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Hearing on MedPAC’s Annual March Report to Congress

March 15, 2013

Hearing on MedPAC’s Annual March Report to Congress 










March 15, 2013


Printed for the use of the Committee on Ways and Means

DAVE CAMP, Michigan,Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
DIANE BLACK, Tennessee
TOM REED, New York
MIKE KELLY, Pennsylvania

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN,Staff Director and General Counsel
JANICE MAYS,Minority Chief Counsel

KEVIN BRADY, Texas, Chairman

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

RON KIND, Wisconsin








Glen M. Hackbarth
Chairman, Medicare Payment Advisory Commission


Hearing on Examining Traditional Medicare’s Benefit Design

Friday 15, 2013
U.S. House of Representatives, 
Committee on Ways and Means, 
Washington, D.C. 


The subcommittee met, pursuant to call, at 9:32 a.m., in Room 1100, Longworth House Office Building, Hon. Kevin Brady [chairman of the subcommittee] presiding.

[The advisory of the hearing follows:]


Chairman Brady.  Good morning everyone.  I want to welcome everyone to the second hearing of the Subcommittee on Health for the 113th Congress. 

Today we will be hearing from the Medicare Payment Advisory Commission, MedPAC, on the recommendations in their March 2013 report on Medicare payment policies.  We heard from MedPAC during our Medicare structural reform hearing two weeks ago.  It was insightful to hear the Commission’s recommendations for improving the design of Medicare in a way that is less confusing for seniors, limits their out‑of‑pocket costs, and provides financial incentives to seek the most appropriate care in the most appropriate setting.  It is my hope that the committee can work together in a bipartisan way to advance these much‑needed structural reforms to save Medicare for the long haul. 

Today, however, we are hearing from MedPAC on the topic of Medicare payments to providers.  We are pleased to have the Commission here to discuss the recommendations in its report, which was released this morning, for updating payments in a way that ensures Medicare families have access to high‑quality care while also being fair to local healthcare providers and the American taxpayers.  The insight and guidance we receive from MedPAC is very important as we seek ways to reform the Medicare program ‑‑ for instance, improving the accuracy of provider payments. 

The MedPAC recommendations also focus on payment system changes that encourage accountability by local healthcare providers to deliver high‑quality care at the most affordable cost.  These are important discussions as we move toward payments that reward providers for the quality they provide rather than the quantity of what they have done.  I really appreciate the point that Ranking Member Jim McDermott made in our first hearing.  To paraphrase, he said we need to bring value over volume to the Medicare program.  The challenge, of course, is to find common ground as we seek these solutions. 

One payment system I want to mention specifically is the physician payment system that is governed by the sustainable growth rate formula, or SGR.  Democrat or Republican, the truth is; enough is enough.  This year, right now, we have a golden opportunity to eliminate the long, problematic SGR once and for all and reform how Medicare pays physicians.  I know that MedPAC has put significant thought into this topic.  I look forward to hearing more about those ideas today. 

Structural changes to the program and payment systems that are accurate and provide the right incentives are complementary pieces.  I applaud the MedPAC Commissioners and staff for the work they have done in this area, but, as I mentioned last hearing, I respectfully ask you to do more.

It is abundantly clear Medicare is on an unsustainable path.  In fact, two independent agencies, the Congressional Budget Office and the actuaries at the Department of Health and Human Services, estimate that Medicare’s Part A trust fund will be bankrupt by 2023.  Additionally, CBO projects that by 2222 Medicare spending will top $1 trillion.  That is 90 percent more than we currently spend.  If these trends continue, we can’t save Medicare for every generation or guarantee a sustainable future.  Finding solutions to these problems now is our challenge. 

The President’s healthcare law didn’t actually lower healthcare spending.  Congressional Budget Office Director Elmendorf recently testified that it could not attribute any particular factor to explain the recent lower healthcare spending other than, of course, the economy.  Additionally, CBO estimates that ObamaCare delivery changes will yield a miniscule $14.7 billion in savings.  That barely registers. 

But regardless of how we feel about the new healthcare law, the glaring fact remains:  Medicare’s hospital insurance trust fund will go bankrupt in 10 years.  We have to act now; the clock is ticking.  And today’s hearing will help us address our challenges.  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. 

We also look forward to receiving MedPAC’s next report to Congress in June, which will highlight additional opportunities for reform beyond just changes in the payment system.  We rely on MedPAC’s recommendations because they are based on strong data analysis.  That is a key element in designing policies that improve the Medicare program and save it over the long term. 

So I welcome our invited witness, MedPAC Chairman Glenn Hackbarth.  Thank you for joining us today, and I look forward to hearing your testimony. 

So before I recognize Ranking Member McDermott for the purposes of an opening statement, I ask unanimous consent that all Members’ written statements be included in the record. 

Without objection, so ordered. 

Chairman Brady.  I now recognize Ranking Member McDermott for his opening statement. 

Mr. McDermott.  Where is your St. Paddy’s Day tie? 

Chairman Brady.  I am in trouble.

Mr. McDermott.  You know it is coming. 

Chairman Brady.  In a serious way, I am in trouble. 

Mr. McDermott.  Mr. Chairman, I am grateful for your calling this hearing today.  It is one of our regular reports from CMS.  And it is important that we actually have people come in and make these reports and give us a chance to ask questions. 

And I appreciate Mr. Hackbarth coming back.  You were here the other week.  We won’t always agree on the recommendations that MedPAC makes, but it does good work and it takes seriously its charge to ensure appropriate payment and access. 

Government oversight keeps people accountable to the interests of the people and to the experts of our field.  It is sometimes easy for us, sitting up here, to stand on our respective sides screaming at each other across the aisle, but your agency can help us to find common ground and to cut through the self‑serving claims of the special interests.  Our offices are filled with them. 

Today’s discussion will also be useful as we look at the Affordable Care Act’s opportunities to explore innovative payment and delivery systems, some of which are based on MedPAC’s work.  With the freedom to think in new ways about how to pay for services, aligning the needs of providers and patients, and deliver care, I believe we can continue to improve cost and quality for everyone while still protecting benefits. 

I appreciate MedPAC’s commitments to evidence‑based data.  I am one of those that believes that you can have whatever opinion you want, but you can’t have your own facts.  And I like the fact that you are a fact agency.  This agency has proved itself to be credible, nonpartisan, and committed to transparent and well‑founded methodologies and results.  MedPAC’s efforts to take a comprehensive look each year at the underlying economics of each sector drive thoughtful recommendations rooted in reality.  We share your goals in ensuring that payments are both appropriate and adequate. 

Medicare is an entitlement to a defined set of benefits.  It is not an entitlement to specific reimbursement for providers or plans.  While we need to ensure that hospitals and doctors and others earn enough off of Medicare to preserve access, sometimes people lose sight of the program’s purpose, which is to serve the people.  We, likewise, have an obligation to taxpayers to ensure that the payments are appropriate and not too high. 

That said, given Medicare’s size and the health needs of the Medicare population and our reimbursement rates, many in the healthcare sector have made and will continue to make a very pretty penny off the program.  I remember when doctors didn’t have a certain way to get paid when they saw old people.  They had to rely on the children of or the collection agencies or bags of potatoes or whatever. 

So when people come in to cry poverty over a proposed regulation or piece of legislation, we would all be well‑advised to take such claims with a grain of salt.  And then we should pick up the phone to call MedPAC to find out just how pressed the group in question is. 

Even so, while data are important, we mustn’t let ourselves lose sight of the people behind the numbers.  As health economist Uwe Reinhardt noted, you can put a person on a hot stove and another one on a block of ice.  On average, sure, they are a comfortable temperature.  Individually, they might disagree. 

With that in mind, I hope that we will receive the recommendations in the context of our current environment and consider the challenges of the year ahead.  In the time since these recommendations were voted on, the sequester has been implemented, with no end in sight.  Republicans failed to address this in the budget.  Instead of replacing blunt, across‑the‑board cuts with more justifiable, targeted proposals, they kept the sequester and they added to it. 

These recommendations are a healthy and timely reminder that there are still plenty of well‑justified potential provider savings that should be pursued before asking patients to pay more. 

And I thank you again for joining us, and we look forward to your testimony. 

Chairman Brady.  Thank you, Mr. McDermott. 

Chairman Brady.  And today Glenn Hackbarth, the Chairman of MedPAC, joins us.  Mr. Hackbarth is no stranger to the subcommittee, having served as MedPAC’s Chairman for more than 11 years and having appeared before the subcommittee numerous times. 

We are pleased to have you with us, Mr. Chairman.  As you know, we have reserved 5 minutes for your opening statements.  Your entire written statement will be made a part of the record. You are recognized.


Mr. Hackbarth.  Thank you, Chairman Brady and Ranking Member McDermott.  I appreciate your kind words about MedPAC. 

Since there are some new members of this subcommittee, I thought I would take just a second to introduce MedPAC a little bit further. 

We are a nonpartisan advisory body to the Congress.  We have 17 Commissioners appointed by the GAO.  Six of our current Commissioners have clinical training either as physicians or as nurses; five have experience as hospital executives; five as leaders of integrated delivery systems; four in health plan management; two former presidents of the National Rural Health Association; three with high‑level government experience; as well as several eminent academics.  And, of course, some of us have more than one of these credentials in our background. 

By law, our March report presents to the Congress our update recommendations for the various Medicare payment systems.  Our statutory assignment from you is to recommend rates that are consistent with the efficient delivery of services to Medicare beneficiaries. 

Our analysis of payment rates considers the supply of providers, their access to capital, their financial performance, and the quality of care they provide.  In considering an update recommendation, we start with zero ‑‑ in other words, keeping the rates at the current prevailing level.  And then any increase in the rates or decrease needs to be justified with evidence in one of the categories I just mentioned. 

Our March report this year includes a total of 19 recommendations, including 4 related to special needs plans under Medicare Advantage.  Across those 19 recommendations, there were a total of 302 “yes” votes from MedPAC Commissioners, 5 “no” votes, and 3 abstentions.  So there is a substantial consensus in the Commission in favor of the recommendations in our report. 

If I could highlight just one thing in my opening statement, it would be our recommendation to repeal the SGR system, the sustainable growth rate system, in the Medicare physician payment program.  As you well know, CBO recently re‑estimated the cost of repeal, and it is dramatically lower than it has been in recent years.  From our perspective, SGR repeal is now on sale, and the sale price may not last.  And so we urge you to take advantage of this opportunity. 

We also urge you to include in the repeal legislation two other things:  One is provisions aimed at rebalancing payments between cognitive and procedural services, with particular emphasis on primary care; and, second, provisions designed to encourage movement toward new payment systems. 

As we see it, payment reform ‑‑ that is, moving away from fee for service to new payment models like accountable care organizations, bundling around episodes of care, or medical home ‑‑ movement to payment reform is the single most important step to improve quality for Medicare beneficiaries while minimizing taxpayer burden. 

Payment reform is essential because it encourages and supports delivery system reform, whereby clinicians and other providers accept joint responsibility for both the quality of care and the total cost of care.  Medicare’s current payment systems, which are siloed payment systems based on provider type, in fact facilitate, if not encourage, fragmented care delivery and inhibit collaboration across providers and inhibit the smooth flow of resources to where clinicians think they can do the most good for Medicare payments. 

So those are my opening comments, Mr. Chairman, and I look forward to answering your questions. 

Chairman Brady.  Thank you, Mr. Chairman. 

[The statement of Mr. Hackbarth follows:]

Chairman Brady.  Let’s start at the beginning.  The report acknowledges what we all know, which is Medicare will be broke in 10 short years.  How urgent is it for us to act now to make that program solvent over the long term? 

Mr. Hackbarth.  Yeah, so, as I indicated in my comment, the most important thing for us to accomplish is to support reform and care delivery.  That is where the action is. 

And the sort of changes that we are talking about ‑‑ for example, moving to accountable care organizations or bundling around episodes ‑‑ require providers to develop new relationships with one another.  And we believe those relationships are important to quality of care, let alone cost. 

But they will take time to develop.  And so moving in that direction now allows us to have the necessary delivery system reform in time to help us, you know, 5 or 10 or 15 years down the road.

Chairman Brady.  In your view, is it possible to make Social Security solvent for the long haul without reforming fee for service? 

Mr. Hackbarth.  No.  We think reforming fee for service is an essential part of the effort.

Chairman Brady.  In the report, you make two recommendations generally:  one on the principles of SGR reform, breaking the link between expenditures and updates, and you outline some principles.  Then you talk about offsets.  Once we get the replacement right, which tells us the price, we have to do the hard work on the offsets.

Mr. Hackbarth.  Right.

Chairman Brady.  So can you talk for the committee about some key principles on SGR reform in your mix of offsets for once we get that replacement right? 

Mr. Hackbarth.  Yeah.  So the major principles I touched on in my opening statement:  repeal, rebalance payments within the physician fee schedule, and encourage movement to new payment systems. 

In terms of offsets, in October 2011 we sent this committee and the other committees of jurisdiction a letter with almost $300 billion in offsets.  Actually, let me just clarify that.  We had about $200 billion in offsets and $100 billion in suggested changes in the physician fee conversion factor.  So, at the time, the total cost to repeal was about $300 billion, and we had a package that would roughly achieve that goal. 

Since that time, as I indicated, the cost of repeal has fallen dramatically, so not all of the things on that list would be required.  We do have roughly $100 billion worth of current unenacted MedPAC recommendations before this committee and the Congress. 

We would also think that it would be appropriate to have some balance between physicians and other participants in the Medicare system.  In our October 2011 letter, we had the balance one‑third physicians, two‑thirds from all of the other participants in the Medicare system.  There is no magic to that split, but it might be still a reasonable approach.

Chairman Brady.  Final question is really advice for the committee.  As we look at this, it sort of reminds me of Parade magazine every year does an edition on what do people earn, you know.  And you sort of thumb through it to find out what average people make. 

You are tempted, in looking at this report, to look at the margins to sort of ‑‑ in the past, it has been who is ripe for picking in provider cuts going forward.  But that has been part of the problem.  We are really not focused on quality, reforming this process so it is not so reimbursement‑driven. 

How should we as a subcommittee use this as a tool in designing a permanent, reliable, quality‑driven SGR or replacement for the SGR? 

Mr. Hackbarth.  Yeah.  Well, as you say, we don’t think that you only look at the margins.  In fact, we think sometimes looking at average margins is deceptive.  What you have asked us via our statute is to recommend rates consistent with the efficient delivery of service.  And sometimes the average margins don’t help you understand what the efficient level of payment is. 

So we tend not to base our recommendations solely on average margins.  That is just one input.  In addition, we look at quality of care, the entrance and exit of providers in a particular area. 

Within our recommendations, there are, however, certain provider groups, namely skilled nursing facilities and home health agencies, where we have seen persistently very high margins for a long period of time, double‑digit margins.  And, in those cases, we have recommended an actual rebasing of the rates.  In other words, don’t just update from the current rate; lower the current rate so that it is more appropriate given the cost of delivery. 

So those are two areas where we think in particular there is an opportunity ‑‑ skilled nursing facilities and home health agencies.

Chairman Brady.  Thank you, Chairman.

Mr. McDermott? 

Mr. McDermott.  Thank you, Mr. Chairman. 

One of the issues that we hear about, all of us go to various events, people come up and say, I can’t find a doctor and I am on Medicare. 

I know you do an annual survey.  I would like you to talk about what you have found in that survey.

Mr. Hackbarth.  Yes.  So each August, September we do a survey of 8,000 people ‑‑ 4,000 Medicare beneficiaries and 4,000 people who are just prior to Medicare eligibility by age and are privately insured.  And we ask a series of questions about their access to care and then also ask them about their ability to find a new physician if, in fact, they are seeking a new physician. 

On the issues about their satisfaction with access to quality of care, Medicare beneficiaries have consistently reported higher satisfaction with their access to care than the privately insured patients just under age 65.  The differences aren’t huge, but the pattern has been pretty consistent over time. 

On the questions related to finding a new physician if you are seeking one, Medicare beneficiaries report about the same level of difficulty as the privately insured patients.  Those numbers have bounced around a little bit in recent years, but they are basically the same.  

Mr. McDermott.  Is that basically the question of finding a primary care physician? 

Mr. Hackbarth.  Yes.  Actually, we ask questions on both.  We ask if you are looking for a new primary care physician and then a separate question, if you are looking for a new specialist.  The challenges, both in Medicare and in private insurance, tend to be in terms of finding a new primary care physician.

Mr. McDermott.  So as we take on 30 million new people under the Affordable Care Act, we are going to be in some difficulty with primary care physicians? 

Mr. Hackbarth.  We have not looked specifically at the implications of the Affordable Care Act, but we do see indications, particularly in some portions of the country, finding a new primary care physician is difficult, again, for both Medicare and privately insured patients. 

This is the reason why, in talking about SGR repeal, I emphasized the importance of increased payment for primary care.  That is where we see the potential access problems for Medicare beneficiaries.

Mr. McDermott.  Could I ask a question about Medicare Advantage programs?  They cover everything that traditionally Medicare covers.  Are they allowed to play with co‑pays and other things to make a difference in how they are used or to limit the risk or make people say, well, I think I am going to get out of here because I have something that isn’t covered, or it costs too much, or ‑‑

Mr. Hackbarth.  Yeah.  So they do have some flexibility around the benefit design.  And for the reasons that we discussed in the hearing a couple weeks ago on benefit design, we think some flexibility is appropriate.  In fact, we would like to see them have a bit more flexibility than they have currently in some areas ‑‑ for example, having tailored co‑pays for particular patients with particular illnesses.  That is the idea behind value‑based insurance design. 

Having said that, though, you need to take care that benefit design is not used to enroll a favorable selection of risk and discourage the higher‑risk patients.  So that flexibility needs to be within a regulatory framework that protects against risk selection activity.  So we are trying to strike a balance:  flexibility for a more value‑based insurance design without skimming behavior ‑‑

Mr. McDermott.  Tell me about the spread.  If I am in one plan and my diabetes is taken care of and it costs me $100 and in the other one it costs $40, is that spread possible between two Medicare Advantage programs and co‑pays?  Or is it a $5 difference?  Or what are we talking about here? 

Mr. Hackbarth.  Well, I can’t answer that question off the top of my head, Dr. McDermott.  I would be happy to respond to that in writing afterwards.

Mr. McDermott.  As a final thing, I notice in today’s paper the FTC is suing a hospital in Idaho for buying a doctor’s practice under the noncompetitive questions. 

Mr. Hackbarth.  Uh‑huh.

Mr. McDermott.  Some of the things in the ACA, the Affordable Care Act, these accountable care organizations, it seems to me that there are a lot of problems out there about how you control costs and how medical systems can move to do that that are inherent in the law.  I would like to hear you say a little something about that.

Mr. Hackbarth.  Yeah.  Well, this is another challenging area. 

In general, we believe that developing formal relationships among different types of providers is a good thing and a necessary part of trying to improve the value of care.  When providers of various types work independently without coordination, we know what the results are.  That is the experiment we have run for the last 40 or 50 years.  We get a high cost and uneven quality.  So we favor some integration combinations.  That doesn’t always have to be in terms of a formal merger or ownership.  There are a lot of different ways that configuration can happen. 

Having said that, there is a fear that as these combinations develop, that they will have undue market power and be able to, using that market power, get very high rates of payment from private payers, if not from Medicare.  And so there is a balance to be struck.  And, you know, we don’t want complete consolidation, but we do need some reorganization of care. 

You know, this is one of the reasons why I personally favor physician‑led ACOs.  If all of the ACO development is hospital‑focused, you tend to get more consolidation, more market power that can lead to higher prices for private payers.  Having physician‑led ACOs I think can be consistent with a more competitive system. 

And so I am encouraged to see that, in fact, roughly half of the ACOs that have now been approved by CMS are, in fact, physician‑led ACOs.  I think that is a good sign.

Mr. McDermott.  Thank you, Mr. Chairman.

Chairman Brady.  Thank you. 

Mr. Johnson? 

Mr. Johnson.  Thank you, Mr. Chairman. 

Mr. Hackbarth, how many on your board are actually in private practice? 

Mr. Hackbarth.  In private practice.  It is going to be hard for me to do a quick count off ‑‑ 

Mr. Johnson.  But you do have some? 

Mr. Hackbarth.  Yes, we do. 

Mr. Johnson.  And not a preponderance, though, I would guess. 

Mr. Hackbarth.  Well, as I said, in our current membership, we have six clinicians.  For example, one, Tom Dean, Dr. Tom Dean, practices in a small town in South Dakota and brings to us the experience of a family practice physician in that environment.

Mr. Johnson.  Good. 

As you know, ambulatory surgery centers’ payment updates are based on Consumer Price Index‑Urban, which reflects inflation in the entire economy.  MedPAC previously said CPI‑U is a poor proxy for input price increases. 

Since there is no empirical evidence to suggest that ASC inflationary challenges differ from hospitals ‑‑ they both have to hire and retain nurses and purchase similar medical supplies ‑‑ shouldn’t their payment updates reflect the outpatient hospital market basket? 

Otherwise, payments between the two sectors will continue to diverge over time, as CPI tends to lag market basket by about a percentage point.

Mr. Hackbarth.  Yeah.  Well, as you indicated, Mr. Johnson, we don’t think that the CPI‑U is an appropriate adjustment factor for ASCs. 

We have recommended that cost data be collected from ASCs, one of the purposes of which would be to develop a more appropriate index for ASCs.  Although there are some similarities in the services and inputs used by ASCs and hospitals, the mix is significantly different.  So even the hospital inflator wouldn’t be tailored to ASC patterns.

Mr. Johnson.  Well, how do you all adjust for those differences? 

Mr. Hackbarth.  Well, as I said, right now, without cost data, it is very difficult to do that.  And that is one of the reasons why we think ASCs should be required to submit some cost data to Medicare.

Mr. Hackbarth.  And they don’t do that now? 

Mr. Hackbarth.  They do not.

Mr. Johnson.  Okay. 

In the report, the Commission found the current system undervalues primary care and overvalues specialty care.  I agree primary care physicians are different.  I am also aware of potential primary care shortages.  Over half the doctors in Texas aren’t taking new Medicare patients. 

However, is MedPAC concerned about the access to cognitive specialists, who bill a lot of office visits but would face cuts under your recommendation? 

Mr. Hackbarth.  Well, so we have made over the years a series of recommendations about how the relative values are calculated in the physician fee schedule.  In general, those recommendations would increase the value for what we refer to as cognitive services, nonprocedural services. 

So specialists who provide a lot of those services actually could benefit from our recommendations, whereas those that are doing procedures or imaging would tend to be paid less.

Mr. Johnson.  Okay.  Well, thank you very much.

Mr. Chairman, I yield back. 

Chairman Brady.  Thank you. 

Mr. Kind? 

Mr. Kind.  Thank you, Mr. Chairman. 

Mr. Hackbarth, thank you again for your testimony today and the work that MedPAC does. 

You are probably familiar with CBO’s recalculation of Medicare spending between now and 2020.  It just came out in February.  They updated their baseline from just last August.  This is what they found:  They found a reduction in Medicare spending during that time period of 3‑1/2 percent, or $382 billion, which is significant, which tells me something is happening out there, something is churning.  And it may be a little bit too early to tell what exactly, but it does, I think, give many of us hope that have been working with MedPAC throughout the years, as far as the recommendations you have been making to this committee and to this Congress in regards to delivery system and payment reform, which was included in the healthcare bill. 

And I don’t know if you were familiar with the article that came out in USA Today last week on March 4 entitled, “Healthcare Spending is Transferred Out of ICU.” 

And, Mr. Chairman, I would ask unanimous consent to have this article inserted in the record at this time.

Chairman Brady.  Without objection. 

[The information follows The Honorable Ron Kind:]

Mr. Kind.  The article states, and I quote, “Cost‑saving measures under the healthcare law appear to be helping keep medical prices flat, according to healthcare providers and analysts.  Also, weak demand may linger from the recession, which ended in June 2009, especially for optional care, such as cosmetic surgery.” 

And then later in the article, Dan Mendelson, who is the CEO of Avalere Health, which advises healthcare companies and investors, was quoted as saying, “We are beginning a long period of adjustment in health care.  Institutions are taking both cost control and quality improvement more seriously.” 

And a little bit later in the article, it states, “In the 4 years leading to the expanded health insurance, the government has used authority in the Patient Protection Affordable Care Act,” the ACA, “to try to reshape the economics of health care through regulation and financial incentives.  That appears to be keeping a lid on medical costs.” 

And then later in the article, Peter Person, the chief executive of Essentia Health, a 13,000‑employee hospital system up in Duluth, Minnesota, was quoted as saying, “It all goes back to the Affordable Care Act and how it is changing so many components of the way we do business.  The language I use now in the healthcare business is completely different from the language I used even 5 years ago.” 

And, again, there is more to the article in that. 

So there is something happening that is starting to gain traction right now.  And, obviously, we listened closely to what MedPAC was recommending throughout the years and included virtually all of the delivery system reforms that MedPAC was making and the payment reforms in order to help drive the system to better quality, better access, at a better price.  And now CBO is saying almost a $400 billion savings in Medicare over the next 8 years.  And the verdict is still somewhat out as far as what is driving that. 

Mr. Hackbarth.  Uh‑huh.

Mr. Kind.  But these are all, I think, signs of hopefulness with where the healthcare system is going.  And, in fact, the ACOs that you were talking about a little bit earlier, medical homes is moving forward, trying to reduce preventable hospital readmissions as part of ACA, wider testing, the bundle of payments and that. 

What hope do you see as far as the implementation of these delivery system and payment reforms in regards to finally starting to bend the cost curve within the healthcare system and whether or not that might be sustainable in the long term? 

Mr. Hackbarth.  Yeah.  Well, I am hopeful.  I think there is change afoot.  It is hard to go around the country and talk to physicians and hospital executives and other providers without being convinced that there are changes, meaningful changes, happening. 

As to what share of the change in the trend is attributable to those real changes in care delivery versus temporary factors like the economy, I don’t know the answer to that.  As you know, there is a robust debate about that issue. 

I would say, though, that even if you believe, as I do, that there are real changes happening, that is not quite the same thing as saying that they will be sustained in the long run.

Mr. Kind.  Right.

Mr. Hackbarth.  In the 1990s, I was a private health plan executive and then the CEO of a large multispecialty medical group.  That was, as you will recall, the period of managed care.  Real changes were happening in healthcare delivery in the 1990s, too.  And, in fact, we saw a significant slowing of the rate of increase in healthcare costs. 

That did not last, that was not sustained, in part because those changes in delivery, that change in healthcare spending provoked a reaction. 

Mr. Kind.  Uh‑huh.

Mr. Hackbarth.  Whenever we try to bend the cost curve, there will inevitably be some winners and some losers.  And we know that the losers will push back at some point. 

Mr. Kind.  Mr. Chairman, I would hope that in the future MedPAC might offer some recommendations on how we can accelerate some of the financial incentives or payment reforms, given the track record that is being established.  That might be helpful for the committee to consider, as well.

Chairman Brady.  Yes.  And I think SGR reform is the perfect opportunity for us to start making those changes together. 

Mr. Roskam? 

Mr. Roskam.  Thank you, Mr. Chairman. 

Mr. Hackbarth, thanks for your time today. 

Back in your 2007 report, and now it is reiterated in this current report, you raise concerns about the ease with which critical access hospitals could manipulate the Medicare hospital wage index system by converting to a prospective payment system hospital and pull national Medicare dollars into one State entirely. 

Since enactment of the Affordable Care Act, this very scenario has occurred and is referred to as the “Bay State boondoggle.”  Can you give us a sense of this, how real is it, why it is that you are concerned about it? 

Mr. Hackbarth.  Yeah.  So in our hospital payment system, we adjust the payments for local wages across the country since there is so much variation.  And that is an appropriate thing to do. 

The problem that we have had, Mr. Roskam, is that over the years there have been a lot of ad hoc changes in that system for adjusting wages ‑‑ special rules, special categories created.  And what we saw in Massachusetts, the case that you refer to, is one of those special rules being manipulated for the purpose of increasing Medicare payment. 

We recommended in 2007, as you know, a complete overhaul of the wage index system, including wiping out all of these special rules that are subject to manipulation.  Recently, the Institute of Medicine was asked by the Congress to look at the same issue and came up with recommendations quite similar to the ones that we made in 2007. 

So we need to get away from these special provisions that are sort of rifle‑shot additions to the law, because they are subject to manipulation.

Mr. Roskam.  Because this is a zero‑sum game, right? 

Mr. Hackbarth.  Right.

Mr. Roskam.  So when these things are manipulated ‑‑ and I know that is a characterization, but I will characterize it as a manipulation ‑‑ when they are manipulated, they are manipulated for benefit of one at the demise of another hospital or the demise of another State.  Is that right? 

Mr. Hackbarth.  That is correct.  The wage index system is a zero‑sum game.  It is an index, and it redistributes a fixed amount of dollars.

Mr. Roskam.  Let me just shift gears to the rehab side.  As we all know, our former colleague and my Senator, Senator Kirk, had an incredibly difficult health experience in that he suffered a stroke.  But we have all been heartened by the story of his recovery and now his return to the Senate.  He gives an incredible amount of credit to an institution in Chicago, the Rehabilitation Institute of Chicago. 

I have a sister institution out in the suburbs called Marianjoy.  And I want to get to this question of the 60 percent rule and how this is ‑‑ or the 75 percent rule and the 60 percent drama.

Mr. Hackbarth.  Right.

Mr. Roskam.  Congressman Hyde, my predecessor, served in his last days at Marianjoy.  And so it is an institution that has a great reputation, but they are under incredible downward pressure. 

Mr. Hackbarth.  Uh‑huh.

Mr. Roskam.  And when I spoke to the president of Marianjoy, she said that they evaluated in the previous year more than 7,400 patients, only admitting 2,400 patients, which means that 2 out of 3 were turned away. 

Mr. Hackbarth.  Uh‑huh.

Mr. Roskam.  It is a selective admission process.  And their argument is, look, this shows that the system isn’t being abused and so forth. 

Can you speak to this 60 percent rule ‑‑

Mr. Hackbarth.  Sure.

Mr. Roskam.  ‑‑ and what happens if it moves to 75 percent?  Because there is a number of us that have real concerns if we move in that direction. 

Mr. Hackbarth.  Yeah.  So in the post‑acute portion of Medicare, we have several different types of providers.  We have the in‑patient rehab facilities, we have long‑term care hospitals, we have skilled nursing facilities, and home health agencies.  And patients requiring services after a hospital admission can end up in any one of those four places.  And what we see in the data is that patients with the same diagnosis, the same clinical problem can often wind up in any one of the four. 

The challenge is that the payment rates for those four different settings are dramatically different.

Mr. Roskam.  Right.

Mr. Hackbarth.  And so, in the case of in‑patient rehab facilities in particular, they are very important institutions for patients with a particular set of needs, that really need intensive rehabilitative therapy, but it is an expensive place to send patients who could be cared for just as well in a skilled nursing facility or home health.  The cost is much higher in the in‑patient rehab facility. 

And so the 60 percent rule or the 75 percent rule is a crude attempt to assure that the in‑patient rehab service, an intensive high‑cost service, is focused on the patients who really need it and not on patients who could be cared for just as well in a skilled nursing facility. 

It is an arbitrary rule, it is a crude rule, and it is the sort of rule that you need to impose when you don’t have an accountable party, a clinician, making that choice on where to send a patient, coupled with responsibility for cost and quality. 

So the direction that we want to move is away from these arbitrary rules like the 60 percent or 75 percent to systems where a clinical organization would say, this patient with a hip replacement can go to a skilled nursing facility, this patient with a more complicated problem really needs to go to an in‑patient rehab facility.  And that person is accountable for the cost and quality of care.  In a siloed payment system, there is no accountability.

Mr. Roskam.  Thank you. 

I yield back.

Chairman Brady.  Thank you for raising that issue.  The whole challenge on post‑acute care and the reimbursements in those settings are clearly going to be a focus of the subcommittee going forward.  So thank you. 

Mr. Blumenauer? 

Mr. Blumenauer.  Thank you, Mr. Chairman.

Dr. Hackbarth, I must say that you may be 17 unelected bureaucrats, but I think MedPAC has over the years served us very well.  It is too bad there isn’t a mechanism for Congress to be required to respond to your recommendations.  The healthcare system would have been better off, and we would have saved a lot of money. 

Mr. Thompson.  Is that a motion?

Mr. Blumenauer.  Just an observation, and not a political comment. 

There are three areas that I would appreciate your helping me with.  One, you highlight in your report that we are overpaying some of the very low‑performing Medicare Advantage programs; that, on balance, there was a concept of reward good ones, penalize poor ones.  We have seen some improvement, but could you comment briefly about that problem that you see with the overpayment of the underachievers? 

Mr. Hackbarth.  Yeah.  So, in general, as I have said before this committee many times, I believe, we believe that having private plans as an alternative, a choice for Medicare beneficiaries is an important thing, because often they can do things that traditional Medicare finds difficult to do in the current siloed payment systems, like coordinate and integrate care for chronically ill patients.  So that is a good thing. 

But that doesn’t mean that all private plans are equally good and perform equally well at those activities.  Some are truly exemplary and among, you know, the people that everybody points to as the very best in the country.  But, in fact, there is a huge range of performance among Medicare Advantage plans. 

One context in which this came up recently was the CMS demo for quality bonuses.  And what they did in this demonstration project was extend the bonuses for quality basically to, like, 90 percent of all the plans participating in Medicare. 

We had two objections to that.  One is, 90 percent probably don’t deserve quality bonuses.  But even more important than that, this demo, in effect, overrode the decisions made by the Congress in PPACA on how to structure a Medicare quality bonus for MA.  So we thought the money was being spent indiscriminately. 

Mr. Blumenauer.  And I am hopeful that we will be able to return to that because we really do want to coax more capacity and quality.  All Medicare Advantage programs aren’t the same. 

You also referenced hospice care ‑‑

Mr. Hackbarth.  Yes.

Mr. Blumenauer.  ‑‑ and some difficulties you see there.  This is an area that I would deeply appreciate some brief comments here, but perhaps being able to follow up with you, because ‑‑

Mr. Hackbarth.  Sure.

Mr. Blumenauer.  ‑‑ we are seeing such dramatic advances in palliative care, that we are watching that people who choose this option in some instances actually have not just a higher quality of life but they actually live longer ‑‑

Mr. Hackbarth.  Right. 

Mr. Blumenauer.  ‑‑ in that setting.  And, coincidentally, it costs less than keeping people in intensive care or extreme procedures. 

Do we need to be reevaluating our principles of hospice, do some fine‑tuning so we are not having areas of abuse but we capture the potential of higher‑quality and lower‑cost care for others? 

Mr. Hackbarth.  Yeah.  It is, I think, safe to say that the current MedPAC Commissioners and all the Commissioners that I have served with in my tenure at MedPAC believe that the hospice benefit is extremely important for Medicare beneficiaries.  And we are heartened by the fact that if you look back over the last 10, 15 years, in fact, utilization of the hospice benefit has increased over time.  And we think that that is a good thing, so long as that is what the beneficiaries want. 

We do have some concerns about the hospice payment system, however.  And we believe that the current payment system is subject to manipulation.  And the form that manipulation takes is very, very long hospice stays, in fact, often multiple recertifications of eligibility for hospice.  And our concern is that is what the payment system currently rewards.  And so we have made some recommendations about how to address that problem. 

So let me stop there.  And I would welcome the chance to talk in more detail about that.

Mr. Blumenauer.  Mr. Chairman, I think this is an area that is worthy of some consideration of the committee.  There may be adjustments that need to be made clearly in the payment system, but, by the same token, the definition that we started with was in a different era in terms of palliative care and what we know. 

And I am hopeful that there is a way that we can get a little deeper into this, maybe with the help of MedPAC or others, that both assures the integrity of the program but targets it in a way to maximize the benefit and minimize some gaming of the system. 

Chairman Brady.  Right. 

Mr. Blumenauer.  Thank you very much.

Chairman Brady.  Thank you, Mr. Blumenauer.  My pleasure. 

Dr. Price? 

Mr. Price.  Thank you, Mr. Chairman. 

Welcome, Mr. Hackbarth, back.  We appreciate your testimony, and appreciate your report. 

I want to touch very briefly on the comment you made on fee for service, that we ought to be moving away to a different model.  It is not in your testimony, however, is it, that fee for service ought to be outlawed? 

Mr. Hackbarth.  Not outlawed, but we do think that we ought to be encouraging movement to new payment systems.  And, you know, there is so much talk about how they can reduce cost.

Mr. Price.  Yeah.

Mr. Hackbarth.  I really want to emphasize that we think that the new payment systems increase quality for Medicare beneficiaries.

Mr. Price.  But you wouldn’t outlaw fee for service.  You wouldn’t recommend that. 

MedPAC looks at utilization, correct? 

Mr. Hackbarth.  Correct. 

Mr. Price.  You look at overutilization, whether or not things are being ‑‑ tests are being ordered too much, procedures are being done ‑‑

Mr. Hackbarth.  Uh‑huh. 

Mr. Price.  ‑‑ too often.  And you do that because increased utilization increases costs, right? 

Mr. Hackbarth.  Uh‑huh. 

Mr. Price.  Do you look at the practice of defensive medicine? 

Mr. Hackbarth.  We have in the past.

Mr. Price.  What kind of estimates do you have about how much that adds to costs? 

Mr. Hackbarth.  Well, we don’t have an independent estimate of that.  We have looked at the literature on that. 

My own view on that is that there may be too much emphasis on trying to calculate precisely what increment it adds to cost.  Having worked with physicians as CEO of a very large group, I think that those estimates sort of understate the impact it has on medical practice. 

Mr. Price.  There are some estimates that it may be as much as 1 out of every 3 or 4 healthcare dollars.  Is that ‑‑ which is ‑‑

Mr. Hackbarth.  Well, again, we ‑‑

Mr. Price.  ‑‑ hundreds of billions of dollars.

Mr. Hackbarth.  Yeah.  We have not tried to calculate ‑‑

Mr. Price.  Wouldn’t that be wise, to look at that? 

Mr. Hackbarth.  Well, it is a very difficult estimate to make, and I am not sure that we would be able to do it better than the various people that have tried to do that. 

Mr. Price.  I think it would be wise for MedPAC to begin considering that. I think it is hundreds of billions of dollars of waste in our system.  And when you talk about the kind of need for providing coverage for folks and the need for more resources, this is an area where I think we could make great progress. 

I want to shift to the treatment of patients, the incentive for treatment of patients in certain settings.  And I am confused by why the same service for a patient in an outpatient setting, nonhospital outpatient setting, and that same service, that same exact procedure, that same exact service being provided in a hospital outpatient setting, why those payments are different. 

Your report last year, I believe, looked at the potential ‑‑

Mr. Hackbarth.  Yes.

Mr. Price.  ‑‑ for equalizing those payments.

Mr. Hackbarth.  Yes.

Mr. Price.  And what was your conclusion or what were your thoughts about moving in that direction? 

Mr. Hackbarth.  So we have already made recommendations to move towards equalizing the payment for evaluation of management services.  And we are in the process of looking at other services beyond that initial group where we ought to move towards equalizing the payments. 

It does not make sense to us to pay dramatically different rates, as you know, for the same service simply based on what name is over the door.  And right now, given the transitions that are under way in medical care organization, the program is at risk and Medicare beneficiaries are at risk for much higher costs even when they go to the same physician ‑‑

Mr. Price.  Exactly.

Mr. Hackbarth.  ‑‑ just because of changes in ownership.

Mr. Price.  Have you looked at combining the fee schedules? 

Mr. Hackbarth.  Pardon me? 

Mr. Price.  Have you looked at combining the fee schedules? 

Mr. Hackbarth.  Well, what we have done, consistent with our assignment from the Congress is we want to set the payment levels at the level of the efficient provider.  So if the physician office is the efficient provider of a service, we think we ought to be paying at the physician office level. 

Now, there are some services where we think that the right level might be between the physician office level and the hospital outpatient department level.  We are looking at some of those services right now.

Mr. Price.  What are your metrics for efficiency? 

Mr. Hackbarth.  So right now, in this particular example, if we can get an adequate supply of a particular service and physician office under the physician fee schedule, that is the efficient provider.  Adequate supply at this rate.  Why should we be paying more in a hospital outpatient department for the exact same service? 

Mr. Price.  And how much do you think you could save by equalizing payment? 

Mr. Hackbarth.  Well, again, we looked initially at our recommendations on evaluation and management services.  And maybe Mark can ‑‑ yeah, so $900 million.  About $200 million of that would accrue to the Medicare beneficiary from our past recommendation.

Mr. Price.  That is just for E&M.

Mr. Hackbarth.  That is E&M alone.  Now we are looking at additional groups of services beyond E&M that potentially would add to that number.

Mr. Price.  Great.  Thank you. 

Thank you, Mr. Chairman. 

Chairman Brady.  Did I hear that right?  Site‑neutral reimbursement on office visit evaluation would be about $900 million, and of course then obviously to the senior themselves? 

Mr. Hackbarth.  Yeah, $200 million to the beneficiaries, $900 million total.

Chairman Brady.  Great.  Thank you. 

Mr. Thompson? 

Mr. Thompson.  Well, thank you, Mr. Chairman, and thank you for holding the hearing. 

Mr. Hackbarth, thank you for being here. 

I want to talk about access to primary care.  And you cover this in your testimony.  Is it as difficult for Medicare folks as it is for private insurers?  Is it difficult for both?  Or is it just a Medicare thing? 

Mr. Hackbarth.  No, this is a general problem beyond Medicare.  It is Medicare and private.

Mr. Thompson.  Yesterday, I had a visit from a constituent who is a med student.  And his concern was that when today’s med students get out of school, they are carrying considerable debt.  And I think this is a problem for all students, but for medical students it tends to be a little bit more.  He told me that he didn’t think there was anyone in his class, unless they were going through school as part of the military that would leave without at least $200,000 in debt. 

And his feeling was that that high debt would, in turn, help those students determine what field of medicine that they want to pursue and, because primary care is historically low reimbursement, that it stands to reason that there is going to be a shortage of docs. 

Is it your belief and MedPAC’s belief that the cost of medical school is a factor in this? 

Mr. Hackbarth.  It is a factor.  It is not the only reason that people elect to go into specialty care, but it is a factor.

Mr. Thompson.  And, no, it is probably not; you are probably right.  But I would assume that there are folks who want to go into primary care but, once they get over the sticker shock, that it pushes them over the edge into going into ‑‑

Mr. Hackbarth.  Right.

Mr. Thompson.  ‑‑ a type of medicine that maybe they didn’t set out to go into.  Maybe they wanted to be primary care docs, but once they come to the realization they are going to have a pretty hefty bill to pay, then that causes them to go into specialty? 

Mr. Hackbarth.  Yes. 

Mr. Thompson.  Are there other professions, medical professions, nurse practitioners and things of that nature that because of the cost of care, they tend to go into areas with a higher reimbursement than in primary care? 

Mr. Hackbarth.  So you are asking whether we have evidence that nurse practitioners, for example, elect to engage in specialty care versus ‑‑

Mr. Thompson.  Correct.

Mr. Hackbarth.  ‑‑ primary care?  I don’t know the answer to that.

Mr. Thompson.  Is that something that you look at or should look at? 

Mr. Hackbarth.  We have not looked at that in the past.  You know, we can try to do that.  I don’t know what the issues that might be raised in doing that analysis.

Mr. Thompson.  It might be worth looking at, because especially now with the distribution of labor and what nurse practitioners and physician’s assistants and the likes are doing, I am assuming it would have some impact on primary care.

Mr. Hackbarth.  Yeah.  And I would say that I believe that nurse practitioners and physician assistants are a necessary part of dealing with our primary care issues.  I think we have not taken full advantage of the capabilities of non-physician practitioners, and, frankly, I think we are going to have to.

Mr. Thompson.  I agree with you.

Mr. Hackbarth.  Even if we decided today to increase the number of primary care physicians trained, it takes a long time for that pipeline to produce physicians. 

Mr. Thompson.  Well, given the fact that these reimbursement rates are affecting the delivery of health care, particularly as it applies to primary care, the Commission’s proposal on the SGR freezes the existing reimbursement rates. 

How do you square that with what you just told me? 

Mr. Hackbarth.  Yeah.  So the proposal that you are referring to is our October 2011 letter to this committee and others.  The context for that letter was, at that point, SGR repeal cost $300 billion over 10 years.  And since we knew that the cost of repeal was the single biggest reason why SGR had not been repealed, we felt obliged to come up with a package to cover that $300 billion cost. 

The only way that we felt we could get there was to take $200 billion from hospitals and other participants in the system and about $100 billion worth of the cost out of the physician fee schedule.  That necessitated cuts in the conversion factor for specialty physicians and a freeze on primary care. 

Now that the cost of repeal is much larger, you know, you would have a different set of options for how to structure that, thankfully.  And, potentially, you could elect to have some increases for primary care if you so desired.

Mr. Thompson.  Well, I think it is important that we get something back, Mr. Chairman, on that.  Because if, in fact, part of any proposal would be to freeze primary care, when we all acknowledge that the lack of primary care is one of the reasons that the healthcare costs, you know, are where they are and that this is one way to lower or bend that cost curve and provide a more sensible delivery of medicine, I would think that we wouldn’t want to miss that point. 

Mr. Hackbarth.  Right.  So, you know, there are two ways to look at this.  One is, you know, how much it costs to go to medical school and the like.  And, in that context, a freeze obviously is not helpful to future primary care physicians. 

The other way to look at it is the relative fees paid to primary care versus specialty care.  And our proposal in October 2011 said, if you are constrained on the number of dollars you have, maximize that gap by cutting specialty fees while holding primary care constant.  If you have more money available, though, it would obviously be desirable to increase primary care. 

Mr. Thompson.  Thank you, Mr. Chairman. 

Chairman Brady.  Thanks, Mr. Thompson. 

Mr. Smith? 

Mr. Smith.  Thank you, Mr. Chairman. 

And thank you, Mr. Hackbarth, for sharing your perspective and insight on some very important issues today.

It is my understanding, and I think this topic was touched on briefly, but there are various factors that are perhaps leading to more and more provider consolidation.  Could you elaborate more on that and perhaps share what you see as the impact to insurance premiums as a result? 

Mr. Hackbarth.  Yeah.  Well, I would say there are basically two.  One, there is consolidation that is aimed at developing new organizations that are better able to effectively care for Medicare patients and other patients.  So they are integrating in a way that they collaborate to better coordinate and integrate care.  That is the good type. 

Then there is the other type that is basically aimed at maximizing market power.  And so there have been a lot of what antitrust lawyers would refer to as horizontal mergers where, you know, hospitals are joining together.  They are not integrating with physicians, they are just building hospital systems that have more leverage vis‑à‑vis insurance companies.  That is more problematic. 

Now, the tricky part is that some of the good type of integration also leads to market power that can lead to higher prices for private parties. 

Mr. Smith.  And I can appreciate a lot of things about how differently health care is delivered across the country, certainly, representing a very rural area.  And I think there is still some consolidation out there, too, for various reasons.  So I appreciate that. 

Now, shifting gears a bit, in terms of reimbursement, I notice that the Commission has recommended steps that Medicare can take to make sure that it is paying accurately for each individual physician service.  And without getting into the details too much here, why would you say it is important that the determinations are accurate?  And what are the implications, perhaps, for getting them wrong? 

Mr. Hackbarth.  Yeah.  Well, there are two types.  One we just discussed a minute ago.  If the prices are wrong, it can influence the physician pipeline for the future.  So if we consistently underpay for primary care, in the long run we will have too few primary care physicians.  And we fear that that is happening. 

The other type of problem is that if you overpay for certain services, you are likely to get more of them.  And an example of that, we believe, would be around imaging services, where we think Medicare has paid too much.  We have encouraged a lot of investment in imaging equipment to take advantage of that mispricing.  And once the equipment is in place, the profitability goes up dramatically.  And you want to use that equipment more, more, more because the marginal cost of using it is low. 

So you can have two types of ill effects.  One is on supply of physicians, and one is on the type of services rendered. 

Mr. Smith.  And so could you elaborate on how we shift to a system that more accurately reflects the actual costs and how we may not have a Federal policy that tends to put things out of balance? 

Mr. Hackbarth.  Yeah.  So the physician fee schedule, as it is constructed, is focused on what are the costs involved in providing a particular service.  There are 7,000 different services under the fee schedule, and relative values are established for each of these services.  And the goal is to accurately measure the inputs and costs that go into producing those services. 

We think there are errors in those measurements, and not small occasional errors but pretty broad errors in those measurements.  So we have made a series of recommendations both to the Congress and to the Secretary about correcting those errors. 

The other less discussed challenge in the physician schedule is that it focuses only on measuring the input costs.  In the market for all other goods and services in the country, prices not only reflect the input costs, they reflect the value of the product, and they also move to reflect imbalances in supply and demand.  The construct of the Medicare physician fee schedule pays no attention to the value of the service to the patients nor to imbalance in supply and demand. 

The latter is why we have recommended and Congress has enacted a primary care bonus.  It is a way of dealing with that value and supply part of the equation that the fee schedule ignores. 

Mr. Smith.  Okay.  Thank you. 

And thank you.  I yield back. 

Chairman Brady.  Thank you. 

Mr. Gerlach? 

Mr. Gerlach.  Thank you, Mr. Chairman. 

Mr. Hackbarth, thank you very much for testifying today.

I want to focus on the home health agency issue, if I can. 

Mr. Hackbarth.  Uh‑huh.

Mr. Gerlach.  First, I want to offer you a constituent case that we experienced a few years ago and get your reaction to that.  And then, also, I want to focus on a couple of your recommendations from a few years ago in this area. 

On the constituent matter, we had a constituent that came to us after having 3 days of home health care, and the home health agency billed $1,500 for that care.  It was submitted to the Medicare program, and the reimbursement back to the provider was actually double that, $3,000.  So the reimbursement was actually double what was billed by the home health agency, and the explanation from CMS was that, well, we base our reimbursements on a 30‑day episode of care; based on the nature of the care over 3 days and a 30‑day episode, that was what the reimbursement amount is. 

Is that a particular issue you are aware of, that we would pay, reimburse a provider double what was actually billed?  And, if so, what would be your recommendation on how best to deal with that situation? 

Mr. Hackbarth.  Yeah.  Actually, Mr. Gerlach, we exchanged some correspondence on this, I think, when it first came up a couple years ago. 

So in the home health area and many of the other Medicare payment systems, we pay on a per‑episode basis, and do so recognizing that some episodes will cost less, some will cost more, but those differences will tend to average out. 

The reason for paying on an episode basis is that it creates an incentive for effective management of the services.  You eliminate the incentive to do more home health visits by paying on an episode basis.  So that is ‑‑

Mr. Gerlach.  So, in this instance, paying double what was billed incentivizes who to do what?  Wouldn’t it incentivize providing more care because you are going to get reimbursed more than what your actual, in essence, retail billing would be for that service? 

Mr. Hackbarth.  So in some cases the episode payment will be higher than the costs incurred, but in other cases it will be less than the costs incurred.  And, as I say, the idea is ‑‑

Mr. Gerlach.  Over a spectrum of service, you are saying? 

Mr. Hackbarth.  Yeah, over all of the patients that a home health agency cares for.  Some they will make money, some they will lose some money, and it will tend to average out.  And the reason for using that approach is to create incentives to not provide more visits than are necessary. 

Now, a problem that we have in the home health ‑‑

Mr. Gerlach.  Wouldn’t it make more sense, though, if a home health agency bills for, say, the $1,500, that the formula for reimbursement ought to be the lesser of what that episode of care was under the current formula or what is billed, whichever is less?  Wouldn’t that make more sense? 

Mr. Hackbarth.  Well, I suspect that over time what you would have is that all of the people who have fewer visits in the episode would start to gravitate up, saying, well, we want to maximize the payment, and so we will just increase the number of visits until we get to the limit. 

Mr. Gerlach.  Okay. 

Mr. Hackbarth.  And so that is why Medicare avoids that.

But there is a very important issue in home health, and that is that the payments are way too high, on average. 

Mr. Gerlach. Yeah, and that is where I was going.  Back in March of 2011, recommended that the Secretary should implement new authorities to suspend payment in the enrollment of new providers if they indicate significant fraud.  What has been the progress from your recommendation 2 years ago that you can see from your position at MedPAC?  What progress has been made at CMS to address that particular problem? 

Mr. Hackbarth.  Well, I can’t provide a quantitative answer to that, but there has been a fairly intense focus on fraud in home health in particular areas of the country, like south Florida. 

Mr. Gerlach.  Yeah.  Yeah.

Mr. Hackbarth.  And I think there is probably more that needs to be done there, but it is increasingly the focus of attention at HHS. 

Mr. Gerlach.  Uh‑huh.  Okay. 

And then real quickly, you also recommended 2 years ago a per‑episode co‑pay for home health episodes that aren’t preceded by hospitalization or post‑acute‑care use.  What is that rationale for that recommendation? 

And, in particular, for low‑income beneficiaries ‑‑ and I visited a number of those types of homes in the last few years ‑‑ I can’t foresee some of these individuals being able to provide any co‑pay for the services they are getting in their home.  What is the rationale for your recommendation?  And what do you think the impact would be if a co‑pay was established, particularly for low‑income individuals? 

Mr. Hackbarth.  So, under our proposal, the duly eligible Medicare beneficiaries would not be subject to the co‑pay.  So if we used that as the definition of low‑income, they would be protected. 

We think having a co‑pay for all services is important in a fee‑for‑service insurance program like Medicare.  That is one of the only tools that is available to manage costs. 

With regard to home health in particular, as you noted, our recommendation focuses on what we refer to as admissions from the community.  So these are not patients coming out of a hospital or a skilled nursing facility; these are patients who are just admitted from the community.  There are not clear clinical guidelines about when that community‑initiated home health service is necessary and appropriate.  It is a gray area, kind of like some medical services. 

And, in fact, in the last hearing, Mr. McDermott and I had an exchange about this.  You know, you don’t worry about the patient initiating demand when the service is something that is painful or risky.  Nobody wants to undergo that.  But home health is different.  There is no risk involved.  There is no inconvenience involved.  In fact, it often lightens the burden on family members and friends, so it is very attractive in that regard.  And if it is a free service, you know, why not use it? 

Mr. Gerlach.  Uh‑huh.

Mr. Hackbarth.  And so what we have recommended is quite a modest co‑pay, like $150 per admission.  For the average home health episode, that works out to about $8 a visit, which we think is an appropriate sort of check for people to say, is this really something that I need? 

Mr. Gerlach.  Uh‑huh.  Okay.  Very good.  Thank you, Mr. Hackbarth. 

I yield back. 

Chairman Brady.  Thank you, Mr. Gerlach. 

We are not going to do a second round, but I would like to recognize the ranking member for a comment and question and then Dr. Price for the final question. 

Mr. McDermott? 

Mr. McDermott.  Thank you, Mr. Chairman. 

I just want to take a second to enter into the record, or ask unanimous consent to enter into the record an article from The Washington Post by Sarah Kliff dated today.  And it is called, “Want to Debate Medicare Costs?  You Need to See This Chart First.”

It shows that hospital readmissions in Medicare are dropping, and it shows that the percent of GDP in the future, if you use what has gone on in the last few years, is going to stay level rather than continue to rise to 0.7. 

I think you are familiar with these numbers. 

Mr. Hackbarth.  Yes. 

Mr. McDermott.  And I think members of the committee ought to be aware of this particular article that shows that the ACA is already having an effect before these things go into impact, or before they went into impact last year. 

Mr. Hackbarth.  Uh‑huh. 

Chairman Brady.  Without objection. 

[The information follows: The Honorable Jim McDermott]

Chairman Brady.  Dr. Price? 

Mr. Price.  Thanks, Mr. Chairman.  I appreciate the indulgence, and just a few quick questions. 

This whole issue of post‑acute care and the venue for care and the differential treatment, I think you mentioned that it ought to be a clinical organization that ought to be making the decision about the venue of treatment for a patient.  You wouldn’t consider MedPAC a clinical organization? 

Mr. Hackbarth.  No, no.  I am referring to a provider. 

Mr. Price.  Great.  I just wanted to make that clear. 

And I want to visit home health for just a second, because a lot of issues about overpayment in home health and the like.  Isn’t it true, though, that if you look at the number of counties in this country and where the real challenges are, it is like 25 counties out of 3,000 or something like that? 

Mr. Hackbarth.  Yeah.  So the patterns of home health use vary dramatically.  In fact, the variation in home health is much greater than the variation ‑‑

Mr. Price.  Yes. 

Mr. Hackbarth.  ‑‑ in almost any other service. 

Mr. Price.  Shouldn’t we be looking at those targeted counties? 

Mr. Hackbarth.  We should look at those areas in particular.  But across the whole country, we are still overpaying for home health services. 

Mr. Price.  And let me just touch on that, if I may, very briefly.  The margins that you have talked about ‑‑ and I think that your margin analysis comes from methodology of the HCFA era, really, right? 

Mr. Hackbarth.  No.  This is our own methodology. 

Mr. Price.  But what margins ‑‑ refresh my memory on the margins that you believe ‑‑ the proper margins that they are making? 

Mr. Hackbarth.  For home health, we are projecting for 2013 around 11, 12, 13 percent. 

Mr. Price.  Are you familiar with an Avalere study, analysis, 2013 study, that uses financial reports that are filed with the SEC that put the margin ‑‑ and take into account significantly greater information than I think your methodology ‑‑ that puts the margin at around 2.5 to 3.5 percent? 

Mr. Hackbarth.  I am not familiar with that report.  Keep in mind, the information that we are using is the information supplied on cost reports by home health agencies.

Mr. Price.  Great. 

Well, maybe we can follow up on that, Mr. Chairman, and see if we can’t get more accurate data.  Because this is a real concern.  Because if we lower, if we allow the lowering of reimbursement for home health, then we may significantly adversely incentivize movement of those individuals into actually higher‑cost venues.  And I think that is probably the last place we want to go. 

Mr. Hackbarth.  Yeah.  Well, I would agree that we don’t want to do that.  And I would be happy to follow up in detail with you on this.  We don’t think that there is a risk of that by lowering the home health base rate. 

Mr. Price.  Thank you. 

Chairman Brady.  Thank you, Dr. Price. 

Thank you for this hearing.  There is a lot in this report to digest.  I know there will be follow‑up questions from the Members.  We have 14 days to submit questions, and I am sure there will be a number of them, including related to what are driving some of the lower costs, including the economy, the shift into Medicaid by a number of patients, issues like that.  And I would ask if questions are submitted by the Members that you respond promptly, as you have in the past. 

Chairman Brady.  With that, this subcommittee is adjourned. 

[Whereupon, at 10:50 a.m., the subcommittee was adjourned.]

Public Submissions For The Record

Center for Fiscal Equity
George Mason University