ability to provide that procedure, depending on geographic conditions or economic conditions or if they are in a rural area and a whole host of issues.  It seems to me that with that, we kind of have to push you guys to get your RUC ideas back as quickly as you can so we know what those should be.  But the practice expense is the big gorilla that we have to wrestle with. 

From my experience, this is largely an accounting question.  It does cost more for rent, I am sure, in some areas that are rural areas or in rural areas where somebody has to cover a host of different places.  So if we could encourage the AMA to help us to set the payment on the procedures, then I think we could get a long way toward properly reimbursing physicians, not necessarily with desired payment but maybe with reasonable payments.

Dr. Wah.  And to be clear, the AMA does not set payments.  We wish we did.  But we don’t.  This is not our job in this process, Congressman.  CMS sets the actual payment.  What we have done is set up a process by which we relatively weigh the various procedures. 

Mr. Stark.  And you are in the process of revising that now, are you not? 

Dr. Wah.  We are always constantly reviewing this relative value scale by which we have been working for a number years.  And we bring together experts from around the country to do that.  The AMA does that without costing the taxpayer any money.  We do that on our own expense.  But we believe it is important physicians do that as opposed to some other entity that may not understand the nuances of health care as well as physicians.  I just want to be clear, we are not setting payment.

Mr. Stark.  We look forward to your next report. 

Dr. Wah.  Now the GPCIs are important because, as you pointed out, there are wide variations in practice expenses.  Also, as most everyone knows in the country, those expenses are not going down, most are going up.  Whether they be rent or salaries or insurance, all of those factors are being increased.  That is why it is important that we have the ability to see those things increase.

Mr. Stark.  Thank you. 

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

Mr. Johnson.  Thank you, Mr. Chairman. 

Mr. Steinwald, I appreciate your testimony and the questions you feel Congress needs to ask before extending some of these policies. 

In looking at pathology in particular, you note in your testimony that Medicare should not pay twice for the same service.  Can you explain how this can occur under the pathology services exception that GAO studied? 

Mr. Steinwald.  Yes, sir. 

When we looked at this I believe in around 2003, what was happening at the time is that many hospitals were outsourcing certain tests to be performed by independent laboratories.  Those independent laboratories were permitted to bill Medicare directly and get paid directly. 

Well, under the inpatient prospective payment system, the DRG payment is supposed to cover all of the patient’s care, including any testing.  And so when I say it is paying for it twice, what I mean is the hospital is getting paid a DRG payment, a single payment for the entire care of the patient, and at the same time, these outsourced medical tests are being billed and paid for separately. 

Mr. Johnson.  Thank you. 

Dr. Wah and Mr. Umbdenstock, outside of labs and certain facilities, no other supplier can bill Medicare directly for services provided in the hospital setting.  How can Medicare be sure it is not paying twice for pathology service under both IPPS and by allowing independent labs to directly bill?  He just talked to that.

Dr. Wah.  I think we are not talking about all laboratory services.  Pathology services are those that examine tissue that is taken out at the time of surgery, some sort of tissue analysis.  And in many hospitals, those facilities are not available in the hospital.  So they need to essentially go outside the hospital for those services.

Mr. Johnson.  How many hospitals don’t have that ability?  All the ones in Dallas that I have been to do have it.

Dr. Wah.  I have to leave that detail to ‑‑ I want to be clear we are not talking all laboratory services or even all pathology services.  It is those where the hospital does not already have that ability within the hospital itself, so it is going outside to get those.

Mr. Johnson.  We should be sure they are not billing twice. 

No, we can’t.  You are right.  You answered it. 

If that provision were to expire, would the patients experience a gap in care that didn’t previously exist. 

Mr. Umbdenstock.  If I may take a pass at the first question as well.  For many times over now, those costs, at the direction of HCFA and then CMS, have not been included in the hospital’s calculations.  So they were not built into the rate.  It was expected that they were going to be billed separately. 

Now, to how many hospitals would not provide the service if this was not allowed, I really can’t answer ‑‑  I think that was your second question, sir ‑‑ I can’t answer that.  I can’t project that.  But we do know that many of them have gone out for independent services because they don’t have the volume or in some cases can’t afford to maintain the staff and the service.  And so they have contracted out to someone who can service a lot of hospitals and put that volume together and make it economically worthwhile to do so. 

So we know that that was the original reason.  And it would only, in my mind, it would only stand to reason that more would opt out because they couldn’t afford to do this on their own.  They couldn’t afford the building systems and so on.  So I think it would further exacerbate the problem.

Mr. Johnson.  Thank you. 

Mr. Williamson, thank you for being here.  Can you provide some insight into the figures you mentioned in your testimony, such as the 22.6 percent addition to the base payment rate for ambulance services to remote areas, and how are those numbers generated, and do you feel a fixed‑rate adjustment is appropriate for a service that seems to be variable in regards to time and distance? 

Mr. Williamson.  The issue of how that was derived was from the study from the GAO office.  The reason for the drastic difference in cost is, of course, the geographic area, which the ambulance ‑‑ super rural ambulance service covers, and the population density.  There is so much fixed cost and readiness cost involved in providing ambulance service on a timely fashion, that geographic density plays a huge part.  So it was determined from those cost studies in the GAO report how much that should be and why it was so drastically more than urban or a less rural area. 

Mr. Johnson.  Okay.  I am not sure I know why the difference is there.  But thank you for your testimony. 

I yield back. 

Chairman Herger.  Thank you. 

Mr. Thompson is recognized for 5 minutes. 

Mr. Thompson.  Thank you, Mr. Chairman. 

Thank you to all of you for being here to testify. 

Mr. Moore, I appreciate your comments on the therapy cap.  I think that has been a huge issue, and it has really prevented a lot of folks from getting treatment that they really needed to get.  I am glad that you raised that issue. 

Mr. Steinwald, you mentioned that we really need to take a close look at these extenders.  Were you talking about all of the extenders?  Because the SGR issue, I think that is pretty universally accepted that we need to figure out a better way to deal with that.  That is something that not only puts providers in a bind, but patients as well.  Do you classify that the same as all of the other? 

Mr. Steinwald.  It is the big dog, for sure.

Mr. Thompson.  I know it is the big dog, in more ways than one. 

Mr. Steinwald.  I was asked in my statement to exclude any comments about Medicare Advantage and also SGR.  So I would be happy to talk with you at length about SGR in another setting.

Mr. Thompson.  You weren’t including that with the long list of extenders that we may or may not be talking about today.

Mr. Steinwald.  No.  But by excluding it, I don’t mean to imply that I think you should just repeal it. 

Mr. Thompson.  We should just ‑‑

Mr. Steinwald.  Repeal SGR. 

Mr. Thompson.  I wasn’t talking about repealing it.  I was talking about addressing the issue of payments to providers and the impact that has, not only on them as providers but also the people that rely on medical services. 

Mr. Williamson, thank you for raising the issue of the 22.6 percent super rural add‑on payment.  I know that in my district, I heard from a lot of ambulance providers who really took a hit because this was done in a way ‑‑ done
retroactively, and folks had to wait a long time to get their payment.  And it really put them in an economic bind.  Some of the providers in my district actually had to take out loans in order to keep their business afloat while they were waiting for the reimbursement that they were certainly entitled to that. 

I just want to hear from you exactly the impact that that has had on the people that you represent as well as the people that they service. 

Mr. Williamson.  Well, it, actually, was a devastating situation for many services, some of which had to close.  In other situations where they had to reduce staff, it forced other services to cover a larger area, which then means the patient received a longer response time.  So it had a major effect also on enhancement of the services, whether it be more medics or newer equipment.  That short period of time set them back longer than the 3 months it took to receive the funds.  It stopped all planning and anticipated growth. 

Mr. Thompson.  I just think we need to pay particular attention to that because the whole idea of retroactive payments, this is a real clear case of how it hurts providers.  But it is across the board.  Any of the folks that you represent at this dais today, when they are dealing with retroactive payments, it makes it very, very tough. 

Mr. Williamson, does your organization include
firefighters, county health departments, and public hospitals? 

Mr. Williamson.  Yes.  We represent all facets of the industry. 

Mr. Thompson.  I was a little surprised to hear that you kind of tout the Health Care Leadership Council’s Medicare proposals.  I think you said they were worthy of consideration.  Part of that proposal includes some pretty drastic changes in Medicare and some would say actually pave the way for the Ryan voucher program that we have had hearings on.  Is this something that your membership supports?  Has this been vetted through your membership? 

Mr. Williamson.  No, it has not.  We haven’t formally endorsed that program ‑‑ those recommendations ‑‑ but we thought several of those had merit and that it should be looked at and studied. 

Mr. Thompson.  Why did you feel compelled to tell the committee that you thought that this move toward voucher was an appropriate way to go? 

Mr. Williamson.  Well, we didn’t mention the particular aspect of that program that talked about vouchers.  We talked about ‑‑ also, we brought up the legislative reform as far as the court issues.  And then on the Medicare programs, where they could competitively shop for a better service, we thought that was a plausible position to look at for reduction. 

Mr. Thompson.  Thank you. 

Chairman Herger.  Thank you. 

Mr. Buchanan is recognized for 5 minutes to inquire. 

Mr. Buchanan.  Thank you, Mr. Chairman, for this important hearing. 

I would also like to thank all of our witnesses. 

We have touched on extenders a little bit.  I want to talk, mention to Mr. Umbdenstock, I think I read in your testimony you had mentioned that you are encouraging Congress to enact robust medical liability reform to eliminate a lot of frivolous lawsuits.  I know in our area in Florida, when I talk to doctors or hospitals or anybody that is involved in the medical field, they just feel like that is the low‑hanging fruit, and it can make a big difference.  I know that Texas has a cap of $250, and they just got loser pay I think September 1st.  That will make a big difference. 

We have a lot of doctors or people going to medical school.  They are going to look at where they have got the best opportunity.  If know I have a neurosurgeon in my area that suggests that he is paying $200,000 a year for med mal liability insurance. 

I was just wanting to know, from your standpoint, what kind of savings do you think we would get?  I guess there are two aspects ‑‑ the immediate savings, but also in terms I hear a lot from the doctors about defensive medicine, doing a lot of unnecessary tests that they wouldn’t have to do otherwise. 

Mr. Umbdenstock.  Yes.  To that, we have long supported liability reform at the American Hospital Association and continue to do so.  I think it is a very important area for a lot of reasons, not the least of which certainly in dollar terms is the whole issue of defensive medicine and how that drives up utilization, drives up costs.  But it also would have an indirect benefit, too, of helping out to the physician side and the hospital side of lowering their expenses, lowering the overall costs of the Medicare program.  So we think there are both direct and indirect benefits to it. 

It has been scored up in the $60 billion range over 10 years.  We think that is a very important source of money to put to better use across the system. 

Mr. Buchanan.  Again, that is what I hear every day any time I meet.  We have medical societies in each of our communities.  That is their biggest issue. 

Dr. Wah, what is the AMA’s position today on medical reform, tort reform, legal reform, getting rid of junk lawsuits, frivolous lawsuits.  What is the position of the AMA? 

Dr. Wah.  Thank you for bringing up that important issue.  Clearly, medical liability reform is an important reform that we believe needs to happen in this country for our physicians but also for our patients.  Mr. Umbdenstock talked about the $60 billion the CBO scores for that.  We are hoping the supercommittee in their deficit reduction process looks at that $60 billion as a way to get towards their $1.2 trillion. 

But also, let me just point out for our patients, beyond the cost of the additional tests, the unnecessary tests to get done in defensive medicine, there is a human cost as well.  Everyone knows it is not easy to go get an extra blood test, an extra x‑ray, or another kind of exam.  So there is more than just the financial cost that we are concerned about here.  Those tests have a human total as well.  And there are increased risks when they have the additional procedures and tests.  So we are very concerned about that.  It seems to us that there are a lot of dollars that get spent in this area that can be spent better on medical care as opposed to just simply providing some sort of defensive process against frivolous lawsuits, as you pointed out.

Mr. Buchanan.  When the AMA throws out a number of $55 billion or $60 billion, does that include ‑‑ are you estimating defensive medicine in there as part of that? 

Dr. Wah.  That number is actually I think from CBO, not from us.  I am just saying what CBO scored. I think it is $63 billion of potential savings.

Mr. Buchanan.  Does that include defensive medicine?

Dr. Wah.  A lot of that part is defensive medicine, yes.

Mr. Buchanan.  Mr. Steinwald, do you want to comment on tort reform, legal reform? 

Mr. Steinwald.  The CBO estimates, the way you get savings is they estimated there would be one‑half of 1 percent effect on spending under Medicare with this reform.  Now, for years, they were reluctant to come up with an estimate like that.  But they did so recently. 

So you get less Medicare spending.  You also get added revenues because the estimate would then cause private employers to spend less for their health care benefits for their employees and therefore divert more money into taxable wages.

Mr. Steinwald.  So you get a spending reduction, and you also get some additional revenue.  I don’t know that ‑‑

Mr. Buchanan.  You mention affordability.  Do you have a sense of a number or a thought on that in terms if we had material tort reform like Texas seems to be moving towards, savings that we would have? 

Mr. Steinwald.  Well, I would go with CBO.  I mean, they are the ones who have the wherewithal to make these estimates. 

And, once again, I would say if there are savings to be had, they don’t necessarily have to be used in order to pay for extending expiring provisions. 

Mr. Buchanan.  Thank you.  I yield back.

Chairman Herger.  Thank you. 

Mr. Kind is recognized for 5 minutes. 

Mr. Kind.  Thank you, Mr. Chairman, and thank you for holding this important hearing. 

I want to thank all the witnesses for your testimony here today.  It is very helpful. 

Let me just ask you all just a general question.  Because I happen to believe and I am kind of a disciple of the Dartmouth Atlas studies that come out in regards to utilization practice of health care throughout the country.  I believe if we are ever going to get a grip on the rising cost of health care, especially the impact it is having on both public and private budgets alike, we are going to have to change the way we pay for health care in this system in this country.  We have got to move away from the fee‑for‑service system, paying for tests, procedures, things being done, and instead move to a fee‑for‑value payment system. 

Mr. Steinwald, I want to thank you for serving on the first IOM panel.  I know you have been tasked to do a lot in upgrading the Medicare reimbursement formula with the two phases.  The second one I understand will be released next week. 

But many of us who pushed for those studies to come out, for this one in particular, viewed it as just a bridge to the second IOM study.  That second IOM study is tasked to change the fee‑for‑service system under Medicare to a fee‑for‑value reimbursement system, and they are supposed to present an actionable plan to IPAB and also the Congress on how this can be done. 

I think that ultimately needs to be the goal when it comes to health care reform so we can get out of the SGR problem.  We can get out of hearings like this talking about tweaking the reimbursement for procedures, for particular exceptions that you have talked about and written about.  Otherwise, we will be here years later having these same type of hearings without making any real meaningful payment reform. 

Dr Wah, I know the physicians of the country, too, have embraced more quality measurements and outcome‑based practice.  How important do you think will it be for us to convert fee‑for‑service under Medicare to an outcome‑based reimbursement system?

Dr. Wah.  Thank you for that question.

I 100 percent agree with you that what we need to do is revamp the Medicare payment system, in particular the physician payment system.  As I said before, all of these patches that you are talking about, all of these extenders ‑‑ and I have used the example with our staff ‑‑ it is like all the little patches you have on a leaking boat.  What you really need is a new boat.  You can’t take the patches off the boat, because it will leak even worse.  So you are, unfortunately, stuck with all the extenders because of the problems you have got with the boat.  But what is really needed is a new boat. 

The other way to put it for the physicians in the audience is we have get a lot of symptoms here that we are treating but not the underlying disease.  The underlying disease is we need a new system. 

I would say as a physician what we need to talk about first is a new way to deliver health care.  So it is delivery reform first and payment reform second.  What you should do is have an ideal delivery reform and then find a payment system that facilitates that ideal delivery, and that is what we are looking to do here. 

Mr. Kind.  It seems ‑‑

Dr. Wah.  Before we do that, we have to get rid of the SGR.  As somebody said, a dog or a big dog or any kind of dog, it is clearly what has to be done first.  That has to be removed.

Mr. Kind.  I would agree with you on that. 

Dr. Wah.  Then we have to then go back and have some stability while we figure out what the ideal delivery system is.  As I said before ‑‑

Mr. Kind.  The SGR ‑‑ you are right ‑‑ has been patently unfair to the practicing physicians around the country.  For them to be held hostage year after year expecting a patch or something to be worked out in the eleventh hour, it is just too much unpredictability and angst within the medical profession. 

But it sounds like you just described the Affordable Care Act, trying to do system delivery reform and then also payment reform in future years.  Because we all understand we are not going to change the way you pay for one‑fifth of the entire U.S. economy overnight.  It is going require a period of transition. 

Yet my fear with the Super Committee and all this deficit reduction pressure that we have around here is we are in a race against time right now for just draconian, across‑the‑board cuts in Medicare or health care spending generally, regardless of the consequences, regardless of the implications that it will leave patients throughout the country, rather than allowing these reforms to move forward on how health care is delivered but ultimately how we pay for it. 

Mr. Umbdenstock, let me ask you in regards to some of the exceptions with rural providers, because the margin for my hospitals in rural western Wisconsin are very thin to begin with.  What would happen if the exception for rural reimbursements were to be eliminated overnight?

Mr. Umbdenstock.  Oh, I am very fearful because of the situation that you describe about those thin margins.  We know they take care of a very small population basis.  We know they are very essential because of the great distances to other services.  So, yes, I think it would put an already strained system under much greater strain; and I agree with the leaky boat analogy.  We are living with these now because the fundamental system is flawed. 

To your first question, sir, I, too, would agree, the American Hospital Association agrees, we have got to move toward a value‑oriented system.  The challenge is to learn how to get there and to do it right while maintaining the current delivery system that we have, make sure it is viable in that transition period, but on a principled basis get to a point where pay for performance is fully supported.  Exactly what the measures are and exactly how they get used and how we account for differences in different population segments, yet to be worked out. 

Mr. Kind.  I agree with that. 

Thank you, Mr. Chairman.

Chairman Herger.  Dr. Price is recognized for 5 minutes.

Mr. Price.  Thank you, Mr. Chairman; and I want to thank the panelists as well for their testimony. 

I think it is important to appreciate what we all want is the highest quality of care to be able to be delivered to the citizens of this great country, and I would suggest that every exception that has been put into place was an attempt to get a higher quality of care to the patient.  So there was a rationale behind each and every exception.  Obviously, this has gotten way out of hand, as the testimony of all of you demonstrates. 

Can we agree that the Medicare payment system is broken? 

Everybody agrees the Medicare payment system is broken. 

All right.  I want to touch on a couple of specific ‑‑ which means we have to reform the Medicare system completely.  I want to touch on a couple of issues and then ask a couple of specific questions. 

First, lawsuit abuse was touched on, the practice of defensive medicine.  CBO scores it, says that if you fix it, it will save $60 billion.  There are quality studies to demonstrate the practice of defensive medicine is in fact greater than $60 billion, in fact, in the hundreds of billions of dollar range if in fact you reform the lawsuit abuse issues in responsible ways.  So I think there is a lot more savings there. 

Secondly, this pay for value sounds wonderful.  It sounds just grand.  But as a practicing physician I can tell you that what is of value to one patient may be different than what is of value to another patient.  And so having us in Washington decide what is of value is very, very troubling to me; and I think we need to keep that quality care for each individual patient at the heart of what we are talking about. 

Mr. Steinwald, you talked about, in response to a question on what criteria we ought to use to continue an exception, you mentioned affordability being one of them.  I assume you are talking about the Medicare program.  If the Medicare doesn’t program doesn’t have enough money to provide a certain service, do you believe that a Medicare patient ought to be able to privately contract with a physician for that service if Medicare can’t afford it? 

Mr. Steinwald.  Let me think about that for the next 2 weeks. 

Mr. Price.  Great.  Free decision between one citizen and another citizen to contract for a service, you are not certain about. 

Mr. Steinwald.  No, I am not sure that one would need to go that far in order to make an improvement.

Mr. Price.  But in principle, in principle. 

Mr. Steinwald.  I am not so sure.  I can see the arguments on both sides. 

Mr. Price.  Dr. Wah, I want to get right to the issue of the fundamental reform that is necessary.  All of these exceptions, as I mentioned, I think were trying to provide a higher quality care for patients.  But what you mentioned I think is incredibly important for us to concentrate on.  That is that the system is broken and needs to be reformed.  Is it your position or the position of the AMA that if we have a reasonable, responsible payment system that none of these exceptions would be necessary?

Dr. Wah.  Thank you, Dr. Price. 

Obviously, what I said before is I think we have got a problem with the entire system; and that system that is broken has led to all these patches that we are talking about today.  So, yes, absolutely, we believe the Medicare payment system has to be redone. 

But we need stability while we are redoing it, because it can’t be redone overnight.  That is why in that three‑pronged part that I talked about in my testimony, first we need to repeal the SGR, just flat out repeal it.  And then there has to be some period of some 5 years, we have estimated, of stability while we develop a new system that does in fact deliver high‑quality care in a cost‑effective manner to as many patients as possible. 

And so we think that 5 years of stability, with recognition that costs are going to increase, as the chairman said.  There the cost of your rent, your insurance, your personnel.  We need to have escalators that cover those increasing costs.  But 5 years of stability in the system while we develop the new system. 

And then develop a new system that is equitable for all participants in the system, and that is what we are looking for.  I think if we did that we wouldn’t come back year after year for this exact kind of hearing where we are looking at this huge number of little patches on the leaky boat. 

Mr. Price.  So if I am hearing you correctly, what you are saying is if we have a system that is flexible enough and responsive enough to patients and physicians, then these kind of exceptions could go away. 

Dr. Wah.  Absolutely. 

Mr. Price.  I just want to have you respond, if you would, to the same question I asked Mr. Steinwald.  That is, if we are going to confine what Medicare patients can receive based upon the amount of money available, which is a reasonable thing to do from the Federal Government’s standpoint, if a Medicare patient is told they can’t receive a service in that program because there is not enough money, do you believe as a physician and as a representative of the AMA that that patient ought to be able to contract with that physician for that service? 

Dr. Wah.  Absolutely.  There is AMA policy supporting that.  I mean, I support it as a physician.  I support it as an American that believes in such fundamental freedom that we ought to have the ability to contract for our services in a way that everybody else can in this country. 

I appreciate your efforts in this regard in the bill you have already put in.  So, obviously, we are very supportive of your bill and the companion in the Senate; and we are looking for cosponsors wherever we possibly can.

Mr. Price.  Mr. Chairman, I yield back.

Chairman Herger.  Mr. Pascrell for 5 minutes. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

In response to the last series of questions, I would conclude myself, Dr. Wah, that those that can afford it might look for private assistance but not the majority of those on Medicare.  So you can deal, I think, with the majority or you could ignore them that will not go to seek other care if Medicare is not there.  I think you would agree with me on that, wouldn’t you? 

Dr. Wah.  I don’t think it is an either/or, sir.  I think it is an option that acts a little bit as a safety valve on a process that clearly is not working today where there is not adequate payment for some of these services.  It allows the physician and the patient to form a companion contract to make up that difference.

Mr. Pascrell.  But do you think the majority of Medicare patients fit into that particular group of people that we are talking about? 

Dr. Wah.  I don’t know about majority.  I think there are a number of examples where, just like anywhere else in our economy, there are patients that want to procure services and they are willing to pay for it, but they are currently precluded from using their Medicare benefit which they paid into their entire life because of these rules that don’t allow for them to have any kind of additional contracting outside the Medicare agreement that is with the physician. 

Mr. Pascrell.  Do you think that the Super Committee looking at many ‑‑ the Medicare problems that we have to address, such as you just talked about it, the physician fix ‑‑

Dr. Wah.  Well, actually, sir, it is the SGR fix.  Physicians are fine.  We don’t need fixing. 

Mr. Pascrell.  How does that contribute to the deficit, Dr. Wah? 

Dr. Wah.  I think the SGR is becoming ‑‑ as you all realize, for 10 years, Congress has had to go back and patch the SGR system, freeze payments, and they never finance it.  They never paid for it in an accounting way.  They never really accounted for it on the books.  So, right now, there is about $300 billion that are hiding in the books; and that is really not honest accounting. 

Mr. Pascrell.  How would you suggest we ‑‑ 

Dr. Wah.  I think the deficit reduction committee, the Super Committee we are talking about, really has an opportunity here to bring forward honest accounting and account for this 10 years of kicking the can down the road and making the problem bigger.  In 2005, the SGR could have been fixed for about $48 billion.

Mr. Pascrell.  Correct.

Dr. Wah.  Now we are talking just $300 billion, and in 2016 we are looking at probably $600 billion to fix our problem.  None of that is showing up on the books.

Mr. Pascrell.  Well, we tried to do that.  Dr. Wah, as you remember the debate that went back and forth, we tried to do that at that time. 

I want you to make clear to me, what do you think that Medicare savings, those that were reported to happen and those we hope to happen, I think that they should first go towards fixing these Medicare problems we have been talking about, not to outside programs.  Would you agree? 

Dr. Wah.  Certainly as a physician taking care of patients ‑‑

Mr. Pascrell.  You think that would be a good idea, Dr. Wah? 

Dr. Wah.  ‑‑ high priority, yes, absolutely.

That is not my call.  I think that is your call to decide where those savings go.  But certainly from my standpoint I think patient care is very important, and Medicare provides a system that gives care to a large population.  That is important as well. 

Mr. Pascrell.  Mr. Moore, one quick question ‑‑ thank you, Doctor ‑‑ about traumatic brain injury.  As the co‑chair of the Congressional Brain Injury Task Force, can you tell me how important it is for those patients to be able to access therapy and how these therapy caps negatively affect brain injury patients? 

Mr. Moore.  Thank you, and appreciate all your leadership on that issue. 

The patient with traumatic brain injury is a great example of a patient that would be adversely affected by these arbitrary financial limits, those patients with complex, high‑need, high‑rehabilitation‑need diagnoses, especially if they need multiple services.  As we said, the therapy cap is currently a shared cap between PT and speech language pathology.  An individual with brain injury would need both those distinct professional services.  And so that is one of the key diagnosis that benefits from having care above that cap. 

Mr. Pascrell.  Thank you very much. 

Thank you, Mr. Chairman.  I yield back.

Chairman Herger.  Thank you. 

Mr. Gerlach is recognized for 5 minutes.

Mr. Gerlach.  Thank you, Mr. Chairman.  I am going to try to be quick with my questions, given where we are with votes over in the Capitol. 

First, Mr. Umbdenstock, real quick question with regard to section 508.  I have a situation in my district a few years ago where Reading Hospital in the City of Reading, about 60 miles from the City of Philadelphia, had an application in for hospital wage reclassification, because of the fact that it competes so heavily in that metropolitan statistical area for all the hospital staff.  So they are competing with Philadelphia‑area hospitals every day for good quality staff, and they were successful in getting a wage reclassification, which is a good thing. 

And yet there seems to be examples, too, one in Burlington, Vermont, which is 216 miles away from Boston, that also got a reclassification even though it is probably not likely that someone from Burlington is going to travel 432 miles every day to go to work in Boston on a round‑trip basis. 

So what would your suggestion be if we are looking at the extension or continuation of the reclassification system?  What would be a good way from a geographical proximity standpoint to tighten up how that reclassification determination is made?

Mr. Umbdenstock.  Yes, Congressman.  Actually, the American Hospital Association has now under way a task force on the area wage index.  We will be studying it with 20 or 22 of our members very closely over the coming year to come up with exactly those recommendations. 

I think in the example you cite, certainly 60 miles is a commutable distance in the common labor market, but 240 or 250 miles may not be commutable but it is in terms of attempting to attract and recruit and retain staff at a level for that particular medical center.  So there may be a very high‑intensity type of organization that recruits in the greater Boston teaching hospital, greater New York teaching hospital types of markets. 

So our markets in health care, when you get to the advanced level of service, really becomes even more than regional.  It becomes national.  So it isn’t necessarily by zip code or by county or even by urban area.  The competition and the recruitment goes on nationally. 

Mr. Gerlach.  Mr. Moore, thank you for your help on the therapy cap legislation, a very important piece of legislation to move forward and consider.  Because, as you said, it is an artificial cap on the ability of very needy patients to get the care they need, if they happen to need care a little bit more than $1,870 a year. 

So as you continue to work on that issue and all of you gentlemen continue to work on these issues and whether the reimbursements are right or not, what we are not talking enough about either, it seems to me, is the current waste and fraud in the system.  That if you identify that, deal with that, and then therefore save those dollars from being wasted or fraudulently taken away, it can be used to better fund the kind of services, Mr. Steinwald, you say should be funded, even though it might be more costly to the system. 

There is legislation in the Senate by Senator Kirk and Senator Wyden, Senate Bill 1551, I would appreciate if you take a look at and get back to the committee on your position on it.  It would set up a common access card for Medicare patients as well as for the providers, creating a biometric system for the providers to assure that the providers are really the ones who ought to be providing Medicare services to that beneficiary, the beneficiary having like a debit card, a number card with a pin, to make sure that person is the right person to be receiving those services. 

It is estimated that in 2010 by the Office of Management and Budget there was $48 billion in improper payments in the Medicare system in 1 year, $48 billion.  Now it seems to me that is a lot of money that could be used to make sure people are getting the therapy they need, physicians are getting proper reimbursements for services they provide, hospitals the same, ambulance services. 

So we ought to be talking more not just about the amount of reimbursement but why there is so much waste and abuse and fraud in this system that we don’t have the dollars to do really what should be done in getting care to patients.  So if you gentlemen could take a look at that legislation and get back to the committee, it would certainly be appreciated. 

With that, I yield back.  Thank you, Mr. Chairman.

Chairman Herger.  Thank you. 

And I want to thank each of our witnesses for your testimony and your insight, your participation was integral to helping us understand the history of these expiring provisions and the impact they have on providers.  I know the information we learned from this hearing will be a good starting point from which to further assess each of these expiring provisions before the end of the year. 

As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask that the witnesses respond in a timely manner. 

With that, the subcommittee is adjourned. 

[Whereupon, at 3:24 p.m., the subcommittee was adjourned.]

American Association of Retired Persons, AARP
American Clinical Laboratory Association, ACLA
American Occupational Therapy Association
American Psychological Association Practice Organization
American Speech Language Hearing Association
Arizona Hospital and Healthcare Association
Center for Fiscal Equity
College of American Pathologists, CAP
Federation of American Hospitals
Focus on Therapeutic Outcomes, Inc.
Gundersen Lutheran
Medicare Modernization Act, MMA
National Association for the Support of Long Term Care, NASL
National Rural Health Association, NRHA
Rural Hospital Coalition
West Michigan Medicare Equity Coalition, WMMEC