[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]






                    EXAMINING TRADITIONAL MEDICARE'S
                             BENEFIT DESIGN

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                               __________

                             FIRST SESSION

                               __________

                           FEBRUARY 26, 2013

                               __________

                          Serial No. 113-HL01

                               __________

         Printed for the use of the Committee on Ways and Means



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington        XAVIER BECERRA, California
CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               RON KIND, Wisconsin
ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
KENNY MARCHANT, Texas                LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio

        Jennifer M. Safavian, Staff Director and General Counsel
                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON TRADE

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
PETER J. ROSKAM, Illinois            EARL BLUMENAUER, Oregon
JIM GERLACH, Pennsylvania            BILL PASCRELL, JR., New Jersey
TOM PRICE, Georgia
VERN BUCHANAN, Florida
ADRIAN SMITH, Nebraska





















                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 16, 2013, announcing the hearing............     2

                               WITNESSES

Glen M. Hackbarth, Chairman, Medicare Payment Advisory Commission     6
A. Mark Fendrick, M.D., Director, University of Michigan Center 
  for Value-Based Insurance Design...............................    31
Tricia Neuman, Senior Vice President and Director, Kaiser Program 
  on Medicare Policy, Kaiser Family Foundation...................    39

                                 ______

                       SUBMISSIONS FOR THE RECORD

AARP, letter.....................................................    81
AFL-CIO, statement...............................................    84
AFSCME, statement................................................    89
Alliance for Retired Americans, statement........................    93
American Academy of Actuaries, statement.........................    97
California Health Advocates, statement...........................   107
Center for Fiscal Equity, statement..............................   117
Council for Affordable Health Insurance, statement...............   121
Leadership Council of Aging Organizations, letter................   126
National Alliance on Mental Illness, statement...................   128
National Association for Home Care and Hospice, statement........   133
National Committee to Preserve Social Security and Medicare, 
  statement......................................................   143
UAW, statement...................................................   145
USW, statement...................................................   148
 
            EXAMINING TRADITIONAL MEDICARE'S BENEFIT DESIGN

                              ----------                              


                       TUESDAY, FEBRUARY 26, 2013

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:26 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Kevin 
Brady [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

 Chairman Brady Announces Hearing on Examining Traditional Medicare's 
                             Benefit Design

Washington, Feb. 2013

    House Ways and Means Health Subcommittee Chairman Kevin Brady (R-
TX) today announced that the Subcommittee on Health will hold a hearing 
to review the current benefit design of the Medicare Fee-For-Service 
program and consider ideas to update and improve the benefit structure 
to better meet the needs of current and future beneficiaries. The 
hearing will take place on Tuesday, February 26, 2013 in 1100 Longworth 
House Office Building, beginning at 10:30 a.m.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of witnesses 
will follow.
      

BACKGROUND:

      
    Created in 1965, the Medicare benefit was originally modeled on the 
Blue Cross Blue Shield plans that were prevalent throughout the nation 
at that time. However, the last half-century has seen significant 
changes in how health care benefits are designed and delivered. Yet 
Medicare retains the original bifurcated system of hospital and 
physician services, and has an array of confusing deductibles and 
coinsurance levels that neither creates incentives for beneficiaries to 
make better decisions about their health care needs nor protects 
beneficiaries from unexpected health costs. Not surprisingly, many 
beneficiaries purchase additional coverage to bring more certainty and 
clarity to their out-of-pocket costs.
      
    To address these and other concerns, the Medicare Payment Advisory 
Commission (MedPAC) made recommendations in its June 2012 Report to 
Congress to redesign the traditional Medicare benefit package. In this 
report, MedPAC suggested improving and updating Medicare's current cost 
sharing structure, by maintaining on aggregate the same level of cost 
sharing as the traditional benefit, but redistributing cost sharing 
through the use of tiered copayment, coinsurance and a new combined 
deductible for Medicare Parts A and B. MedPAC also recommended 
providing an out-of-pocket maximum for beneficiaries in traditional 
Medicare, protection that is currently required of Medicare Advantage 
plans or obtained by beneficiaries through the purchase of supplemental 
insurance. A number of other bipartisan commissions have recommended 
similar changes to traditional Medicare's benefit design.
      
    In announcing the hearing, Chairman Brady stated, ``There is 
bipartisan recognition that the current structure of the Medicare 
benefit is outdated, confusing, and in need of reform, and taking steps 
to improve the current array of confusing deductibles, copayments and 
coinsurance is long overdue. This hearing will enable the Subcommittee 
to investigate the limitations, inefficiencies and inadequacies of 
traditional Medicare's cost sharing structure and identify ways to 
bring the Medicare program into the 21st Century.''
      

FOCUS OF THE HEARING:

      
    The hearing will review the current Medicare benefit design and 
examine ways to improve it.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Tuesday, March 12, 2013. Finally, please 
note that due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-package deliveries to all House Office 
Buildings. For questions, or if you encounter technical problems, 
please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
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    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
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relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
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    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BRADY. The subcommittee will come to order. 
Welcome to the first hearing of the Health Subcommittee for the 
113th Congress. Today we will review the outdated and confusing 
benefit design of the traditional Medicare program, the 
structure of which is essentially unchanged from its inception 
in 1965 it maintain separate programs and benefits for hospital 
and physician services, and doesn't coordinate care between the 
two.
    Because of the outdated structure of the Medicare benefit, 
today's beneficiaries are inundated with an array of confusing 
deductibles, coinsurance and copayments with no protection from 
high healthcare costs unless they enroll in a private plan. As 
a result, over 90 percent of seniors must obtain some type of 
supplemental coverage, whether a purchase on their own, through 
an employer or from Medicaid.
    Despite vast improvements and innovations in the healthcare 
sector that have transformed how care is delivered, Medicare 
has lumbered through the past half century on the same 
trajectory. Can you imagine a world where someone has to buy 
hospital and nursing home coverage from one insurance company, 
physician office coverage from another insurance company, 
prescription drug coverage from yet another company, and likely 
supplemental coverage from a fourth insurance company? Yet this 
is exactly how the current Medicare benefit is designed. No 
private insurance company in its right mind would design and 
offer a benefit that looks like this. And given a choice, most 
seniors wouldn't accept it.
    The need to reform the outdated Medicare benefit is long 
overdue. I appreciate the work of the nonpartisan Medicare 
Payment Advisory Commission and bipartisan groups like the 
Bowles-Simpson Commission and Bipartisan Policy Center to 
further this issue. Their effort to dig into this complicated 
topic and advance long-overdue reform has been critical.
    Updating the Medicare benefit design will bring the program 
into the 21st century and meet the needs of current and future 
seniors. It will bring the traditional Medicare benefit in line 
with the types of benefits and cost sharing that one in four 
beneficiaries currently enjoy from Medicare Advantage plans. 
These plans are able to offer predictable copayments versus 
coinsurance, protection against high out-of-pocket costs, and 
are often able to incentivize beneficiaries to receive care in 
high-quality and efficient settings.
    However, as we will hear today, because of changes included 
in Obamacare and regulations developed by the Centers for 
Medicare and Medicaid Services, Medicare Advantage plans have 
fewer opportunities to design the benefit packages that 
beneficiaries want. Instead of promoting this model, the 
President's new healthcare law is pulling these plans and the 
13 million beneficiaries enrolled in them back into the 1960s.
    For the sake of our seniors, we need to break down barriers 
and give these plans greater flexibility to continue to 
innovate and offer affordable coverage while improving patient 
outcomes. This is something traditional Medicare has not been 
able to do. Moving from Medicare's half-century old design to 
one that provides beneficiaries with rational cost sharing and 
protection from high healthcare costs will be challenging, but 
it is necessary. Simply maintaining the current outdated, 
confusing and inefficient structure while the program remains 
on a quiet path to insolvency, is not the answer. Instead we 
have to move forward to improve this critical program, 
providing greater protections for seniors and placing the 
program on sound financial footing.
    It is my hope that this hearing will be the start of 
efforts to work in a bipartisan fashion to modernize the 
Medicare program for all seniors and people with disabilities.
    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. Thank you, Mr. Chairman. I look forward to 
this process. And I was just sitting up here thinking that Mr. 
Johnson and I were the only two people who sit on this 
committee who remember the last time this committee tried to 
reform the benefit package. That was 1988. It was a 
catastrophic--it was called the Medicare Catastrophic Coverage 
Act. It had an outpatient prescription drug benefit and a cap 
on beneficiaries' out-of-pocket costs. And my first vote in the 
Congress in 1989 in this committee was to vote against the 
repeal of that change. So I think that as we move forward into 
this area, we really ought to keep in mind what happened then.
    Republicans often assert that Medicare is outdated and 
needs reform, and I agree. No social program could ever be 
designed that anticipates what is going to happen 50 years 
later, or 60 or 70 years later, but they ignore that 
substantial progress has already been made to strengthen the 
essential program.
    The ACA reduces Medicare spending, extends its solvency, 
and brings growth to per-patient costs to record lows. 
Preventive services are now free of charge to beneficiaries, 
and we finally have laid the groundwork to reward treatment 
value over volume.
    Yet further improvements are needed, but much of the 
current Republican proposal does more harm than good, in my 
view. Benefit restructuring specifically to generate savings, 
whether in the name of deficit reduction, paying for other 
initiatives, or simply masquerading as reform, is bad policy 
and bad politics; 1989. It may be tempting when running the 
numbers and calculating the averages, but it is all too easy to 
lose sight of the very real people whose lives and well-being 
hang in the balance.
    For example, we long sought to add catastrophic coverage to 
Medicare, and I have talked about that. If it is combined with 
a unified deductible to offset the change, it inevitably will 
mean raising the costs to roughly four out of five 
beneficiaries. Moving to a combined deductible of $500 or more 
will triple the current Part B deductible. A surprising number 
of beneficiaries have costs below $500 and so would pay monthly 
premiums for benefits they never use. Meanwhile, the 
catastrophic cap almost certainly will be set at such a high 
level that it will benefit only a few, probably 5 percent or 
so, of the beneficiaries.
    These challenges become even more complicated if cost 
sharing is reconfigured by creating new copays or increasing 
coinsurance for current services like hospital visits and home 
health care. And given the average beneficiary makes only about 
$22,500 and already spends disproportionately more on health 
care than a younger person, additional premium cost is done at 
some risk.
    At a minimum, benefit redesign would require a substantial 
expansion of the Medicare Savings Program to ensure 
affordability for low-income Medicare patients. And with all 
but 12 percent of Medicare participants receiving supplemental 
coverage that insulates them from potential changes, the 
question is, why do it? The answer is because some want to 
prohibit or discourage first-dollar coverage in supplemental 
plans.
    Then the tradeoffs get even more tricky. Do you want to 
dictate terms of private insurance? Do you instead penalize 
beneficiaries for choices they made in the free-enterprise 
system? Do you tell employers what retiree benefits they can or 
cannot offer? What do you say to people who have already traded 
lower wages for better retiree coverage?
    Now, we are all searching for the ever-elusive health 
policy holy grail that promotes value over volume and quality 
over quantity, but there isn't a simple answer. Our ability to 
reliably measure quality and value is in its infancy, and there 
is much work to be done. Even with good information, purchasing 
health care is different from making other expenditures. Few 
patients can shop around for bargains when their health is on 
the line, nor should we expect it of them.
    On a final note, I want to express my optimism that 
bipartisanship will enable the committee to move forward on the 
SGR reform. We are all tired of doing the SGR patch. The recent 
Republican outline leaves plenty of room for agreement if 
people want to find it. If done smartly, this issue could 
reshape our entire health economy for the better, but costs 
can't just be hoisted onto the backs of the beneficiaries. 
There are better options with stronger policy justifications to 
pay for the needed SGR policy changes.
    With that, I look forward to discussing the many tradeoffs 
inherent in reconfiguring Medicare's benefit package with 
today's expert witnesses.
    Thank you, Mr. Chairman.
    Chairman BRADY. Great. Thank you, sir.
    Chairman BRADY. Today we will hear from three witnesses: 
Glenn Hackbarth, Chairman of the Medicare Payment Advisory 
Commission; Dr. Mark Fendrick, director of the Center for 
Value-Based Insurance Design at the University of Michigan; and 
Tricia Neuman, senior vice president of the Kaiser Family 
Foundation and Director of the Foundation's Program on Medicare 
Policy.
    Thank you all for being here today. I look forward to your 
testimony. You will be recognized for 5 minutes for the 
purposes of an opening statement.
    Mr. Hackbarth, we will begin with you.

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

    Mr. HACKBARTH. Thank you, Chairman Brady, Ranking Member 
McDermott, and members of this Health Subcommittee. It is a 
pleasure to be here to talk to you about the Medicare benefit 
design.
    Mr. McDermott, I am also one who has very sharp memories of 
catastrophic insurance. In 1988, I was the Deputy Administrator 
of the Health Care Financing Administration, so I join you and 
Mr. Johnson in those recollections.
    The current Medicare benefit package is both inadequate and 
confusing. It is inadequate because it lacks catastrophic 
coverage, one of the most important features of any insurance 
program, and it is confusing for all of the reasons that Mr. 
Brady mentioned in his opening statement; Part A and B, and 
various deductibles, and use of coinsurance instead of 
copayments. Given that, it is not surprising that many Medicare 
beneficiaries, in fact the vast majority, want to have 
supplemental coverage to augment Medicare.
    MedPAC has recommended redesign of the Medicare benefit 
package using five principles as guideposts. First of all, 
there should be no increase in average liability for Medicare 
beneficiaries. We believe the existing Medicare benefit package 
is not too rich. If anything, given the population served, it 
may be too lean, and so we recommend no reduction in the 
actuarial value of the benefit package.
    Second, we recommend that an out-of-pocket limit be added 
to the program, catastrophic coverage.
    Third, we recommend that design of the benefit be 
simplified so it is more readily understood and more 
predictable for Medicare beneficiaries.
    Fourth, we recommend that the Secretary of HHS be given 
broad authority to modify cost sharing, both reduce and 
increase cost sharing, based on the value of the services 
provided, and that assessment, of course, should be based on 
scientific evidence.
    And finally, we recommend a charge on supplemental 
insurance. When a beneficiary buys supplemental insurance, that 
increases the cost of care incurred by the Medicare program. 
The premium paid by the beneficiary only covers a fraction of 
that added cost. We think it is appropriate for there to be a 
charge on that supplemental insurance to reflect, in effect, 
the implicit subsidy from the taxpayer for supplemental 
coverage.
    I want to emphasize that we do not recommend prohibiting 
various types of supplemental coverage. If a beneficiary wishes 
to buy first-dollar coverage, he or she should be able to do 
that, but they ought to face more of the added cost to the 
Medicare program resulting from that private choice.
    Whenever you talk about patient cost sharing, two types of 
concerns are raised. In fact, during MedPAC's discussion of 
this issue, we spent a lot of time on each of these questions. 
The first concern is that cost sharing reduces the use of both 
appropriate and inappropriate services. The evidence is pretty 
clear on that. So if our supplemental charge were to cause 
Medicare beneficiaries to stop having first-dollar coverage and 
face more cost sharing, there would be the risk that some 
appropriate services would be stopped as well as inappropriate 
services.
    The fear, of course, is that when that happens, two bad 
things can occur. One is the total cost of care could increase. 
If patients don't get needed care, they could end up with 
hospitalizations that cost more. In addition, they could end up 
with a worse outcome, which none of us want. This is why it is 
so important to give the Secretary of HHS authority to modify 
copayments based on the value of the services provided. If a 
service is shown to be a very high value for patients, we ought 
to seek to lower the cost sharing. If the value is low, we 
ought to seek to increase the cost sharing.
    The second concern that is often raised when patient cost 
sharing is discussed is the effect on low-income beneficiaries, 
and that would be true, of course, also with our charge on 
supplemental insurance. If the concern is protection of low-
income beneficiaries, as well it might be, we think a targeted 
approach is preferable.
    For example, expansion of the Medicare Savings Program, the 
program for qualified Medicare beneficiaries that pays cost 
sharing for low-income beneficiaries. That sort of a targeted 
approach is preferable to this implicit subsidy that is offered 
for supplemental coverage that is available to beneficiaries of 
both low and high incomes. So target our response to these 
problems.
    With that, Chairman Brady, I look forward to your 
questions.
    Chairman BRADY. All right. Thank you, Mr. Hackbarth.
    [The prepared statement of Mr. Hackbarth follows:]
    
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    Chairman BRADY. Dr. Fendrick.

 STATEMENT OF A. MARK FENDRICK, M.D., DIRECTOR, UNIVERSITY OF 
        MICHIGAN CENTER FOR VALUE-BASED INSURANCE DESIGN

    Dr. FENDRICK. Good morning, and thank you, Chairman Brady, 
Ranking Member McDermott and Members of the Subcommittee. I am 
Mark Fendrick, a professor at the University of Michigan. I 
address you today as a primary care physician, medical 
educator, and a public health professional.
    Mr. Chairman, I completely agree with your statement that 
the current structure of the Medicare benefit is outdated, 
confusing, and in need of reform. Moving from a volume-driven 
to a value-based system requires both a change in how we pay 
for care, and how we engage consumers to seek care.
    With some notable exceptions, most U.S. health plans 
including Medicare implement cost sharing in a ``one size fits 
all'' way, in that beneficiaries are charged the same amount 
for every doctor visit, every diagnostic test and every 
prescription drug. As Mr. Hackbarth just mentioned, asking 
Americans to pay more for all services results in decreases in 
both non-essential and essential care. While this blunt 
approach may reduce short-term expenditures, noncompliance with 
high-value services often leads to adverse health outcomes and 
higher overall costs. This is penny wise and pound foolish. 
Conversely, asking Americans to pay less for all services can 
lead to the overuse of harmful services and those that provide 
little value. The concept that medical services differ in the 
health benefits they produce is referred to as clinical nuance, 
and clinical nuance should be utilized in the reallocation of 
medical spending.
    Mr. Chairman, does it make sense to you that my Medicare 
patients pay the same copayment for a life-saving cancer drug 
as a drug that will make their toenail fungus go away? Due to 
the lack of appropriate incentives, Medicare beneficiaries use 
too little high-value care, and too much low-value care. It is 
common sense; when barriers to high-value treatments are 
reduced and access to low-value treatments is discouraged, we 
obtain more health for every dollar spent.
    Medicare is a key component to our Nation's commitment to 
our elderly and disabled, and it must be sustained. Even with 
the recent advantage regarding preventive services, as Mr. 
McDermott mentioned, traditional Medicare allows little 
flexibility to implement clinically driven benefits. 
Specifically program administrators cannot lower cost-sharing 
levels for services recommended in clinical guidelines, and 
they are also limited in the amount they can increase 
coinsurance rates for a harmful procedure.
    Since changes to traditional Medicare are difficult, an 
interim step could be to legislate changes to Medicare 
Advantage. Today the tools available to MA are also blunt 
instruments. Legislative and regulatory restrictions prevent 
clinical nuance in MA, including the lack of flexibility to 
steer patients to high-performing providers in a very rigid 
benefit design.
    To this I recommend the following recommendations: First, 
MA plans should have the flexibility to vary cost-sharing for a 
particular service according to where the service is provided 
and by whom. The Commonwealth Fund recently estimated that 
nearly $200 billion in savings would accrue to Medicare over 
the next decade if we were to ``develop a value-based design 
that encourages Medicare beneficiaries to obtain care from 
high-performing systems''. Currently MA plans use provider 
networks, but they are limited in how they may vary cost-
sharing within that network. This restriction forces MA plans 
to either exclude low-performing providers completely or permit 
complete access to them. There is no intermediate step.
    Second, MA plans should have the flexibility to impose 
differential cost sharing based on evidence. There are 
evidence-based services that I beg my patients to do, such as 
critical treatments for asthma, diabetes, and depression. There 
are also other services that are harmful or unnecessary, and 
according to the literature, these services account to nearly 
20 percent of Medicare expenditures.
    Last, MA plans should have the flexibility to set enrollee 
cost sharing based on clinical information, such as diagnosis. 
MA plans are currently constrained by non-discrimination rules 
that prohibit different benefits for targeted subgroups of 
beneficiaries. Even though the clinical appropriateness of a 
specific service may vary widely among MA enrollees, cost 
sharing for any service must be the same for everyone. The 
flexibility to enroll cost sharing based on scientific evidence 
and clinical information is a crucial element to the safe and 
efficient allocation of Medicare expenditures.
    So as you consider changes to Medicare benefits, it is my 
hope that you will take the commonsense step to allow MA plans 
to vary cost sharing on the amounts of health produced. Despite 
the urgency to bend the cost curve, Congress should avoid blunt 
changes that reduce quality of care. Using benefit design to 
encourage utilization of high-value services and deter access 
to low-value services can improve health, enhance personal 
responsibility, and reduce costs.
    I look forward to your questions.
    Chairman BRADY. Thank you, Doctor, very much.
    [The prepared statement of Dr. Fendrick follows:]
   
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
   

    Chairman BRADY. Ms. Neuman.

STATEMENT OF TRICIA NEUMAN, SENIOR VICE PRESIDENT AND DIRECTOR, 
  KAISER PROGRAM ON MEDICARE POLICY, KAISER FAMILY FOUNDATION

    Ms. NEUMAN. Thank you, Chairman Brady, Ranking Member 
McDermott, and distinguished Members of the Subcommittee. I 
appreciate the opportunity to testify at a hearing examining 
the traditional Medicare benefit design.
    Since the 1970s, the idea of simplifying benefits under 
traditional Medicare has been under discussion, but proposed 
solutions have typically involved very difficult tradeoffs. A 
change in the benefit design could streamline and simplify 
benefits, could provide greater financial protections to people 
with significant expenses, and minimize the need for 
supplemental insurance, but as structured to produce Medicare 
savings, such a change could also be expected to increase costs 
for the majority of beneficiaries.
    Medicare provides highly valued health insurance for 50 
million people, Americans, many of whom have significant 
medical needs and modest incomes. Four in ten have at least 
three chronic conditions; one in four has a mental or cognitive 
impairment; half live on an income of less than $23,000.
    As noted in your announcement for today's hearing, Medicare 
has a complicated benefit structure. It also has high cost-
sharing requirements and no limit on out-of-pocket spending for 
services covered under Parts A and B.
    As a result people on Medicare tend to have relatively high 
out-of-pocket costs, including cost-sharing requirements for 
Medicare, but also premiums for Medicare, premiums for 
supplemental coverage and for uncovered services. Health 
expenses now account for nearly 15 percent of Medicare 
household budgets. On average that is three times the share for 
non-Medicare households.
    Proposals to change the traditional Medicare benefits 
design can have different goals which have direct implications 
for beneficiaries and for program spending. Proposals to change 
the benefit design could simplify benefits, encourage the use 
of highly valued services as you have just heard, improve 
benefits, or trim them back. Achieving Medicare savings could 
be a high priority or not.
    Several recent proposals would simplify benefits, set a 
limit on cost-sharing obligations, and also reduce Federal 
spending. The Kaiser Family Foundation, with Actuarial Research 
Corporation researchers, examined an option to simplify the 
benefit design and achieve Medicare savings based on an 
approach specified by the Congressional Budget Office in their 
budget options report in 2011. That option includes a $550 
unified deductible for Parts A and B, a uniform 20 percent 
coinsurance, and a new $5,500 limit on cost sharing. This 
approach would be expected to reduce spending for a very small 
share of the Medicare population, but generally people who are 
very sick with high costs.
    Five percent of beneficiaries in traditional Medicare are 
expected to have lower out-of-pocket costs than they would 
under current law, and they would receive substantial savings 
on average. This would affect, for example, people with 
multiple inpatient stays, or a lot of postacute care, so it 
would be helped by the limit on out-of-pocket spending. But 
most, and the analysis estimated 71 percent, would be expected 
to face higher costs. So seniors in relatively good health who 
may go to the doctor or see a couple of specialists in a year 
would see their deductibles triple from current levels to $550. 
And that illustrates the tradeoff.
    This particular benefit redesign could be modified in a 
number of ways. Lowering the cost-sharing limit would help more 
people, but could also lead to higher Medicare spending. 
Raising the limit would help even fewer people and generate 
additional savings.
    Another modification also described by the Congressional 
Budget Office would include restrictions in supplemental 
coverage along with a benefit design. It would prohibit Medigap 
from covering the unified deductible by limiting Medigap 
coverage beyond that point to a certain extent. This approach 
would increase the Medicare savings, mainly because people who 
have Medigap would be expected to use fewer services when 
confronted with higher cost sharing. Under this option nearly a 
quarter of people on Medicare would see costs decline, mainly 
due to lower Medigap premiums, but half would be expected to 
pay more; again, a difficult tradeoff.
    Another modification would incorporate stronger protections 
for low-income beneficiaries in conjunction with a benefit 
design. Such an approach would simplify the program for all 
beneficiaries, protect those with limited means, but could 
diminish Federal savings, if not result in higher Federal 
spending.
    Mr. Chairman, Medicare today enjoys strong support among 
seniors. Finding an approach that will streamline benefits, 
encourage beneficiaries to use highly valued services, and 
provide greater protections to those with high out-of-pocket 
expenses, all without shifting undue costs onto beneficiaries, 
remains a challenge, particularly in a deficit-reduction 
environment.
    And I thank you, and I look forward to working with you and 
answering your questions.
    Chairman BRADY. Great. Thank you.
    [The prepared statement of Ms. Neuman follows:]
  
  
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    Chairman BRADY. All three witnesses are very helpful.
    Mr. Hackbarth, for seniors listening today, besides just 
simplifying it and making it less confusing to handle all of 
the deductibles, copays, everything that goes with that, are 
the two biggest benefits to modernizing the design that, one, a 
cap on that out-of-pocket cost so that you sort of have that 
peace of mind that if you are one of those who hits the high-
cost health care, and many seniors do, you know you are limited 
to what damage that might do? And secondly, looking at copays, 
which is a fixed dollar amount, versus coinsurance, again on 
that very expensive health care again, that too many seniors 
fear, for seniors are those the two biggest benefits of 
redesigning the system, and how many seniors will be impacted 
by that over their lifetime?
    Mr. HACKBARTH. Yes. Chairman Brady, those are, I think, the 
two big benefits.
    With regard to how many people benefit from catastrophic 
coverage, it is important to look at that over time. So in any 
given year, we estimate the number of beneficiaries that exceed 
$5,000 in out-of-pocket costs is about 6 percent. But if you 
look at a 4-year time horizon, that number doubles. And 
obviously, over the duration in Medicare of the typical 
Medicare beneficiary, the percentage grows and grows over time. 
So it is important to look at that value not 1 year at a time, 
but over the course of participation in Medicare.
    Chairman BRADY. Yeah. And this is what I want to ask Ms. 
Neuman. One, I appreciated reading your analysis and testimony. 
Did you look at--is your analysis done over the lifetime of a 
Medicare senior or someone on disabilities, again, who is 
likely to face higher costs over a lifetime?
    Ms. NEUMAN. No. We looked at a--we did a 1-year analysis of 
what the effects would be, and I don't disagree with Mr. 
Hackbarth. I think for a catastrophic benefit, there would 
certainly be more people who would benefit from a spending 
limit over time. Whether they perceive their lifetime risk is a 
different question, but we did not look at that. We looked at a 
single year.
    Chairman BRADY. Can you do that? And here is why. One, the 
analysis was very interesting to read, and helpful, but, 
looking at 1 year of Medicare is like looking at the cost of 1 
year of auto insurance, the year you didn't have an accident. 
Yeah, the price looks pretty high, but spread over time, and 
the difference here being everyone is likely to get sick. Many 
are likely to be seriously ill. Most are going to drive up some 
pretty healthy costs. So while on the front end there may be 
higher monthly premiums, deductibles, copays, over time that 
could be a significant savings for a senior. And Kaiser Health 
Foundation has a great reputation. Would you consider redoing 
that analysis and looking at it so we could look at a senior's 
healthcare costs over a longer period?
    Ms. NEUMAN. We would certainly be happy to take a look at 
that.
    Chairman BRADY. That would be very helpful. Thank you.
    And, Dr. Fendrick, I read your testimony, but it was in 
four-point type, and so for us old geezers, you might consider 
making that a little bigger in the future, for those of us who 
are struggling to read these days.
    The design that both encourages the use of value-based--I 
mean, the services you really need to make sure a senior 
wouldn't skip health care that they really need, how would you 
design--as we simplify it and unify it, how would you design it 
to make sure that we are encouraging seniors into those 
essential value services? What would be the key ingredient?
    Dr. FENDRICK. First off, I would make sure----
    Chairman BRADY. Can you hit that microphone?
    Dr. FENDRICK. First thing I would recommend, no copayment 
for you to see your eye doctor so you could read my testimony.
    I think the nice thing about the three witnesses, we all 
agree that the discussion should go beyond how much we spend on 
Medicare, but instead how well. In this concept of clinical 
nuances, you mentioned some good services which are highly 
recommended by professional societies, other organizations, are 
those that we would immediately identify and have already done 
in hundreds of organizations in the private sector to say these 
services are so important that patients should not pay a 
substantial out-of-pocket for them. As Mr. McDermott mentioned, 
that is currently the case for preventive services in most 
public and private plans, and we are, in fact, trying to extend 
these services for common chronic diseases for doctor visits, 
diagnostic tests, and drugs that have been identified by 
professional societies as the things that should be performed. 
And that would be the basic premise for us to move forward on 
the carrot side, or the high-value side, of value-based 
insurance design.
    Chairman BRADY. On a scale of 1 to 10, how difficult is it 
now that--what we know today versus half a century ago?
    Dr. FENDRICK. Given that almost all of your expenditures in 
Medicare are in chronic diseases, and most of those chronic 
diseases can be lumped into about 14 of them, and the fact that 
there are guidelines that are evidence based in most of those 
conditions, I would say that that is fairly straightforward.
    Chairman BRADY. All right.
    Well, thank you all very, very much. This was helpful.
    Dr. McDermott.
    Mr. McDERMOTT. Thank you, Mr. Chairman. I don't think--
there is general agreement across this dais, I am sure, on the 
need for catastrophic limit. I don't think that is the 
question. The question really is, how do you pay for it? Now, 
we tried once in 1989, and maybe we will do better this time, 
but that is really the issue here. And, Mr. Hackbarth, I--or 
Dr. Hackbarth, I guess.
    Mr. HACKBARTH. Mr.
    Mr. McDERMOTT. Mr., did MedPAC in their looking at this, at 
the redesign, expect any savings to come out of the redesign of 
the way the payment was made?
    Mr. HACKBARTH. From the redesign of the benefit package, 
no. As I said in my comments, we think the existing benefit 
package is not too rich, and so we were looking at a 
restructuring of the benefit package while holding average 
beneficiary liability at the current level.
    Mr. McDERMOTT. If you shift the cost to beneficiaries, how 
does that get paid for?
    Mr. HACKBARTH. So the other major feature of our proposal 
was the charge on supplemental insurance. And if you have a 
charge on supplemental insurance set at about 20 percent, then 
you generate additional revenues that can be used to either 
reduce federal spending or to cover additional benefits.
    Mr. McDERMOTT. What did you assume was too high a 
supplemental coverage when you put that 20 percent surcharge 
on?
    Mr. HACKBARTH. Well, we don't say that you can't have a 
particular type of supplemental coverage.
    Mr. McDERMOTT. You could have it----
    Mr. HACKBARTH. You could have it----
    Mr. McDERMOTT [continuing]. But if you have a certain 
income, you are going to pay a surcharge? Is that the way it 
works out?
    Mr. HACKBARTH. Yeah. What we modeled was everybody pays a 
surcharge under supplemental insurance. Then there is the 
question if you want to provide adequate protection to low 
income beneficiaries, how do you do that? Rather than having no 
surcharge, we think the way to do the low income protection is 
through something like the Qualified Medicare Beneficiary 
Program.
    Mr. McDERMOTT. I remember in the Simpson-Bowles proposal, 
there was a lot of talk about this whole issue, and they said 
broad-based entitlement reform should include protections for 
vulnerable population. So I think it is generally accepted by 
everyone that whatever manipulation you do, you have to take 
care of the people at the bottom. Is that fair to say?
    Mr. HACKBARTH. Yes.
    Mr. McDERMOTT. And it is true that any proposal needs to be 
packaged with additional financial insurance--assurance for 
those in need, including not just people at 135 percent of 
poverty, but up to 200. Would you say?
    Mr. HACKBARTH. Well, we have not made any recommendations 
on exactly where to set that level. Under the Qualified 
Medicare Beneficiary Program, the level is set at 100 percent 
of poverty level.
    Mr. McDERMOTT. Is that high enough?
    Mr. HACKBARTH. Again, if your goal is to protect low income 
beneficiaries, that number ought to be increased. Now, we do 
have some additional Medicare savings programs that go a little 
bit higher, but they are focused on paying the Part B premium 
as opposed to cost sharing at the point of service.
    Mr. McDERMOTT. Ms. Neuman, you are probably aware of the 
National Association of Insurance Commissioners that reviewed 
the literature and produced a letter that says that they were 
unable to find evidence that cost sharing encouraged 
appropriate use of health care service. Are you aware of that?
    Ms. NEUMAN. Yes, I am.
    Mr. McDERMOTT. I ask unanimous consent to have that letter 
put into the record, Mr. Chairman.
    Chairman BRADY. Without objection.
    [The letter follows:]
   
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    Mr. McDERMOTT. What does that mean in terms of using copays 
as a way of getting people to make decisions about their--I 
mean, if you are in an automobile accident and the ambulance 
comes and picks you up, do you shop at that point for which 
emergency room to go to?
    Ms. NEUMAN. Cost sharing can be a blunt instrument. In some 
cases, for example, in the Part B drug benefit, it is a little 
bit more straightforward with generics versus brand name drugs. 
And even at the pharmacy, there is some----
    Mr. McDERMOTT. I will give you drug benefit. Now, tell me 
some----
    Ms. NEUMAN. But beyond that----
    Mr. McDERMOTT. Give me some other area where people shop--
--
    Ms. NEUMAN. Beyond that point, this is where I was heading, 
it gets----
    Mr. McDERMOTT. Do people shop for artificial knees?
    Ms. NEUMAN. I don't think so.
    Mr. McDERMOTT. Well, I mean, one of my colleagues just had 
his knee replaced. Do they go around and ask the doctor, how 
much do you charge and how much do you charge? And I am going 
to take the cheaper one?
    Ms. NEUMAN. It is generally very difficult for patients to 
do that, and often patients are motivated to do what their 
doctors tell them to do. That is why a lot of the work that has 
been done has been focused more on the providers side to give 
providers information to drive people to more value-based 
services, because in theory, the doctors have more information 
to sift together in order to advise their--advise consumers, so 
they don't use services that are not needed.
    Mr. McDERMOTT. My point is, Mr. Chairman, patients don't 
shop, they follow what doctors tell them to do.
    Chairman BRADY. Hence the problem. Mr. Johnson, you are 
recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman. I would like to 
follow up on his question, because you didn't answer it. If you 
break a leg or something and an ambulance comes, you don't have 
a choice of where to go or what doctor to see, generally 
speaking. They take you to the emergency room of some close 
hospital, or the county hospital if it happens to be close by. 
So how do you explain fixing that charge in Medicare? Any of 
you. Hackbarth, you have addressed that before.
    Mr. HACKBARTH. Yeah. So I agree that when a person is in an 
automobile accident and they need to go to the emergency room, 
there is zero opportunity for shop, and nobody is thinking 
about which emergency room to go to and what the cost is. But 
there are decisions that beneficiaries make where they do make 
a decision about whether cost matters or not. For example, a 
decision about how many times to see a physician, or decisions 
about some tests. You hear from physicians all the time about 
patients saying, well, you know, I want the extra test, I want 
to be really sure. If there is some cost sharing on those 
decisions, patient decisions change, and so it is at that end 
of the spectrum, not the catastrophic illness end. We all agree 
that we need complete coverage for really sick patients.
    Mr. JOHNSON. Well, you know, I just experienced one with a 
hospital right here in Washington. They ordered some x-rays, 
and for crying out loud, you go in the x-ray room and they 
don't x-ray what the doc tells them to x-ray. They x-rayed 
about 10 or 15 other things, and they are going to charge you 
for it.
    Dr. FENDRICK. If I could----
    Mr. JOHNSON. And you are a doctor. Tell me how you avoid 
that?
    Dr. FENDRICK. No. If I may, I think the very important 
point that is emerging, as Ms. Neuman said, that most of the 
initiatives that have come out both in the private and public 
sectors have been how to change how we pay and manage care on 
the supply side.
    I think the important discussion, as we talk about 
reforming Medicare's benefit design, is to absolutely make sure 
that the patient and the doctors are aligned and, in fact, 
there is no conflict. The example, Mr. Johnson, I will give you 
is as I practice in a medical home, I am given a financial 
bonus to get my patients' diabetes under control and get their 
eyes examined. At the same time, cost sharing to get their 
insulin and to get their eyes examined have gone up. So the 
important alignment of provider and consumer incentives is 
critical.
    And as a physician I will tell you, the emergency example 
is one reason why there is no recommendation in value-based 
insurance design to lower or raise cost sharing, because it is 
not a patient-sensitive issue, but the decision to get your 
fourth endoscopy or to see your seventh specialist, I think 
there are many situations where we could use soft paternalism 
and cost sharing to get patients to make better informed 
decisions, to A, get the high value care they need and, maybe 
more importantly, to cut the 20 percent waste that is driven by 
reasons that are not really understood.
    Mr. JOHNSON. You know, it is kind of hard to get all the 
docs on the same page all across this country, too, because of 
the differences in where they live and how they operate. That 
is a real problem.
    You know, Mr. Hackbarth, I appreciate your work to figure 
out which approach can improve the coordination of care in our 
fragmented system, but I reject the notion that the bureaucrats 
in Washington can tell providers how to care for patients, and 
I am interested in how you think that using payment policies 
to--reward good outcomes, and how do you approach that system 
with the docs and hospitals?
    Mr. HACKBARTH. Yeah. So our thinking about payment reform, 
Mr. Johnson, is that we want to put more decision-making 
authority in the hands of clinicians as opposed to in the hands 
of bureaucrats. So one payment reform that moves those 
decisions out, but when you do that, there needs to be 
accountability for results both on total cost and quality. If 
we don't have that sort of payment reform, what I fear is 
increasing intrusion, defining the rules about what qualifies 
for fee-for-service payment and the like. So I think we are in 
accord on what the objective should be.
    Mr. JOHNSON. Thank you, sir. Thank you, Mr. Chairman.
    Chairman BRADY. Great. Thank you, sir. Mr. Thompson is 
recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for 
holding this very important hearing.
    Ms. Neuman, is Medicare really as popular as those of us 
who go back to our district every weekend hear from our 
constituents? Do you have data or polling information?
    Ms. NEUMAN. Yeah. I mean, our polling shows that Medicare 
is not only popular with the general--with seniors, but also 
very popular with the general public. Seniors like the way it 
works and say it is working well for them.
    Mr. THOMPSON. So as complicated as it is, what is it about 
Medicare that makes it so popular with the general populace as 
opposed to a big corporate plan?
    Ms. NEUMAN. Medicare gives people peace of mind when they 
get--have a disability or when they get older that they will 
have most of their health expenses covered.
    Now, Medicare, as we have been talking about, has high 
cost-sharing requirements, but a lot of people have 
supplemental coverage. A lot of people who are retirees have 
gotten retiree health benefits from their former employers, 
others have MediGap, the very low income have Medicaid, so a 
lot of people have a pretty full package of benefits. That is 
not to say they don't pay for the services they receive in many 
instances, but they do have supplemental coverage.
    Mr. THOMPSON. Thank you. As we deal with the whole issue of 
benefit redesign, it seems to me that that is going to--
whenever you reform something, you are disrupting the current 
system, so you are going to have some beneficiaries who end up 
paying more and some who end up paying less. And I guess my 
question to all of you is how is that going to be perceived in 
the beneficiary community? Is it going to disrupt the 
popularity of Medicare? Will beneficiaries think it is a fair 
redistribution of the benefit? And we could start with you, Mr. 
Hackbarth.
    Mr. HACKBARTH. Yeah. I think, Mr. Thompson, the commune----
    Mr. THOMPSON. I can't hear you.
    Mr. HACKBARTH. I am sorry. I think that communication is 
really important. The nature of insurance is a lot of people 
pay a little so that a smaller number of people are protected, 
and so the fact that a redesign might mean that a lot of people 
pay a little bit more to provide catastrophic coverage for the 
most seriously ill, that is just basic principles of insurance.
    What people don't often take into account is the issue we 
discussed earlier. Don't think of this on a 1-year basis; think 
of this on the basis of your full time in Medicare as a 
beneficiary. The likelihood that you are going to benefit from 
that back-end protection grows dramatically over the course of 
your time as a Medicare beneficiary. That is not well 
understood, and it needs to be communicated.
    Dr. FENDRICK. Mr. Thompson, I will just say two things: 
First, the movement toward free or low cost preventive care, 
both in public and private programs is universally accepted and 
one of the most important and well received aspects of 
healthcare reform.
    As we have done focus groups in both commercial populations 
and in seniors, the idea of explaining to them about this one-
size-fits-all system and giving them the comparison as opposed 
to paying the same for a drug that will save your life as one 
that is so dangerous, you wouldn't give to your dog, and 
instead set up a system that will encourage you to get the 
services that are recommended by their own doctors and their 
professional societies, and make it a little bit harder to get 
those services that are recommended by those same societies in 
an initiative called Choosing Wisely is almost universally 
accepted.
    It is the communication piece that Mr. Hackbarth mentions 
that is so important in explaining to them the system that does 
not delineate your benefit design at all on what makes you 
healthier and what makes you harmful. And you can imagine with 
the right communications techniques, this is something in our 
focus groups that is seen almost universally as positive.
    Ms. NEUMAN. Mr. Thompson, I think it would be a massive 
communication effort that would be required. In at least our 
polling, people, seniors are----
    Mr. THOMPSON. To preserve the popularity and----
    Ms. NEUMAN. To preserve the popularity of the program with 
what people perceive to be our increases in cost sharing. You 
know, for good or for bad, the public is pretty resistant to 
increases in cost sharing, perhaps because they are sensitive 
to the costs that seniors are already incurring.
    So a catastrophic benefit, while very important for 
financial protection and would help more people if you look at 
it over a life span, it may be difficult to convince the public 
of that in the short term. And I am mindful of the experience 
of the catastrophic coverage program, which would have provided 
a catastrophic benefit, but it was a very tough sell and it was 
a very tough repeal, and despite efforts at communications, it 
just didn't work out.
    Mr. THOMPSON. Thank you.
    Mr. HACKBARTH. Could I just mention one other point on this 
I think may be useful to the committee? What we found in focus 
groups was that people who are not yet Medicare beneficiaries, 
may be in their 40s or 50s, early 60s seem to have different 
attitudes about redesign than current Medicare beneficiaries. 
The younger people are more receptive to the idea of, oh, I pay 
a little bit more at the front end in exchange for a better 
protection at the back end. So that may be something to 
consider also.
    Chairman BRADY. Thank you, sir. Mr. Roskam is recognized.
    Mr. ROSKAM. Thank you, Mr. Chairman. You know, I was 
interested in the exchange, Ms. Neuman, between you and Mr. 
Thompson a minute ago in that you were describing the 
popularity of Medicare, which I agree with, but it is sort of 
the smooth ride as we are going towards the cliff and then, 
yeah, the road can be smooth and you can't maybe perceive the 
problem, but 12 years out when insolvency is upon us, that is a 
stark reality that this committee, I am sure you appreciate, 
has to deal with. So popularity notwithstanding, there is a 
real challenge there in terms of the reality.
    The other thing was, I sensed from you a little bit of an 
admonition and a word of caution about a massive effort being 
required in terms of large changes, and yet at the very 
beginning of this hearing, Mr. McDermott pointed out there is 
going to be a massive effort and we were told to gird up in 
terms of the calls and so forth into our district offices as it 
relates to the implementation of the Affordable Care Act. So 
Congress hasn't shied away in the past from some massive 
efforts and it is upon us, but I think the reality is that 
these things are here. So I don't expect a reply, but just a 
word about the exchange.
    Mr. Hackbarth, question. In your testimony, or in your 
report, you highlighted how a lot of the durable equipment 
doesn't have a copay, and that is basically a thing of the 
past. Could you elaborate on that? Or it should be a thing of 
the past?
    Mr. HACKBARTH. Well, durable medical equipment does have a 
copay under the----
    Mr. ROSKAM. I am sorry, home health.
    Mr. HACKBARTH. Yes. Home health services is one of the few 
services under the current benefit that does not have any 
copay. A year or so ago, we recommended the addition of a copay 
on home health services. Again, we think part of any fee-for-
service insurance program is to have modest, appropriate 
copays.
    Mr. ROSKAM. And what is your hope and your expectation of 
having that?
    Mr. HACKBARTH. Well, you know, we have seen very rapid 
growth in the number of home health episodes. And we are 
talking about not people being admitted to home health after 
hospital admissions, but admissions from the community. And 
that care is, to some degree, discretionary care, and so we 
think it is appropriate for the beneficiary to pay some 
contribution to that so they think carefully about whether this 
is needed versus other alternatives they might have.
    Mr. ROSKAM. A minute ago you were referencing some of the--
shifting gears--you were referencing some of the attitudes of 
younger----
    Mr. HACKBARTH. Yes.
    Mr. ROSKAM.--future beneficiaries. Could you speak to that? 
Could you give us a sense of sort of the range of their 
tolerance for change? The earlier you implement the change, 
sort of is there an arc to it, is there a science to it? Did 
you come to any conclusions?
    Mr. HACKBARTH. Well, our information is based on focus 
groups, so it doesn't lend itself to quantifying this dynamic, 
but it was a pretty clear one that the younger population is 
used to thinking about these trade-offs, they have experienced 
change in their employer-based coverage perhaps, where, they 
have been asked to pay more front end copays in exchange for 
something else. So it is just more familiar, they are more 
receptive to it. They don't have the same reflex reaction that 
some existing beneficiaries might have.
    Mr. ROSKAM. Thanks. And then, just another observation. It 
seems in the discussion that the three of you had a minute ago 
with Mr. Johnson, you know, there is this feeling that we have 
got a system essentially where it is very difficult to interact 
and get answers about price from a consumers point of view.
    Dr. Fendrick, you used the phrase ``soft paternalism,'' 
which makes us all very nervous, and, you know, sounds like 
slight discomfort during a medical procedure, but there is an 
inability on the part of a lot of patients to find out just 
sort of clear information. And we have--all of us are complicit 
in creating a health care system where asking a physician the 
cost of the procedure is almost--is a taboo question. And you 
can imagine going in, hey, doc, what is this going to run me? 
It is like, well, I don't--I don't know. It is almost as if we 
have asked, you know, how much does your spouse weigh or 
something. It is that kind of question. And we are admonished, 
no, you got to go to talk to the front office. I don't deal 
with this.
    That is unsustainable, and that, I think, is one of the 
factors that is driving part of our challenge today. And I 
think that is why I appreciate the chairman having a hearing 
focused in on redesign with an idea of patient empowerment, 
setting aside the weaknesses of a market that isn't highly 
functional in some areas, but is highly functional in others.
    And I see the red light, so I will yield back.
    Chairman BRADY. Thank you.
    Dr. FENDRICK. I will just briefly say that in this issue of 
deciding about clinical nuance or not, in a typical branded 
drug copayment system, you pay the same out of pocket for 
insulin, depression drugs, critically important drugs for 
health as you would for drugs for allergies and male pattern 
baldness and other types of things.
    And terminology notwithstanding, when we talk to Medicare 
beneficiaries and ask them do they understand inherently that 
some physician visits are more important than others, that some 
medications that they take are more important than others, they 
universally say yes. And when asked, would you prefer to have 
your insulin and your depression drugs and your anti-seizure 
drugs to be lower cost because they are more important, as 
opposed to the current system that make them lower cost because 
they are lower cost and even though they might make you 
healthier, is almost universally accepted.
    Chairman BRADY. Right.
    Dr. FENDRICK. And I think that is why we have seen clinical 
nuance in terms of cost sharing recommended by all three of the 
witnesses and from management and labor and a number of 
organizations who see that one size fits all is truly archaic.
    Chairman BRADY. Thank you, Doctor. Mr. Roskam, my favorite 
is, ``You may feel a pinch with this.'' That means get ready 
for searing pain coming your way. Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman. And I want to thank our 
panelists today. But just to stay on the line of questioning 
about benefit redesign and greater cost sharing, Ms. Neuman, I 
think you are exactly right. I think there will be great 
resistance with current Medicare beneficiaries for any 
increased cost sharing that might be asked of them. I was taken 
aback a little bit with the stats that you were reading off at 
the beginning of your testimony. One half of current Medicare 
beneficiaries are surviving on $23,000 or less in the system? 
So to be talking about greater cost sharing with that 
population is going to be met with fierce political resistance, 
I would predict.
    And, Mr. Hackbarth, it is not surprising that the younger 
population might be more amenable to some changes and greater 
cost sharing or benefit redesign, but they are not the problem. 
I mean, if we continue to exempt current Medicare beneficiaries 
to any changes or the 55-and-above population, which is the 
Baby-Boom generation, we are really not advancing the ball that 
well and addressing the huge health care cost issue that we 
face with the budget. So to me it tells me we have got to 
continue today to move forward on delivery system and payment 
reform today with the eye towards cost saving while still 
enhancing quality and not jeopardizing access.
    Dr. Fendrick, I understand your laudable goal of trying to 
drive consumer decisions to more value-based care and less low 
value care and have a price commensurate with that, but I have 
always found that the health care field is different. We do 
have asymmetrical information out there. I think the providers 
are the experts. I am reasonably astute when it comes to health 
care decisions, but when I go into a doctor's office, I don't 
know if I need a CT scan or an MRI and I don't know what the 
best course of treatment is going to be for me.
    So at lot of this is going to have to be provider-driven, 
which means they are going to need information on what makes 
and what doesn't work, which brings us back to comparative 
effectiveness research. Do you think that is something we need 
to continue to go forward on, doing comparative effectiveness 
research and driving that into the hands of doctors and 
patients alike so they know what the most effective treatment 
option is?
    Dr. FENDRICK. So obviously as an academic, I support 
research that will tell us the services that help patients and 
the services that harm patients. I think that we have to think 
very hard about this decision in understanding the asymmetry of 
information, but it is possible. The enormous popularity of the 
free preventative services in Medicare and in health care 
reform justify that.
    I think, given the numerous studies that show the large 
amount of waste in the system, I have to go on record that I 
would like to see increased cost sharing for harmful care. And 
if--the initiative called Choosing Wisely, which I mentioned 
forward, is over 20 medical specialty societies, not 
bureaucrats, but physicians themselves saying that there are 
services that individuals should talk with their doctors very 
carefully about, because the evidence would suggest that not 
that we are not sure, which I am totally happy leaving the 
value-based cost sharing outside, but for those services where 
the evidence is of harm, I do believe that this is a 
conversation that we--all of the stakeholders are willing to 
engage in.
    Mr. KIND. Well, Dr. Fendrick, I mean, we had some bruising 
battles, you know, discussing this over the last few years or 
so, whether it was funding for comparative effectiveness 
research under the American Recovery Act, under ACA. We 
actually instituted the Patient Center Outcome Research 
Institute to help sponsor clinical studies out there so we can 
get better information into the hands of providers. Do you 
think that was a good idea to move forward on?
    Dr. FENDRICK. Research to answer the tough questions about 
how to spend our health care dollars are important, both from 
the private and public sector, but I think, Mr. Kind, what is 
really important to say is that our own work shows that even in 
the setting of solid scientific evidence, without the 
appropriate incentives for both patients and their providers, 
the best possible care is not provided. There are these no-
brainers. You know, we are not talking about in the middle. 
There are these no-brainers: diabetic eye exams, physical 
therapy that people don't----
    Mr. KIND. Doctor, you got me on that.
    Dr. FENDRICK. Okay.
    Mr. KIND. I am in complete agreement. This is where we need 
to be going as far as health care decisions and that, but I am 
you a little surprised that in the course of today's hearing 
and the questioning, the R word hasn't been mentioned yet, 
because we are really talking about rationing. I mean, if you 
are talking about changing the cost incentives within the 
system and that and driving people to high value care and away 
from less value care, that is a form of rationing, which I get, 
I understand. We need smart rationing within the health care 
system, because you don't want to be spending money on stuff 
that doesn't work or leave patients even worse off when they go 
in.
    So I don't think we should be necessarily scared or 
frightened from that concept, yet it is such a political 
bludgeon around here. When you start talking about comparative 
effectiveness research and making smart decisions, suddenly it 
becomes rationing, and that is a big bugaboo that we can't 
approach and that.
    So, you know, I commend your message and what you have been 
working on, but there are political minefields that, you know, 
all this too that I just caution you about.
    Dr. FENDRICK. All I will say, is very quickly, is that the 
option that we have before us is whether the benefit design 
should be nuanced or not. And if you feel that Medicare 
beneficiaries should spend equal out-of-pocket amounts for 
things that hurt them and things that incredibly well benefit 
them, then I would keep the status quo.
    What we have seen both in public and private plans thus far 
is that people really do prefer a nuanced approach, working 
from the edges for the things we are really certain on the 
things that help and the things that harm, and avoid the 
contentious issues that your committee and the public have 
dealt with over decades.
    Mr. KIND. Okay.
    Chairman BRADY. The time has expired. Mr. Price.
    Mr. PRICE. Thank you, Mr. Chairman. And I want to thank 
you, congratulate you on chairing the Health Subcommittee and 
look forward to working with you, and I want to thank you for 
this most important hearing today, and I look forward to having 
many more.
    People ought to be sitting up and taking notice as we use 
terms like ``soft paternalism'' and ``rationing'' within almost 
the same paragraph.
    The real question is how does this affect patients? As a 
physician who took care of patients for over 20 years, I can 
tell you that when they felt that somebody else was making the 
decision that potentially adversely affected what their doctor 
could do for them, that is when they said that this isn't the 
system I want to participate in. We need to be very, very 
careful in what direction we head.
    The home health was talked about, I think, by Mr. Roskam. 
The current design of a new benefits package for home health is 
now in phase 2 by CMS. And I would suggest to you that it is 
harming patients, making access to home health care more 
difficult for patients. Is it going to cost less? Yeah. You 
know, we will pound our chests up here and say how wonderful it 
is because it costs less, but it is hurting people. And that is 
the challenge that we have, is to design a system that doesn't 
hurt people.
    So then you have to ask the question, okay, well, who is 
going to decide whether it hurts or not? And that is where the 
whole issue of one-size-fits-all really gets to the heart of 
the issue.
    Dr. Fendrick, you talked about the current system being 
one-size-fits-all, and it is. Do you have any concern that we 
trade one one-size-fits-all system that doesn't necessarily 
work for everybody for another one-size-fits-all system that 
doesn't necessarily work for everybody but may work better for 
government?
    Dr. FENDRICK. My consideration is the Medicare beneficiary. 
And I look at exorbitant amounts, billions of dollars that 
could be spent on services that would improve the quality and 
length of life of those beneficiaries that are instead being 
wasted on things for which medical societies say harm patients.
    So I understand that there are issues and challenges, but 
all I can tell you, the popularity among patients and 
physicians to see cost sharing removed for services that save 
lives, whether they be preventive services or management of 
chronic diseases, seems to me like something that we move 
forward in. And almost all the implementations thus far of 
clinically-nuanced benefit designs have been around subsidies 
of high value services. Because most high value services, as 
you well know, tend to increase costs in the short term instead 
of lower them, the fiscal pressures that we have confronted has 
required us to look at not just the motivation for me to get 
into this is to make the high value services more accessible to 
patients and their providers, but also understand this waste 
problem. And it is MedPAC and other organizations that continue 
to tell us the billions of dollars that are spent on harmful 
care.
    And I think as--having some fiscal responsibility, we need 
to understand that we could reallocate these funds, maybe not 
perfectly, but in a better way than we currently are with no 
clinical oversight.
    Mr. PRICE. Let's talk about the patient that we come up 
with this grand design for a new benefits package for folks and 
a system that is going to work better than the current system, 
and we say to our senior population, you have got to see do 
this, should there be any flexibility in that? Should a senior 
be allowed to, I don't know, opt out of that system?
    Dr. FENDRICK. You are the legislator, I am not. All I am 
going to say is another----
    Mr. PRICE. No. For the patient. You are talking about the 
patient.
    Dr. FENDRICK. I think the important point that I may have 
glossed over is that these type of benefit designs never decide 
what is covered and what is not. And for you as a physician as 
well as a congressman know that there is a multiplicity of 
small print in cost sharing, both in Medicare as well as in 
private plans. So this idea of confusion is going on already. 
And my simple point is instead of using profits or the cost of 
a service to generate how often it is done, that we think about 
taking advantage of the points that were made by a number of 
you moving from volume to value, and value must include 
clinical nuance.
    Mr. PRICE. My time is short, but the concern that many of 
us have is that value is quality over cost. And quality is in 
the eye of the beholder, so what is quality for you as a 
patient, what is quality for me as a patient or another patient 
may be something completely different. That is not to say that 
there ought not be comparative effectiveness research, because 
there ought to be. As scientists, we all understand that you 
have got to--that you want to know the best thing to do for a 
patient. But at the end of the day, it is patients and families 
and doctors that ought to be making these decisions about what 
kind of care they receive, and not anybody else.
    Dr. FENDRICK. I agree.
    Mr. PRICE. Yield back.
    Chairman BRADY. Thank you, sir. Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you. I find this very interesting and 
very helpful. I guess my concern is that we have a situation 
that too often it is not so much dictating services, we have a 
system where nobody decides, where we kind of are a captive of 
the original program design, add-ons that continue. I don't 
know about soft paternalism or hard paternalism like just 
cutting you off with money, or just going along till we run 
out, or somebody figures out how to game the system. And what I 
hear you saying is there may be some ways that we can do a 
better job of incenting everybody to make the right decisions, 
and I am comfortable with that.
    We have had experience on this committee where people would 
not agree to allow the results of comparative effectiveness 
research to be used in determining how much the government is 
going to pay for what. Seems kind of goofy, but that is the 
political process. And the complexity that some people want is 
just going to add costs and water down the ability to deliver 
overall high quality service, which is, I think, in microcosm, 
why we pay more than anybody else in the world for results that 
are mediocre on average. And so I am intrigued with the--Mr. 
Chairman, with your bringing the witnesses here and for us to 
think about benefit structure and how it impacts it.
    I want to just go back to something, Dr. Fendrick, you had 
when you talked about infusing clinical nuance into Medicare 
Advantage. That was the bold print that was 6-point type. But I 
wonder, Mr. Hackbarth, I don't think you referred to Medicare 
Advantage in your testimony. Would you react to that for a 
moment? I mean, this is kind of a grand experiment that we have 
had. We have found out that not all Medicare Advantage programs 
are equal. Some are hopeless rip-offs, where we found some 
people who figured out how to game the system. We had in the 
Affordable Care Act some incentives to try and reward better 
programs, and we are slightly ratcheting down the premium.
    I am old enough to remember when Medicare Advantage was 
supposed to deliver the same quality and quantity of health 
care and it was supposed to be able to do so for 5 percent 
less, using the magic of private sector and unshackling. Didn't 
quite work out that way, but we are ramping down the subsidy 
and we are seeing, at least the conversations I am having, that 
some people are starting to take advantage of that platform.
    But can you speak to ways from MedPAC that Medicare 
Advantage might be an area where we could make some adjustments 
to inject a little more nuance into the program and not 
sacrifice either quality or, again, lose cost control?
    Mr. HACKBARTH. Yeah. We think that Medicare Advantage, 
offering a choice of private plans to the Medicare beneficiary 
is an important part of patient engagement. So beneficiaries 
ought to be able to go in that direction if they wish.
    We do think that private plans have the opportunity to do 
some things that traditional Medicare finds difficult to do; 
for example, identify high value providers and steering 
beneficiaries to those providers, which is one of the points 
that Dr. Fendrick made. The regulations, we need to look at 
those regulations, make sure that they provide appropriate 
flexibility to private plans to identify high value providers. 
Similarly, they need to have appropriate discretion to vary the 
benefit structure.
    So recently one of our recommendations was that rather than 
having chronic care SNPs, special needs plans, that are focused 
on particular chronic illnesses, what we ought to be doing is 
give all Medicare Advantage plans the opportunity to adjust 
their benefits for diabetics versus asthmatics versus patients 
with cardiovascular problems. And, again, I think that is 
something that Dr. Fendrick recommended.
    Mr. BLUMENAUER. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman BRADY. Thank you. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman. And thank you to our 
witnesses here today.
    Dr. Fendrick, I know you are obviously well studied on a 
lot of things relating to Medicare Advantage and current 
limitations. Would you have specific recommendations on how to 
break down some of the barriers to flexibility perhaps that 
would end up improving care?
    Dr. FENDRICK. I do. And I would just add on to what Mr. 
Hackbarth just said. I think they come into two most elemental 
buckets; is the first, the ability to allow the flexibility in 
MA plans to alter cost sharing, depending on the provider that 
chooses or where that is done. An example might be, for 
instance, a highly recommended service for individuals over 50 
is colonoscopy. You could get a colonoscopy in a number of 
settings, as shown in the Pacific Northwest, at a cost between 
$700 and $7,000. And I think to be able--in those situations, 
when most people do believe that colonoscopy is performed at 
reasonable, same quality in most places, that you might wants 
to encourage people to go to the lower cost centers that 
provide the same quality as those that are high.
    So provider and venue is the first, but the second and most 
important is this issue of allowing Medicare Advantage to alter 
cost sharing for specific services based on clinical 
information. And to follow up on what Mr. Hackbarth said, I 
think that one of the easier things to say, given the comments 
about the size of my testimony type, is the recommendation of a 
diabetic to see an eye professional on an annual basis.
    In Medicare Advantage, their current abilities now are to 
make eye exams either low cost or high cost regardless of your 
clinical condition. I would like to see a plan that offers 
annual low cost eye exams to diabetics but not offer that same 
benefit design for someone without that condition.
    Mr. SMITH. Ms. Neuman.
    Ms. NEUMAN. Medicare Advantage really could be an 
opportunity to learn more about benefit design changes that are 
being talked about today, because plans do have flexibility, 
not quite as much as might work, but there could be 
opportunities to learn more, and it may be something--the 
committee might want to consider perhaps giving the highly 
rated plans greater flexibility to modify the benefit design 
and use that as a learning opportunity to see what changes 
drive people to high value services and perhaps lower costs for 
the program.
    Mr. SMITH. Sure. And I realize that, you know, the term 
``flexibility'' is very vague and oftentimes even 
misunderstood, but the fact is representing a rural 
constituency, I know that things are done differently in rural 
America, and oftentimes more efficiently, but, you know, a 
supply of health care means mere access in rural areas and it 
means more competition in urban areas. And so in trying to 
balance many of those things, I was wondering if, Chairman 
Hackbarth, if you could reflect a bit on the impact to rural 
communities, rural health care in terms of, you know, 
recognizing some of those differences that are out there.
    I mean, it amazes me how we empower medical professionals 
to make very intricate decisions based on their expertise, and 
yet in other areas of health care, we don't allow the judgment 
to be utilized of the very same medical professions.
    Mr. HACKBARTH. So you are talking, Mr. Smith, more broadly 
about Medicare as opposed to just within Medicare benefit 
design----
    Mr. SMITH. Right.
    Mr. HACKBARTH.--how do we--Well, as you well know, Medicare 
has a large number of special provisions related to rural 
providers. It tries to address the particular, the unique needs 
of rural providers, for example, ensuring access to care for 
beneficiaries in isolated areas through the Critical Access 
Hospital Program.
    One of the areas that we have started to look into a little 
bit, based on the interest of one of our commissioners who 
practices in South Dakota, is that medical professionals and 
staff are used differently in isolated rural facilities than 
they may be in an urban facility. And----
    Mr. SMITH. And it would seem to me that oftentimes that is 
undermined given a one-size-fits-all approach coming from 
Washington.
    Mr. HACKBARTH. Exactly. So I think that is one area to look 
at, and we have just begun to pay some attention to that, but 
we need to make adjustments to accommodate the unique 
circumstances that exist in, say, an isolated rural hospital 
and how they configure their staff and how they make decisions.
    Mr. SMITH. Okay. Thank you. And, Mr. Chairman, I yield 
back.
    Chairman BRADY. Thank you. Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman. Ms. Neuman, can I 
just get a clarification, if I may, on policy and demographics, 
particularly on the issue of home health copays? Who are these 
people?
    Ms. NEUMAN. People who use home health services tend to be 
old, frail women. These are the oldest, the frailest that 
Medicare----
    Mr. PASCRELL. The most vulnerable?
    Ms. NEUMAN. Yes, sir.
    Mr. PASCRELL. Would you use that word?
    Ms. NEUMAN. Yes. I think that is fair.
    Mr. PASCRELL. Okay. Look, you have heard it many times: 
health care reform is entitlement reform. You may not agree 
with it, some folks here. Not only did it reduce costs for 
Medicare, but it also reduced costs for beneficiaries. That is 
what we know.
    The attempts to repeal reform and turn Medicare into some 
kind of other program will hurt the beneficiaries, that is my 
conclusion, because they have to pay more money out of their 
pocket. That has to be clarified. So I am not going to be 
disillusioned about the kinds of income seniors make. You 
mentioned in your testimony that the beneficiaries have an 
average income of close to $23,000, below $23,000, actually. 
They already spend 15 percent of their incomes on health care. 
And when you add that into how many people are living on their 
Social Security check and how that is increased over the last 
10 years, paying more out of pocket is just not an option for 
many of our seniors. Would you agree with that?
    Ms. NEUMAN. I would. And I want to come back to Mr. 
Hackbarth's comment when he talked about expanding coverage for 
the low income population and doing that in a targeted way. You 
know, while some with very low incomes do qualify for Medicaid, 
many low income Medicare beneficiaries are not on Medicaid----
    Mr. PASCRELL. That is right.
    Ms. NEUMAN [continuing]. Either because they are not 
eligible based on their assets or their income, but there are 
many people who would feel directly any change in cost sharing. 
So a lot of the proposals have talked about protecting the low 
income, but more work needs to be done on how that would be 
done and what vehicle would be used and who be helped.
    Mr. PASCRELL. Now, your organization, the Kaiser 
Foundation, found that 70 percent of Americans prefer 
Medicare's guarantied benefits to any other kind of plan. I 
think that it provides a clear picture of how our Nation values 
the program. The average Medicare beneficiary has an annual 
income of $22,500.
    So, Ms. Neuman, can you talk about these higher rates to 
some seniors that they have to pay disproportionate or whatever 
as you concluded?
    Ms. NEUMAN. Well, there are certainly some people on 
Medicare who are wealthy by standards that----
    Mr. PASCRELL. Right.
    Ms. NEUMAN [continuing]. Generally would be considered 
wealthy, but only 5 percent of people on the program have 
incomes of $85,000 or more. So for people with modest incomes, 
an increase in out-of-pocket costs would be a real issue.
    And what the research has shown is that it is people with 
lower incomes and people in poorer health who are 
disproportionately affected by increases in cost sharing, 
because higher people can probably absorb to pay more if it is 
worth to them.
    Mr. PASCRELL. Or possibly leave the program. You may raise 
the rates on those higher income seniors, which is a relative 
term when we look at what they are making, they may move--leave 
the program altogether. What is that going to result in?
    Ms. NEUMAN. Well, the issue there, I think, has to do with 
the Part B and Part D premiums----
    Mr. PASCRELL. Right.
    Ms. NEUMAN [continuing]. And the income-related premiums. 
And already today, people with higher incomes are paying higher 
premiums, and there is some discussion about expanding income 
premiums to cover more people.
    Mr. PASCRELL. What do you think about that?
    Ms. NEUMAN. What do I think about that? Well, I think, you 
know, the public certainly prefers to ask higher people to pay 
more than everybody else, but depending on what the policy 
looks like, it could scale back and start to hit middle income 
people.
    Mr. PASCRELL. But when you talk about higher income, that 
is a relative term in terms of the seniors that we are talking 
about who are very vulnerable. It is a different kind of 
situation than we are talking about when we refer to our tax 
policies, general tax policies. It is a very different 
situation altogether.
    We need to be very careful here about who we are helping 
and then what are the consequences of helping a few, and many 
people getting really hurt. So thank you, Ms. Neuman, for your 
testimony.
    Ms. NEUMAN. Thank you.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you. Ms. Schwartz.
    Ms. SCHWARTZ. Thank you. And I appreciate the invitation of 
the chairman to join you on this important discussion. And I do 
have to say, I have had some of these discussions a bit about 
redesign, benefits redesign, and I appreciate some of the work 
that you have done on this. And actually, the notion of 
simplifying the way we actually do this to make it more 
understandable is certainly important to include beneficiaries 
in this really very important debate we have about making sure 
that seniors have access to the benefits that they expect and 
they need, and doing it in the right way.
    Everyone knows that I have done a lot of work on redesign 
of the way we pay physicians and providers as key to this, and 
potentially I think maybe more important, because as we have 
all heard this morning, it really is very much in the--if your 
doctor recommends it, you are sort of inclined to do it, and 
you should be, and the potential of having copays get in the 
way of necessary services, something that many of us are very 
concerned about, and yet the--and you talked about it earlier, 
we have to protect poorer seniors so that they actually don't--
so they are able to get the care they need. And maybe $50 a 
copay is enough to say, I can't get it now. And I am sure, 
Doctor, you have seen that. That we want to protect primary 
care. We have talked about already doing that; that we want to 
protect access to care of chronic--those with chronic diseases 
so they don't get sicker; that we also want to protect the 
sickest.
    So we are starting to include a whole lot of seniors in 
this. We are narrowing the window of who we are actually asking 
to pay more.
    So really my question and the real discussion I would want 
to have is how we really don't pay doctors to sit down and 
really talk to their patients about what they shouldn't get. I 
mean, I think Dr. Price said let's not get in the way of the 
doctor-patient relationship, but right now there is somewhat of 
an incentive to say, here is a prescription, because that is 
quicker than the conversation about, you know, you really don't 
have to take this and you can call me in 3 days if you are not 
better, than just giving them a prescription, which they may or 
may not fill, of course, or some of the other--or go have this 
test, and somebody might come in and say, I heard that it is 
really important for me to get an EKG every month.
    Now, I don't know if that is true or not. I just made it 
up. I am not a physician. But, you know--but, in fact, maybe 
that is not such a necessary thing, and it may not be harmful, 
but it certainly is a cost to all of us. But taking time to 
say, no, here are the things that you ought to do instead of 
having these extra tests really does take more time.
    So we don't reimburse very well, except under patients in 
medical homes to do that, but can you speak to how important it 
is for patients to, yes, take some responsibility in this and 
not demanding more from their doctors than they necessarily 
need, but for that communication between the doctor and 
patients, and for us to incentivize providers to take that time 
to really provide what is important and necessary, not more 
than important.
    And right now, while Dr. Price will say, you know, one size 
doesn't fit all, right now we pay for everything, more or less, 
and that is what you are sort of trying to get to: how can we 
get the doctor and patient to actually engage in that 
conversation when in fact it is very difficult for patients to 
really know whether, in fact, they are asking for more than 
what is appropriate or less than is appropriate. It really is 
very much on the part of the provider.
    I believe strongly we should pay providers differently 
under this, under Medicare, and we ought to do it, but could 
you speak to that, about whether we--the risk of redesign of 
benefits really putting the burden on beneficiaries who really 
have a difficulty making this judgment and really need that 
relationship with their provider, it may be a doctor, may be a 
nurse practitioner, and really having the information not just 
about a cost, but really more about the appropriateness of 
services and the utilization, excessive utilization potentially 
of some services.
    And maybe, Mr. Hackbarth, do you want to start with that?
    Mr. HACKBARTH. Sure. So I want to emphasize that we think 
that it isn't enough just to reform the Medicare benefit 
package. You also need to reform how physicians and other 
providers are paid.
    Ms. SCHWARTZ. Yes.
    Mr. HACKBARTH. And one dimension of that----
    Ms. SCHWARTZ. Maybe first, even? I mean, do you think one 
comes before the other?
    Mr. HACKBARTH. I think it has to happen simultaneously. I 
wouldn't put an order on it. And one dimension of that you have 
touched on, Ms. Schwartz, which is we need to pay physicians 
for communicating with patients. And there have been some 
positive developments in that recently. Some new codes have 
been added for transitional care, a big part of which is 
communication with patients as they make a very difficult 
transition from a hospital admission to the community. So I 
think that is a very important complement to this.
    Other approaches you have alluded to are like medical home, 
where we are not even using the fee-for-service payment model 
exclusively, we are adding additional payments. They go hand in 
hand. It is not either/or, it is both are required.
    Ms. SCHWARTZ. Okay. Thank you. Do we have time for others 
to comment?
    Dr. FENDRICK. Yes. Briefly I will just say that the most 
important part is that we make sure that whatever is happening 
with the incentives on the physician side and the provider 
side, they must be aligned with the consumer side, because what 
I see in both the public and private programs, often they are 
in parallel, but often moving in the wrong direction.
    Conceptually, though, speaking about it from the patient 
side, cost sharing is an insurance tool to encourage 
beneficiaries to think twice or thrice about things they may 
not need. So when we think about home care or hospitalizations 
or visits, it requires me to pause and think why would there be 
cost sharing on something that is absolutely essential for the 
patient's health, which is the entire motivation for clinical 
nuance.
    So thus, I would like to close where I started, is that, I 
do believe that cost sharing has a role in Medicare and I think 
cost sharing should have a substantial role on those services 
that don't make beneficiaries any healthier.
    Ms. SCHWARTZ. Well, it seems to me we have a fairly high 
threshold on what is harmful or not. I mean, right now it is 
not absolutely clear, we don't have all the information----
    Dr. FENDRICK. I will just say----
    Ms. SCHWARTZ.--about what is actually too much or----
    Dr. FENDRICK. Very quickly, and why to the chairman's 
credit, this initiative called Choosing Wisely, which I suggest 
the staff learn about, is a physician-specialty society 
motivated initiative to identify services that may be overused. 
So this is a very important step not only for us to identify 
the services that we should make less expensive for which the 
evidence is strong, we also now have a physician-driven 
movement to identify those services that we may do less of.
    Ms. SCHWARTZ. I agree that is important.
    Chairman BRADY. Thank you. Dr. McDermott has asked for a 
question, and he is recognized.
    Mr. McDERMOTT. Thank you, Mr. Chairman. And I want to say I 
have appreciated your slow gavel so that we could allow the 
witnesses to finish what they have to say, and I think the 
committee is really interested in what happens. And one of the 
issues that I would like to ask a further question about is the 
whole question that you just raised, Dr. Fendrick, and beyond 
that, I would like for the committee, that you would submit to 
us, all of you, if you have it, evidence that backs up the 
theory that people go to the doctor more often than they need 
to, and if we put a copay on, they won't go.
    And I want to give you an example to let you--and there are 
thousands of examples. Everybody who is anticoagulated, who is 
on Heparin or on Coumadin is supposed to go back in to the 
doctor and get a checkup as to whether they are at the proper 
level, too high or too low or just right. There are problems on 
being too high, there are problems on being too low. The 
patient has no sense of what that is. They don't feel anything 
particularly until they have got a problem.
    So the idea that I have to pay $10 to go back in and put my 
finger out and have it stuck and have them then read it on a 
machine and tell me, yep, you are right in the right place, 
when I didn't feel anything, why would I do it if it is going 
to cost me 10 bucks?
    And so what I am looking for is how you think you can 
design, and is there any evidence, is there any across-the-
board--same way with--the Time magazine this month has 
tuberculosis on the front page. And taking pills, in my 
experience personally, and I think probably for everybody in 
this room, you take pills when you feel bad; when you don't 
feel bad, you stop taking them, whether the doctor said you 
should take all 10 days doesn't make any difference. Every drug 
cabinet in every bathroom in this country has half finished ten 
packs, or Z-Paks.
    So what I am getting at is how do you--where is the 
evidence that people go to the doctor just because they don't 
have anything to do on Wednesday afternoon? That is really what 
I am looking at.
    Dr. FENDRICK. I will just start briefly by, your comment 
basically hits the essence of clinical nuance, that someone on 
Warfarin must be not only be discouraged, but must be 
encouraged to follow the protocol to maximize the health of 
that beneficiary. I am not so sure that someone not on Warfarin 
should have the same ability to go to see the doctor to have 
their blood checked to see how thin their blood is. And that 
is, as I said, the essence of clinical nuance.
    There is a lot of evidence that we are happy to supply to 
the committee, but one of the best examples in Medicare is The 
New England Journal of Medicine paper examining the impact of 
increases in cost sharing on ambulatory visits in Medicare 
Advantage.
    As you might expect, Mr. McDermott, beneficiaries went to 
the doctor less often. Those beneficiaries who went to the 
doctor less often, went to the ER more and were hospitalized 
more, and, in fact, total costs went up, which is why our 
proposal is that primary care visits in Medicare Advantage and 
in Medicare should be free.
    Now, there are other services actually where the money is, 
as Mr. Hackbarth knows better than anyone. It is not in primary 
care visits and it is not in prevention. It is in 
hospitalizations and the management of chronic diseases, for 
which--to respond to the chairman's question earlier, for those 
chronic diseases, we are fairly certain in the services that 
should be encouraged for which cost sharing should be minimal 
or not at all.
    Mr. HACKBARTH. So what I would highlight, Mr. McDermott, is 
the importance of doing both payment reform and appropriate 
cost sharing for patients. So one piece of evidence that we 
have that is relevant to your question is the prevalence of 
repeat testing of various types. There is a lot of it, a lot of 
it that exceeds all clinical guidelines, and there is huge 
variation across the health care system. Probably the most 
important reason for that is not patients demanding repeat 
testing, but physicians have incentives to do repeat testing. 
We need to change that, but when we change the physician 
incentive and they say, oh, well, maybe you don't need to be 
tested so often, you don't need so many return visits, we want 
the patient also to be aligned with that. We don't want the 
patient to say, well, I like the old pattern of, you know, I am 
going to come every month or every 2 months, whatever. If there 
is a modest appropriate copay, then the physician and patient 
are talking the same language.
    I believe physicians care about their patients and will 
modify the recommendations if the patient has some cost sharing 
involved, and will recommend things differently than if it is 
absolutely free to the patient.
    Ms. NEUMAN. Well, I would agree that there is a lot of 
evidence on the side that says if you increase cost sharing, it 
has an effect on utilization. I don't know about the evidence 
on decreasing utilization and whether there is, for example, 
too much of preventative services. And that might be something 
that one could take a look at, but it would be hard to imagine 
an effect like that in the literature, but we could take a look 
at it.
    I also agree on areas of where there is evidence of 
overutilization, there are a number of ways to attack the 
issue, one of which is cost sharing. And even then, in the 
example of home health, there are different ways of doing that 
that would have different effects on people depending on how--
whether it is, for example, a copayment or a co-insurance, 
which would disproportionately affect the sickest of the sick. 
But if the issue is that there are too many people using too 
many services, then I would also agree on going at it, going 
around and going at the provider side, the supplier side and 
think about how to make changes that would slow the growth in 
this benefit without necessarily asking beneficiaries to parse 
out whether or not they need a service that their doctor has 
told them they needed.
    Mr. McDERMOTT. Thank you, Mr. Chairman.
    Chairman BRADY. No. Thank you. I would like to thank all of 
our witnesses for their testimony today. Obviously there is a--
the current structure of Medicare benefit design needs a hard 
look at, has its challenges. I hope we continue to work 
together in a bipartisan way, to explore how we can try to 
limit those out-of-pocket costs, make a little more rational 
sense out of the design, but just as Mr. Hackbarth has asked 
Ms. Neuman,--go back, and I will send a letter to this effect, 
take a look at again the changes of the design over the life of 
a Medicare senior I think is very important.
    The other area, we sort of looked at one side of the 
ledger, okay, if you unify, A and B it may raise costs and some 
others, but what we didn't explore is what is the impact of 
MediGap, you know, do you need it? Does it have a different 
side? Does it carry a different cost that offset some of that? 
Any information any of you all have to that regard would be 
very helpful.
    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 to the witnesses, I request you answer them as 
promptly as possible, please.
    With that, the subcommittee is adjourned.
    [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
    [Submissions for the record follow:]

        
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