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






                       SETTING FISCAL PRIORITIES

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            DECEMBER 9, 2014

                               __________

                           Serial No. 113-185

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
JOHN SHIMKUS, Illinois               BOBBY L. RUSH, Illinois
JOSEPH R. PITTS, Pennsylvania        ANNA G. ESHOO, California
GREG WALDEN, Oregon                  ELIOT L. ENGEL, New York
LEE TERRY, Nebraska                  GENE GREEN, Texas
MIKE ROGERS, Michigan                DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania             LOIS CAPPS, California
MICHAEL C. BURGESS, Texas            MICHAEL F. DOYLE, Pennsylvania
MARSHA BLACKBURN, Tennessee          JANICE D. SCHAKOWSKY, Illinois
  Vice Chairman                      JIM MATHESON, Utah
PHIL GINGREY, Georgia                G.K. BUTTERFIELD, North Carolina
STEVE SCALISE, Louisiana             JOHN BARROW, Georgia
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   DONNA M. CHRISTENSEN, Virgin 
GREGG HARPER, Mississippi            Islands
LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
BILL CASSIDY, Louisiana              JOHN P. SARBANES, Maryland
BRETT GUTHRIE, Kentucky              JERRY McNERNEY, California
PETE OLSON, Texas                    BRUCE L. BRALEY, Iowa
DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
CORY GARDNER, Colorado               BEN RAY LUJAN, New Mexico
MIKE POMPEO, Kansas                  PAUL TONKO, New York
ADAM KINZINGER, Illinois             JOHN A. YARMUTH, Kentucky
H. MORGAN GRIFFITH, Virginia
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Ohio
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina

                                 _____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)

                                  (ii)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     3
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     3
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     5
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     5
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   131
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................   134

                               Witnesses

Mark E. Miller, Executive Director, Medicare Payment Advisory 
  Commission.....................................................     6
    Prepared statement...........................................     9
    Answers to submitted questions...............................   136
Christopher W. Holt, Director of Health Care Policy, American 
  Action Forum...................................................    72
    Prepared statement...........................................    74
    Answers to submitted questions...............................   147
Marc Goldwein, Senior Policy Director, Committee for a 
  Responsible Federal Budget.....................................    80
    Prepared statement...........................................    82
    Answers to submitted questions...............................   154
Judy Feder, Professor of Public Policy, Georgetown Public Policy 
  Institute......................................................   109
    Prepared statement...........................................   111
    Answers to submitted questions...............................   172

                           Submitted Material

Testimony of the Coalition to Preserve Rehabilitation, December 
  9, 2014, by Judith Stein, et al., submitted by Mr. Burgess.....    28
Report of the Medicare Rights Center, ``A Winning Strategy for 
  Medicare Savings: Better Prices on Prescription Drugs,'' July 
  2014, by Stacy Sanders and Ben Veghte, submitted by Ms. 
  Schakowsky.....................................................    48
Report, ``What Happens to Payments to Health Care Providers 
  Participating in Medicare When the Medicare HI Trust Fund 
  Reaches Exhaustion?,'' submitted by Mr. Gingrey................    56
Issue Brief of the Leadership Council of Aging Organizations, 
  ``Altering Extra Help Copayments: A Flawed Savings Approach,'' 
  January 2014, submitted by Mr. Pallone.........................   118

 
                       SETTING FISCAL PRIORITIES

                              ----------                              


                       TUESDAY, DECEMBER 9, 2014

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                     Washington, DC
    The subcommittee met, pursuant to call, at 10:30 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joseph R. Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Shimkus, 
Murphy, Blackburn, Gingrey, McMorris Rodgers, Lance, Griffith, 
Bilirakis, Ellmers, Pallone, Engel, Schakowski, Green, Barrow, 
Castor, and Sarbanes.
    Staff present: Sean Bonyun, Communicatons Director; 
Leighton Brown, Press Assistant; Noelle Clemente, Press 
Secretary; Paul Edattel, Professional Staff Member, Health; 
Brad Grantz, Policy Coordinator, Oversight and Investigations; 
Sydne Harwick, Legislative Clerk; Robert Horne, Professional 
Staff Member, Health; Michelle Rosenberg, GAO Detailee, Health; 
Chris Sarley, Policy Coordinator, Environment and the Economy; 
Adrianna Simonelli, Legislative Clerk; Heidi Stirrup, Policy 
Coordinator, Health; Josh Trent, Professional Staff Member, 
Health; Tom Wilbur, Digital Media Advisor; Ziky Ababiya, 
Democratic Staff Assistant; Eddie Garcia, Democratic 
Professional Staff Member; Kaycee Glavich, Democratic GAO 
Detailee; and Karen Nelson, Democratic Deputy Staff Director, 
Health.
    Mr. Pitts. The subcommittee will come to order. The Chair 
will recognize himself for an opening statement.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Despite some recent progress in reducing the deficit, the 
Federal Government faces enormous budgetary challenges. The 
Congressional Budget Office projects that the annual Federal 
budget deficit will once again approach the $1 trillion mark in 
a few short years. At the end of November, the Federal debt 
surpassed $18 trillion for the first time.
    The consequences associated with the Federal Government 
spending and debt problem can't be overstated. In fact, the 
former Chairman of the Joint Chiefs of Staff concluded that, 
quote, ``The single biggest threat to our national security is 
our debt,'' end quote. Federal spending on healthcare programs 
is the major driver of the spending and debt challenge that 
America confronts.
    Today's hearing is a critical step as the committee 
approaches the 114th Congress and considers proposals to tackle 
this problem. Our biggest challenge is mandatory spending, 
particularly Medicare and Medicaid, which together accounted 
for 25 percent of all Federal spending in fiscal year 2013.
    Medicare is on an unsustainable trajectory. In fiscal year 
2014, it covered some 54 million people at a cost of 
approximately $618 billion. According to the 2014 Medicare 
trustees report, the program will become insolvent in 2030, in 
just 15 years. If Medicare spending accelerates in coming 
years, as many economists expect, then Medicare's insolvency 
could come much sooner.
    Medicaid expenditures are set to increase dramatically as a 
result of the Affordable Care Act's Medicaid expansion. 
Spending on the program is set to double over the next decade, 
even though it already comprises one in every four dollars in 
an average State budget.
    These programs need to be strengthened and modernized, not 
just because millions of Americans depend on them for their 
health care, but also because out-of-control entitlement 
spending is crowding out other important priorities. For 
example, researchers, scientists, patient advocates, and many 
others have consistently told the committee that Congress 
should consider stabilizing and strengthening the National 
Institutes of Health as part of the 21st Century Cures 
Initiative. The NIH and other discretionary program priorities 
will continue to face budgetary challenges if entitlement 
program spending continues to take a larger and larger share of 
the budget.
    The late Democratic Senator Paul Simon spoke to this larger 
issue when he said, quote, ``A rising tide of red ink sinks all 
boats,'' closed quote. The Federal Government's mandatory 
spending on entitlement programs threatens Congress' 
responsibility to spend dollars on programs like the NIH. We 
need to consider solutions so that we can best target resources 
to these areas of priority.
    Today's hearing is also timely in another respect. Next 
year, Congress faces a number of important funding cliffs. In 
March, Congress will need to confront the Medicare physician 
payment cliff and try to enact a permanent solution to the 
sustainable growth rate or SGR. In addition, the Affordable 
Care Act created a funding cliff for the States Children's 
Health Insurance Program. Funding for the program ends in 
September.
    If Congress is going to tackle these problems and others 
facing the next Congress, we will need to come up with 
responsible ways to pay for these issues. Rather than turning 
to blunt tools like the Medicare sequester, we need policies 
that drive reform and savings that make sense. In addition, 
given that the Affordable Care Act has been the law for over 4 
years, targeted reductions to the ACA must be on the table as 
we set fiscal priorities. I hope today serves as a catalyst to 
continue these important discussions about setting fiscal 
priorities.
    I would like to welcome all of our witnesses on both panels 
today. I look forward to your testimony, to your 
recommendations on how to strength and save these critical 
programs.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    Despite some recent progress in reducing the deficit, the 
Federal Government faces enormous budgetary challenges. The 
Congressional Budget Office projects that the annual Federal 
budget deficit will once again approach the $1 trillion mark in 
a few short years. At the end of November, the Federal debt 
surpassed $18 trillion for the first time.
    The consequences associated with the Federal Government's 
spending and debt problem can't be overstated. In fact, the 
former Chairman of the Joint Chiefs of Staff concluded that 
``the single biggest threat to our national security is our 
debt.''
    Federal spending on healthcare programs is the major driver 
of the spending and debt challenge that America confronts. 
Today's hearing is a critical step as the committee approaches 
the 114th Congress and considers proposals to tackle this 
problem.
    Our biggest challenge is mandatory spending, particularly 
Medicare and Medicaid, which together accounted for 25 percent 
of all Federal spending in FY2013.
    Medicare is on an unsustainable trajectory. In FY2014, it 
covered some 54 million people at a cost of approximately $618 
billion. According to the 2014 Medicare Trustees report, the 
program will become insolvent in 2030, in just 15 years. If 
Medicare spending accelerates in coming years--as many 
economists expect--then Medicare's insolvency could come much 
sooner.
    Medicaid expenditures are set to increase dramatically as a 
result of the Affordable Care Act's Medicaid expansion. 
Spending on the program is set to double over the next decade, 
even though it already comprises one of every four dollars in 
an average State budget.
    These programs need to be strengthened and modernized, not 
just because millions of Americans depend on them for their 
health care, but also because out-of-control entitlement 
spending is crowding out other important priorities.
    For example, researchers, scientists, patient advocates, 
and many others have consistently told the committee that 
Congress should consider stabilizing and strengthening the 
National Institutes of Health as part of the 21st Century Cures 
Initiative.
    The NIH and other discretionary program priorities will 
continue to face budgetary challenges if entitlement program 
spending continues to take a larger and larger share of the 
budget.
    The late Democratic Senator Paul Simon spoke to this larger 
issue when he said, ``a rising tide of red ink sinks all 
boats.'' The Federal Government's mandatory spending on 
entitlement programs threatens Congress' ability to spend 
dollars on programs like the NIH. We need to consider solutions 
so we can best target resources to these areas of priority.
    Today's hearing is also timely in another respect. Next 
year, Congress faces a number of important funding cliffs.
    In March, Congress will need to confront the Medicare 
physician payment cliff and try to enact a permanent solution 
to the Sustainable Growth Rate, or SGR. In addition, the 
Affordable Care Act created a funding cliff for the State 
Children's Health Insurance program. Funding for the program 
ends in September.
    If Congress is going to tackle these problems and others 
facing us next Congress, we will need to come up with 
responsible ways to pay for these issues. Rather than turning 
to blunt tools like the Medicare sequester, we need policies 
that drive reform and savings that make sense. In addition, 
given that the Affordable Care Act has been the law for over 4 
years, targeted reductions to the ACA must be on the table as 
we set fiscal priorities.
    I hope today serves as a catalyst to continue these 
important discussions about setting fiscal priorities.
    I would like to welcome of all our witnesses. I look 
forward to your testimony and your recommendations on how to 
strengthen and save these critical programs.

    Mr. Pitts. And I yield the balance--I don't have much time.
    I yield back the balance of my time and recognize the 
ranking member, Mr. Pallone, for 5 minutes for an opening 
statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Pitts.
    As a member of Congress, I believe that Government can help 
all Americans succeed, including seniors and low-income 
populations and still continue to strengthen our economy.
    While I agree we must do these things with fiscal 
responsibility, I do not agree that we need to balance the 
budget on the backs of our safety net programs. Improving and 
strengthening Medicare and Medicaid for generations to come is 
a primary goal of mine, but what Republicans want to do when 
they talk about setting fiscal priorities is to cut the 
structural foundation of these programs.
    For the past 4 years, the Republican budget proposals have 
turned Medicare into a voucher program and turned Medicaid into 
block grants. But these changes do nothing to tackle healthcare 
costs; they simply undermine the program's guarantee of access 
to care and shift costs to beneficiaries, providers, and 
States. Shifting costs doesn't curb costs and doesn't shore up 
the long-term sustainability of our healthcare systems.
    The Affordable Care Act began to make improvements to our 
healthcare system through delivery system reforms that improve 
both efficiency and quality. And I would argue that the 
Affordable Care Act was entitlement reform. It expands access 
to life-saving health care while also reducing Medicare 
spending. In fact, recent estimates show the increase in 
Medicare's per-patient costs are at record lows.
    In addition, the ACA laid the groundwork to reward value 
over volume, to incentivize providers to coordinate care and 
improve health. And that job needs to be finished, so we ought 
to be setting our priority to send our SGR repeal and replace 
the bill to the floor before we adjourn for Christmas unpaid 
for, so that once and for all we can bring real sustainability 
and predictability to its providers and seniors.
    The fact is that we are faced with an inevitable reality, 
our Nation's baby boomers are aging to the program at very high 
rates. In fact, 11,000 new seniors become eligible for Medicare 
every day. Meanwhile, the Medicaid program, as a result of the 
ACA, will allow millions of uninsured Americans, particularly 
the working class, to finally gain access to health care. But 
this doesn't mean we have a spending problem; it means we have 
a demographics problem. And to address that problem doesn't 
mean we need to slash the programs that American families need 
most.
    Budgets, in my opinion, are about more than numbers and 
dollars. They are real-life expressions of priorities, of 
choices, and of values. These choices have an impact on the 
lives of millions of Americans, not just for the fiscal year 
each budget covers but for future years and future generations.
    Now, I know that growing deficits are not good for the 
future but we can't reduce the deficit and give tax cuts to the 
wealthy on the backs of our safety net programs. Instead, let's 
build on the ACA and continue to improve the value we get from 
our programs in a thoughtful and sensible way and find ways to 
take care of all Americans.
    Now, Mr. Chairman, I would like to yield the time that 
remains to the gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, and thank my ranking 
member for yielding.
    We all share the goal of saving money and bringing down 
costs through making our healthcare system more efficient. 
Rewarding value over volume ensures patients have coverage and 
access to preventative primary care service and reducing 
uncompensated care should be part of this effort. As we explore 
key policy decisions facing Congress, cost shifting to the 
beneficiaries simply passes growing cost onto patients but does 
not address the true drivers of the growth in healthcare 
spending.
    The Affordable Care Act included a number of numerous 
delivery system reforms that incentivize a more efficient 
healthcare delivery system. These activities hold significant 
promise for controlling spending while improving quality of 
care. When considering changes in Medicare benefits packages a 
strategy to bring down overall costs, it is important to 
recognize the difference between change that is designed for 
the benefit of the beneficiaries are those driven entirely by 
reducing Federal spending are those proposals which result in 
both?
    I look forward to hearing from our witnesses this morning 
and exploring meaningful reforms that protect the most 
vulnerable populations and provide for the long-term stability 
of our healthcare system.
    And again, I thank my colleague and yield back my 35 
seconds.
    Mr. Pitts. The gentleman's time is expired.
    Chair recognizes the vice chair of the Health Subcommittee, 
Dr. Burgess, 5 minutes for an opening statement.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman.
    Fiscal year 2014, the Government collected over $3 trillion 
in taxes for the first time, thanks to the generosity of the 
American taxpayer, and yet, we still had a deficit of almost .5 
trillion. With our national debt reaching $18 trillion last 
month, we face the gravest financial situation in our history, 
and we must get serious about bringing that number down. If we 
don't start making difficult decisions now, our children, their 
children will inherit a burden unlike any generation previously 
has ever seen.
    Under the best reporting, the Medicare Trustees project 
says that Medicare hospital insurance coverage is only solvent 
until 2030 and, in fact, it may be exhausted much sooner. 
Promises made to Medicare recipients exceed the payroll taxes 
to be collected from those receiving them by well over $100 
trillion. Failure to repeal and replace the SGR has now cost 
over $170 billion over the last decade. Medicare Part B itself 
surpasses $70 billion in 2012 alone.
    This committee did do the right thing in repealing the SGR 
formula, and, yes, it got it through the floor of the House. We 
were awaiting activity in the Senate, but as the clock ticks 
down on what remains in this Congress, it seems unlikely that 
the Senate is going to act. It is a lost opportunity. If we did 
the right thing and enacted the bipartisan bill H.R. 4015, over 
the next decade, that would cost $144 billion, clearly less 
than the $170 billion that has been spent over the past decade.
    Last year alone, Medicaid grew to an unprecedented almost 
$450 billion. With the State Children's Health Insurance 
Program, it is more of the same. The last five trustees reports 
have indicated that the Social Security's Old Age Survivors and 
Disability Insurance Program would be depleted by the third 
decade of this century. Time and again, the Government has 
promised more money than it has or could ever hope to take in.
    And we haven't begun to delve into the discretionary side, 
but discretionary spending is $492 billion, and if all 
nondefense discretionary spending were eliminated, it still 
would not affect our debt. There are certainly investments that 
must be made, but it is imperative that we invest wisely.
    For example, we spend only $500 million annually on 
Alzheimer's research, but well over $200 billion on care. The 
Alzheimer's Association reports that if we could delay the 
onset of Alzheimer's by 5 years, we would save approximately 
$170 billion in care costs by the year 2030.
    Cancer, diabetes, asthma, each finds us in a situation in 
which we must decide how to prioritize our spending to help the 
people in a most fiscally responsible manner. We simply cannot 
ignore the challenges or pretend that they will go away by 
themselves. It is a hard discussion, but it is one that we must 
be brave enough to start. That is what we were elected to do. 
That is what this subcommittee does, and that is what we are 
here to do today.
    I certainly want to thank our witnesses for being here. I 
look forward to their testimony.
    Mr. Chairman, I will yield back the time.
    Mr. Pitts. The chairman thanks the gentleman.
    We have two panels of witnesses today. On our first panel, 
we have Dr. Mark Miller, Executive Director, Medicare Payment 
Advisory Commission. Thank you for coming today. You will be 
given 5 minutes for an opening statement. Your written 
testimony will be made part of the record.
    The Chair recognizes Dr. Miller for 5 minutes at this time.


   STATEMENT OF MARK E. MILLER, EXECUTIVE DIRECTOR, MEDICARE 
                  PAYMENT ADVISORY COMMISSION

    Mr. Miller. Chairman Pitts, Ranking Member Pallone, 
distinguished committee members, thank you for asking the 
Medicare Payment Advisory Commission to testify today.
    As you know, MedPAC was created by the Congress to advise 
it on a range of Medicare issues. The commission's work is 
guided by three principles, to assure that the beneficiary has 
access to high-quality care, to protect taxpayer dollars, and 
to pay providers and plans in a way to accomplish these two 
goals.
    The Federal Government is carrying a large debt. As the 
testimony points out, even though Medicare spending has slowed 
recently as a result of lower utilization and legislative 
restraint on payment increases, we need to continue to look at 
this program because the baby boom is transitioning into 
Medicare and higher per-beneficiary spending is projected for 
the future. In the short run, the commission has many 
recommendations that would move Medicare away from a fragmented 
system that is unnecessarily expensive towards one that is more 
focused on coordinated care at a price the taxpayer and the 
beneficiary can afford.
    Examples of short-run recommendations that would both 
restrain spending and remove financial incentives to focus on 
certain types of patients include eliminating the automatic 
updates for profitable fee-for-service provider sectors, like 
long-term care hospitals and inpatient rehab facilities, and 
actually reducing payment rates for skilled nursing facilities 
and home health agencies. It includes site-neutral payments 
that reduce the incentive to purchase physician practices and 
bill at the higher outpatient rates for the same services, 
recommendations that include site-neutral payments for similar 
patients that are seen in different post-acute care settings, 
and as you know, from our past research and recommendations, 
they have resulted in laws that are transitioning to a 
financially neutral payment between managed care plans and fee-
for-service.
    Our more recent research and recommendations, if accepted, 
would produce more competitively set payments for employer-
based managed care plans. All of these policies were 
recommended after careful considerations on the effects of 
access to services and to plans. And of course, the commission 
continues to monitor the effects of these policies and report 
back annually to the Congress.
    Examples of short-run recommendations that would better 
align provider incentives to focus on patient care coordination 
and also to reduce unnecessary expenditures include an SGR 
reform plan that would end the annual cycle of short-term 
patches; a budget-neutral bonus payment for primary care 
providers and services that would allow physicians and other 
professionals greater flexibility to coordinate their care 
around the patient; and readmission penalties, some of which 
have been put into law, for hospitals, skilled nursing 
facilities, and home health agencies that would have the effect 
of discouraging expensive readmissions that disrupt the lives 
of patients and families.
    Examples of short-run recommendations that would better 
align beneficiary incentives with the incentives outlined above 
include a major redesign of the traditional fee-for-service 
benefit where we recommended limiting total out-of-pocket 
expenses for beneficiaries, rationalizing the deductible, 
clarifying point-of-service cost-sharing liabilities, giving 
the secretary authority to alter cost sharing based on the 
value of a benefit, and imposing an additional charge on 
supplemental coverage policies to better reflect the cost they 
impose on the program and to send a clear price signal to the 
beneficiary. We have also recommended copayments for certain 
60-day home health episodes and lowering copayments to as 
little as zero for low-income beneficiaries who use generic 
drugs.
    In closing, we now have three payment models in Medicare, 
30 million beneficiaries and traditional fee-for-service, 5 
million are in accountable care organizations, and nearly 16 
million are in managed care plans. Each has its own payment 
rules, risk adjustment and quality measurement criteria. Our 
most recent report begins a discussion of the future for the 
Medicare program that ideally would protect the patient by 
establishing common-risk adjustment and quality standards 
across these models, fairness among plans and providers within 
a market by setting common financial and quality standards, 
reduce the burden on plans and providers by reducing 
unnecessary quality reporting and reducing regulations for 
those who accept risk, and protecting the taxpayer by assuring 
that the program pays for low-cost, high-quality care in any 
given market.
    I appreciate your attention to my comments, and I look 
forward to your questions.
    [The prepared statement of Mr. Miller follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    Mr. Pitts. Chair thanks the gentleman.
    And I will begin the questioning. Recognize myself 5 
minutes for that purpose.
    Dr. Miller, there have been five bipartisan plans to save 
Medicare introduced in this President's term. First, Rivlin-
Dominici; second, Rivlin-Ryan; third, the Fiscal Commission; 
fourth, Simpson-Bowles' own plan; and five, plan by former 
Senator Joe Lieberman and Senator Tom Coburn.
    The Lieberman-Coburn plan has been proposed in legislative 
text and was scored by the actuary of the Medicare program. The 
actuary said, page 6 of OACT analysis, that if this legislation 
was adopted, it would prevent Medicare's insolvency for decades 
and reduce senior's premiums so that they would be lower than 
under current law.
    Please tell us what you think are the most actionable 
pieces of this proposal for this committee to consider adopting 
next Congress?
    Mr. Miller. I am not going to be able to comment on this 
specific proposal. I am not that deep on it. But when you look 
across those proposals including the one that you named, there 
are elements of those proposals that also came out of 
recommendations or at least are consistent with recommendations 
that the commission has made.
    If I remember correctly, and I really am not sure I do, 
there is a lot of these things and a lot of details, they were 
focused on some benefit redesign, including catastrophic caps, 
and I also think that they had something on altering 
supplemental coverage. The commission has this additional 
charge. I think they took a different approach where they said 
supplemental coverage wouldn't be able to cover the first few 
dollars of coverage in order to assure that the beneficiary had 
some price signal on a service that they consumed. And those 
are consistent directions even if they are different mechanisms 
for achieving the same thing.
    I also think that there was some elements in some of those 
plans to reduce the home health payments, and that is certainly 
something that came out of our work. Off the top of my head, 
that is a couple of things.
    Mr. Pitts. I want to ask about Medicare benefit redesign 
proposals. Some of my colleagues on the other side of the aisle 
have examined MedPAC's recommendation on creating a combined 
deductible for parts A and B, a catastrophic limit on out-of-
pocket spending, and Medigap reforms that would limit first-
dollar coverage. The minority is on record in their hearing 
memo claiming that many patients might see higher cost under 
these proposal plans.
    I think the minority might be overlooking the savings that 
accrue to a beneficiary over time as a separate 2011 analysis 
concluded four out of five beneficiaries could save money if 
such a proposal were adopted.
    Could you please discuss the effect that such reforms would 
have on beneficiaries especially over multiple years and can 
you comment about whether or not a beneficiary who would 
otherwise face higher costs could enroll in a Medicare 
Advantage plan?
    Mr. Miller. OK. I think you have a few questions in there.
    The first thing that I would say is benefit redesign, when 
you think about a catastrophic cap and adjusting the 
deductible, there is several ways that it can affect the 
beneficiary. But one thing to keep in mind is, is that what you 
are doing, and it is almost inescapable is, is you are shifting 
the liability across the distribution of beneficiaries.
    Generally, what you are doing with these things when you go 
for a catastrophic cap is there is a small set of beneficiaries 
with very high liability that you help and other beneficiaries 
who have less healthcare costs have more healthy experiences 
probably pay more for a deductible. So there is some 
redistribution.
    But the other objective that you are up to here is by 
setting a catastrophic cap, and, for example, in our 
recommendation, making copayments as opposed to coinsurance, 
which is less predictable, the beneficiary has clear a line of 
sight on what their out-of-pocket liability would be. This 
would mean that the beneficiary's need to buy a supplemental 
policy should be less. That is the idea.
    And to the extent that beneficiaries say, ``I no longer 
need a supplemental policy,'' then that is an out-of-pocket 
expense that they no longer incur and that is a place where 
they could potentially achieve savings to the beneficiary. So 
there is some moving around of liability and there is some 
potential savings, depending on whether the beneficiary 
continues to carry a supplemental premium.
    You asked another question about the impact on the 
beneficiary. In the short term, it does mean that certain 
beneficiaries would incur greater liability because they might 
have a higher deductible, for example. But over time, those 
beneficiaries run a greater risk, because of their age and just 
the natural progression of disease, run a greater risk of going 
into the hospital or hitting the catastrophic cap. And we have 
done some analysis which we can send to this committee where we 
show that the percentage of people affected, helped by this, 
for example, grows from 9 percent in the first year to 30 
percent when you go out--or 19 percent when you go out 5 years, 
30 percent when you go out 10 years.
    So over time, more beneficiaries are likely to benefit from 
a catastrophic cap or a reconfigured deductible depending on 
their health experience, which they run greater risk over time.
    Mr. Pitts. Chair thanks the gentleman--go ahead.
    Are you finished?
    Mr. Miller. I am done. No, go ahead. Sorry.
    Mr. Pitts. I thank the gentleman.
    And recognize the ranking member, Mr. Pallone, 5 minutes 
for questions.
    Mr. Pallone. Thank you.
    Dr. Miller, in MedPAC's June 2012 report and in your 
testimony for today's hearing, you note that the proposal for 
Medicare benefit redesign reduces risk and increases 
predictability for beneficiaries by adding an out-of-pocket 
catastrophic cap and a lower combined deductible together with 
predictable copayments for services. The proposal also 
recommends a fee on supplemental insurance plans such as 
Medigap and retiree plans. And as you can imagine, I have heard 
some concern about this idea.
    Your rationale appears to be because first-dollar coverage 
can encourage inappropriate use of care that Medicare should 
recover some of the increased program costs that result from 
this excess use of services. Now, while I agree that an out-of-
pocket catastrophic cap would be an improvement, I have 
concerns about the impact of your proposal on Medigap or 
supplemental insurance policies, and particularly concerned 
that these will be viewed as separate and unrelated proposals.
    Can you clarify then, are these different policy options, 
or are the two components of this proposal actually linked to 
one another?
    Mr. Miller. The commission was really clear on this, I 
believe, that this was a package of proposals; that you do the 
benefit redesign, as you outlined there, along with the 
additional charge on the supplemental coverage.
    Mr. Pallone. OK. Now, I understand your proposal retains 
current protections for low-income seniors related to cost-
sharing and premiums. And one of my concerns is that I believe 
the current low-income protections are inadequate. I am 
concerned that taxing or otherwise discouraging these first-
dollar coverage supplemental plans would negatively impact the 
near poor who do not currently qualify for assistance under 
Medicaid. So could you just comment on that?
    Mr. Miller. Yes. The commission did talk about this quite a 
bit. There is collective concern that if that is your concern, 
the Medigap product is not a particularly effective way to get 
at that. Often, the premiums and the benefits that you get from 
it just result in dollar churning, if you will, sort of dollar 
trading, and some of the premiums can be quite high.
    What the commission said is if that was a concern, and we 
made a specific recommendation on this point, would be to alter 
the Medicare savings programs and go more directly at providing 
subsidy to the poor and near poor. And specifically what we 
said is change the income qualification to be consistent with 
the income qualification for part D (LIS) and raise it to 150 
percent of poverty, and then have a premium subsidy for the QI 
population, which starts to get into some complexity, but for 
this answer, you have a premium subsidy for the QI 
beneficiaries.
    Then what they do, they are relieved of, let's just call it 
$1,300 in part B premium, which they can then use to pay for 
their out-of-pocket copayments and deductibles and that type of 
thing. And within the package, we would see that as being 
financed out of the savings that come out of the Medigap 
portion of the proposal.
    Mr. Pallone. OK. I know we use the term ``near poor,'' but 
I wish we had a better term than ``near poor.'' It seems so 
strange.
    Let me ask another question. In MedPAC's proposal for 
redesigning Medicare's benefit package, the commission is clear 
that two overriding objectives are to give beneficiaries 
better, more predictable protection against out-of-pocket 
spending, and to create incentives for them to make better 
decisions regarding discretionary care.
    But many of us would agree there is a need to simplify the 
structure of Medicare benefits in ways that make it more 
understandable and user friendly for beneficiaries and provide 
them with better protections by providing out-of-pocket 
spending caps, like private insurance plans.
    So my question is: Unfortunately, the notion of creating 
incentives for beneficiaries to make better decisions is often 
looked at only through the narrow lens of increased cost 
sharing. Can you talk about ways other than cost sharing that 
benefits can be structured to encourage use of appropriate 
high-value services and discourage the use of unnecessary 
services? In 40 seconds or less.
    Mr. Miller. If I follow it, I think there is two comments: 
One is, the portion of the recommendation that spoke to the 
secretary's authority to adjust cost sharing on the basis of 
value, I would just point out, just in case you missed it, that 
toggle would go both ways. So if a benefit is high value, you 
could actually lower the cost sharing or zero out cost sharing 
for your diabetes visit or whatever the case may be.
    Mr. Pallone. Right.
    Mr. Miller. So the toggle doesn't entirely increase cost 
sharing and could be lower cost sharing, just in case that got 
by you.
    The other thing, I mean, then I think you move to different 
kinds of ideas. For example, a while back, we made 
recommendations for prior authorization for very expensive 
imaging services. I mean, I think then either you have to move 
in that direction in fee-for-service or move in the direction 
of a beneficiary being in an accountable care organization or a 
managed care plan where those kinds of tools are more readily 
available to manage the beneficiaries experience.
    Mr. Pallone. All right. Thank you.
    Mr. Pitts. Chair now recognizes Vice Chair of the 
Subcommittee Dr. Burgess, 5 minutes for questions.
    Mr. Burgess. Thank you, Mr. Chairman. Before I begin, let 
me ask unanimous consent to submit written testimony for 
today's hearing by the Coalition to Preserve Rehabilitation for 
the record.
    Mr. Pitts. Without objection, so ordered.
    [The information follows:]
    
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    Mr. Burgess. And again, Dr. Miller, thank you so much for 
being here and sharing your expertise with us. Let's talk for a 
minute about the trend of hospital acquisitions, hospital 
acquiring practices and the consolidation that really seems to 
have increased dramatically in the past couple of years.
    In one of your earlier reports, you discuss the trends of 
hospital acquisitions costing Medicare more and driving up 
costs. The report discusses in great detail how this is 
happening in cardiology. This past May, I asked if the 
commission had seen this trend in other specialties, 
specifically oncology. Do you have any additional information 
that you can share with the subcommittee to add on this or to 
build on this?
    Mr. Miller. I probably can't do it very well off the top of 
my head here, but there is some additional information that we 
could give to you. We took a look at other requests at kind of 
the trends in radiation therapy and in chemotherapy, and you do 
see some trends there that are consistent with the things that 
we have presented previously.
    And I would also remind you, and I know this is a detail 
that would not be readily apparent, in the recommendation that 
we made on our site-neutral payments, which encompassed about 
66-some-odd conditions where we said you should set payment 
rates equal to or near what is paid in the physician's office, 
a few of those conditions actually overlap the oncology, you 
know, drug administration codes and that type of thing.
    Keep in mind, in oncology, you have sort of two things 
happening. The drugs are actually paid comparably. It is really 
the administration and what goes on around the drugs that are 
not paid comparably, and our recommendations would affect that. 
But in any case, we have some of that contemplated in our 
recommendation, and there is some additional information that I 
could forward to you or your staff on a particular issue.
    Mr. Burgess. Great. That would be good. Do you recall 
overall if that trend is a trend upward in the cost curve, or 
is it a flattening of the cost curve?
    Mr. Miller. Yes, and I am going to do this off the top of 
my head--which is really a dangerous thing--what I recall from 
the work that we did is if you look at radiation therapy, it is 
a lot more oblique. But if you look at chemotherapy, there does 
seem to be a shift from the office setting to the hospital 
setting. That is my take-away there.
    Mr. Burgess. Well, and, again, it would be very helpful if 
you could provide that information to us.
    Mr. Miller. Uh-huh.
    Mr. Burgess. If there were more parity in reimbursement 
rates between the outpatients and acute care settings, for 
example, raising reimbursements in certain settings, lowering 
it in other settings, how do you think that would affect 
consolidation?
    Mr. Miller. If there was greater parity, is that what you 
were saying?
    Mr. Burgess. Parity. Yes.
    Mr. Miller. Well, we think it would have some dampening of 
the trend. Am I getting the question?
    Mr. Burgess. Yes. And I think, overall how would that 
affect the cost in the Medicare programs? Do you think that 
would be a reduction in cost?
    Mr. Miller. Absolutely. I mean, we have made two 
recommendations, for example, to equalize the payment rates 
between visits in the physician office setting in the hospital 
outpatient setting, and then, as I said, develop this criteria 
and identify these 66 other services that we would set the 
rates. And for example, on those two, at about 1 billion-plus a 
year, that would reduce spending of which, you know, just in 
round numbers, 20 percent of that would be a reduction in the 
beneficiary's cost sharing, which is something I would just 
bring us all back to.
    I mean, particularly when these services just shift and are 
billed through the outpatient setting, it is important to keep 
in mind here, we are not talking about people actually leaving 
the office and going to the outpatient setting in most 
instances. They are still going to their physician's office. 
They are still getting the same service. The payment from the 
program has gone up and the beneficiary's cost sharing has gone 
up, and to the tune of about 1 billion, 1.5 billion per year, 
if these two recommendations were put into place.
    Mr. Burgess. Has the committee looked at what happens to 
patient access costs with hospital acquisitions of specialties?
    Mr. Miller. You could be asking me one of two questions. We 
have----
    Mr. Burgess. Well, when a hospital takes over what 
traditionally has been like a cardiology practice, what are the 
benefits of the cost of the patient when you move this site of 
service?
    Mr. Miller. What are the benefits?
    Mr. Burgess. Yes, and what are the costs, well, for the 
beneficiary? I meant, that is after all where the focus should 
be.
    Mr. Miller. Yes, our concern is that the benefit to the 
beneficiary is pretty static, that they are getting the same 
service. Like I said, in many instances they will walk into the 
same office, see the same physician, and just pay a higher out-
of-pocket.
    If there were hospitals sitting here, they would argue that 
they do this in order to create systems of care and have 
greater degrees of coordination. We have not seen access 
problems, and we have not seen a lot of evidence to back up the 
claim that this results in better coordination or better 
outcomes for the beneficiary.
    Mr. Burgess. Mr. Chairman, I see my time is expired. I have 
an additional question on graduate medical education that I 
would submit for the record. Thank you.
    Mr. Miller. Thank you.
    Mr. Pitts. Chair thanks the gentleman.
    And now recognizes the gentleman from Texas, Mr. Green, 5 
minutes for questions.
    Mr. Green. Thank you, Mr. Chairman.
    Dr. Miller, recent estimates from the Medicare Trustees 
highlight continued success in reducing spending under the 
Medicare program. Medicare spending per beneficiaries projected 
increase by just 0.3 percent in 2014, well below the growth in 
GDP. Is it correct that Medicare costs have grown at a 
consistently slower rate than the private sector and total 
healthcare spending growth has reached the lowest rates since 
1960?
    Mr. Miller. I can't stipulate each of those facts. What I 
would say is this: There has been a general slowdown in 
utilization in both the private and in the Medicare sector, so 
both of those have actually seen slowdowns in spending. I would 
guess that you are right that Medicare, depending on whether we 
are talking about growth rates, may be slower than the private 
sector because commercial insurers still have higher price 
growth than Medicare had, so just distinguishing between use 
and price. But there has been a broad-based slowdown in 
spending on both the private and the Medicare side in terms of 
utilization in the last few years.
    Mr. Green. OK. Thank you.
    The Centers for Medicare and Medicaid Services recently 
reported that from 2012 to 2013 hospital readmissions in 
Medicare were decreased by nearly 10 percent with the help of 
Medicare's Hospital Readmission Reduction Program, translating 
to 150,000 fewer hospital readmissions. Congress took further 
action by enacting readmissions reduction program for nursing 
homes under the Protecting Access to Medicare Act of 2014, 
which established a skilled nursing facility value-based 
purchasing program based on readmission reductions in the 
fiscal year 2019.
    Mr. Miller, what changes to current Medicare reduction 
programs might you recommend the further increased care 
coordination and cost reduction?
    Mr. Miller. OK. There are a couple things I think I would 
say in response to this. You know, ideally what you don't want 
to do, unless you have to, is impose penalties for these kinds 
of behaviors or, you know, abhorrent behaviors, high 
readmission rate. But when you have a fragmented fee-for-
service sector you are sort of driven in that direction.
    And so what the commission's view kind of works like this: 
We have recommended a readmissions penalty for hospitals, which 
has been implemented; as you said, skilled nursing facilities 
is coming on line; we also have a standing recommendation on 
home health readmission rates. The view there is, at least the 
major actors involved in a readmission would have an incentive 
to avoid it. They have an incentive to talk to each other and 
stop this kind of stuff from happening. Nobody benefits from 
this. Extra payments, beneficiary's families.
    Now, ideally, where we would be moving to is think of 
bundled payments or an ACO or a managed care plan where that 
actually becomes their incentive, because if they can reduce a 
provider or plan, if they can reduce the readmission, then that 
actually turns into revenue for them.
    Mr. Green. Yes.
    Mr. Miller. The other thing I would just say about the 
penalty, and I won't get into the weeds here, we want the 
penalties--and we have some specific ideas on this--structured 
in such a way that people avoid the readmission. In a sense, we 
don't want the penalty; we want them to avoid the readmission, 
which is a much more, you know, better event for everybody. And 
we have some recommendations to change the readmission 
penalties as they stand to get at that outcome a little more.
    Mr. Green. OK. Well, and that is the concern, you know. I 
know the penalty, and the penalty doesn't help anybody, but the 
goal is to move that behavior so they actually treat that 
person fully.
    Mr. Miller. We think there is--well, go ahead. It is your 
time.
    Mr. Green. And I don't have a lot of time left, but I know 
over the years we have also had some concerns about infection 
rates from being in the hospital and there has been efforts to 
do that. Can you compare in a short time now the readmission 
rate issue with the penalties compared to what we have tried to 
do on the broader scale in infection rates at some of our 
hospital facilities?
    Mr. Miller. Actually, I think I am going to have to come up 
short here. I am much more familiar with what is going on with 
the readmission rates. I am aware of the hospital-acquired 
conditions, measures. I can't give you a good answer on what 
effects and what observable effects there are. I am just not up 
to speed on it.
    Mr. Green. Again, appreciate you being here and thank you.
    Mr. Miller. I apologize.
    Mr. Green. Chairman, I yield back my time.
    Mr. Pitts. Chair thanks the gentleman.
    And now recognize the gentleman from Illinois, Mr. Shimkus, 
5 minutes for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Dr. Miller, welcome. I like this discussion on this 
readmission thing because my understanding is the penalty kicks 
in even if the readmission has no relation to the original 
hospitalization; is that correct?
    Mr. Miller. Well----
    Mr. Shimkus. There is a penalty. So, you know, someone is 
in there for an internal procedure but then they leave and then 
something else happens, they break their leg, they go in, they 
are readmitted. There is no discrimination over the cause and 
effect of why you are penalizing them; is that correct?
    Mr. Miller. Yes, and I am just going to--I am going to 
parse through this a little bit. You are decidedly correct that 
people complain that there is not enough definition in the 
readmission criteria that parses things like a planned 
readmission or a readmission that is really related to the 
initial admission.
    But I will say two things: First of all, the commission's 
position is it should be all condition, risk adjusted, 
potentially preventable, and that is the code word for get the 
planned ones out of there, and there is probably some clinical 
judgment that applies to situations like you are saying.
    But the key point that I want to get across to you, just in 
case it is not clear: The penalty doesn't litigate on the basis 
of readmission by readmission. It looks at the overall rates of 
the hospital and says, if you are way to the right in the tail, 
that is where the penalty applies. So even if there is some 
disconnect, it is not case by case. I would just get that point 
across to you.
    Mr. Shimkus. So maybe percentage-wise, based upon the 
overall admission, readmission rates that deal with that.
    Mr. Miller. Exactly.
    Mr. Shimkus. I think that is helpful. I would be adverse 
not to use Sydne in one of her last days--although she's not 
paying attention to me--in her ability to put charts up.
    And I want to have her put up one, because your role is, 
you know, the Medicare Payment Advisory Committee, and I bring 
this up all the time just to make sure we highlight the 
challenges that we face budgetarily and also the importance of 
your role.
    Because even when I go to my two questions, it would be, I 
would say, nibbling around the edges versus really actuarially 
trying to make a system whole and the red being mandatory 
spending that has to go on regardless of what we do. The blue 
is discretionary. That is what we fight about all the time.
    Sydne, you can take that down. I wanted to harass her one 
last time.
    But to my question is, we asked last time you all came on 
the 340B program and what affect it has on the Medicare 
program. Can you comment on any ideas that you might have to 
realize savings in Medicare as it relates to the 340B program?
    Mr. Miller. Yes, we took that statement and statements that 
other members said on the same point very seriously. And the 
commission, if I remember correctly, things are running 
together a little bit, I believe at our November meeting had an 
extensive discussion about the 340B program, its growth, what 
the various conflicting incentives were, what, you know, one, 
the drug manufactures were arguing, what the hospitals were 
arguing, all of that, because we were asked to kind of paint 
the picture for the committees.
    I just need to quickly say, by and large, all of this 
program is beyond our jurisdiction. It is not Medicare and it 
is not administered by CMS, but since the committee has asked, 
we wanted to lay the picture out and now we will give that to 
you and you guys will do what you do.
    However, there was one thing in it, and we have only noted 
it for the commissioners at this point. We haven't actually 
taken action on it, and I think this is what you are getting 
at. In the outpatient setting, Medicare pays what is called the 
average sales price plus 6 percent, and that is what Medicare 
reimburses and there is a whole bunch of details about how that 
gets calculated. But if the hospital realizes a discount on the 
340B then there is some difference between what the hospital 
acquired that drug at and what Medicare is paying at, and 
Medicare does not follow that.
    And that is as far as we have gotten. We have put that in 
front of the commission, but I have not much more to say about 
it than that.
    Mr. Shimkus. Great. And let me finish up, the President on 
the part D and Low-Income Subsidy Program, the President's 
proposal would encourage seniors to increase generic drug use 
when a viable alternative to a brand name is available. Has the 
commission taken a position on the low-income subsidy reform, 
since this policy, we think, could save, obviously, money for 
both the program and the seniors?
    Mr. Miller. Yes. I don't remember where the President's 
budget proposal came, whether it was before or after ours. I 
think it was after. But we made a recommendation a while back 
on this front, and our point was that even low income--and this 
is tricky, but even low-income beneficiaries are price 
sensitive. And if you say, for example, and give the plans the 
flexibility to say you can zero out the premium for a generic 
drug, and keep in mind, this policy would only be in situations 
where there is a generic substitute, then the beneficiary may 
gravitate more to that.
    Because what we found in the data is, is that you have less 
generic use in the low-income subsidy population. And I had 
always had this perception, well, this is because they use 
extremely expensive specialized drugs, and decidedly, some of 
them do. But a lot of their profile is the standard drugs for 
which there are generic substitutes, and so we thought that 
this would help get some push there.
    Mr. Shimkus. Thank the chairman.
    Mr. Pitts. Chair thanks the gentleman.
    And now recognizes the gentlelady from Florida, Ms. Castor, 
5 minutes for questions.
    Ms. Castor. Thank you, Mr. Chairman.
    Thank you, Dr. Miller for being here. It is nice to focus 
on something substantive and especially where some good news in 
Medicare that we have seen a slowing in growth of health 
spending, the fifth consecutive year of slower growth. And CMS 
says this is the slowest growth since 1960, so we need to put 
that to work in extending the life of the Medicare Trust Fund.
    And more good news, the Affordable Care Act reforms are 
working. We have talked a lot about hospital readmissions and 
that is quantifiable already. And then we have a lot of reforms 
dealing with the accountable care organizations and focused on 
quality over quantity where the jury is still out but it looks 
promising.
    But we still have now this challenge with the baby boomers 
beginning to retire and they are going to call on Medicare. 
They are looking forward to coming onto Medicare. It remains 
very popular. So we have a very important responsibility to 
ensure Medicare remains strong. I think the past attempts to 
look for quick solutions like turning it into a voucher, we 
really need to move away from that divisive dialogue because 
that is not going to solve anything. It simply shifts costs to 
beneficiaries that can't afford it.
    So the hard work is going to be getting into the details. 
What is fraudulent? What will help bring greater efficiency? 
What can we do to bring developments in modern diagnosis 
medicine treatments to bare to extend the life of the trust 
fund and provide care?
    I want to ask you a variation on what Representative Green 
was talking about in hospital readmissions but focus on post-
acute care settings. Under the current Medicare payment systems 
there are no financial incentives for hospitals to refer 
patients to the most efficient or effective setting so that 
patients receive the most optimal but lowest cost care. Whether 
a patient goes to a home health agency or skilled nursing 
facility, for example, seems to depend more on the availability 
of the post-acute care settings in a local market. The patient 
and family preferences or financial relationships between 
providers.
    So since patients access post-acute care after a stay in 
the hospital, what does MedPAC say we should be doing to ensure 
patients receive care in the right setting after a hospital 
stay?
    Mr. Miller. I think there is a few things, and I will try 
and build the answer this way: First of all, in the arriving 
settings, like a skilled nursing facility or in home health, we 
think that there are underlying incentives built into the 
payment system now that encourage taking some patients and 
avoiding others. So we think, at a very bumper sticker level, 
what you want to do is take the physical rehab patients. You 
want to avoid the medically complex patients. We think that 
there is some very straightforward analytical adjustments or 
technical adjustments to the payment system that start to 
remove those incentives so you get something more of a 
clinically driven referral instead of a financial referral.
    I won't run through all it again, but the notion of having 
a readmission penalty among the actors of saying you need to do 
this carefully and get them to the right location. Otherwise, 
if they come back to the hospital everybody has some impact, 
then we think that would help.
    Ms. Castor. OK.
    Mr. Miller. There are also--well, just let me get these two 
things out quickly. We have also made a whole set of 
recommendations on accountable care organizations that we any 
would make those more viable and workable, and within those we 
think the incentives of all the actors are aligned.
    And then the very last thing I will say--I am sorry--is we 
just had a conversation, I think it was in November, in which 
the commissioner started to ask themselves, even within fee-
for-service should we give hospitals greater flexibility to 
steer patients on the basis of higher-quality facilities?
    Now, that is not a recommendation but that is a discussion 
that is in progress. Sorry to take your time.
    Ms. Castor. OK. No, I was interested in your answer.
    On Medicare Part D, spending now is well over $60 billion 
per year and over 10 percent of all Medicare spending. Is 
MedPAC satisfied right now that the competition among plans--
1,100 prescription drug plans, 1,600 Medicare Advantage PDPs, 
great choices for consumers--is MedPAC satisfied that the 
competition among plans is providing strong enough incentives 
for cost saving?
    Mr. Miller. Well, it is interesting you ask that question. 
We are just about to start talking about that in some greater 
detail. What we have been noticing over the last few years in 
part D is that the most rapid growth in the program is our 
reinsurance portion of the benefit. And so that is raising 
questions in our mind about whether there is some re-
examination of the structure to relook at whether there is a 
greater degree of competition that could be injected into that 
program.
    I don't have ideas for you right at the moment, but in the 
back room, those are churning in order to come out in front of 
the commissioners shortly.
    Ms. Castor. Good. We will look forward to those.
    Thank you.
    Mr. Pitts. Chair thanks the gentlelady.
    And now recognizes the gentleman from Pennsylvania, Dr. 
Murphy, 5 minutes for questions.
    Mr. Murphy. Thank you.
    Welcome, here Dr. Miller. Good to have you.
    I want to talk a little about some of the cost-shifting 
issues. Basically, I am assuming when we are talking about cost 
shifting, if a person may be seen in primary care, but if they 
cannot get the specialty care they need, that person may face 
other complications from their illness. Would you agree?
    Mr. Miller. Yes.
    Mr. Murphy. OK. And I saw a recent report that said those 
persons who sometimes have the greatest problems with 
readmission are people with low-income families. Would you 
agree with that?
    Mr. Miller. There is a relationship between readmission 
rates and income, yes.
    Mr. Murphy. And is that, some of that relation may also be 
that sometimes people have maybe compliance issues, or perhaps 
they don't have access to some of the things they need, some of 
the specialists and medications, et cetera?
    Mr. Miller. I would have a hard time telling you precisely 
what the mechanisms are. I think there is a relationship there. 
It might be the things that you are saying. I think there are a 
lot of things that are said. I think the exact pathways that 
lead to it are less----
    Mr. Murphy. Let me describe one. I read research reports 
that say that senior citizens with Medicare with chronic 
illness, have double the rate of depression and some mental 
illness. And that when it is untreated depression and chronic 
illness, that doubles the cost. So access is important to make 
sure that, under those circumstances, a person, for example, 
with heart disease or cancer or diabetes, has an increased risk 
for depression; and, therefore, treating that is an important 
cost-savings factor.
    So therefore, if that is not treated, that is a cost 
shifting, that instead of providing the psychiatric or 
psychological care that cost will be borne by further 
complications with diabetes, cancer, heart disease, pulmonary 
disease. Does that make sense?
    Mr. Miller. I see that.
    Mr. Murphy. Now, one of the issues I have been deeply 
concerned about is of access to inpatient psychiatric care for 
the severely mentally ill. As you may know, Medicare has a 190-
day limit on inpatient psychiatric care. But we don't impose 
this for heart disease, do we, or lung disease or diabetes or 
cancer? Do we have 190-day limit for those?
    Mr. Miller. There is not a 190-day limit for that.
    Mr. Murphy. So wouldn't you agree that this is 
discriminatory?
    Mr. Miller. I agree it should be looked at. The facts said 
I am a little bit hazy on, but as you have presented it, I see 
your point.
    Mr. Murphy. But with 190 days, though, I mean psychiatric 
diseases are brain diseases, but should we have a limit on 
diseases in terms of the number of days you can be treated for 
that?
    Mr. Miller. The only thing I would like to do is have the 
room to come back to you on this and make sure I understand 
what the implications are of agreeing to that is.
    Mr. Murphy. I am not sure what implications you are looking 
for.
    Mr. Miller. Well, a couple things. There may be limitations 
on other parts of the benefit that I don't have right at the 
front of my mind, and I wouldn't want to agree for the 
commission to say yes without being able to tell you what the 
cost implication of that would be.
    Mr. Murphy. I understand. Well, and if there are limits, we 
certainly would like to know that, because the issue becomes 
one of what is the proper level of care.
    Mr. Miller. Exactly. And that is all I am looking for is 
some latitude on.
    Mr. Murphy. And if there is 190-day limit for psychiatric 
care but that is not enough to treat someone.
    Mr. Miller. I hear you and I see the direction of your 
question. I would just like some latitude to actually think 
about it and come back to you.
    Mr. Murphy. Can you also then, when you are looking at 
that, find out how many seniors are affected by this cap? So 
when looking at the number of seniors, we need to know the 
costs of that.
    Mr. Miller. That is what I want to make sure I don't 
mislead you on and say, yes, no problem and then, you know, 
come back with----
    Mr. Murphy. And I appreciate your thoughtful approach, to 
this, because we need those kind of facts. When we ignore the 
mental health needs of seniors with chronic illness and that 
leads to other costs, we are not saving anybody anything. We 
multiply those costs.
    And so sometimes when there is a resistance within Medicare 
to change a rule, well, we can't afford more than 190 days, but 
we will end up doubling the costs of oncology or cardiology or 
something else. It just doesn't make sense to us. So I hope you 
will give us a comprehensive look at that issue.
    Mr. Miller. Absolutely. And, you know, I don't want you to 
take the response as hostile to the ideas. I just don't want to 
commit the commission to saying, ``Sure, go above 190 days'' 
without giving you more complete thought, because we are the 
kind of people who would look at that and come back to you and 
say, ``If you are going to do that, there may be some other 
things that you want to do to make it a more episode-based type 
of approach to the beneficiary's experience.''
    For example, if the person leaves the inpatient psychiatric 
facility, is there actually a set of ambulatory visits arranged 
for that person when they walk out the door? Because I think 
our experience is, that is where things begin to break down.
    Mr. Murphy. Good to see it, and monitoring and integrating 
that care. Same thing goes with pharmacology when you see that 
the mass amounts of medications that people don't follow 
through on leads to readmission or more complications, et 
cetera. It is a huge cost.
    Thank you so much. We look forward to hearing from you.
    Mr. Miller. I would like to just think about it more 
holistically. No hostility to the thought.
    Mr. Murphy. No, I appreciate that. Thank you.
    I yield back. Thank you.
    Mr. Pitts. Chair thanks the gentleman.
    Now recognizes the gentlelady from Illinois 5 minutes for 
questions.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Thank you, Dr. Miller.
    I just want to put in context some of the things we are 
talking about. The average Medicare beneficiary lives on an 
income of--half of all Medicare beneficiaries--$23,500 or less, 
and a quarter of them live on $14,400 or less.
    We are talking about how we strengthen Medicare for now and 
for the future and costs. And we have done a lot, I want to 
point that out, to actually reduce the costs of Medicare.
    The Centers for Medicare and Medicaid Services, CMS, 
recently reported that the Medicare Shared Savings Program and 
the Pioneer Accountability Care Organizations, ACOs, that were 
created by Obamacare have generated about half a billion 
dollars in savings for the Medicare program.
    A recent report by the Agency for Healthcare Research and 
Quality found that we saved approximately $12 billion in 
healthcare costs as a result of reductions in hospital-acquired 
conditions from 2010 and 2013. $10.7 billion in fraud-fighting 
tools under Obamacare. That is over $23 billion.
    But the important thing to me is that it hasn't done 
anything to reduce the benefits of the people who need it the 
most. And so I just want to make sure that we have policy 
solutions that save Medicare money but don't harm 
beneficiaries.
    And there is a recent report that I would like to put into 
the record. Medicare Rights Center/Social Security Works 
released a report, ``A Winning Strategy for Medicare Savings: 
Better Prices on Prescription Drugs.''
    Four strategies, including restoring the Medicare 
prescription drug rebates, allowing Medicare to negotiate drug 
prices for part D public option, and a solution--and let's 
see--securing better discounts for drug manufacturers to close 
the doughnut hole, promoting cost-effective prescribing for 
part B prescription drugs.
    And I would like to----
    Mr. Pitts. Without objection, so ordered.
    Ms. Schakowsky. Thank you.
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    Ms. Schakowsky. So here is my question, though. I am very 
concerned that this idea of making sure seniors have and people 
with disabilities have more skin in the game, that we--the CMS 
Medigap tool shows that in Evanston, my district, Evanston, 
Illinois, the average cost of a Medigap plan for someone in 
good health is between $129 and $318 a month for a Medigap C 
Plan and $118 to $262 per month for a Medigap F Plan, both of 
which include deductibles.
    But CMS still estimates that, even with these plans 
offering first-dollar coverage, a senior or person with 
disability would still spend over $6,000 on health care each 
year out of pocket.
    So why should we ask these Medicare beneficiaries to pay 
more, eliminating first-dollar Medigap coverage?
    Mr. Miller. Well--and this goes back to the conversation on 
the benefit design. And I want to be clear. I mean, the 
Commission----
    Ms. Schakowsky. Dr. Miller, could you pull your microphone 
closer?
    Mr. Miller. Oh, sorry about that. So nobody has heard 
anything I have said for the hearing?
    Ms. Schakowsky. No, it is just me. Just me.
    Mr. Miller. So, let's see, where were we? Benefit redesign.
    The Commission shares your concern. And, particularly, you 
had a statement in your--``We should do reform, but we 
shouldn't harm beneficiaries.'' OK? There was a lot of 
discussion about this.
    Now, one more time, just to go through this, the benefit 
redesign works like this: It has a catastrophic cap. So that 
beneficiary you are talking about now has an additional 
protection, and particularly the person you are talking about 
who starts running into $6,000, $7,000, $10,000, that is what a 
catastrophic cap is all about: Stop, you know, the amount of 
out-of-pocket headed out the door.
    The second thing we would do is have copayments instead of 
coinsurance. So, you know--and you have had this experience--
you pay 20 percent of a bill that you don't know what it is 
going to be. It is hard to plan for, as opposed to I walk into 
the physician's office, I pay 20 bucks, or I walk into a 
specialist's office, I pay 30 bucks; I know what I am going to 
pay. The thought process in all of this is that the beneficiary 
has more protection and clearer line of sight.
    And to be really clear on this, the Commission's principle 
was that the beneficiary's liability, as it currently stands, 
doesn't change under this benefit redesign. So we are not 
putting more liability on the beneficiary. There is a 
distributional change, meaning the sick get more coverage. But 
there is no aggregate change in the liability.
    Then we say, if you want to buy that coverage, the coverage 
would come with a higher price, which reflects the cost that it 
imposes on the program. But, ideally, you don't need it the way 
you used to need it because the benefit is better and we 
expanded the Medicare Savings Program up to 150 percent of 
poverty to capture that group of people between 135 and 150 who 
would potentially have a out-of-pocket problem.
    Ms. Schakowsky. I am going to put some further follow-up in 
writing. Thank you.
    Mr. Pitts. All right. The Chair thanks the gentlelady.
    I now recognize the gentleman from Georgia, Dr. Gingrey, 5 
minutes for questions.
    Mr. Gingrey. Mr. Chairman, thank you.
    Before I ask my questions of Dr. Miller, I want to ask 
unanimous consent. In 2012, Dr. Roe, myself, Dr. Barrasso, and 
Dr. Coburn submitted a report titled ``What Happens To Payments 
to Health Care Providers Participating in Medicare When the 
Medicare Hospital Insurance Trust Fund Reaches Exhaustion?'' 
Since this is apropos to the discussion, I would like unanimous 
consent to have that approved for the record.
    Mr. Pitts. Without objection.
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    Mr. Gingrey. I want to go back, Dr. Miller, to the line of 
questioning that Ms. Schakowsky just had, because I think this 
is hugely important and I want to make sure that I understand 
it fully. It is somewhat controversial, but it seems like the 
facts maybe speak for themselves.
    You said approximately one in six Medicare beneficiaries 
had an individually purchased Medicare supplemental insurance 
policy in recent years, known as Medigap, and no other source 
of supplemental coverage.
    The Kaiser Family Foundation released a report evaluating a 
proposal that would prohibit Medigap policies from paying the 
first $550 of enrollees' cost-sharing and requiring that they 
cover no more than half of Medicare's additional required cost-
sharing up to a fixed out-of-pocket limit.
    The Kaiser Foundation revealed some notable findings, and 
let me point those out, three bullet points. If this policy 
were adopted, four out of five seniors would save money from 
Medigap reform, and most of those that could face higher cost 
would instead choose a Medicare Advantage plan. The second 
bullet point: With this reform, some seniors would save more 
than $1,000 from Medigap reform. And, thirdly, this policy 
would also create savings, which would strengthen Medicare.
    Given the obvious upside of the policy, why hasn't Congress 
adopted this policy sooner? And what are the given obstacles to 
adopting this commonsense policy?
    Mr. Miller. Oh. So the question is why, as opposed to the 
policy.
    Mr. Gingrey. It is, indeed.
    Mr. Miller. I would rather talk to you about the policy, 
but I guess, just to be very direct, what I would say is that, 
obviously, the people who sell the Medigap plans would oppose 
such a policy. And I think one way you could think about trying 
to navigate this--and just to be clear, this is all your turf--
is, you know, there are two ways to think about Medigap reform.
    What has been said in the Kaiser study says only products 
can be sold that don't have first-dollar coverage. So the 
beneficiary has to pay something in order to get the service. 
And this is what the Congresswoman was referring to. The other 
way you could do it--and this is what the Commission said--is 
you can buy any product you want, first-dollar or not first-
dollar, but the charge on it has to reflect the true cost of 
the policy. Because the policy imposes the cost on the program, 
and that is not reflected in the premium.
    And I think reasonable people could take either of these 
approaches, say, OK, I am going to say the product has to have 
this structure, or put an additional charge on it. But the 
folks who sell Medigap policies are not going to like either of 
those.
    On the beneficiary--I mean, I think the other resistance 
that you get to this--and it is raised by the beneficiary 
groups--is what about those people who--and I guess the term is 
``near poor,'' at least in this area that we are talking about, 
where they are not poor enough to be covered by Medicaid but 
they don't have enough resources to pay their out-of-pocket. 
And there, I think what the Commission would say is maybe you 
fill in the Medicare Savings Program up to 150 percent to try 
and help that crew out.
    But I think your resistance is from the Medigap industry, 
and then I think the beneficiary groups are concerned about 
that bloc of people who are left without a supplemental.
    And one more time, I am just going to say this. Ideally, if 
the benefit redesign has a catastrophic cap and clearer cost-
sharing, the beneficiary's need for this should also be 
reduced.
    Mr. Gingrey. Yes. And, Dr. Miller, I would think that is 
the most important point, the catastrophic cap.
    Mr. Miller. Yes, because we are talking--I mean, the reason 
that the Kaiser--I don't have all those facts in my head, but 
the reason Kaiser said this is a savings to the beneficiary is, 
I mean, these premiums are, you know, $1,300, $1,400 for these 
products.
    Mr. Gingrey. Right. And many people don't need that. They 
will never reach that catastrophic cap, and it is really 
unnecessary.
    So, Mr. Chairman, I will yield back 28 seconds. Thank you 
very much.
    Thank you, Dr. Miller.
    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize the gentleman from Maryland, Mr. Sarbanes, 5 
minutes for questions.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    You said that the policy impacts the cost of the program. 
Just give me a couple examples.
    Mr. Miller. The policy?
    Mr. Sarbanes. The policy with the Medigap, like that the 
nature of the policy has an impact on the cost to the----
    Mr. Miller. Oh, OK.
    Mr. Sarbanes [continuing]. Medicare program.
    Mr. Miller. We think the research--if I follow your 
question, and if not, redirect. We think the research on this 
is very clear. What happens when you look at the presence of 
the supplemental coverage, after you adjust for the risk of the 
patient, you find a lot more discretionary services. So there 
are more visits, more imaging, more testing, that type of 
thing. It doesn't affect hospital, emergency room services.
    Mr. Sarbanes. Right.
    Mr. Miller. That goes on about its business. But these 
policies, because there is no further----
    Mr. Sarbanes. But ups utilization that spills over onto the 
Medicare----
    Mr. Miller. And then that is not reflected----
    Mr. Sarbanes [continuing]. Coverage side.
    Mr. Miller. And what I have tried to say, and perhaps not 
clearly, is that doesn't get reflected in the premium.
    Mr. Sarbanes. Right.
    Mr. Miller. The person purchasing the product gets this 
package which is priced to just the wrap-around benefit, but 
there is a cost over here that travels on to the taxpayer and 
to the beneficiary's broader premium.
    Mr. Sarbanes. Right. Well, it is obviously very complex, 
and----
    Mr. Miller. Yes, it is.
    Mr. Sarbanes [continuing]. It is gratifying that you are 
approaching it as much based on the reams of data that Medicare 
has at its fingertips as you possibly can.
    I am glad that this discussion, wherever people may come 
down on it--and, you know, you have the Medigap plans with 
their perspective, insurers on one side and beneficiaries 
potentially on the other side, and maybe there is some common 
ground that can be achieved. But at least the whole discussion 
is happening within the context of maintaining the basic tenets 
of the Medicare program, which is that it is guaranteed 
coverage of one kind or another.
    So, in that sense, it is in strong contrast to some of the 
proposals that we have seen in recent years--for example, the 
proposal to turn Medicare into a voucher program, which 
completely upends the basic principles upon which the program 
is operated for all of these decades and is really at the heart 
of it.
    So we will kind of continue to find our way on what the 
best sort of outcome is for this discussion, but I am glad it 
is being done in a kind of fact-based environment and one that 
doesn't abandon in any way the basic operating principles of 
the program.
    I was curious--and you may have a document like this, but 
if not, would it be possible to produce for us a document that 
just kind of takes a Medicare beneficiary who purchases a 
Medigap plan and says, you know, here is the before picture of 
how they are managing that situation and here is the after 
picture under these two or three scenarios in terms of the 
reform to give us a better sense of, in practical terms, what 
that looks like from the beneficiary's standpoint?
    And maybe what you do is you choose, if there are certain 
categories of beneficiaries that assemble around one kind of an 
option currently, take that category, show us the before 
scenario and show us the after scenario, take the next category 
and show us the before and the after, just so we can get a 
sense.
    I mean, for example, not all beneficiaries purchase these 
Medigap plans, as you made very clear, so I don't know if the 
before and after picture is pertinent to that group or not, but 
it may be. But certainly for the folks that do, if they fall 
into some distinct categories that allow for comparison, that 
would be useful.
    Because when we are talking to our constituents and trying 
to translate this potential policy change to them as 
beneficiaries, that would be the most useful way to capture the 
data and the proposal for us. So I don't know if there is 
something like that, but if it is possible to produce something 
like that, I think it could be useful.
    Mr. Miller. Yes, there are certainly, in the reports, 
averages that do that type of thing, but I think your request 
is a little bit different. You know, could you make it a little 
bit more directly relevant to the beneficiary, a beneficiary 
who looks like this----
    Mr. Sarbanes. You know, and is paying X a month, and when 
that X a month represents, kind of, on average what a whole 
category of beneficiaries are paying, you know, this is what 
would happen under this proposal. That would be helpful.
    Mr. Miller. There might be an illustrative example or two 
that we could put together that would bring this point home for 
you. It would be very hard to represent, you know, the full 
breadth of a beneficiary's experience.
    Mr. Sarbanes. I understand.
    Mr. Miller. It is going to necessarily be incomplete.
    Mr. Sarbanes. Right.
    Mr. Miller. But there might be a couple of illustrative 
examples that we could put together for you.
    Mr. Sarbanes. Thank you.
    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize the gentleman from New Jersey, Mr. Lance, 5 
minutes for questions.
    Mr. Lance. Thank you, Mr. Chairman.
    Dr. Miller, there is a growing concern over the high cost 
of dual-eligible beneficiaries, eligible for both Medicare and 
Medicaid. As you know better than most, there are two separate 
funding streams. Different payment rates and coverage rules 
often create conflicting financial incentives that result in 
higher costs and poor coordination efforts.
    In 2010, the President's fiscal commission recommended 
giving Medicaid full responsibility for providing health 
coverage to dual-eligible persons and requiring those persons 
to be enrolled in Medicaid managed care programs. Would you 
please comment on the merits of this policy, both pros and 
cons?
    Mr. Miller. I am not going to be able to. The Commission 
has not taken that up, per se, and, you know, I am here to 
represent their view, so there is not a lot I can bring to bear 
on it.
    There have been discussions around things like the dual-
eligibles' demonstrations and some of the issues there, and 
there have been some discussions around those. These kinds of 
conversations always kind of have a continuum to them, which 
are, do you take this population and put it in the hands of the 
State, and then you have to start asking questions about how 
the Federal dollar follows in that instance? Versus the other 
approach, which other people have argued, which is--and this 
is, in a sense, what--not in a sense--directly what happened in 
part D, where you say, OK, the beneficiary now becomes a 
Federal responsibility, and then the dollars from the State 
travel in that direction in order to support this.
    The Commission has not broadly, for the dual-eligibles 
population, talked about, in that continuum, you know, the 
solution that should be considered. So I can't really give you 
much there.
    Mr. Lance. Given the aging of baby boomers and climbing 
rates of obesity and obesity-related disease, do you expect 
that the cost pressures created by dual-eligibles will continue 
to increase?
    Mr. Miller. Yes, I think that this is an expensive 
population and a population that really, you know, is most 
susceptible to the problems that arise from not coordinating 
among the clinicians and actually not coordinating more broad 
social types of services around these particular beneficiaries.
    Although I do want to say quickly, we talk about--and I do 
it, too--duals as kind of a monolithic group of people, and 
they are very different--cognitive disabilities, physical 
disabilities. There is a significant range of people within the 
dual-eligible population.
    But that said, I think this is a population where there is 
need for people to be focused on more care coordination 
activities, both around their clinical needs and around their 
social needs. Otherwise, I think the price does go north.
    Mr. Lance. Given the fact that there are different types of 
people in dual-eligibles, should we differentiate between the 
different type of person who is in the dual-eligible category?
    Mr. Miller. That is a really fair question, and honestly--
and, again, this is a comment that is probably not so much the 
Commission--my own thinking has gone back and forth.
    Sometimes I have had this view that you have to really 
think about designing programs around specific populations 
within the dual population. And then, at other times, I have 
sort of felt like, well, maybe you can think about coordinated 
care plans but allow benefit flexibility within the plan, for 
example.
    And then there is a whole set of questions that, if the 
beneficiary stays out in the fee-for-service environment, how 
you actually build the coordination around that particular 
environment, which I think continues to be complicated even if 
you are not dual-eligible.
    So I have to tell you, my own thinking has moved around on 
this, and on any given day I am not sure what answer I would 
give you on this.
    But there has to be, I do think, some more--I think I would 
say this--some more tailored approach. Because, you know, a 
cognitive disability is not a physical disability, is not--you 
know, there are different populations. And so there has to be 
some flexibility to put the right kinds of providers and 
services around a given population. There probably does need to 
be some flexibility there.
    Mr. Lance. Thank you very much.
    Mr. Chairman, I yield back 10 seconds.
    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize the gentleman from New York, Mr. Engel, 5 
minutes for questions.
    Mr. Engel. Thank you very much, Mr. Chairman. Thank you for 
holding today's hearing.
    I believe the reforms included in the Affordable Care Act 
have improved Medicare's long-term fiscal situation and 
protected beneficiaries' access to guaranteed benefits. And 
just last week, the Centers for Medicare and Medicaid Services 
reported that health costs grew just at 3.6 percent in 2013, 
which is the smallest increase since 1960, and the reforms 
included in the ACA resulted in the Medicare Trust Fund 
remaining solvent till 2030, which is 13 years longer than the 
projected date prior to the passage of the ACA.
    With regard to protecting beneficiaries, HHS announced last 
week that, from 2010 to 2013, there were 1.3 million fewer 
hospital-acquired conditions, resulting in 50,000 lives saved 
and $12 billion in healthcare costs avoided. The ACA pushed 
healthcare providers to improve patient safety by providing 
Medicare payment incentives to improve the quality of care 
provided and launching the HHS Partnership for Patients 
initiative.
    Medicaid is a lifeline for many of my constituents. I am 
pleased so many States, including my home State of New York, 
have taken this opportunity to expand their Medicaid programs 
and care for the most vulnerable citizens. However, certain 
Governors have used the excuse of the uncertain Federal funding 
for Medicaid as a reason not to expend their programs. I think 
that is wrong and shortsighted.
    Looking only at the dollar figures and associated 
healthcare spending with regard to the ACA, Medicare, and 
Medicaid fails to adequately convey the tremendous importance 
these programs have to the basic wellbeing and health of 
millions of vulnerable Americans, young and old. Their value in 
this respect cannot be understated and should be our primary 
focus as we look at the long-term fiscal situations surrounding 
these programs.
    Let me ask you, Dr. Miller--let me say this. MedPAC made 
GME recommendations a few years ago that many people have used 
to push for Medicare--GME, graduate medical education--cuts. 
With one in six physicians trained in my home State of New 
York, I have concerns that cutting Medicare support for GME or 
physician training would make it very difficult for teaching 
hospitals and medical schools to carry out their missions. 
Additionally, these proposals would change the long-established 
shared investment between medical schools, residency training 
programs, and the Federal Government to financially support 
doctor training.
    So let me ask you this. By 2025, the Nation will face a 
shortage of more than 130,000 physicians, split evenly between 
primary and specialty care. Medical schools from across the 
country have done their part to address the shortage by 
increasing enrollment sizes, and teaching hospitals are 
training residents above their cap. Medicare GME cuts could 
financially exhaust the ability of teaching hospitals to train 
additional resident physicians.
    With this said, does MedPAC support the notion of cutting 
Medicare GME funding?
    Mr. Miller. What MedPAC said--MedPAC, in 2010 I think, made 
a broad recommendation to reform the GME approach in Medicare, 
and it has the following characteristics.
    So the analysis that we did suggested that the curriculums 
that were current in residency programs were not really focused 
on team-based care, decision support instruments, that type of 
thing, getting training outside of the hospital, getting 
training in rural areas, that type of thing. So we made a 
recommendation that there needed to be new criteria to have 
reorganized residency programs. And then we took a little more 
than half of the indirect medical education funding and said, 
these dollars should be devoted to entities--and it wouldn't 
just be hospitals--who are providing this more reformed 
approach to graduate medical education.
    So to try and answer your question directly, we didn't take 
the dollars out of the system, but we said that the dollars 
should be allocated differently than they are now. A hospital 
can be a recipient of it if they are a part of these reformed 
programs, but they are not necessarily the only entity for 
which these dollars would be available.
    Mr. Engel. OK.
    Let me quickly switch, and just let me give you a general 
question. Can you elaborate on what you believe are the most 
promising efforts under way to encourage providers to deliver 
high-quality, high-value care?
    Because, in your written testimony, you stated that the 
Commission remains focused on pursuing reforms that control 
spending and create incentives for beneficiaries to seek and 
providers to deliver high-value healthcare services.
    So what do you believe are the most prominent, promising 
efforts under way to encourage providers to deliver this kind 
of high-quality, high-value care?
    Mr. Miller. Well, I mean, it is kind of the whole array of 
things that I mentioned here. So, you know, there are things in 
the fee-for-service world like readmission penalties and 
reformulating the way we pay for skilled nursing facility and 
home health services. We have made recommendations on 
accountable care organizations to make them more viable 
options. We have made recommendations that Congress has adopted 
on the way we make payments in managed care, and we think that 
that industry is moving in a much more efficient direction.
    There is a very long list here with time out here that--but 
it is in the testimony. The testimony is basically, from first 
to the last page, a list to answer your question.
    Mr. Engel. All right. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize the gentleman from Florida, Mr. Bilirakis, 5 
minutes for questions.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it. 
Thanks for holding this very important, very informative 
hearing.
    And, Dr. Miller, I appreciate your testimony.
    My first question: Dr. Miller, one of the great things 
about the Medicare Part D program design is that it harnesses 
the forces of choice and competition to reduce costs while 
improving the options for seniors. Premiums in the program have 
been basically flat over the last few years, and seniors truly 
love the program.
    I noticed that MedPAC has examined and endorsed a 
competitively determined Medicare planning bidding system for 
the future of the Medicare program. Can you talk about the 
merits of this approach and how it is similar to or different 
than the Medicare Part D or Medicare Advantage?
    And then could you also explain, to what extent would it 
free Congress from annually having to adopt price controls to 
pass Medicare's fee-for-service system?
    Mr. Miller. OK.
    The first thing I just need to clear up, we did not endorse 
it. We did publish a chapter and sort of discuss the issues. 
And what we were trying to do is kind of strike a balance in 
the policy conversation.
    You could take an approach broadly in Medicare like you 
take in D, where you say there will be a competitively set 
Government contribution, and then the beneficiary would select 
a plan, and the plan is either a managed care plan or fee-for-
service, even though that is not a plan, and then pay the 
difference, depending on how expensive it is. So that is the 
thought, I believe, you are chasing here.
    And what we said is that that is a legitimate conversation 
that should occur, but there is a set of design issues that 
become extremely important here in how well this is done and 
how successful it is.
    One right off the top that I think a lot of people miss is, 
in the private sector, there has been tremendous provider 
consolidation over the last decades. Your questions about the 
site-neutral payments are all about that kind of phenomenon. 
And to the extent that there has been greater consolidation, 
commercial insurers have had a really hard time holding down 
payment rates because you have a very consolidated provider in 
certain markets.
    So approaching these competitive models, you have to be 
very conscious of how you are going to extract reduced prices 
from these providers who in the private sector actually have 
consolidated positions. In Medicare, you have administered 
prices, so you don't deal with that.
    Now, the technical, you know, questions about how you deal 
with that are probably beyond a 5-minute answer, but the first 
thing to keep in mind is, if these things aren't done right, 
they can actually cost Medicare money. But there are technical 
issues to navigate around that.
    A couple of other issues are things like this: Do you 
standardize the benefit, which would say it is very clear to 
the beneficiary, be very clear to the Congress what they are 
paying for and what works and what doesn't work, or do you 
allow complete innovation in the benefit design, or something 
in between? The MA plans, you have to provide certain services, 
you have ability to play with the cost-sharing. And so you have 
to think about that.
    Another big issue that you have to think about if you go 
down these roads is where you set the Government contribution. 
If you do it at a national level, then there are certain parts 
of the country where everybody pays, fee-for-service or managed 
care, and other parts of the country where everybody gets a 
premium rebate, for lack of a better word, whether you are in 
managed care or fee-for-service. If you do it within the 
market, that is probably a more rational way to go at it, but 
there is probably then some subsidization that is occurring 
across the country, and you will have to deal with the 
implications there.
    So what we tried to--oh, and then--I hate that this came 
off as an afterthought--what are we going to do with the low-
income? So if there is a premium support here, then how are the 
low-income going to be handled?
    So what we did in this report is just blocked through a set 
of issues and said, if we are going to have a serious 
conversation about this, there have to be answers to each one 
of these issues. And we kind of went through the pros and cons, 
and we did a little simulation, very static, not high science, 
but a little simulation of some of the distributional impacts. 
And I would refer, if you want to have this conversation, refer 
you to that.
    Mr. Bilirakis. Very good. Thank you very much.
    In November of 2012, CBO issued a paper on the offsetting 
effects of the prescription drug use on Medicare spending. 
Basically, proper adherence to a prescription drug regimen in 
Medicare Part D would provide a savings from hospitalization in 
Medicare Part A.
    Can you talk a little about this spillover effect and 
savings? Also, do you think that eliminating duplicative 
medications and proper monitoring of dangerous drug 
interactions could also add to savings in the Medicare program?
    Mr. Miller. I mean, we decidedly have been--we had some 
discussion of this on opioids just recently--decidedly 
concerned about overmedication and, you know, drug-to-drug 
interaction and that type of thing. And you want to deal with 
that not just for savings reasons or even whether it saves or 
not; you want to focus on that because of the impact on the 
beneficiary.
    Our research is in a little different place than CBO's. We 
have seen that, we have talked to them, we went through it. I 
believe they have done it very carefully, and there is a lot to 
commend it.
    Our own research has somewhat more ambiguous results. We 
see this effect where you get the savings on the hospital side, 
you know, your better drug compliance reduction and hospital 
effect. But the hospital effect kind of goes away after 6 
months, a year. And we are a bit confused by that, and we are 
still kind of churning on it ourselves.
    You know, great if compliance--I mean, you should probably 
have compliance for medical and clinical and all the rest of 
the reasons anyway. If it has a savings effect, great. We are 
having a little trouble, you know, coming to the same 
conclusion.
    Mr. Bilirakis. All right. Thank you.
    I yield back, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize the gentlelady from North Carolina, Mrs. 
Ellmers, 5 minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    And thank you, Dr. Miller, for being with us today.
    I want to go back to some of the discussion of the site-
neutrality payments. And I, again, just for the purpose of my 
questions, want to again clarify, has MedPAC taken a position 
on whether or not Congress should act on the issue of site-
neutral payment reform?
    Mr. Miller. Yes, we have made two recommendations as it 
relates to E&M visits and then--I won't take you through all 
the weeds, but----
    Mrs. Ellmers. Uh-huh.
    Mr. Miller [continuing]. The 66 conditions that we 
carefully identified so that it didn't undercut the hospital's 
mission and didn't create access issues for the beneficiary and 
said those should be----
    Mrs. Ellmers. What is the number-one reason that we should 
address this policy change and reform?
    Mr. Miller. I mean, I would say--you know, I have 17 
commissioners, so I don't know, but my number-one reason is 
that the beneficiary is out-of-pocket. If they are getting the 
same service----
    Mrs. Ellmers. Yes, the increased cost.
    Mr. Miller. Right.
    Mrs. Ellmers. OK. I just want to--there again, I do want to 
clarify that. That is what we are seeing, and it seems to be a 
discussion and a question of, you know, if you are receiving 
the same care at a facility which is an ambulatory outpatient, 
you know, minus the hospital, why then is the hospital charging 
more, I guess I would say, for the consumer.
    So, now, getting back to that issue, too, back in June of 
2013, the report that came out from MedPAC discussed the cost 
differences, especially in cardiology. And I think the question 
was posed at that time, have you seen this in other 
specialties? And for my purposes today, I am thinking about 
oncology. Have you also seen this cost increase in oncology?
    Mr. Miller. Right. And you made a specific request in our 
last hearing, and we delivered to your office a response on 
this very question. And this is what I was dragging up from my 
memory to Mr. Burgess' questions.
    Mrs. Ellmers. Uh-huh.
    Mr. Miller. We looked at oncology. We looked at radiation--
divided it between radiation therapy and chemotherapy. Kind of 
oblique results on the radiation therapy side. On the 
chemotherapy side, it does look like there is an uptick----
    Mrs. Ellmers. Increase.
    Mr. Miller [continuing]. In the outpatient, which is really 
the billing----
    Mrs. Ellmers. Yes.
    Mr. Miller [continuing]. And, you know, some shift between 
the physician's office and the outpatient.
    Mrs. Ellmers. OK. Yes. Thank you. Because I am kind of 
coming off of what Dr. Burgess was asking you about.
    I do have another question, which is kind of off my line of 
questioning here, but I do want to make sure that I address it. 
It goes in line with what my friend Congressman Shimkus was 
talking about, some of the issues regarding readmission--I 
believe it was Mr. Shimkus--the readmission within 30 days and 
the loss of payment if there is a readmission.
    And he addressed the issue of it being possibly a different 
diagnosis but still receiving that loss of reimbursement. I 
believe you said it has more to do with the number of 
readmissions that that particular hospital is having.
    But my understanding--and this is what I want to clarify 
with you--is that it can also be a readmission to a different 
hospital. And if it is a readmission to the different hospital, 
how does that process work?
    And I am very concerned about this, because my 
understanding is that we are going to go to an increase in the 
number of diagnoses of readmissions.
    So can you clarify or shed some light on how that process 
works? Does the initial hospital end up getting the ding if 
there is a readmission to another hospital within 30 days?
    Mr. Miller. Yes. That is correct.
    Mrs. Ellmers. OK. So there that is. OK. Great.
    Next question. And this has to do with North Carolina and 
Medicare Advantage. I am very concerned. Medicare Advantage 
facing $200 billion worth of cuts through the ACA. North 
Carolina, 57,000 Medicare Advantage recipients are being told 
that their plans will not be offered in 2015.
    You know, Kaiser Family Foundation has found this to be 
true and that other States are not facing the number of cuts to 
some of these plans.
    Can you shed any light on that or any of your--I mean, how 
can my constituents deal with that, when they like their 
Medicare Advantage plan so much?
    Mr. Miller. Well, I can't speak to North Carolina 
specifically in that particular set of plans. We have 
documented this extensively and will do again next month at 
our--or, actually, next week at our public meeting.
    We have continued to see 9 percent annual growth in managed 
care enrollment. We have seen more organizations entering. And 
the average numbers of plans being offered, I think, is still 9 
or 10, on average, in any given market. And, of course, some 
markets, like Miami, have 30, and other markets have 5, but----
    Mrs. Ellmers. Uh-huh.
    Mr. Miller [continuing]. We have seen continued growth in 
enrollment in this program.
    Why those specific plans feel that they have to pull out--
and the dilemma for you and your colleagues in the Congress is 
you want the beneficiary to have access to the plan and have 
the extra benefits, but I think--and you have to decide this 
for yourself--you want those extra benefits to be provided 
because the plan is efficient relative to fee-for-service and 
has the extra money because they are good at what they do. If 
you just give them the extra benefit, then you are right back 
to----
    Mrs. Ellmers. Right.
    Mr. Miller [continuing]. Your debt situation.
    Mrs. Ellmers. Well, thank you, Dr. Miller.
    And thank you, Mr. Chairman. I have gone over a little bit, 
so I apologize. Thank you.
    Mr. Pitts. That is all right. The Chair thanks the 
gentlelady.
    Now recognize the gentlelady from Tennessee, Ms. Blackburn, 
5 minutes for questions.
    Mrs. Blackburn. Thank you so much, Mr. Chairman.
    And, Dr. Miller, I want to stay right with Mrs. Ellmers' 
thoughts on Medicare. You just talked about the 9 percent 
growth in enrollment in a lot of the programs. And one of the 
things I hear from my seniors is they are beginning to realize 
that, with the arrival of Obamacare, that you had about $700 
billion of cuts that were made to Medicare, to the trust fund, 
and that that money is now being used for new Government 
programs that aren't for seniors.
    And they are figuring this out because they are asking the 
questions, why is my plan being terminated, or I don't have as 
many options, or my copay is higher. And they are looking at 
this, and they have figured out that that redirection has taken 
place.
    And, of course, they are looking at the pay-fors, and that 
was the across-the-board annual reductions in the growth rates 
of Medicare payments for hospitals. And these cuts are 
scheduled to continue every year permanently. And, as a result, 
the actuary of the Medicare program has said, basically, you 
have a couple of choices here; you have up to 15 percent of the 
hospitals could close and many hospitals could stop taking 
Medicare patients, or Congress can reverse the cuts and 
increase the rate of Medicare spending, accelerating the 
insolvency of the program.
    So, in your view, would it be better to scrap the 
reductions and replace them with other policies? What would be 
your advice there?
    Because you have constituents like Ms. Ellmers who are 
saying, well, we are beginning to catch the brunt of this, and 
then you have the hospitals, where they are facing these 
reductions and they are saying, well, we don't know how we are 
going to keep our doors open. And I will tell you, quite 
frankly, I have a lot of rural hospitals that deal with 
underserved areas.
    So what is your thought there? What is the better plan?
    Mr. Miller. OK. Well, I will leave it to the Congress to 
decide which plan----
    Mrs. Blackburn. Well, we would just like your insight.
    Mr. Miller. No, I will give you a couple.
    Mrs. Blackburn. Good.
    Mr. Miller. But, remember, our role here is just to put a 
set of ideas in front of you and then let the Congress decide 
what is the right thing.
    Mrs. Blackburn. Well, and we appreciate that.
    Mr. Miller. Right. And----
    Mrs. Blackburn. That is what we are looking for, are those 
thoughts and ideas.
    Mr. Miller. Yes. And I will say two things in response to 
your question, because there were two things in there, I think, 
and maybe more, but at least two, that I teased out.
    One is, on the managed care plans, regardless of whether 
Obamacare or whatever the health reforms to the side, the 
Commission looked at the managed care plans--and this is the 
exchange I just had here--and said, look, before 2010, every 
time we enrolled somebody in managed care, it cost the trust 
fund money. Managed care plans were actually bidding to provide 
the basic part A and part B benefit at a more cost than fee-
for-service. These are the managed care plans who said fee-for-
service is broken and we can do better, and they were actually 
delivering it for greater cost.
    So whether there is Obamacare or whatever, the Commission's 
recommendation was that payment system was broken. And what we 
were trying to drive it to--and we believe this has happened 
now--managed care plans that are actually efficient, get the 
efficiencies, then offer the extra benefits. And we are several 
years down the road. Enrollment continues to increase, and 
plans are actually, on average--or some plans--bidding below 
fee-for-service, proving that they can be more efficient than 
fee-for-service. I want to emphasize ``some plans.''
    So we think, our view on that, that had nothing to do with 
any health reform. You know, that is a different world. We were 
saying that about managed care.
    On the fee-for-service side, where you are seeing the cuts 
and the concerns about hospitals, what I would say to you is we 
come to you, by law, you know, the law that you created for us 
to respond to, every year and tell you what we think is the 
best thing that you should do for hospitals, physicians, 
skilled nursing facilities, you name it.
    And what we do is we look at the current law--and we are 
not bound by current law in our recommendations. So we have 
said things to take payment reductions below what is in PPACA, 
the Accountable Care Act, in some instances, and in other 
instances we have said, no, they are too low, you need to go 
up.
    So we actually come in--and there was a statement made by 
the chairman, you know, we need policies that kind of think 
through the circumstances. And that is what we try and provide 
to you on an annual basis, is come to you and say, stay with 
the law here, go below the law here, go above the law here. And 
that is what we do every year in our March report. So we are 
trying to help you navigate whatever your current set of 
circumstances are on an annual basis.
    Mrs. Blackburn. Well, and for our constituents who now 
realize the cuts that Obamacare made to Medicare and how it 
affects their hospital and their access and the reduced rate 
that is going back, reimbursement rate going back to those 
hospitals, it is a very tangible--very tangible consequence of 
the implementation of this law.
    And for seniors who have paid into the Medicare trust fund, 
this is not working well. So it is going to be worthy of a 
revisit, because that money is in the trust fund and it is now 
being used for new programs, not for programs that benefit 
seniors.
    I yield back.
    Mr. Pitts. The Chair thanks the gentlelady.
    That concludes our round of questions. The Members will 
have follow-up questions in writing. We will submit those to 
you, Dr. Miller, and ask that you please respond to those 
promptly.
    Thank you very much for your informative exchange.
    While the staff sets up for the next panel, the 
subcommittee will take a 3-minute recess.
    [Recess.]
    Mr. Pitts. The subcommittee will reconvene.
    And on our second panel today we have Mr. Chris Holt, 
director of healthcare policy, American Action Forum--welcome; 
Mr. Marc Goldwein, senior policy director, the Committee for a 
Responsible Federal Budget; and Dr. Judy Feder, professor of 
public policy, Georgetown Public Policy Institute.
    Thank you all for coming. Your written testimony will be 
made a part of the record. You will each have 5 minutes to 
summarize your testimony.
    And, Mr. Holt, we will start with you. You are recognized 
for 5 minutes to summarize.

  STATEMENTS OF CHRISTOPHER W. HOLT, DIRECTOR OF HEALTH CARE 
  POLICY, AMERICAN ACTION FORUM; MARC GOLDWEIN, SENIOR POLICY 
DIRECTOR, COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET; AND JUDY 
  FEDER, PROFESSOR OF PUBLIC POLICY, GEORGETOWN PUBLIC POLICY 
                           INSTITUTE

                STATEMENT OF CHRISTOPHER W. HOLT

    Mr. Holt. Thank you, Mr. Chairman, members of the 
committee. It is certainly an honor to be asked to testify 
before Congress but particularly for me this subcommittee. With 
my past work with Representative Murphy and with the committee, 
having had the opportunity to work with many of you and to come 
to understand the dedication that you and your staff bring to 
the important issues that this committee deals with makes this 
a very humbling opportunity for me, and so I thank you very 
much for that.
    My written statement details some modeling that we have 
done on Affordable Care Act provisions that--spending 
provisions that we could dial up or dial down in order to 
generate some savings. That modeling I am happy to go into if 
people have questions. I think that those savings could be used 
to pay for other spending priorities. But I was hoping to take 
a step back and maybe talk a little more broadly today about 
the topic that we are here to discuss.
    When I arrived in D.C. 10 years ago as a congressional 
intern, we had a Federal debt of about $7 trillion. As we all 
know, today the Federal debt is now past $18 trillion.
    We can point fingers and try and lay blame, but the reality 
is that this is not entirely the fault of one party or the 
other; we have gotten here together. And I think you can see 
that if you look at the immediate last two Presidencies. During 
the Presidency of George W. Bush, we saw the national debt 
double, and under this Presidency of Barack Obama, we are 
flirting with doing that again.
    So we can argue about whether or not we have a spending 
problem or a revenue problem, but I hope that we can agree that 
we have a debt problem.
    And while we all have, I am sure, our pet peeves for what 
is driving that debt accumulation, the 800-pound gorilla in the 
Federal budget is mandatory spending, which makes up 60 percent 
of the Federal budget, and, in particular, mandatory spending 
on health programs, which is about 30 percent of all Federal 
spending. As this spending continues to grow, it is crowding 
out discretionary spending, things like defense but also things 
like funding the NIH.
    And so, as we look at that, unfortunately, rather than 
addressing that looming entitlement crisis, President Obama 
chose to focus on passing the Affordable Care Act. In doing so, 
he expanded spending in the Medicaid program and put more 
people into that broken program.
    He also created an entirely new entitlement, these 
subsidies for the under-65 population available through the 
health insurance marketplace, and then, all the while, largely 
ignoring Medicare beyond the $700 billion in cuts that were 
used to pay for the other priorities, particularly cuts to 
Medicare Advantage and also to home health.
    As we look to the 114th Congress, I think we can recognize 
that the big policy agenda items that conservatives seek--
repealing and replacing the Affordable Care Act, large-scale 
Medicare and Medicaid reform--are likely out of reach, but we 
can and should take the opportunities that present themselves 
to move towards those goals.
    And so, in particular, as Congress looks at the entitlement 
spending, both new and old, that continues to grow, I would 
remind you that the Budget Control Act has largely left the ACA 
unscathed. And, as such, I think it is appropriate that, as 
Congress looks to fund other health priorities, particularly 
the SGR reform that is coming up, that we can look to the ACA 
as a mechanism by which those other priorities can be paid for.
    And then, finally, briefly, I would say, with an eye 
towards long-term fiscal priorities, I urge Congress to protect 
the Medicare Part D and the Medicare Advantage programs. These 
are excellent blueprints for how entitlements could be 
structured and should be structured, and they provide a roadmap 
for moving past the fee-for-service Medicare system today.
    And, with that, I am happy to take your questions.
    [The prepared statement of Mr. Holt follows:]
    
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    Mr. Pitts. The Chair thanks the gentleman.
    Now recognize Mr. Goldwein, 5 minutes for an opening 
statement.

                   STATEMENT OF MARC GOLDWEIN

    Mr. Goldwein. Thank you, Chairman Pitts, Ranking Member 
Pallone, and other distinguished members of the committee, for 
inviting me to testify on this important issue.
    I would like to focus my remarks this morning on two 
subjects. First, I would like to make the case for the 
importance of continuing to focus on slowing Federal healthcare 
cost growth. And, second, I would like to discuss the policies 
which I believe have the best chance of making healthcare 
spending both more effective and more affordable.
    I have spent the bulk of my career working with bipartisan 
efforts to put the debt on a more sustainable path. I worked on 
the staff of the Simpson-Bowles Fiscal Commission, the 
Hensarling-Murray Supercommittee, and with a number of Hill 
offices on an informal basis. Every one of those efforts to 
stabilize the debt has put identifying reforms to slow the 
growth of health spending front and center as the central 
issue.
    Unfortunately, the combination of the recent fall in the 
short-term deficit and the tremendous slowdown in healthcare 
cost growth has led some to conclude that Medicare and Medicaid 
reforms are no longer necessary. In my view, this couldn't be 
further from the truth, especially considering our debt levels 
are currently at record highs only seen around World War II and 
are continuing to grow unsustainably if you look into the 
future. The slowdown in Medicare and in health spending more 
broadly is hugely encouraging but, for a variety of reasons, 
should not be used as an excuse to stop reforms.
    My written testimony explains this in more detail, but, 
first of all, a large share of the recent slowdown is due to 
temporary factors. These include economic and demographic 
factors, one-time legislative cuts like sequestration, and 
other temporary events like the recent prescription drug patent 
cliff that we are sort of falling off right now.
    Secondly, the portion of the slowdown which is structural 
and permanent, some of it is probably because providers expect 
future changes in fee-for-service, which means, without further 
congressional action, they will revert and we will lose the 
gains we have made so far in the slowdown.
    Third, slowing healthcare cost growth will not be enough to 
keep Federal health spending itself under control. The reason 
is that the primary driver of Federal health spending over the 
next quarter-century is not actually healthcare cost growth but 
it is population aging. As a result, the Congressional Budget 
Office projects that healthcare spending as a share of GDP, 
Federal healthcare spending, will more than double by the early 
2050s, possibly sooner.
    And, finally, Congress and the President will have to 
identify health savings early next year in order to offset 
either a temporary doc fix or, preferably, a permanent SGR 
fix--a permanent SGR reform. After all, we have offset 98 
percent of doc fixes in the past and, as a result, generated 
$165 billion worth of savings, mostly from within the 
healthcare system.
    Now, as Congress does look for savings, there are a number 
of policies which have the potential for broad bipartisan 
support. At CRFB, my organization, we like to categorize these 
savings as benders, savers, or structural reforms. And my 
advice to this subcommittee is to focus first and foremost on 
the cost benders, those policies which will structurally change 
the incentives within Medicare and Medicaid in order to slow 
the growth of healthcare spending overall, not just shift who 
bears the burden.
    Now, these benders can't offer a free lunch. They can't 
offer a situation where everybody is better off. But what they 
can do is offer a discounted lunch, where as a society we are 
better off and where the winners far outweigh the losers.
    CRFB, my organization, the Committee for a Responsible 
Federal Budget, recently released a plan we call the Prep Plan, 
which identified a number of these benders and used them to pay 
for the very thoughtful SGR reform that came out of this 
committee, along with Ways and Means and Finance.
    On the beneficiary side, we included reforms very similar 
to the MedPAC recommendation. And I want to emphasize that if 
you modernize Medicare cost-sharing, you can save money for 
both the taxpayer and the beneficiary. Our plan would save $80 
billion over 10 years for the Federal budget and reduce 
beneficiaries' out-of-pocket costs by about $200 per person per 
year.
    Our plan also looks to change the incentives on the 
provider side, including by moving to more bundled payments, 
increasing penalties for unnecessary hospital readmissions, 
encouraging doctors to administer lower-cost prescription 
drugs, and rewarding States that move to more efficient payment 
models within Medicaid.
    In addition to these and other benders, which, again, are 
in my written testimony, you are going to have to look at what 
we call savers. Now, these are policies where we will save 
money for the Federal Government by allocating it in a way that 
is preferable.
    There are already a number of these savers that have 
bipartisan support: increased means testing for Medicare 
premiums, reductions to certain overpayments to providers, and 
clamping down on certain scams or certain games played by 
States in order to increase their Medicaid matches.
    You are going to have to look at all of these policies 
carefully, along with others outside of the health arena, if we 
truly are to get our health system and our debt under control. 
There is no magic bullet, but there is an opportunity to work 
together on a bipartisan basis and begin making reforms now to 
give us a better healthcare system at a better price.
    Thank you for allowing me to testify on this important 
topic, and I look forward to working with all of you and your 
staffs.
    [The prepared statement of Mr. Goldwein follows:]
    
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
         
    Mr. Pitts. Thank you.
    Dr. Feder, you are recognized for 5 minutes for your 
summary.

                    STATEMENT OF JUDY FEDER

    Ms. Feder. Chairman Pitts, Ranking Member Pallone, and 
members of the committee, I appreciate the invitation to appear 
before you today to express my own and my colleague Paul Van de 
Water's views on setting fiscal priorities and the importance 
of preserving Medicare and Medicaid.
    I want to make five quick points.
    First is that Medicare and Medicaid work. They provide 
essential health and financial wellbeing to people who are 
elderly, disabled, or poor. Over more than 40 years, Medicare 
spending per enrollee has grown by an average of 1 percentage 
point less than comparable private health insurance premiums. 
Medicaid provides acute healthcare coverage at a substantially 
lower cost per child and per non-elderly adult than private 
coverage. And Medicaid is also the Nation's primary payer for 
long-term services and support, a matter I know is of concern 
to Mr. Pallone and others.
    Second, Medicare and Medicaid are not in crisis. On the 
contrary, Medicare spending has recently been growing at a 
historically low rate, with spending per beneficiary growing 
more slowly than GDP per capita.
    The financial outlook for Medicare and Medicaid has 
improved significantly in the past 4 years. Congressional 
Budget Office estimates of Medicare and Medicaid spending for 
the next decade have fallen by several hundred billions of 
dollars since CBO first estimated the impact of the ACA. And 
Medicare spending per beneficiary in 2014 is expected to be 
$1,200 lower than CBO projected in 2010.
    Third, as Mr. Goldwein said, it is not growth in spending 
per beneficiary but it is growth in the number of beneficiaries 
that have become the primary drivers of increased Medicare and 
Medicaid spending. Even if cost growth remains moderate, 
Medicare and Medicaid spending will keep rising as more baby 
boomers become eligible for benefits. And I should note, with 
candor, I am one. As boomers age, as we age, States will also 
face considerable increase in the need for long-term care.
    Does that mean that we can relax in our efforts to slow 
cost growth? Of course not. But the focus should be on payment 
and delivery reform and not capped Federal contributions.
    In Medicaid, there is little room for savings from 
efficiency, given already constrained provider payment rates, 
widespread use of managed care, and existing opportunities for 
State flexibility.
    Most proposals that would secure more than modest Federal 
savings, such as a block grant or a per capita cap, would do so 
by shifting costs to States, and if that occurs, States are 
likely to cut eligibility, benefits or provider payments, 
enhanced reduced beneficiaries access to care. But Medicare 
policymakers cannot only use the ACA, encourage research and 
pilots to continue to gain value for the dollar, but can 
further reduce spending without jeopardizing quality or access 
to care.
    Restoring the Medicaid rebate on prescription drugs for 
low-income beneficiaries, eliminating overpayments, continued 
overpayments to Medicare Advantage plans, and refining payments 
mechanisms for post-acute care are a few examples of policies 
likely to increase value for the Medicare dollar.
    Only so much can be expected, however, of reducing Medicare 
costs per beneficiary if that is done independent of lower cost 
growth and the system as a whole. New revenues are therefore 
needed to deal with a doubling of the elderly population over 
the coming decades.
    My fourth point: What current circumstances do mean is that 
claims of cost growth or fiscal crisis cannot be used to 
justify moves to radically reform Medicare and Medicaid. There 
is no question that premium support or other mechanisms that 
would change Medicare from a defined benefit to a defined 
contribution program would raise the fundamental concern of a 
cost shift from the Federal Government to beneficiaries.
    The same is true for the block grant or per capita cap, as 
I mentioned earlier, and that is because these mechanisms would 
sever the tie between Federal contributions and the 
beneficiary's costs. The more constrained the defined 
contribution or the cap, the greater the shift. Premiums 
support vouchers, block grants per capita caps or overly 
ambitious spending targets might save Federal dollars but they 
shift risks on beneficiaries who can ill afford to pay them.
    My final point is to urge you to recognize that the deficit 
has stabilized as a share of GDP, that healthcare spending is 
growing at historically low rates. That is good news, and it 
gives policymakers time to identify further steps that when we 
needed to slow the growth of healthcare costs throughout the 
entire U.S. healthcare system without impairing the quality of 
care so that we can meet our responsibilities to an ageing 
population just as we did in education when the very same 
individuals entered public school about 60 years ago.
    The Nation's fiscal capacity does not provide an excuse to 
abdicate those responsibilities by radically restructuring 
Medicare, by replacing Medicare's guaranteed coverage with a 
premium support voucher, or by restructuring or severely 
cutting Medicaid or other programs that protect low-income 
Americans.
    Thank you.
    [The statement of Ms. Feder follows:]
   
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    Mr. Pitts. Chair thanks the gentlelady.
    I will begin the questioning. Recognize myself 5 minutes 
for that purpose.
    Mr. Goldwein, today Medicaid is the largest health 
insurance program in the world, covering more than 70 million 
people in 2013. Spending for this program is set to double in 
the next 10 years, and the program already consumes $1 of every 
$4. We have heard repeatedly from our colleagues on the other 
side of the aisle that Medicaid is off the table when it comes 
to considering any policy that would reduce Federal spending. 
Do you think this is appropriate or sustainable? And please 
elaborate.
    Mr. Goldwein. I don't think that you can afford to take any 
program off the table when it comes to healthcare cost growth. 
That said, Medicare is much easier for the Federal Government 
to address because we control the levers. We know how to--
Medicaid is a joint program with the States, and so I think the 
best thing we can do for now is empower the States to find new 
types of ways to save money, to have better payment systems.
    There are certain places we can impose those savings. There 
is borderline fraud, it is not quite fraud, but there are games 
that States play we should clamp down on. But really, I think 
the best thing we can do is give the States more freedom and 
more power to experiment with new cost control ideas.
    Mr. Pitts. Mr. Holt, the HHS Inspector General, GAO, and a 
broad coalition of stakeholders have identified structural and 
systemic concerns with the 340B programs. Research suggests the 
programs discounts may be going to hospitals that do not 
disproportionately serve Medicaid or the uninsured. Other 
analysis suggests that the discounts are not passed on to the 
low-income individuals for whom the program was designed.
    Given these concerns, and with more people enrolled in 
health coverage through the ACA, isn't it time for complete 
revaluation of the 340B program; and, also, if the 340B program 
was more targeted, would that free up more drug industry 
dollars for additional research and development and life-saving 
cures and life-enhancing therapies?
    Mr. Holt. So yes and yes.
    First, let me plug, we have a very good primer on the 340B 
program and the American action forum that I am happy to share 
with anyone who would be interested in. I think it is important 
to remember this program exists largely because of Federal 
meddling and what was already going on in the first place. 
Originally, the pharmaceutical companies were providing some 
discounts to some of these hospitals, and as we started getting 
into things with ASP, they started rolling back those deals 
because it was impacting what they could sell in Medicaid for.
    Today, though, we have got hospitals like Johns Hopkins 
which benefit from the 340B program dramatically because of the 
locality that they are in, not necessarily their financial 
standing. I absolutely think that in a post-ACA world we must 
look at all of these programs that were intended to subsidize 
uncompensated or undercompensated care, and we have to 
reevaluate all of that.
    Mr. Pitts. Please provide us with a primer. We will 
circulate to the members.
    Mr. Holt. Absolutely.
    Mr. Pitts. Dr. Feder, the President's fiscal year 2015 
budget endorses a policy of further increasing an income-
adjusted Medicare premium until capping the highest tier at 90 
percent. As the President said in that budget, quote, ``This 
proposal would help improve the financial stability of the 
Medicare program by reducing the Federal subsidy of Medicare 
cost for those who need the subsidy the least.''
    Do you believe this would be a viable offset for paying for 
the SGR package?
    Ms. Feder. No, sir, I don't. I believe that the President 
put forth those proposals in the context of discussing broader 
budget agreements that would involve tax increases as well as 
spending reductions and in the context of looking for a 
balanced approach to reducing the deficit.
    Standing on its own and using Medicare beneficiaries as a 
piggy bank does not make sense to me. Medicare beneficiaries, 
half of them, as was said earlier, live on incomes that are 
below $26,000, including their spouse's income.
    We do not have a tremendously large, wealthy, elderly 
population, and I am concerned that efforts to further means 
test the premiums can erode the universality of the program, 
which is one of Medicare's greatest strengths.
    Mr. Pitts. According to the Social Security Administration 
records, there are 60,000 seniors with Medicare who have annual 
incomes in excess of $1 million. Do you believe it is 
appropriate we charge them more?
    Ms. Feder. Well, Chairman Pitts, those beneficiaries have 
paid payroll taxes into the system for Medicare on their entire 
earnings, although the $1 million may not all come from wages, 
but they have been paying them from wages and now they do pay 
them also on overall earnings. So people are paying into the 
system regardless of the income, and we already do have some 
income relationship with our premiums. That, to me, is 
legitimate.
    I would also say that in terms of your earlier question of 
using this to pay for the SGR, that in my testimony I have 
offered you other mechanisms for savings in terms of refining 
payment rates in Medicare, and I believe that you heard some 
from Mark Miller that MedPAC has offered, which I think might 
be far preferable if you are looking for offsets.
    Mr. Pitts. But you do not believe it is appropriate to 
charge them more?
    Ms. Feder. They are charged more.
    Mr. Pitts. The million dollar?
    Ms. Feder. They are charged more.
    Mr. Pitts. My time has expired.
    The Chair recognizes the ranking member 5 minutes for 
questions.
    Mr. Pallone. Mr. Chairman, I would ask unanimous consent to 
submit for the record an issue briefed by the Leadership 
Council of Aging Organizations on MedPAC's extra help copayment 
proposals.
    Mr. Pitts. Without objection, so ordered.
    [The information follows:]
    
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    Mr. Pallone. Thank you, Mr. Chairman.
    My questions are to you, Dr. Feder. I was troubled by the 
policy proposals in the testimony of both Mr. Holt and Mr. 
Goldwein that seemed to devalue the Medicaid program. And by 
rolling back the Federal contribution to State Medicaid 
programs and shifting greater costs onto State budgets, access 
to care for those may be seriously hindered as State's restrict 
enrollment due to budget shortfalls.
    So my first question is, so what would be the result of 
rolling back the Federal contribution to State and Medicaid 
programs?
    Ms. Feder. Well, Mr. Pallone, we also, as you well know, we 
already see that States are constraining some of their services 
based on their decisions about what they can afford and are 
willing to spend, particularly in the area of long-term care 
services for either elderly people or people with disabilities. 
We know that there are long waiting lists for home care, for 
example, which is a tremendous matter of concern.
    We also know that Medicaid, one of its greatest values is 
to be able to have the funding respond as needs arise. So in 
the Great Recession, we found that Medicaid responded to the 
growing need of the population, that we had so many low-income 
people. We see Medicaid similarly respond when new drugs come 
on line that are expensive but can make a real difference to 
people's ability to get care they need.
    So we have lots of experience on which we can draw and lots 
of research shows that an arbitrary constraint in terms of the 
Federal share, what the Feds are contributing to Medicaid costs 
will have an impact on the programs, absolutely, but that 
impact will fall on providers. They will get less payment. They 
have been on beneficiaries who will get less access to service, 
and that the program would be diminished as a result.
    Mr. Pallone. I appreciate you bringing up long-term care 
too, because I think a lot of times some of us forget the link 
between Medicaid and long-term care nursing home care, which I 
think is another issue that, you know, we really should be 
addressing----
    Ms. Feder. Absolutely.
    Mr. Pallone [continuing]. In a significant way, you know, 
what we are going to do about long-term care. But many 
Governors, even Republican ones, even mine have opted to 
participate in the Medicaid expansion offered as part of the 
ACA because it is good for their States and good for their 
citizens.
    Moreover, there is empirical evidence showing that Medicaid 
improves health. For instance, the 2008 Oregon study that 
expanded Medicaid coverage had substantively and statistically 
hired utilization of preventive and primary care, lower out-of-
pocket medical expenses and lower medical debt and better 
physical and mental health.
    So my second question is, it would appear that there is 
actual empirical evidence to refute a devaluation of the 
program and that Medicaid coverage not only helps improve 
health but keeps people out of medical debt.
    Do you want to comment on the benefits of the Medicaid 
program in that respect?
    Ms. Feder. I agree with you 100 percent that the value of 
Medicaid to individuals who would, without it go without 
coverage, has been demonstrated many times over. The evidence 
you cite is recent evidence that researchers like because it is 
not influenced by the differences in the population, the more-
likely-to-be-sick population that is in Medicaid versus the 
other populations. And this evidence is particularly confirming 
of Medicaid's value, although it too had some issues in not 
fully capturing it.
    So Medicaid on the health side for families and kids and on 
the long-term services and supports for people who are elderly 
or disabled is extraordinarily valued and we prove it all the 
time.
    Mr. Pallone. All right. I am going to try to get quickly to 
this last thing. House Budget Committee Chairman Paul Ryan has 
continued to propose to convert Medicare into a voucher system 
for the purchase of private health insurance, and the Urban 
Institute analysis show this would result in a fairly dramatic 
shifting of cost to beneficiaries.
    What is your analysis of this Ryan proposal, and what are 
the dangers to Medicare and their beneficiaries from such a 
proposal?
    Ms. Feder. Well, I share with my colleagues at the Urban 
Institute precisely that concern, that it is a shift of cost to 
beneficiaries rather than a savings in cost. We know from 
experience, we have seen some advocacy lately that competition 
is working in Medicare Advantage plans, that we can see that 
risk selection is no longer a problem, but those are claims 
that are not supported by the evidence.
    MedPAC demonstrates that when you have competing plans 
there is, even as we refine our ability to adjust payments to 
plans for differences in risk, that the risk selection occurs, 
that healthier people are served by the plans and sicker ones 
are avoided or end up disenrolling. And we see, as Mark Miller 
said earlier, a decided risk that we will lose our capacity to 
contain costs which Medicare has been so effective, relative to 
the private sector and to private plans.
    Mr. Pallone. Thank you.
    Thank you, Mr. Chairman.
    Mr. Pitts. Chair recognizes the gentleman from Florida, Mr. 
Bilirakis, 5 minutes for questioning.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much.
    Mr. Goldwein, in your testimony, you talk about budget 
choices and you classify some of the options as benders or 
savers. I have been concerned about the prescription drug abuse 
within the Medicare Part D program and overall program 
integrity.
    Would establishing a safe pharmacy network to provide a 
single point of sale for at-risk beneficiaries and providing 
part D plans additional authority against fraud be bender or a 
saver? Would this save the Government and taxpayers, again, 
real money?
    Mr. Goldwein. So establishing a safe pharmacy, I think, 
would save money. I can't quantify how much, and I have not 
seen a CBO score on it. But by clamping down on basically abuse 
of prescription drugs and overmedication, it will certainly 
save Medicare money.
    I also think this would categorize as a bender because this 
is one of those wins-wins, where not only would Medicare be 
better off, but the beneficiary that potentially could become 
addicted to the drug is better off and society is as well. So 
it is definitely something worth looking at.
    Mr. Bilirakis. Thank you.
    And next question for Mr. Holt. Private health insurance 
was the model used to build the Medicare Part D program. 
Congress used what was successful in the commercial sector and 
brought that success into Medicare. Shouldn't we use the 
innovation and tools in the private sector to address some of 
the drug abuse and fraudulent billing practices in Medicare 
Part D?
    Mr. Holt. Yes, absolutely, and we already use similar 
programs in, I think, about 46 of the State Medicaid programs. 
So, and I think this is an excellent idea. I know both HHS and 
CMS have said that they support it. I think the committee 
largely is supportive of this policy, and I think if you can 
get some savings on top of just good policy, I think that is an 
excellent choice and move in that direction.
    Mr. Bilirakis. Thank you very much.
    I yield back, Mr. Chairman.
    Mr. Pitts. Chair thanks the gentleman.
    Now recognizes the gentleman from Texas, Mr. Green, for 5 
minutes for questions.
    Mr. Green. Thank you, Mr. Chairman.
    I thank our panel for being here. As we have seen since the 
passage of the Affordable Care Act, industry stakeholders have 
continued to make claims that cuts to the Medicare Advantage 
program would lead to reductions in benefits and increased 
premiums, but the exact opposite has occurred over that period 
of time. In fact, premiums have dropped 10 percent and 
enrollment has increased nearly 30 percent since the ACA 
required plans to be more efficient in their delivery.
    Mr. Goldwein, in your testimony, you propose as one of your 
saver policies to increase the coding intensity adjustment to 
reclaim additional overpayments to Medicare Advantage plans. 
Could you describe this policy and your rationale behind it?
    Mr. Goldwein. Sure. Well, let me first say that the 
policies I listed in my testimony, other than those which were 
in our prep plan, are not my recommendations but just a list of 
options.
    Now, the President has proposed coding intensity 
adjustments for Medicare Advantage, which essentially would 
recoup money that shouldn't have been paid to these plans in 
the first place, because in some cases, they are over-coding 
activities, coding them at something that is more expensive 
than they otherwise would be.
    What the exact coding adjustments should be year to year, I 
can't tell you. I think MedPAC could probably tell you better. 
But this is the President's recommendation, and certainly we 
should be continuing to make sure that Medicare Advantage is 
spending its money as efficiently as possible.
    Mr. Green. OK. Even today you heard in Mr. Holt's testimony 
how payment reductions in Medicare Advantage plans would lead 
to reduced benefits for enrollees in 2015. I believe the plans 
were well suited to absorb these cuts by becoming more 
efficient without harming beneficiaries, as MedPAC has 
indicated.
    Dr. Feder, one concern I have is that in 2014 planned 
payments are on an average of 106 percent of fee-for-service. 
If plans cannot compete at fee-for-service rates, do they 
really belong in the program? We are paying them more and there 
is no more concrete evidence that their quality is better. 
Shouldn't we require better from plans as in more efficient 
performance and better quality if they are to remain part of 
Medicare?
    Ms. Feder. I agree with that approach, Mr. Green, and with 
your point that we continue to overpay Medicare Advantage plans 
relative to payments in the traditional program. I don't see 
any reason for that and have written and argue that payments 
should not be higher than what we pay in the traditional plan 
on the per-capita basis.
    Mr. Green. Well, and that is one of my concerns. I was here 
when we created Medicare Advantage and it was supposed to save 
Medicare funding not cost many more. And I know I have 
constituents, about 25 percent of my Medicare folks get 
Medicare Advantage, but when I explain to them that you are 
actually costing more for Medicare than the 75 percent that is 
not, you know, then they think about it and say, oh, OK, they 
didn't know that.
    But, Dr. Feder, does it seem irresponsible for us to spend 
taxpayer and beneficiary money to prop up private industry that 
benefits only a third, at best, at the expense of the other 70 
percent under traditional Medicare?
    Ms. Feder. It does not, and although we have made, I think, 
the reforms, and Mark Miller laid them out on the previous 
panel, that have been made in payments to MA plans and through 
the ACA have reduced those overpayments and are making strides, 
I think it is not appropriate to over-subsidize those plans.
    Mr. Green. OK. The title of today's hearing, Doctor, is 
``Setting Fiscal Priorities,'' and it appears to solve an 
economy against spending on entitlement programs for those 
Americans with the greatest need. It seems that term 
``entitlement'' has come to mean different things to different 
people. Too often people think of entitlements through the 
narrow lens of programs that provide the safety net for our 
seniors and the most vulnerable in our society by considering 
the fiscal impact of the tax entitlements, tax deductions, 
exclusions, credits, and other tax preferences, which 
disproportionately benefit well-to-do Americans.
    Can you talk about entitlements, both those providing 
essential services to seniors and low-income Americans and 
those providing tax breaks to the more affluent, and the 
relative role of each in the context of protecting the most 
vulnerable in our society when addressing our long-term debt?
    And I know that is a long question for the last 30 seconds.
    Ms. Feder. I will try and go fast. The entitlements that 
you speak of, I think, are colloquially defined 
inappropriately. They accurately mean benefits to which 
citizens have a right enforceable in court, and that they are 
typically mandatory spending programs so that the money flows 
with the population who is eligible for the program and the 
costs of the benefits that are provided.
    You are quite correct that they are provided through the 
tax system as well as in direct spending, even when they are 
social service benefits. So the tax benefits that we receive on 
mortgages, on pension plans, on employer-sponsored health 
insurance, are all entitlements that essentially go to the 
upper end of the income distribution.
    And a substantial, the bulk of those benefits do go to the 
better off, and by virtue of their structure, with the 
exception of benefits that are refundable tax credits like the 
EITC, they do not go to low-income people. So the tax benefits 
are skewed up the income scale, and I am talking about the 
good, the social service type benefits. There are others that 
are really skewed up the income scale.
    By contrast, it is the low and modest income population who 
benefits appropriately and probably disproportionately from the 
benefits that are provided by Medicare and Medicaid and 
benefits like that, that come through Social Security, that 
come through direct payment.
    Mr. Green. Thank you, Mr. Chairman. I know we are over time 
and appreciate your courtesies.
    I thank the panel.
    Mr. Pitts. Chair thanks the gentleman.
    Now recognize the gentlelady from Florida, Ms. Castor, 5 
minutes for questions.
    Ms. Castor. Thank you, Mr. Chairman.
    And Congressman Green, I was glad you got back into the 
Medicare questions involving the Affordable Care Act because 
there have been, people have kind of played fast and loose with 
some of the statements today by continuing to imply that the 
Affordable Care Act cut Medicare, and you are implying to the 
Medicare beneficiaries our older neighbors, our parents and 
grandparents, that they have suffered, their benefits have been 
cut, which could not be further from the truth.
    Under the Affordable Care Act reforms, Medicare benefits 
are better. Remember the doughnut hole is closing so you have 
more money in your pocket when it comes to paying for your 
prescription drugs. You get that free wellness visit every 
year. You get the important visit for your mammogram or 
colonoscopy or cholesterol check without a copay. Benefits have 
gotten stronger; isn't that right, Dr. Feder?
    Ms. Feder. Absolutely.
    Ms. Castor. And meanwhile, what we focused on the 
Affordable Care Act is cutting the waste in the overpayments to 
health insurance companies that Dr. Miller, the MedPAC expert, 
testified to. This is smart policy. So let's turn the page on 
this and get to the fact that we have more work to do with the 
aging population and the baby boomers retiring. We still have 
to ensure that Medicare is there for future generations, like 
Generation X and the Millenials, I hope so.
    So let's talk also about Medicaid because I hear these 
arguments too that Medicaid is not efficient, that this is a 
huge cost--yes, it is a big draw on the Federal budget, so we 
have got to focus on reforms. My colleagues on the other side 
of the aisle often refer to the inefficiencies of Medicaid. In 
fact, Medicaid's costs per beneficiary are substantially lower 
than per beneficiary costs for private insurance, and 
Medicaid's cost per beneficiary have been growing more slowly 
than per beneficiary costs under private insurance. So it 
appears that Medicaid is more efficient than private insurance, 
and yet many conservatives say we need to replace Medicaid with 
a voucher or cap its funding.
    And what you are saying there is that our parents and 
grandparents that relied on skilled nursing and need to go into 
nursing homes, and with these baby boomers, the policy decision 
is to take the access to the nursing home away or to children 
with disabilities that we are not going to be there in a cost-
efficient manner to help you survive, I just don't think that 
is smart policy.
    So Dr. Feder, while this might save money, if you block 
grant or you cut and you slash, how can we expect to really cut 
healthcare costs while Medicaid is already cheaper than private 
insurance?
    Ms. Feder. Well, I think that your point is well taken and 
that this is really not a way to save money. It may reduce 
Federal spending, but it would shift costs to States and in all 
likelihood, based on past experience, would leave beneficiaries 
without needed services just as you describe. That is simply 
not an acceptable way to meet our obligations to our most 
vulnerable populations, and those demands are only going to 
grow as the population ages, as more and more people need not 
just nursing home care. We are more often now or more often 
than we were providing care at home, which is where people want 
to stay, and we need to be able to do that.
    To expect Medicaid to do that on some notion that an 
already lean program can somehow be magically more efficient 
makes no sense at all. Medicaid can participate and is 
participating with Medicare in the private sector in improving 
delivery to minimize and reduce inefficiencies. But in all 
likelihood, as the population ages, Medicaid needs more support 
not less.
    And I find it--if you would, for one more moment--I find it 
interesting that your colleagues across the aisle want to spend 
less on Medicaid and pull those Federal dollars back when we 
know that States are arguing that--some States are resisting 
Medicaid expansions because they think the Feds are not going 
to come through with the needed dollars. So it seems to me that 
this becomes a wish fulfillment on the part of those who are 
opposed to adequate coverage.
    Ms. Castor. Thank you very much. I yield back.
    Mr. Pitts. Thank you.
    We will go to one follow-up per side. I will recognize 
myself 5 minutes for that purpose.
    Mr. Holt, the New York Times has a story this morning about 
a new report from the HHS Office of Inspector General that is 
being issued today, and the report found, quote, ``Half of 
providers listed as accepting Medicaid patients could not offer 
appointments to enrollees,'' end quote, for non-urgent visits.
    Now, the President's health law is fueling rapid growth in 
Medicaid with enrollment up by 9 million people just this year. 
The inspector general warned that, quote, ``When providers 
listed as participating in a plan cannot offer appointments, it 
may create a significant obstacle for an enrollee seeking 
care,'' end quote.
    According to HHS, the Nation is already going to be 20,400 
primary care physicians short by 2020, just a few years from 
now. Should Congress be concerned that the shortage of doctors 
and low participation rates in Medicaid along with the Medicaid 
expansion means that the most vulnerable patients will face 
worse access problems?
    Mr. Holt. Yes, absolutely. I haven't seen the study yet, 
since it came out while we were sitting here, I think, but my 
big concern about the Medicaid expansion has been that you are 
putting more people into this program. There is already 
difficulty in Medicaid beneficiaries getting access to doctors. 
And we have to keep in mind that having coverage is not the 
same as having access and having access is not the same as 
having better outcomes.
    And so I think it is very important that as we look at the 
expansion, which sort of disincentivizes the enrolling of 
lower-income individuals who were previously eligible because 
they were met at a lower match but pays States quite a bit 
more, right now 100 percent, to enroll, higher income, still 
lower-income individuals that were sort of incentivizing the 
States to focus on the wrong population, and we are making it 
harder for those people, the most vulnerable, to get to 
doctors, to get to care.
    Mr. Pitts. Mr. Goldwein, under the Affordable Care Act, 
States have the option to expand Medicaid to adults with no 
children, with income under 138 percent of the Federal poverty 
level. This was an unprecedented expansion of the program that 
traditionally has covered low-income moms and kids, the 
elderly, poor, the blind, and disabled. Under the expansion, 
the Federal Government is paying 100 percent of the cost of the 
expansion until 2016 when States have to start picking up some 
of the tab.
    Accordingly, under Federal rules today, the Federal 
Government is paying the full cost of some prisoners' hospital 
care who would otherwise be eligible for Medicaid, the medical 
bills of multimillion-dollar lottery winners who States are 
barred from disenrolling in the program. Do you think this is 
an appropriate use of Medicaid dollars?
    Mr. Goldwein. Well, I think, by and large, there was a 
decision in the Affordable Care Act to use Medicaid rather than 
the insurance subsidies to cover that population between 100 
and 133 or 138 percent of poverty. And that was a reasonable 
choice where you could have disagreed. Now, within that 
population, there certainly are going to be some cases where 
there are beneficiaries that don't really merit receiving 
benefits, and there probably is an opportunity to look at those 
on an individual basis and find places where States can cut off 
those benefits.
    Mr. Pitts. Dr. Feder, one of the concerns about Federal 
spending on entitlement programs is that such spending is 
crowding out other parts of the Federal budget. For example, 
this committee has had a strong bipartisan tradition of 
supporting research and science at the National Institutes of 
Health. It will be impossible to find increases to the NIH 
budget without some reforms to our entitlement programs.
    Under current law and projections, should Congress be 
concerned that discretionary portions of our budget like the 
NIH will face increasing budgetary challenges without some 
reforms to the mandatory healthcare spending?
    Ms. Feder. Well, Chairman Pitts, I would like to reiterate 
what I believe that Mr. Pallone said a little while ago, which 
is that the Affordable Care Act was entitlement reform and has 
generated enormous savings in the Medicare program. And, in 
fact, if we look at the deficit reduction that has occurred 
overall in the last several years, about three quarters of it 
has come from spending reduction, not revenue increases. And as 
I said earlier, if we expect to meet the demands of our 
society, we cannot continue to constrain spending whether 
discretionary spending is getting very hard hit, and I agree 
with you that it is unacceptable.
    But the way to address that is not to create inadequate 
supports in strong programs; it is to adequately generate 
revenues to support the needs of our population.
    Mr. Pitts. Would you not agree that much of that spending 
reduction is due to the use of generics?
    Ms. Feder. Not the spending--that is true if you are 
referring narrowly to some of the spending. Some of the 
spending reduction in Medicare on part D, for example, lower 
than was estimated, is due to an expansion of generics in part, 
but to other factors as well that affected the whole industry 
was not necessarily a reflection of the part D design, but I am 
talking more broadly about the budget.
    Mr. Pitts. Thank you. My time is expired.
    Chair recognizes the ranking member, 5 minutes for 
questions, follow-up.
    Mr. Pallone. Thank you.
    In my previous question I said that I believe that simply 
turning Medicare into a voucher is shortsighted and simply 
shifts costs onto seniors and people with disabilities, and I 
believe there are more thoughtful ways to address healthcare 
costs growth. And you sort of got into this, Dr. Feder, but the 
Affordable Care Act sets the stage and began to put in place 
some initiatives to address cost growth without harming patient 
care.
    Could you give me your views on the reforms and the ACA and 
their ability to address cost growth?
    Ms. Feder. Well, actually, we heard a lot about those in 
the first panel.
    Mr. Pallone. Right.
    Ms. Feder. So I think that we are seeing efforts to tie 
payments more closely to performance, to encourage providers to 
be more efficient in their delivery of care. Prime example for 
that is the penalty for readmission rates. I think that that 
ought to be monitored and done properly, but I think we are 
seeing positive results there.
    The law went beyond that to create a new option in terms of 
the way in which providers get paid instead of rewarding more 
for ever more expensive and higher-volume services. We see the 
creation of the accountable care organizations that rewards 
providers if they meet performance standards, a very important 
aspect of it and then labels them to share savings. And we see 
many pilot programs exploring improved efficiency in the 
delivery of care in both Medicare and Medicaid.
    We see, for example, in the area we talked about earlier, 
independence at home, which is having doctors serve and people 
who need long-term care services going to the home. That is an 
exciting change or benefit to explore. We are seeing health 
homes where those same individuals get support services, 
particularly focused on improvements for those who need 
behavioral health services, which I heard a member talk about 
earlier.
    And we have a variety of demonstrations of various kinds 
that are focused on holding providers accountable for the 
delivery of quality care, rewarding them for that performance 
rather than for higher-volume services.
    Mr. Pallone. Thanks.
    And you pointed out that the ACA improved Medicare's 
financial solvency. It is now projected to be in good standing 
for an additional 4 years until 2030, according to the Medicare 
Trustees. Just talk a little bit about the financial health of 
the Medicare program. What are the fiscal challenges? What kind 
of timeframe are we looking at in terms of the ability of 
current Medicare revenues and the Medicare hospital insurance 
trust fund to continue to cover the cost of the program?
    Ms. Feder. Well, as we look, we have to always remember the 
different ways in which the program is funded and you hear 
people talk about the exhaustion of funds. That is, as you have 
correctly said, only about part A, where the funding is 
generated by predetermined payroll tax rates. Part B and part D 
are funded through general revenues in large part and to some 
extent then through beneficiary premiums. So there is no issue 
of exhaustion of trust funds when it comes to those other 
programs.
    On part A, we know that in Medicare, like as in Social 
Security, that we have a growing elderly population dependent 
on a now smaller working age population. And so when we talk 
about the exhaustion of the trust fund, when the program will 
still be able to pay three quarters of its benefits but not 
all--I believe that is the number--we talk about exhaustion of 
the trust fund, that reflects the fact that looking out that 
payroll tax revenues that are already--or payroll tax rates are 
not expected to generate sufficient revenues to support the 
program at that time.
    But that is, as you say, a long way from now. We have been 
much closer to that exhaustion date, Congressman, in previous 
years, Congress has always taken action to assure the soundness 
of the program. And as I said in my testimony, with us 
experiencing now the lowest health cost growth in the Nation's 
history--anyway since 1960, that is not quite the Nation's 
history--it is a time for us to continue to explore the payment 
reforms and payment refinements, not just in Medicare or in 
Medicaid but in the entire healthcare system so that we can 
keep cost growth low and even though we will likely need new 
revenues for a growing elderly population, with strong economy 
and efficient healthcare systems, we are absolutely capable of 
meeting our responsibility.
    Mr. Pallone. Thanks so much.
    Mr. Pitts. All right. That concludes member's questioning 
for now. I am sure members will have follow-up questions they 
will submit to you in writing those questions. We would ask you 
to please respond promptly. I remind members they have 10 
business days to submit questions for the record and they 
should submit those questions by the close of business on 
Tuesday, December 23.
    Very informative hearing.
    Thank you very much. Without objection, this subcommittee 
is adjourned.
    [Whereupon, at 1:12 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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