[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

IDEAS TO IMPROVE COMPETTION IN THE
MEDICARE PROGRAM
__________________________________________________________
__________________________________________________________

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

FIRST SESSION
___________

MAY 19, 2015
______________

Serial 114-HL02
________________

Printed for the use of the Committee on Ways and Means

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

U.S. GOVERNMENT PUBLISHING OFFICE

21-366 WASHINGTON : 2016
____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001

COMMITTEE ON WAYS AND MEANS

PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas SANDER M. LEVIN, Michigan,
KEVIN BRADY, Texas CHARLES B. RANGEL, New York
DEVIN NUNES, California JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington RICHARD E. NEAL, Massachusetts
CHARLES W. BOUSTANY, JR., Louisiana XAVIER BECERRA, California
PETER J. ROSKAM, Illinois LLOYD DOGGETT, Texas
TOM PRICE, Georgia MIKE THOMPSON, California
VERN BUCHANAN, Florida JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas RON KIND, Wisconsin
ERIK PAULSEN, Minnesota BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee DANNY DAVIS, Illinois
TOM REED, New York LINDA SANCHEZ, California
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois

JOYCE MYER, Staff Director

JANICE MAYS, Minority Chief Counsel and Staff Director

_____________________

SUBCOMMITTEE ON HEALTH

KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas JIM MCDERMOTT, Washington
DEVIN NUNES, California MIKE THOMPSON, California
PETER J. ROSKAM, Illinois RON KIND, Wisconsin
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska DANNY DAVIS, Illinois
LYNN JENKINS, Kansas
KENNY MARCHANT, Texas
DIANE BLACK, Tennessee

C O N T E N T S

________________
Page
Advisory of May 19, 2015 announcing the hearing ....................................... 2

WITNESSES

Mr. Joe Antos, Wilson H. Taylor Scholar in Health Care and Retirement
Policy, American Enterprise Institute............................................................. 10

Joe Minissale, President, Methodist McKinney Hospital............................................. 19

Robert Steedley, President, Barnes Healthcare Services, on behalf of
American Association for Homecare................................................................. 26

Rich Umbdenstock, President and CEO, American Hospital Association................................ 39

SUBMISSIONS FOR THE RECORD

Dr. Anne S. Hast, statement....................................................................... 127
Dr. Daryl List, statement......................................................................... 131
Michael Torn, statement........................................................................... 133
David Lippert, statement.......................................................................... 137
Jason Leymeister, statement....................................................................... 139
Lafayette Surgical Specialty Hospital, letter..................................................... 140
Medicare Rights, letter........................................................................... 146
Dr. David L. Sappenfield, statement............................................................... 148
Michael Russell, statement........................................................................ 150
Sharon P. Pearce, letter and addendum............................................................. 152
American Medical, statement....................................................................... 162
Dr. Frederick E. Liss, statement.................................................................. 167
Mark McDonald, statement.......................................................................... 171
K&S Consulting, statement......................................................................... 174
Edward Kerens Jr., statement...................................................................... 176
Mark Kennedy, statement........................................................................... 178
Robert Behar, statement........................................................................... 180
John R. Graham, statement......................................................................... 184
Blake Curd, statement............................................................................. 189
Salina Surgical, statement........................................................................ 199
Heart Hospital, statement......................................................................... 204
Richard Bruch, statement.......................................................................... 211
Edward Ray, letter................................................................................ 214
Sheree E. Barak, letter........................................................................... 215
Harold Kernodle, Jr., letter...................................................................... 216
Karen F. May, letter.............................................................................. 217
Candy Johnston, letter............................................................................ 218
J. Mack Aldridge, letter.......................................................................... 219
Kim Lyon, letter.................................................................................. 220

IMPROVING COMPETITION IN MEDICARE: REMOVING MORATORIA AND EXPANDING
ACCESS
_______________

Tuesday, May 19, 2015

House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,

Washington, D.C.

The subcommittee met, pursuant to call, at 9:59 a.m., in Room 1100,
Longworth House Office Building, Hon. Kevin Brady [chairman of the
subcommittee] presiding.

[The advisory announcing the hearing follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman Brady. Welcome to today's hearing on improving competition, within
the important Medicare program. This is the first in a series of hearings
this summer and fall on identifying solutions to saving Medicare for the
long term. Today we are going to explore how much competition exists in
Medicare, its impact, its benefits and savings for Medicare patients, as
well as potential for improving Medicare access in choices through more
competition.

We are also going to hear about two ideas to make Medicare more responsive
to seniors' needs, while also driving down costs and expanding access.
Competition is a good thing, it drives down costs and increases access
while improving quality. Most importantly it empowers consumers.
Competition and the choices it offers is how we discover information on the
prices and quality.

It gives families the power to decide what they want to buy and how to
stretch their dollars further. Competition is a critical component of
virtually every sector in our economy save one, Medicare. While more often
than not, Medicare stifles competition and choices through legislative
action and agency enforcement. Medicare sets prices and sets the standards
by which it determines quality. Rather than empowering consumers, Medicare
program limits choices.

This system is set up so that providers are more likely to fight rulemaking
decisions handed down from government agencies than they are to compete
with each other, to offer better services to Medicare patients. The
Medicare fee-for-service program is a perfect example. This fiscal year,
Medicare's projected to pay $375 billion for part A and part B services,
that is doctor and hospital services. The vast majority of that spending
the Centers for Medicare & Medicaid Services is directly responsible for
setting, implementing and managing these payments. In other words, the
massive bureaucracy picks winners and losers among countless health care
providers. Competition and choice and the preferences of Medicare seniors
play little role in the administration of all that spending. It shows the
program unfortunately is going insolvent.

By contrast, competition choices for seniors play a proven critical role in
two successful programs, Medicare Advantage program, and Medicare part D,
which provides prescription drugs. In these two extremely popular programs
Medicare seniors are the ones in control, not the government. Plans compete
fiercely for the health care businesses, offering services and benefits to
fit the needs of Medicare patients, not Washington. If consumers are
unhappy with their service, they can they can say no thanks and change
their plan to one that meets their needs. It is that simple, and it works.

Right now, seniors have accessed more than 3,600 Medicare Advantage plans
tailored to meet their specific needs. Competition is robust, and not
surprisingly, patient satisfaction is high. The same is true of the part D
prescription drug program, which is one of the few government health
programs to actually come in under budget projections, and whose average
base monthly premiums are as low today at $33, as when the program began in
2006 at $32.

Preventive care prescription plans seniors have dozens of choices in each
State and can pick a plan that works for them. Studies show this very fact
has led to a decrease in their out-of-pocket costs which is great news for
seniors. Competition has proven to work in Medicare Advantage and it works
on the part D prescription drug program. So how can it work in the larger
Medicare fee-for-service system?

Today we will look at two proposals that do just that. The first is
expanding seniors' access to local physician-owned hospitals. This is an
issue Mr. Johnson of Texas has been working on for quite some time.
Physician-owned hospitals are full service community hospitals that serve
both rural and urban communities, they specialize and providing essential
health services in areas that are considered underserved. But since 2005,
these hospitals have been prevented from growing to meet the needs of their
communities. As a consequence, there are just over 230 of these kinds of
hospitals in operation around the country compared to 3,400 national acute
care hospitals.

The questions before us include should seniors continue to be blocked from
access to these high-performing hospitals? What are the impacts pro and con
of this discrimination against one model of acute care? And is the current
ban based on quality of service, or desire to restrain competition? At this
point, a decade into the temporary moratorium, it is the right time to have
a thoughtful discussion on this issue.

The second idea seeks to improve the way Medicare currently administers the
durable medical equipment benefit, Dr. Tom Price of Georgia has spent a
significant amount of time looking at this issue, as well as other members
of this panel and the Ways and Means Committee. He has been working on a
reform that would inject a more market-based approach to help address some
of the more serious concerns Members of Congress from both parties have all
heard about from our constituents.

These two proposals have the potential for improving competition, end the
benefits within Medicare. But ultimately, Congress needs to examine how we
administer the Medicare program overall. The current program is critical,
but unsustainable. It went from the program's own actuaries to nonpartisan
scorekeepers like the Congressional Budget Office. Outside watchdog groups
have worried about this, and warned us about this growing problem. Members
of both Parties in Congress have a responsibility to save Medicare for the
long term, improve and protect Medicare for today's seniors and for future
generations.

We recently took the first important step by solving the way Medicare pays
its doctors. The second step, we must turn immediately exploring how we
improve the way Medicare pays its other health care providers, from the
testing and evaluation leading into the hospital, to inpatient and
outpatient care, and post-acute care after leaving the hospital.

The Health Subcommittee will continue to hold hearings on this topic over
the course of this year. Developed reforms will put Medicare on a
sustainable path.

So to help us get started, I would like to welcome today's witnesses, Joe
Antos, from the American Enterprise Institute; Joe Minissale, president of
Methodist McKinney Hospital in Texas; Robert Steedley, president of Barnes
Health Care Services in Georgia; and Richard Umbdenstock, president and CEO
of the American Hospital Association.

And before I recognize the ranking member, Dr. McDermott, for the purposes
of an opening statement, I ask unanimous consent that all members' written
statements be included in the record. Without objection, so ordered.

I now recognize Dr. McDermott for his opening statement.

Mr. McDermott. Thank you, Mr. Chairman. We are here today to talk about the
second part of health care reform, that is, control of cost. Access under
the Affordable Care Act is rising clearly where people have access to
health care supposedly. The question is about how do you get control of
costs? And we are talking today about improving competition in Medicare.
Now I can't help but wonder, having sat here for a number of years, what
this hearing is really going to accomplish. If this hearing were about
competition, we would look carefully about how to drive down prices and get
a handle on health care costs. That would mean reducing wastes and
overpayment to industries that are profiting at the expense of the American
public. The more the American medical industrial complexes enter the
government pocket, the more it becomes our issue here.

Unfortunately, the proposals we will hear this morning won't control costs;
instead, they are designed to appease the very interest that benefit from
the waste in the system and contribute to higher health care spending. A
hearing like this would make us ask ourselves, are we serious about
controlling costs or would we rather just want to talk about it?

We are going to discuss ways to revise Medicare's competitive bidding
program for durable medical equipment. Specifically, we will hear a
proposal that will put a halt to the existing program, reduce competition
and ultimately increase cost for Medicare and beneficiaries. The real irony
of this hearing is, because I remember when it was Republicans who were the
champions of competitive bidding. I have been on this committee long enough
to listen to all of this, and the problem of health care costs in devices
has been there. It was a Republican Congress that first introduced the
concept to Medicare as a demonstration project in the Balanced Budget
Amendment Act of 1997. And it was a Republican Congress that expanded the
program in 2003 as a part of the prescription drug legislation.

Now despite some hiccups along the way, the programs it had remarkable
success or at least measurable success. First round of competitive bidding
saved over $580 million in 2 years, and HHS projects that over 10 years, we
will save over $43 billion. Of course, we should continue to carefully
oversee the implementation of competitive bidding, but proposals like the
one that is before us today, to delay or undermine signals to the American
people that Congress is more concerned about appeasing an industry than it
is about controlling costs.

We are also going to discuss the moratorium on new and expanded physician-
owned hospitals. For many years, specialty hospitals enjoyed a loophole in
the STOCK Act that allowed doctors to make referrals to hospitals in which
they had an ownership interest. As long as the ownership interest was in
the whole hospital rather than subdivision of it--you couldn't have just
one department--physicians could make referrals that otherwise would have
been illegal. The result was a rapid growth in physician-owned hospitals
which skewed the market in troubling ways. Nonpartisan experts of MedPac,
GAO, the Office of Inspector General, for years have expressed serious
concerns that these hospitals increased utilization of services and drive
up healthcare costs.

Now, closing this loophole is a cost saving measure that has always had
bipartisan support. We pass temporary moratoriums during the Republican-
controlled Congresses, and we made it permanent as a part of the Affordable
Care Act. This reform will save the American people $500 million according
to the CBO. There is simply no good reason to reverse course and undue this
progress. It will make the industry happy, but it will bring needless waste
back into the healthcare system and ultimately harm the hardworking
families of this country who are paying for this system.

Getting serious about controlling costs is more important now than ever.
The Affordable Care Act continues to expand access, more and more people
cover, everybody is clapping their hands and popping the corks on champagne
bottles about how many more people. When all is said and done, more than 30
million additional people have been brought into the system. As this
happens, the healthcare system is rapidly changing, medicine is
transforming from a profession into a business. Market powers consolidating
in fewer and fewer hands as hospitals merge and swallow up independent
doctors' practices. This raises a number of questions about competition,
cost, and patient care that we need to answer. Until we take a careful look
at what this trend means, we are sending a message to the American people
that appeasing wasteful industry actors is more important than controlling
costs.

I sent a letter to the chairman earlier about my concerns about
consolidating hospitals and having less and less competition in various
parts of the country, and I would ask unanimous consent to have that put
into the record.

Chairman Brady. Without objection, so ordered.

[The information follows: The Honorable Jim McDermott Submission]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. McDermott. I yield back the balance of my time.

Chairman Brady. Thank you. Mr. Antos, welcome today and you are recognized
for the 5 minutes.

STATEMENT OF JOE ANTOS, WILSON H. TAYLOR SCHOLAR IN HEALTH CARE AND
RETIREMENT POLICY, AMERICAN ENTERPRISE INSTITUTE

Mr. Antos. Thank you, Chairman Brady, and Ranking Member McDermott and
members of the committee. Competition is central to obtaining good value
for the dollars spent by beneficiaries and taxpayers in the Medicare
program. Congress must avoid the temptation to smother competitive markets
in Medicare through overregulation. Private plans must follow rules--
private plans and private providers must follow rules designed to protect
consumers and ensure access to all necessary health services covered by the
program, but the regulation should not be drawn so narrowly that healthcare
delivery innovations cannot be adopted, or once adopted, cannot be altered
or dropped. The rules should neither prevent the entry of new competing
firms nor protect firms already in the market from competition. A
competitive Medicare program must welcome change, while ensuring that
beneficiaries and taxpayers are well served.

As the chairman said, the two leading examples of competitive markets in
the Medicare program are Medicare Advantage and part D. Medicare Advantage
is an increasingly popular alternative to fee-for-service Medicare. Even
with payment reductions mandated by the Affordable Care Act, Medicare
Advantage enrollment has grown from 11.9 million people in 2011 to 16.2
million this year. More than 30 percent of Medicare beneficiaries are
enrolled in Medicare Advantage plans. Clearly, for a growing number of
beneficiaries, competitive Medicare Advantage plans are a better deal
compared to fee-for-service Medicare combined with separate Medigap and
prescription drug plans.

Part D, as the chairman said, has also been a remarkable success, and its
cost has fallen hundreds of billions of dollars below CBO estimates. I am
going to focus my remarks on the Medicare Advantage, my written statement
has more detail about both programs.

There is growing evidence that Medicare Advantage--have I run out of time?
The lights aren't lit.

Chairman Brady. I think you are in good shape on time.

Mr. Antos. Sorry, so evidence that Medicare Advantage plans provide higher
value services, less cost to society than traditional fee-for-service.
First of all, Medicare Advantage plans are more efficient in delivering
care than fee-for-service. According to the Medicare Payment Advisory
Commission, the average MA plan bid in 2014 was 98 percent of fee-for-
service spending. In 2015, the average bid was 94 percent. That means that
MA plans are willing to pay to deliver standard benefits, 6 percentage
points cheaper than fee-for-service can on average over the country.

HMO plans were, of course, more efficient, their bids averaged 90 percent
for fee-for-service spending. Now why are they being paid more than that?
Well, the answer is the payment formula, of course. The plans are paid
their bid, unless they bid below the benchmark. The benchmark was set to
ensure that essentially everyone would have access to Medicare Advantage
plans, so it tends to be higher than fee-for-service. Benchmark this year
is 107 percent of fee-for-service, so the amount that MA plans are paid
based on their quality performance is about 102 percent of fee-for-service
spending. That doesn't tell you anything about the efficiency of delivering
health care, that says something about the peculiarities of the payment
system.

Second, MA plans have a spillover effect that lowers health care costs more
generally. Turns out that studies have shown that for every 1 percent
increase in Medicare Advantage enrollment in the market, there is a nine-
tenths percent reduction in fee-for-service Medicare spending, and a
general overall reduction in spending as well as on a per-person basis in
the community.

Third, MA plans provide higher quality care. Beneficiaries in Medicare
HMOs, for example, are consistently more likely than those in traditional
Medicare to receive appropriate risk cancer screening, diabetes care,
cholesterol screening, and so on.

And finally, the problem with favorable selection, which we have all been
concerned about for many years, has largely been solved. This isn't just my
opinion, this is Professor Joseph Newhouse at Harvard University and his
colleagues pointed out the changes Congress made have improved the accuracy
of payments in Medicare Advantage, and the lock-in procedure, the new
method of risk adjustment, these are things that have largely eliminated
favorable selection so that the payments to MA plans are not--aggregately
reflect the costs to providing care to beneficiaries.

Competing private plans are strong incentives to provide health care
efficiently and effectively to tailor the coverage and services of the
needs and demands of their customers. By necessity, private plans are more
flexibility and responsive to changing market conditions and consumer
demands than fee-for-service Medicare. Satisfying your customers is a
matter of survival. Doing so efficiently is the difference between a
successful health plan and one that has failed.

[The prepared statement of Mr. Antos follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman Brady. Thank you, Mr. Antos, very much. Mr. Minissale, you are
recognized for 5 minutes. I know as a constituent of St. Johnson, our
colleague here you have great representation here now.

STATEMENT OF JOE MINISSALE, PRESIDENT, METHODIST MCKINNEY HOSPITAL

Mr. Minissale. Chairman Brady, Ranking Member McDermott, members of the
Ways and Means Health Subcommittee, thank you for having me here today to
testify. I am the President of Methodist McKinney Hospital, which is in
McKinney, Texas. Methodist McKinney Hospital opened in February of 2010
just prior to the Accountable Care Act prohibition on physician ownership
in hospitals.

Our hospital is a partnership with Methodist Health System, Nueterra
Healthcare and local physicians.

Methodist Health System is a nonprofit health system that has for decades
taken care of the underserved in Dallas, the indigent in the south part of
the community. Over 51 percent of our profits go back to Methodist Health
System to serve those in those communities. We accept almost all
insurances, including Medicare, Medicaid, TRICARE, workers comp, most
managed care plans, Medicare supplements. Our hospital employees are over
119 full-time employees. We have over 230 members on our medical staff, and
only 22 of those members on the medical staff are physician investors.

We paid over $2.5 million in taxes last year, something that not for-profit
hospitals do not share the burden in. Our services include inpatient care,
internal medicine, emergency medicine, imaging, surgery, pain management,
physical therapy, among many other things. We have a broad range of
specialties that include pain management, gastroenterology, ENT, general
surgery, medicine and more.

We have an ER average waiting time of just 76 minutes compared to over 2
hours at our competitors. The primary reason Methodist McKinney Hospital
was developed was due to frustration with the local physicians over
administration and health system management with the local hospitals. They
wanted a hospital where patient care was always put first, not just the
bottom line. So they decided to take matters into their own hands and build
a hospital that was driven by the principles that physicians who spent
their lives taking care of patients held dearly.

Having spent my career managing hospitals, I know one of the keys to
success in hospital administration is to have good alignment between the
hospital and the physicians. In a physician-ownership model, I feel like we
have that much more than I enjoyed when I worked in other ownership models.

This culture has allowed us to endear ourselves to local physicians, nurses
and other clinical caregivers because we care about the patient first and
bottom line second. But we also care deeply about our employees and our
community. We have won some good achievements and accolades to represent
that. We received a 4 out of 5 star rating on CMS' Hospital Star Program.
We are consistently above the 90th percentile on the HCAHPS, patient
satisfaction surveys. We have been named a Dallas, Fort Worth, top 100
employer in 2013, 2014. We have consistently been over 100 percent of
baseline on the CMS value based purchasing program. And we receive the
Joint Commission Gold Seal of Approval on Accreditation.

Thanks to strong support from the community, our hospital has been getting
close to capacity in some areas. That is a good problem and a bad. We are
in a growing community, Collin County in McKinney, Texas, have been
expanding rapidly by growing more than 70 percent since 2000.

Patients can choose to go to a lot of good health care providers in our
community, but many are choosing us. As a result, we are now at a
crossroads where our board and our partners are going to have to decide, do
we leave Medicare, Medicaid and TRICARE patients behind so we can grow the
hospital and meet the growing demand and the growing community? Or do we
just stop growing and stay where we are and just tell people we can't serve
any more than we already are?

Twenty-seven percent of our current patient base has those insurances. It
is very discouraging to think that we could spend years trying to meet the
exceptions, and I am not sure anybody can meet the exceptions in
accountable care. Even if you can meet it, it is going to be hard to prove
and you are going to have to jump through a lot of hoops, yet our
competitors do not have to do that. We don't want to leave the seniors and
the military families behind so I would ask you to repeal section 6001 of
the Accountable Care Act so we don't have to make decisions to not have
access to those seniors and military families. Thank you.

[The prepared statement of Mr. Minissale follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman Brady. Mr. Minissale, 5 minutes goes fast, but we have all your
testimony for the record. So Mr. Steedley you are recognized for 5 minutes.

STATEMENT OF ROBERT STEEDLEY, PRESIDENT, BARNES HEALTHCARE SERVICES, ON
BEHALF OF THE AMERICAN ASSOCIATION FOR HOMECARE

Mr. Steedley. Good morning. My name is Robert Steedley, and I am the
president for Barnes Healthcare Services, a regional home care provider
based in Georgia. I also serve as the voluntary chairman of the board of
directors for the American Association of Homecare, which is the national
trade association for home medical equipment, providers, manufacturers and
other stakeholders in the home care community.

I would like to thank Chairman Brady, Ranking Member McDermott and members
of the House Ways and Means Subcommittee on Health for holding this hearing
on improving competition and Medicare. I would also like to thank
Congressman Tom Price and Congressman John Larson for introducing
legislation that would create a state-of-the-art, market-driven auction
system, an alternative to the competitive bid program.

I am here today to talk about flaws in the current bids program, how those
flaws impact noncompetitive bid areas and offer a better budget neutral
solution. Both the association and I fully support healthy and fair
competition. My testimony also comes from firsthand experience with the
bidding program at Barnes Healthcare. Opening in 1909, Barnes Healthcare
Services has 106 years of experience, employs more than 300 people across
14 locations and serves 4 States. Experts in the past explain in great
detail why CMS bidding program lacks transparency and restricts patient
choice and access to the prescribed home medical equipment they need. I
have also detailed these in my written testimony.

Fortunately, Congress recently passed legislation to help fix one of those
issues of the program, the lack of a binding bid. AA Homecare would like to
thank Congressmen Tiberi and Larson for introducing legislation that
require binding bids. I would also like to thank the Ways and Means
Committee for its consideration and approval of this bill which was
included in the file SGR bill.

Requiring binding bids is a key provision in the Congressman Price and
Congressman Larson's Market Pricing Program legislation, which is also
known as MPP. The issues with the competitive bid program are not just
limited to round 1 and 2. In October 2014, CMS also issued a final rule
that applies the artificially low competitive bid raise to all non-bidding
areas, including rural and underserved.

The artificially low competitive bid rates are only part of the problem of
this final rule. The application of payment rates to non-bid areas is
flawed and will disrupt Medicare beneficiary access to the home medical
equipment items that they need.

In competitive bid areas, the suppliers try to make up for drastic cuts
through increased volume. As a result of the CMS final rule, suppliers
outside of those bid areas will receive the same drastic cuts without the
exclusive contracts or increases in the volumes of business.

There is a better budget neutral way to achieve market prices for home
medical equipment known as the Market Pricing Program. I have included more
detailed information in my written testimony, but following are a few
components of MPP. MPP includes the same items that are currently in the
CMS bidding program, and it is also nationwide. There are two categories
bid per geographic area, eight additional categories in that same area,
would have prices adjusted based on auctions conducted simultaneously in
comparable geographic markets.

Bid areas are smaller than the Metropolitan Statistical Areas, also known
as MSAs and more homogeneous. Finding bids are required to ensure only
serious bidders participate. The bid price is based on the clearing price
rather than the median price of the winners. And finally, the same areas
that are exempted from bidding under competitive bidding program from CMS
will be exempted under MPP.

As committee members can see from my written testimony, MPP is simply a
much better auction system than the current CMS competitive bid system. MPP
uses auction principles supported by economists and auction experts. It is
more transparent and efficient in the current program and it will achieve
the goal of Congress to have true market prices for home medical equipment
in Medicare.

AA Homecare was very thankful when Congressman Price and Larson introduced
MPP, the Medicare DME Post Market Pricing Program Act in 113th Congress.
This legislation has received strong bipartisan support with 180
cosponsors. AA Homecare strongly supports this commonsense legislation and
urges the subcommittee and Congress to do the same.

I would like to thank the committee again for the opportunity to provide
this testimony. AA Homecare and I look forward to working with the
subcommittee to improve competition in Medicare while protecting patients'
access to the needed home care equipment. Thank you.

Chairman Brady. Thank you, Mr. Steedley. I was just told that our normal
lighting system that gives you the yellow light and the one-minute warning
to wrap up isn't working today, so I apologize for that. We will get that
back on track soon.

Mr. Umbdenstock, thank you for your leadership of AHA and you are
recognized for 5 minutes.

[The prepared statement of Mr. Steedley follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

STATEMENT OF RICH UMBDENSTOCK, PRESIDENT AND CEO, AMERICAN HOSPITAL
ASSOCIATION

Mr. Umbdenstock. Chairman Brady, Ranking Member McDermott, members of the
subcommittee. On behalf of our nearly 5,000 member hospitals, health
systems and other healthcare organizations I thank you for the opportunity
to testify today. Community hospitals embrace fair competition where
facilities compete over quality, price and patient satisfaction. However,
we are strongly opposed to the practice of self-referral, which skews the
marketplace in favor of physician owners who self-refer the healthiest and
wealthiest patients to their own facilities. Therefore, the AHA urges
Congress to current law preserving the ban on physician self-referral to
new physician-owned hospitals and retaining the restrictions on the growth
of existing physician-owned hospitals.

Physician self-referral is contrary to competition. It allows physicians to
steer the most profitable patients to facilities in which they have an
ownership interest or potentially devastating the healthcare safety net in
vulnerable communities.

Changing the current law would not foster competition. Instead, it would
only allow these physicians to increase their profits. Current law
represents a compromise that protects the current physician ownership of
hospital arrangements and allows these arrangements to grow where increased
hospital capacity is needed. However, some have proposed weakened
significantly Medicare's prohibition on physician self-referral to new
physician-owned hospitals and loosened the restrictions on the growth of
grandfathered hospitals.

The AHA strongly opposes these changes, any changes that would expand the
use of the whole hospital exception, beyond grandfathered hospitals or that
allow grandfathered hospitals to expand or increase their capacity beyond
what is allowed in current law for three primary reasons: First, physician-
owned hospitals provide limited or no emergency services, relying instead
on publicly funded 911 services when their patients need emergency care.
HHS's Office of the Inspector General reported that, quote, ``two-thirds of
physician owned specialty hospitals use 911 as part of their emergency
response procedures.'' And, quote, ``most notably, 34 percent of specialty
hospitals use 911 to obtain medical assistance to stabilize patients, a
practice that may violate Medicare requirements.''

Second, physician self-referral leads to greater utilization of services
and higher costs, CPO, MedPac and independent researchers all have
concluded that physicians self-referral leads to greater per capita
utilization of services and higher costs to the Medicare program.

Third, physician-owned hospitals tend to cherry-pick the most profitable
patients and services, jeopardizing communities access to full service
care. GAO, CMS and MedPac have all found that physician-owned hospital
patients tend to be healthier than patients with the same diagnosis of
general hospitals. Further, MedPac and GAO found that physician-owned
hospitals treat substantially fewer Medicaid patients. This trend creates a
destabilizing environment that leaves sicker and less affluent patients to
community hospitals. These selection practices place full service hospitals
at a competitive disadvantage because they depend on a balance of services
and patients to support the broader needs of the community.

The current payment system does not explicitly fund standby capacity for
emergency trauma, burn services or the like, nor does it fully reimburse
hospitals for the care provided to Medicaid and uninsured patients.
Community hospitals rely on cross subsidies from better reimbursed
services, the very services targeted by physician-owned hospitals to
support these and other essential, but under-reimbursed health services.
Resident loss to specialty hospitals can lead to staff cuts and reductions
in subsidized services.

In addition, many of the physicians profiting from limited service
hospitals will not serve on-call in the community's emergency department,
or participate in wider quality improvement projects that benefit the
community. These facilities duplicate services, further exacerbating the
shortages of physicians and allied health professionals in some
communities.

Furthermore, closing the whole hospital exception loophole in the Stark law
reduced the Federal deficit by $500 million over 10 years, according to the
CBO. Proposed changes to the current law would erase those savings and
raise the deficit at a time when our Nation is trying to control increases
in health care costs.

True, our competition could be fostered by making commonsense changes to
law to allow greater care coordination and new delivery models. The health
care field is rapidly changing, moving toward new payment delivery models
that emphasize value over volume. As part of that change, hospitals are
actively exploring clinical integration, a move away from working in silos
toward emphasizing teamwork to coordinate care.

However, hospitals attempting to seize these opportunities to improve care
and care coordination for Medicare beneficiaries and other patients face
significant legal barriers. Chief among these are the outdated rules
governing compensation relationships between hospitals, physicians and
other caregivers. Portions of the anti-kickback statute, the Stark law and
civil monetary penalty law.

Congress recently acknowledged the need for change to the CMP law through
the work of this committee in the recent SGR bill, which limited the scope
of this prohibition so that a hospital is only subject to CMPs for making
payments that will reduce or limit medically-necessary care. We advocated
for this change and are pleased that Congress lifted this barrier.

Chairman Brady. Mr. Umbdenstock, I apologize.

Mr. Umbdenstock. No problem, sir. Thank you very much.

[The prepared statement of Mr. Umbdenstock follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman Brady. Thank you very much. Mr. Antos, in Washington, we like to
talk a lot of about cost control, Washington sort of setting prices and
then determining whether it is the right amount, or if you deserve this.
You talked about competition as a more patient-centered way to find savings
and efficiency. Can you talk about briefly--I have questions for our
witnesses--can you talk briefly about which one better serves seniors while
creating savings?

Mr. Antos. Well, thank you, Mr. Chairman. It certainly is the case that the
fee-for-service incentives are to expand volume of services and to focus
only on the part that you as the specific provider, whether it is a
hospital or a physician or some other provider, but only your part of the
patient's health care. So, in fact, I found that Mr. Umbdenstock's point
about expanding services, I believe that that is endemic in the Medicare
fee-for-service system. If you don't provide services, you don't get paid.

So as far as a competitive program doing a better job of serving patients
and giving patients what they want, which is not only a good financial
deal, but also good patient outcomes, then you really have to go to private
plans, that I think we see in much of Medicare Advantage where they look at
the whole patient.

Now short of that, fostering real competition, avoiding having CMS or
Congress set prices, when, in fact, we don't know what the prices are, all
we know is what the charges are. We need to introduce more competitive
approaches in traditional Medicare, but ultimately, I think we are going to
have to move to a more coordinated system, Medicare Advantage is not that
way.

Chairman Brady. Mr. Antos, thank you. I notice in the prescription drug
program, the Democratic alternative to the Republican plan set a monthly
premium of $35 for Medicare part D. Here we are 10 years later after, and
through cost increases, prices all that, the average price is still below
the cost control price that originally buy the alternative through
competition.

Mr. Antos. Well, that comes from several factors, perhaps the biggest
factor is the competitive effect. The different drug plans know that if
they are going to make money, they have to attract customers. If they are
going to attract customers, they have to offer a good balance of access to
drugs, including expensive drugs and low cost.

The remarkable thing about this program really, is, as you say, we have
seen premiums basically stay level for the last 10 years or so. That is
partly due to the fact that we have seen a slowdown in the introduction of
expensive new drugs. But importantly, part D plans have really encouraged
Medicare beneficiaries to use generic alternatives that has been very
effective.

Chairman Brady. Thank you, Mr. Antos. Mr. Minissale, thank you for being
here. We are told the problem with physician-owned hospitals is that they
don't have an ER, that they self-refer so there is greater utilization
among themselves at a higher cost, and that you cherry-pick the patients
who come through your door. Can you talk a little bit about your
experience? I think you served both in for-profit and nonprofit in our
position on the House bill so you have seen the operations in all those
models. Your thoughts?

Mr. Minissale. Yes, sir. First, I want to mention in terms of cherry-
picking, it should be pointed out that we serve TRICARE, we are a TRICARE
provider, our facility, and one of two largest health systems in Dallas-
Fort Worth area, is not a provider, and I guarantee you, we are not doing
that because of the high TRICARE payment levels. So that would be one
example of cherry-picking.

We do have an ER, and we have advertised it since we have been open on an
ongoing basis to try and get more people to come in and open those doors
up.

Also, as you mentioned in previous positions, I have been responsible for
facilities in the southwest side of San Antonio where we had physician
ownership, and it was a very large indigent population there, underserved,
the same situation in Congressman Eddie Bernice Johnson's district in north
Houston where we had physician ownership, in Port Arthur, in Odessa. These
are full service hospitals with physician ownership that were--didn't have
the opportunity to cherry-pick.

Chairman Brady. You are 4 star rated?

Mr. Minissale. Yes, sir. Yes, sir.

Chairman Brady. That star rating takes into effect the complexity of the
patients you are serving, correct? So if you are cherry-picking, in fact,
you are punished in that star rating, correct?

Mr. Minissale. Yes, sir. I would point out that many of the physicians that
work at our hospital bring most of their patients to our facility.
Obviously we are a 21-bed facility, so they can't bring 100 percent, but,
yes, I think the--in our circumstance, the cherry-picking is greatly
exaggerated.

Chairman Brady. How many times have you called, your hospital called 911
for emergency services.

Mr. Minissale. Actually, we have a process for strokes, we have a code
STEMI, which those are the situations where, like, there are certified
stroke centers and certified heart centers where time is of the essence
where we would need to get that patient transferred to the highest level of
care possible. In fact, there are not a lot of stroke certified centers
even among the larger hospitals in our area.

Chairman Brady. So when you dial 911, it is to get the patient to the
highest certified and qualified local provider?

Mr. Minissale. Correct, correct. And that has been very rare, but that has
happened a few times I would say probably three times in 5 years, maybe for
us.

Chairman Brady. Thank you. Mr. Umbdenstock, you raised points. We have
heard as concerns, that these hospitals don't have functioning ERs, they
self-refer to each other as physicians and they cherry-pick. Looking for
common ground, in recognizing in the decades since this temporary
moratorium was put in place, before profit and nonprofit hospitals have
increased their beds easily more than double all the position on hospital
beds in America. So you are allowed to grow to meet the needs of the
community, which seems to me to make good sense.

So the common ground here with physician-owned hospitals, I can guarantee
you they are not all in the best parts of town, while I have noticed
nonprofit and for-profit do grow to meet the needs of the community. So
would a compromise be if physician-owned hospitals had a functioning ER,
that they are shown to not self-refer in high utilization like CMS, and
their stars rating proved that they are not cherry-picking, but meeting the
needs of their community. Is that an area where this discrimination against
one model could end and we could have competition among all the hospitals?
Is this a common ground you would consider?

Mr. Umbdenstock. Mr. Chairman, thanks for the question. Just a couple of
points, first of all. As recently as the cab ride over here this morning, I
double-checked the Web site for Methodist McKinney Hospital relative to the
ER, and it says that our emergency department offers quick care for all of
your bumps, sprains and minor injuries, 365 days, 7 days a week. That may
be a very important urgent care function that is good for that community,
but that doesn't sound like an emergency department to me.

Chairman Brady. Mr. Minissale, since this was raised, so you only treat
bumps, scrapes and bruises in your ER?

Mr. Minissale. Absolutely not, sir. As I mentioned, we are not a stroke
center, we are not a heart center.

Mr. Umbdenstock. From their own Web site. From the Medicare cost reports in
2012 and 2013, the percentage of Medicaid, talking to the question of
patient and payment selection, in 2012, the Medicare cost report showed
zero patient, Medicaid patient discharges and accrued to 0.4 percent in
2013. So a very, very skewed payment system.

So, that is the issue, sir. And that is what we are here to urge Congress
to stay with, stay with a program that limits the growth of these hospitals
where they are highly selective and picking off the most profitable
services. You notice the services on which hospitals like this are focused.
And I understand why. That is where the payment is.

Chairman Brady. Well let me ask you this.

Mr. Umbdenstock. Many hospitals don't have that opportunity.

Chairman Brady. One, I respect your opinion. Thank you so much for being
here. But the stars rating program takes into account the types of patients
these hospitals treat. So are they incorrect in their assessment, or are
they fairly accurate?

Mr. Umbdenstock. No. Number 1, the stars rating program focuses on the
HCAHPS scores, the experience of care or patient satisfaction as we
commonly refer to it. If you have the opportunity to identify which
patients are going to come to your hospital in advance, you can prepare
those patients for that experience. A hospital, a general service community
hospital, full service community hospital receive over 60 percent of their
admissions through the ER; that is not a predictable source of who the
patient is, number one.

Number two, if you are not treating a full array of patients from all
socioeconomic strata, you are not likely--you are likely to have a much
higher satisfaction rate.

Chairman Brady. Is that the criteria for adding new beds, is that hospitals
of all models should only go to areas that have broad, certain percentage
of Medicare, Medicaid patients, that that ought to be a criterion to
supplied, to physician-owned hospitals, for example? Should that be--should
this moratorium be applied to all hospitals equally to ensure that each
facility meets a broad range of patients?

Mr. Umbdenstock. The current criteria for an exception recognizes several
factors, but one is that the particular hospital in question serves at
least the average or greater proportion of Medicaid patients as other
hospitals in its area, that is already there.

Chairman Brady. I agree. Would that be a fair restriction on all hospital
increases?

Mr. Umbdenstock. Well, it is not a matter of whether or not it has to be a
requirement. Every --

Chairman Brady. But it is for a physician-owned hospital--I am just trying
to find again common ground, because hospitals are serving both areas of
town that don't have necessarily good culture of health care, and they can
serve areas, perhaps, with higher private pay. They do that as systems,
again, to try to make ends meet and try to meet their missions, either
nonprofit or for profit. The question is, why shouldn't this model be able
to do the same thing?

Mr. Umbdenstock. I think you will find that if you look across the Nation's
full-service community hospitals, on average, they have about 15 percent of
their patients, plus or minus, that are Medicaid; about another 25 or more
that are Medicare; probably about 10 percent prior to the ACA expansion and
coverage--admittedly, that number is going down--but about 10 percent no
pay. So those hospitals are already taking that type of mix of patients. I
don't see a need to require it; they are already experiencing it.

Chairman Brady. So you would be comfortable with a requirement for those
types of services for new beds in all hospitals? Should we apply this gold
community, broad community service to all hospital beds?

Mr. Umbdenstock. I would like to go back to your context that you used to
set up this point, sir, if I might. Which was that hospitals nationally
have, I believe, you said opened more beds than the total number of beds in
the 250 or so physician-owned specialty hospitals. Number one, that is a
very small percentage of the National bed complement. Number two, that may
be true that some hospitals have grown at that rate, but we have also seen
hospital closures across the full-service hospital spectrum in many areas,
including in Texas, sir, as I know you are very familiar with. So I don't
think that that is a rampant problem of hospitals adding more beds.

In fact, hospitals are trying to figure out how to skinny down their
inpatient complement so that they can focus more and get more patients
served in outpatient, and out into the community. So we are actually seeing
the reverse phenomenon of the description. They are actually de-emphasizing
inpatient care, particularly as they are more at risk.

Chairman Brady. I recognize that. I hope you will come to Houston some time
and see the growth of hospitals. We are thrilled, in my community and
throughout the area, and it tells a little different story. So again,
looking to find common ground, I know what the concerns are, and I think we
need to have a discussion on this.

Ranking Member McDermott, you are recognized.

Mr. McDermott. Thank you, Mr. Chairman. It is an interesting discussion we
are having here, this is not to pick on one hospital, but it is an example
we have in front of us here today, McKinney Hospital. Why would a hospital
want to be a specialty hospital? Why would they just want to do certain
things? Mr. Umbdenstock, I mean you have 5,000 hospitals, so why would a
hospital specialize in only doing orthopedics or only doing cardiac or
whatever?

Mr. Umbdenstock. Well, I assume there are several reasons, one of which
might be that the focus of energy and resources, volume in order to improve
technique and outcomes, but also, I would say that you have to recognize
that the particular services that limited service hospitals focus on are
the profitable services. I don't have a lot of competition for the non-
profitable services inside full service hospitals.

Mr. McDermott. What are the profitable services for hospitals?

Mr. Umbdenstock. Well, certainly you see procedure oriented services, so
surgeries, speaking broadly, other forms of procedures as opposed to
medical services, certainly your own specialty of psychiatry would be at
the other end of that spectrum.

Mr. McDermott. So if a hospital had 83 percent of its patients in for
surgery, somehow they would be skewing it in that direction so that is not
the average in most hospitals across the country?

Mr. Umbdenstock. That would not be reflective of the average complement,
the average balance of services, that is correct.

Mr. McDermott. So in some way, they selected who comes in by the services
that they offer; is that correct? Is that how a specialty hospital works?

Mr. Umbdenstock. With that kind of imbalance, one would have to assume.

Mr. McDermott. And if you talked about the emergency room. Now I, like you,
use the Internet and I think all modern people use the Internet, it says
here that for Methodist McKinney, if you were experiencing any of these
conditions, please call 911, immediately: Life threatening conditions,
heart attack or stroke, open fractures, severe bleeding, signs of heart
attack or chest pain, head injury or other major trauma, one-sided weakness
or numbness, loss of consciousness, severe abdominal pain, uncontrolled
pain or bleeding, poisoning, call the poison control center.

Now, if an emergency room is not going to deal with those issues, can that
be called full service--what it says is they do take care of our stitches
and staples for cuts, gashes and wounds, X-rays, fractures and sprains,
abdominal pain for maladies such as appendicitis, colitis, pancreatitis.
And general illness treatment virus, flu and dehydration. So it is kind of
a doc in the box, it sounds to me. They say they have a doctor on call. Is
that how that sounds to you when you listen to that description?

Mr. Umbdenstock. I would say, Mr. McDermott, that full service community
hospitals run toward problems, trauma, emergencies, and want to be of
immediate service to people. They have that type of condition; that is
exactly the type of person we expect to see at our ER. That is our purpose
and that is why we are there. Granted, we often have to then transfer the
most acutely ill to the higher levels, full service hospitals or teaching
centers. But yes, those are the kinds of things that we would expect to see
and that we do see in full-service community hospital ERs.

Mr. McDermott. Explain to me how the Stark law operates in a specialty
hospital? The doctors own everything, they own the MRI, they own the CAT
scan, they own all the machinery. They can refer every patient they want to
their own CAT scan or their own MRI; is that correct?

Mr. Umbdenstock. That is correct. They are free to do --

Mr. McDermott. And that Stark law prevents you from doing that if you are
in another hospital where you have an MRI that is away from it that you own
or own a piece of, you can't refer your patients to that MRI; isn't that
correct?

Mr. Umbdenstock. That is right, it is called the whole hospital exception
as was pointed out earlier. You have to own a share in the whole hospital.

Mr. McDermott. You have to own the whole thing. That is really what we are
trying to stop. And have successfully stopped and saved a half billion
dollars.

Mr. Umbdenstock. According to the CBO.

Mr. McDermott. According to the CBO. By the way, I want to say, I know this
may be your last appearance before this committee, you have been working as
CEO for AHA for us for 8 years, and we thank you for your service in this
tough job that you had and we appreciate your work.

Mr. Umbdenstock. Thank you and thank you to the chairman as well for the
sentiment.

Chairman Brady. I appreciate it. Thank you very much. Mr. Minissale, we are
1,200 miles from your ER, your and Mr. Johnson's witness. Do you want to
address the claims you just heard about your ER.

Mr. Minissale. Yes, sir. First of all, I would certainly appreciate any
ideas or support from Representatives McDermott or Mr. Umbdenstock on how
we could grow our ER business. As I have stated, we have not been very
successful. We have advertised and advertised and advertised, and that is
how a lot of those admissions do come into the larger hospitals. We have
also seen a proliferation of free-standing ERs open up in our community,
HCA opened two in the area, there are several others. So anything we could
do to grow the ER and get more admissions, medical or otherwise would be
great.

Chairman Brady. Thank you. Mr. Johnson, recognized for 5 minutes.

Mr. Johnson. Thank you, Mr. Chairman. Mr. Minissale, thank you so much for
testifying today. I appreciate hearing all the great things Methodist
McKinney is doing back home. I want to ask, given your unique experience,
what do you believe the biggest difference is between physician-owned and
other hospitals?

Mr. Minissale. I think, really, the directive is when we are making
decisions, there is kind of a hierarchy in physician-owned hospital where I
am at is patient care is first; physician desire is second; employees are
third; and profits fourth. In previous experiences where I worked for other
company, we were usually driven by corporate health system goals and
profits.

Mr. Johnson. Thank you. Mr. Umbdenstock, thank you for your testimony
today. I have a handful of questions so in the interest of time, I ask you
to please keep your answers to a yes or no, if you would. First, are you
aware that your testimony refers to the GAO, MedPac and HHS reports that
are 8 to 10 years old, and only studied specialty hospitals, not all
physician-owned hospitals. Is that a yes or no?

Mr. Umbdenstock. This debate has been going on that long, and we try to
reference all sources that we can find throughout the last.

Mr. Johnson. Well, you didn't answer my question. So in your testimony, you
argue that physician-owned hospitals cherry-pick patients, but did you know
that after the GAO and MedPac reports were released, CMS changed how
hospitals are reimbursed so a hospital is paid based on the severity of the
specific patient, which means you can't cherry-pick. Is that true or false?

Mr. Umbdenstock. You can't necessarily --

Mr. Johnson. You can't do that either. Thank you. I would also like to --

Mr. Umbdenstock.--from the way you refer patients, not in the way a
particular patient is paid for, sir.

Mr. Johnson. Okay. I would also like to refer you to the first quote on the
screen from a Health Affairs study stating, ``Physician ownership is not a
driving force in referring patients to specialty hospitals.'' I request
that the full article be submitted for the record along with additional
references.

Chairman Brady. Without objection.

[The information follows The Honorable Sam Johnson 1:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Johnson. Thank you.

Now, let me ask you: Do you believe that physician-owned hospitals
destabilize community hospitals? Yes or no.

Mr. Umbdenstock. Yes.

Mr. Johnson. Okay. I would like to now refer you to the second quote on the
screen by the Federal Trade Commission on the importance of competition in
Medicare.

I would also like to highlight that the August 2006 MedPAC report your
testimony cites stated that, ``Profit margins for community hospitals in
markets with physician-owned hospitals were higher than those in markets
without physician-owned hospitals.''

Next question: Do you believe that physician-owned hospitals lead to
greater utilization of service and higher costs? Yes or no.

Mr. Umbdenstock. Yes.

Mr. Johnson. Thank you.

I would also like to submit for the record a list of cases with over $3
billion in fines paid by non-physician-owned hospitals for the very things
you claim physician-owned hospitals do. I think you have those, Mr.
Chairman.

[The information follows: The Honorable Sam Johnson 2]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Johnson. I would also like to submit for the record a statement by the
Federal Trade Commission saying that physician-owned hospitals increase
competition and reduce prices.

[The information follows: The Honorable Sam Johnson 3]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Johnson. Lastly, I would like to submit for the record a study that
shows physician-owned hospitals save Medicare almost $10 million over 10
years.

[The information follows: The Honorable Sam Johnson 4]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Johnson. Finally, your testimony argues physician-owned hospitals
should not be allowed to expand because they offer limited or no emergency
service.

But isn't it true that Medicare does not require emergency departments, but
actually only requires Medicare providers, including physician-owned
hospitals, to comply with conditions of participation and the Emergency
Medical Treatment and Active Labor Act? Yes or no. That is for you, Mr. --

Mr. Umbdenstock. For me?

Mr. Johnson. Yes.

Mr. Umbdenstock. Yes. When 60 percent of your patients come through the ER,
the ER is a very important part of a, quote, ``hospital.'' I would agree.

Mr. Johnson. Mr. Chairman, thank you for holding this hearing. And I am not
here today to criticize one Medicare provider over another, but, instead,
to discuss the important role physician-owned hospitals play in promoting
competition in Medicare.

Instead of continuing the ObamaCare prohibition on these hospitals, which
was included in the 2,000-plus-page law as a political favor to the
American Hospital Association and others, we ought to allow patients access
to the high-quality and lower cost care provided by physician-owned
hospitals.

In America, we let competition pick winners and losers, not the government.

I will yield back the balance of my time.

Chairman Brady. Thank you.

Mr. Thompson, you are recognized.

Mr. Thompson. Thank you, Mr. Chairman.

Thank you to all the witnesses for being here.

Mr. Chairman, I would like to ask unanimous consent to enter a letter into
the record from the U.S. Chamber of Commerce, who wrote stating that
defending America's free enterprise system--they are in opposition to the
self-referral to physician-owned hospitals.

Chairman Brady. Without objection.

[The information follows: The Honorable Mike Thompson Submission]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Thompson. Thank you.

Mr. Minissale, I would like to follow up on the questions that both the
chairman and the ranking member had asked you and give you an opportunity
to respond. They were referencing the type of services that your particular
hospital does or doesn't provide.

And the CMS data that I am looking at tells us that about 70 percent of
physician-owned hospitals--fewer than 5 percent of their admissions are
Medicaid patients and a little over 20 percent admitted no Medicaid
patients at all.

And your hospital--and, specifically, I think that is what they were asking
you about--in 2013 had 24 percent Medicare discharges and 0 percent
Medicaid discharges.

Can you kind of explain why these hospitals, in general, and yours, in
specific--and they are often located in proximity to full-service
hospitals--aren't treating Medicaid patients. And isn't there a need to do
this in these underserved areas?

Mr. Minissale. I assume you are not--I am not sure about the State of your
citing, but I assume you are not referring to the hospitals in North
Houston, Odessa, San Antonio, that had physician ownership that I have
managed in my career.

Mr. Thompson. No. I am talking about the hospital where you are now,
Methodist McKinney. You had 24 percent Medicare discharges and 0 percent
Medicaid discharges.

Mr. Minissale. Yes, sir. That is geography. In my experience, the Medicaid
population tends to go to the closest facility due to transportation
challenges, and we happen to have built the hospital in an area where there
is not an indigent population.

Mr. Thompson. So it is all geography as it pertains to your hospital?

Mr. Minissale. I cannot say it is all. We are a Medicaid provider. There is
now a McKinney bus service that could bring them there, and we are happy to
take care of them.

So other than advertise, have our doors open, let the bus come over, I
don't know how you make patients come to your facility.

Mr. Thompson. Thank you.

In my home State of California, we have hundreds of community hospitals and
there is no shortage of competition, competition that is operating on a
level playing field. I have got some concerns about the self-referral
model.

And in my full-service hospitals at home, they compete on the quality of
their service, the geography, and their reputation, not on whether or not
physician owners will win, you know, financial gain as a result of this.
And I worry about changing this law and what it would do to destabilize the
continuity of care that we have in my area and others.

Mr. Umbdenstock, I don't have any of these hospitals in my community right
now, and from the testimony that I have heard so far today, I don't think I
want any.

But if the law were weakened and they could come in, what do you think the
impact would be on my constituents and the other constituents in other
areas that don't have this type of unfair competition?

Mr. Umbdenstock. Well, I think it is the three things that I mentioned. One
is that the patient mix and service mix that will shift in your community
could very well jeopardize the ability of full-service community hospitals
to continue to provide a full array of services. There is certainly the
question of increased utilization and, therefore, increased costs. And
there is competition for employees who are already in short supply, as we
all know. So I think that we have got serious concerns about that.

And there is an exception process. So if a hospital feels that it needs to
grow and it is in a growing area and there is a high inpatient census on
utilization and they do take high proportion Medicaid patients, CMS has
already approved one. I only know of two applications. They have approved
one and one is pending. So there is a mechanism to handle that.

Mr. Thompson. What about the current law that requires physician-owned
hospitals to report annually to CMS about the ownership and all the
particulars? It is my understanding that that hasn't been done. And aren't
we putting the proverbial cart before the horse with trying to do this
legislation without first having all the data necessary to be able to
assess what is actually going on?

Mr. Umbdenstock. I do know from what is up on the CMS Web site that they
say that they have had a very low rate of response to their reporting
requirements, so much so that they have yet again extended the submission
deadline.

So, apparently, they are having trouble identifying those ownership and
other indicators that they require. So one would think that that would be
important information to have. Yes.

Mr. Thompson. Okay. Thank you.

Yield back.

Chairman Brady. Thank you.

Mr. Smith, you are recognized.

Mr. Smith. Thank you, Mr. Chairman.

And thank you to all our witnesses here today. I appreciate the insight
that each and every one of you bring to the table here.

Certainly, as a representative of part of rural America, I can appreciate
the challenges facing health care, facing the financing of health care. I
have been here long enough to observe a lot of the arguments for and
against various components of public policy as it relates to health care.
And certainly, as a consumer from time to time of health care and as a
patient, I think it is important that we observe what is going on.

Now, I get very concerned when there is an agenda of prohibitions and
mandates. That could be inside ObamaCare or even beyond that, but I get
very concerned. I know I have been working on an issue with critical-access
hospitals in my district with a 96-hour precertification requirement that I
think is burdensome, it is unnecessary, yet it is part of the long list of
prohibitions and mandates that exist in health care.

And I would hope that we could have flexibility in our health care. I know
that living in a community where we have, I think, a very vibrant community
regional hospital, along with a Federally qualified health center and even
some options for patients that would involve walk-in urgent care--I see the
flexibilities that allow those to be used by patients. That is a good
thing.

It is hard to say, perhaps--I mean, I don't know the exact financing
mechanism of every patient, but I was just wondering if anyone could speak
to the fact of prohibitions and mandates leading to actual cost savings. If
any of our witnesses would like to answer that.

Mr. Umbdenstock. Yes, Congressman. I would be happy to.

Number one, this is an arrangement that has been arrived at over a
discussion and a series of compromises over a dozen or more years. So this
is an ongoing conversation in this industry.

Mr. Smith. But it is the result of a compromise, the prohibition?

Mr. Umbdenstock. Where we are today is the result of starting with new
entries and limits on growth for the grandfather-in hospitals. Yes. This
has been an ongoing conversation since at least 2003, that I am aware of,
probably longer, number one.

Number two, the CBO has scored that this particular provision in the
Affordable Care Act saved $500 million over 10 years. So, yes, it is a,
quote, saver at the moment, and changing it would, obviously, in the CBO's
opinion, unleash additional spending that would have to be paid for in some
way under the Medicare program.

Mr. Smith. You said at least at the moment. So long term do you think that
we need the current prohibitions and mandates that are currently in place?

Mr. Umbdenstock. Yes. And I think that we could ask CBO to score it again.
But I don't see any reason why for the next 10-year segment they would come
out with a substantially different answer.

Mr. Smith. Okay. Anyone else wishing to respond?

Mr. Minissale. Yes, sir. You mentioned cost and the prohibition. One thing
that we have seen is our competitors employing physicians. Five of our
original physician investors' practices have been bought out since we
opened and many, many more in the community.

In my understanding, there is data showing--I believe it is in California--
from CMS that that actually increases cost. It doesn't decrease cost.

Our competitors are spending a lot of money on paid medical directorships
to the high-paid procedurals. We don't pay medical directorships. We don't
employ physicians.

I believe those things are part of the reason the data shows costs are
going up. We would tend to focus on competition and quality that would
lower costs and provide better care in the end.

Mr. Smith. Okay. Thank you.

Anyone else wishing to comment?

Thank you, Mr. Chairman. I yield back.

Chairman Brady. Thank you.

Mr. Davis, you are recognized for 5 minutes.

Mr. Davis. Thank you very much, Mr. Chairman.

You know, for many, many years we have had a great deal of conversation
relative to how do we improve quality and contain cost at the same time. If
we are still experiencing 60 percent hospital admissions through emergency
rooms, does that say that our system needs to do anything in order to try
and get to this real notion of cost savings?

Mr. Umbdenstock. Yes, Congressman. Thanks for that question.

It does, indeed. And that is why the American Hospital Association and our
5,000 members are very much interested in new payment and new delivery
system models.

It would indicate, as you say, that people are dropping into the healthcare
system on an as-needed or ad hoc basis, not with any sort of long-term
relationship to the system and certainly not a relationship that emphasizes
early intervention, prevention, wellness, community-based services, and so
on.

We believe that that is the right way to organize the system. We are trying
to do that by coming together with other entities up and down the continuum
of care.

As I mentioned in my oral statement and in our written testimony, there are
significant legal barriers to doing that. But, ideally, that is what we
would do. We would put the incentives for wellness and less utilization and
align them between patients and providers.

Mr. Davis. Dr. Antos, can I ask you: Isn't it true that current law does
not necessarily restrict or does not prevent increases in certain types of
hospitals if they are needed in areas?

Mr. Antos. That is right, Congressman. There are exceptions that are
limited. I assume we are talking about specialty hospitals now or
physician-owned hospitals. There are some exceptions.

However, effectively, the provision under the Affordable Care Act
effectively eliminates any chance that physician-owned hospitals can expand
or that new ones can be created. The exceptions are very, very rare.

Mr. Davis. Is it not also true that, in many areas, many States, that
locally determined decisions are made through health facilities, planning
boards, and other entities that will allow or not allow a hospital to build
or a new service to come in or a new service to start?

Mr. Antos. That is right. Certificate of need is the phrase. I live in
Maryland, and Maryland has the certificate-of-need law.

I have to say my observation of the State of Maryland is that it is a
difficult process and it is not at all clear that, in the end, you end up
with decisions that would have been made in the market, decisions that
would have been made by consumers as far as where they would choose to go
for services.

Mr. Davis. Mr. Umbdenstock, let me ask you--current law requires physician-
owned hospitals to report annually to CMS on their status and to provide a
detailed description of the identity of each owner or investor in the
hospital and the nature and extent of all ownership and investment
interest.

But the CMS Web site still does not include this information and CMS says
that they are concerned about the accuracy of the data they have received.

So the agency has once again extended the deadline for submission. Of
course, this means that the public has no data on how many of these
hospitals actually exist or who the ownership actually might be.

Do you think we ought to have that information before making further
decisions about the issue?

Mr. Umbdenstock. Yes, sir. Yes, Congressman. I do. Absolutely. Again, full-
service hospitals are under very rigorous reporting and disclosure
requirements to the government about such issues. And I think it is
disappointing that a particular segment hasn't been able to come up with
that information, at least, again, as I reference the cms.gov Web site.

So they are obviously concerned. And, yes, I would think that that is
important information to have before any significant changes are proposed.

Mr. Davis. Thank you very much.

I see that my time is about to expire. Thank you, Mr. Chairman. I yield
back.

Chairman Brady. Thank you.

Mr. Marchant, you are recognized.

Mr. Marchant. Thank you, Mr. Chairman.

I represent a district around the DFW airport. We are very blessed in that
we have several major hospitals that would be represented by your
organization, but we also have an explosive growth in very highly
technical, customer-oriented, private physician-owned hospitals.

And in my particular district, there is a great demand for that hospital.
They are responsive. They seem to be a little more agile in filling market
niches. They seem to be more responsive, in whole, to parts of my
community.

Mr. Umbdenstock, where one of your hospitals is a partner with one of these
physician-owned hospitals, what is the AHA's approach to that? How do those
partners deal with this situation where they, in fact, are providing the
capital and many times the loan and everything to start this other
hospital, which is the case in my area?

Mr. Umbdenstock. Yes, Congressman. Thank you.

First of all, I would point out that some of our member hospitals are in
such partnerships, as is the case present here today. The Methodist Health
System is an AHA member and a fine member and a fine organization. We are
very pleased that they have maintained being an AHA member and participate
in our broader discussions and debates.

When we formulated our position on this, it was through a very
participative process of hospital members with specialty hospitals and
those without. And, frankly, on this point, some of my members have agreed
to disagree.

So the situation is the same, whether it is a freestanding or partnered
entity, and our position is the same. It has not been an easy position for
us to take. We respect all of our members, but it is one that the vast
majority of our members support.

Mr. Marchant. But that would explain why the major hospitals in my district
perhaps are not coming to me and saying that, ``We are for this
moratorium,'' where, in fact, many of them are telling me --

Mr. Umbdenstock. I haven't looked at it by congressional district, but more
broadly on SMSA basis and so on where they have very different views. Some,
as we saw during the debate of this particular provision, are very much
opposed to it. Others had made investments and were supportive of it.

But I can tell you, sir, that the vast majority of our members are
supportive of current law and not in favor of relaxing it. Not an easy
position for us, but one that the members broadly support very strongly.

Mr. Marchant. Are you familiar with this group of hospitals across the
Nation that, during the formulation of the Affordable Health Care Act, they
started facilities, they had hospital wings or additions in various stages
of construction and, when the Affordable Health Care Act was put in place,
the Commissioner decided that, on a certain day, if those beds were not
certified and accepted, that those beds would never be basically accepted
for Medicare or Medicaid use?

Mr. Umbdenstock. The act was enacted in March of 2010, and people had the
ability through the end of December of 2010 to bring these online and get a
Medicare provider number. So, in the law, there was a 9-month delay. In
reality, there was a longer delay because this provision was always on the
table and being debated.

I was having conversations with my own members, again, some of whom were
making these investments in these organizations, who wanted to know what
that date would be. So people were on notice because of the conversation
for much longer than 9 months. That date was in the law. Yes.

Mr. Marchant. But the fact is that several hospitals were caught in this
period of time and now have beds that they fully intended to use for
Medicare and Medicaid patients, but because of the prohibition, because
they were excluded, cannot use them for that purpose.

Is it the position of your organization that these hospitals never be
recognized and never be allowed to use those beds for Medicare and Medicaid
patients?

Mr. Umbdenstock. That was the provision of the act. We are supportive of
that provision. And, again, it was several years in the making. So there
was a lot of lead time in that respect. We were counseling our own members
that it was a very high-risk proposition.

Given the support for this measure, it would be a very high-risk
proposition to keep going. Some members actually got their hospitals opened
in that period of time. Others found themselves not able to do so before
the well-publicized deadline.

Mr. Marchant. Thank you.

Mr. Umbdenstock. Thank you, sir.

Chairman Brady. Mrs. Black, you are recognized.

Mrs. Black. Thank you, Mr. Chairman.

I want to thank all of the panelists for being here today. Very interesting
conversation on three very important issues.

Mr. Antos, I want to turn to you particularly about the Medicare Advantage
plans. Many critics have suggested that the Medicare Advantage plans were
overpaid and they don't provide a service that is more valuable than the
fee-for-service. We have seen enrollment in Medicare Advantage plans all
the way across the country, and I know in my district it more than tripled
over the past decade.

And I know that what I hear from folks that are in the plan and the survey
showed that seniors are more satisfied with their Medicare Advantage than
they are with their fee-for-service program. All this has occurred while
the Medicare Advantage has been cut dramatically.

We see that continuing, and in some cases where they said they were going
to cut it dramatically, we have seen a little bit of a reduction in that so
they weren't cut quite as dramatically as what was talked about.

Do you agree that this competition--that Medicare Advantage is overpaid for
their services it provides? Do you agree with what is being said, that they
are overpaid?

Mr. Antos. No. I don't agree. I mean, the fact is that Medicare Advantage
plans do provide good value not just for the people who enroll in them,
but, also, for the taxpayer.

You know, one of the interesting facts about this is that people say that
it is the younger Medicare beneficiaries, the ones who are turning 65, who
are the new enrollees in Medicare Advantage. Actually, that is not true.

It turns out that most people, when they turn 65, sign on to traditional
Medicare and, after a few years, they often find out that that isn't the
plan they want to be in. It is not a health plan as they know it because
they have spent 30 years in more organized healthcare delivery systems.

So in terms of value, I mean, there is very little question here. The fact
that the bids--the amount that they bid is below the cost to fee-for-
service across the country says that Medicare Advantage plans are able to
provide full Medicare benefits at a lower cost than fee-for-service. The
fact that they get paid more gets plowed back into additional benefits for
beneficiaries.

Mrs. Black. And I am also interested--I heard you at another event talk
about this very subject matter. And, in addition to that, one of the things
that you did talk about is the research that you have done that suggests
that the effects of the competition have actually seen the Medicare
Advantage programs have that spillover effect on the fee-for-service in
both lowering the costs and the increasing of the quality.

Can you talk just briefly about what you have done as far as the research
there and how that has affected the fee-for-service in lowering those costs
and increasing quality.

Mr. Antos. So, you know, an important point, too, for all of us to remember
is that seniors are, in fact, the biggest customers of the healthcare
system. And so, if the treatment for the senior population becomes more
efficient and more effective, that is going to spill over on everything
else that the health sector does.

In essence, what is happening is that Medicare Advantage plans are
introducing better systems of coordinating care. They are especially
focusing on the people with serious chronic diseases, the people who are
the most expensive in the system. And when you have a sufficiently large
volume of patients who are in those organized systems, well, it turns out
the physicians also operate in the fee-for-service sector as well.

They don't change their practices just because the paycheck, which is going
to go to some business office, comes from someplace else.

Mrs. Black. And, Mr. Antos, if I may--because I only have a couple of
seconds left--I think this really makes the point of what we have been
talking about, that when we look at the Affordable Care Act, we talk about
repealing and replacing with something that is more market-based and
something that is more patient-centered.

And I think this is such a great model, when we look at the research that
has been done, to say, when you do that, when something is more market-
based and more patient-centered, we see a lowering of cost, at the same
time an increasing of quality.

And so I am just really very interested to see more research done in this
area that can show that, if you do that, the fee-for-service will actually
follow because there is going to be competition on the other side to make
sure the costs come down, but the quality is there.

Thank you so much, Mr. Chairman, for having this hearing today.

Chairman Brady. Thank you, Mrs. Black.

Mr. Kind, you are recognized.

Mr. Kind. Thank you, Mr. Chairman. Thank you for having this hearing today.

I thank the panelists for your testimony.

Mr. Chairman, the reason I was late getting to the hearing this morning was
I had a few interesting meetings on the current long-term care system and
market that we have in the country.

And I think this is another area ripe for oversight and some additional
hearings so that we come to grip before the Medicare program absolutely
implodes due to where we are going with long-term care in this country.

But, Mr. Umbdenstock, let me start with you. And staying on the self-
referral physician-owned hospital track, you cite in your testimony, both
written and oral here today, that there are numerous studies from CBO, from
MedPAC, from other independent researchers, citing that, with self-
referrals at least, they are seeing data that is showing that they have an
increase in utilization in both services and, therefore, costs in the
Medicare system.

My question is: If there are ways for us to accelerate reform within the
payment area so that we are getting the value of quality outcomes as
opposed to fee-for-service, whether that would help address the over-
utilization that you cited and that apparently exists based on these
numerous studies out there?

Mr. Umbdenstock. Thank you, Congressman.

Yes. Overall, the AHA is very supportive of the various payment
demonstrations and experiments that are going on at the moment to try to
figure out a better approach to financial incentives that will drive a
better organized and more coordinated delivery system so that we can move
toward that system.

Unfortunately, right now nobody has come up with an agreed-upon approach to
do that. So we find ourselves with experiments and demonstrations and
accountable care organizations and primary care medical homes and so on,
all very important learning experiences. And, hopefully, based on that
experience, we will come to more of a consensus on how to move off to the
next payment system.

Mr. Kind. You know, I have enjoyed working with many of your members and
those in Wisconsin, in particular, that have been moving to a more
integrated coordinated patient center and been real drivers in value in the
healthcare system and that.

But they share frustrations I have had for some time. They say, ``Well, how
can we accelerate this? How can we move from fee-for-service to a more
value of quality and align the financial incentives done the right way?''

You mentioned the Accountable Care Organizations. Secretary Burwell just
announced an expansion of the pioneer ACL program, which I think is
helpful, the medical home models, maybe some bundling in that.

But are we just still in this era of experimentation and trying to find out
what works and what doesn't or are there some payment reforms that really
do show some promise that maybe we ought to be stepping on the gas pedal a
little bit harder on?

Mr. Umbdenstock. Well, certainly, again, as you mentioned from your home
State, very much one of an integrated delivery system, large groups
connected to hospitals, connected to payment systems.

Just tomorrow I am going to meet with members from across the country who
are in very similar models to that. We estimate that about 20 percent of
our members at the moment--maybe high teens getting to 20--have a health
plan or have some sort of relationship to a health plan where they are
starting to integrate payment and delivery.

So the more we see of that, the more we see coordinated, integrated systems
of care emerging. And so we are supportive of that. The only problem is
that that is not right for every market yet. It is very difficult to do on
small population bases, for example. Very difficult to do if the payment
isn't right in socioeconomically disadvantaged urban areas.

And so it is a concept that we are all very interested in and moving
toward, I believe, but it is all a matter of markets and timing.

Mr. Kind. What are you seeing in the area of uncompensated care numbers
right now? Obviously, there is some improvement in some States. But I hail
from a State that has rejected the Medicaid expansion funds and has left us
with a huge shortfall in that regard. But, overall, what have you been
seeing?

Mr. Umbdenstock. It is much more favorable, as you might expect, in States
that have chosen to expand Medicaid. Nationally, we believe that
uncompensated care has dropped--or charity care has dropped about $7.5
billion with the additional coverage, and about two-thirds of that, maybe
about five in round numbers, is from Medicaid.

So we definitely continue to urge all States to take advantage of that
option. And it works for the States. It works for communities and employers
who have a backstop if people should lose insurance. And it is working and
helping providers as well.

Mr. Kind. Finally--I know I am running out of time--but I would like to
follow up with you in regards to one of your recommendations for
improvement, the standardizing the merger and review process between the
two Fed antitrust agencies. I think that is a huge area that is going to
require more scrutiny by all parties involved. So I would like to follow up
with you in the future with that.

Mr. Umbdenstock. We would be happy to. Big issue. Thank you, sir.

Mr. Kind. Thank you, Mr. Chairman.

Chairman Brady. Thank you.

Ms. Jenkins, you are recognized.

Ms. Jenkins. Thank you, Mr. Chairman.

Like many Americans, I am concerned about the future of the Medicare
program. The current trajectory of Medicare shows a trust shortfall in
2031, only 16 years from now. This impacts not just future beneficiaries,
but many current beneficiaries as well.

Access to quality care is in jeopardy, and that is why this hearing really
is so timely. Improvement of competition in Medicare has the potential to
lead to lower prices, higher quality, and a more sustainable future for the
program.

One area of Medicare that has already demonstrated these results is the
Medicare Advantage program. And the latest numbers show that over 62,000
Kansans enrolled in a Medicare Advantage plan last year. These private
plans compete against each other to offer beneficiaries increased coverage
options.

Particularly in rural areas, a Rural Policy Research Institute study shows
that 216,000 more rural beneficiaries chose a Medicare Advantage plan
between 2013 and 2014. This is despite the cuts to Medicare Advantage in
the President's healthcare law and despite the shrinking rural population
in America.

So, Dr. Antos, Representative Black already touched on a few of my
questions. So maybe I will just pick up there. How do you explain this
apparent discrepancy between the President's cuts to Medicare Advantage and
the increased popularity of the program?

Mr. Antos. Well, I think it is a tribute to the poor performance of the
fee-for-service program in Medicare. As I mentioned, part of the issue is
that, once you get to know Medicare, you realize that it isn't the program
you thought it was going to be. And I think this explains to a very large
extent why there has been such an expansion of enrollment among the younger
Medicare beneficiaries.

Now, it is the case that Medicare Advantage plans are much better organized
as businesses than the various unconnected fee-for-service providers. And
so one of the criticisms that is sometimes made is that, well, they are
over-billing. But they are not over-billing.

They are, in fact, properly coding the maladies and the conditions of their
customers. And they are not only properly coding that, but they are also
fully incentivized to find ways to provide kind of 360-degree care rather
than narrow focuses on hospital services or physician services or what have
you.

Ms. Jenkins. Okay. Great.

Given the increased popularity of the Medicare Advantage particularly in
rural America, what would you suggest that Congress do to spur this trend
along?

Mr. Antos. Well, certainly one of the things that really should be done is
even the sort of situation when people enter the Medicare program. When you
turn 65, the default is fee-for-service Medicare. That is one of the
reasons why you have so many people who then change after a couple years,
change the default.

Another big, big factor that I think really gets at the rural issue is to
change the basis of the bidding. Right now fee-for-service Medicare is
treated as if it was a national program. Of course, it is not really a
national program. It is different in every region. It is different in every
locality. And, yet, there is a national standard, there is a national
benchmark, and so on.

What really ought to happen is that we have full, fair bidding and, in
rural areas, where cost conditions are vastly different than in urban
areas, that the bids from Medicare Advantage plans are measured against the
actual cost of Medicare providing services in those areas.

Ms. Jenkins. Okay. Thank you.

I yield back.

Chairman Brady. Thank you.

Dr. Price, you are recognized.

Mr. Price. Thank you, Mr. Chairman.

And I thank the panel. And I apologize for being late. And I am sorry if I
repeat myself here.

I do want to focus in on the whole issue of competition in a particular
area to start with, and that is the area of durable medical equipment.

You know, just because something says it is competitive doesn't necessarily
mean it is competitive. And so it is important that you drill down and look
at actually how programs run.

I would suggest, many of us would suggest, that the competitive bidding
system for DME is neither competitive nor is it real bidding. And we have
put forward a bipartisan solution to that that we call market purchase
pricing that we think is superior.

But, Mr. Steedley, I want to have you reflect a little bit on the
competitive bidding system in DME. What are your experiences? For those of
us who were in health care--I was a physician for over 20 years taking care
of patients--we oftentimes see a different example or different experience
than what is relayed here in Washington.

So you and your peers who are trying to care for folks out there in the
real world, what has competitive bidding meant to you all?

Mr. Steedley. Thank you, Mr. Price.

You know, Barnes Healthcare Services had the opportunity in round 2 to bid
in Atlanta. And, surprisingly, we actually won the bid; yet, we declined
that bid because the bid came in lower than our bid. And that is an
important piece to hear here. 50 percent of winning bidders in competitive
bidding actually bid less than the median price that is accepted.

It is about a standard of care--there are certain costs that are built into
taking care of patients at home. And, specifically, if we just talk--if I
narrow into the wheelchair example I just used, there is measuring these
patients at home, there is working with the physical therapists, there is
working with those physicians. It is making sure that these patients are in
chairs that are appropriate.

And it is important to differentiate, to your point. I am not talking about
just a broken hip or a sore knee that is going to need 2 or 3 weeks,
sometimes, or 6 weeks of healing. Some of these patients are terminally
ill. Some of these have ALS, muscular dystrophy, quadriplegic, and these
folks require specialization with their chairs.

And so, for us, when we are looking at our cost structure and the necessity
to take care of these patients, the things that they are going to need, the
current system for us doesn't bring in enough revenue, quite frankly, to
take care of these patients in the way that they deserve.

Mr. Price. So what I hear you saying is that there are patients out there
that need services, require services. And the system that is being touted
here in this town by so many at CMS as being an improvement, it is, in
fact, harming individuals' access to care. Is that an accurate statement?

Mr. Steedley. And, specifically, I can tell you we take calls from
patients, quite frankly, for winners in those areas where they have called
because they can't get their wheelchairs repaired timely.

Some of these patients now, and I can supply a couple of these names for
you later if you are interested, have decubitus sores, where they were put
in inappropriate chairs with the wrong support structure for them.

What is going on is at this point, because the payment system is down so
much, that providers are trying to find equipment that is under the cost.
And that is not always appropriate for these patients.

Mr. Price. See, Mr. Chairman, this is the challenge that we have. It is
that you have got folks who are winning supposed bids out here, but they
don't have the expertise or the ability to carry out the care for those
patients in that geographic area.

And I want to commend you, Mr. Steedley, for what you are doing. We are
going to continue our work on the market pricing program. As I say, it was
bipartisan last year. Last Congress, we had 180 cosponsors, 49 Democrats.

There is also a push to expand the payment rates for competitive bidding
into noncompetitive bidding areas right now, and I know that that is a
concern.

In fact, we had a letter that was signed by tens of individuals of the
House that I ask unanimous consent to insert into the record to have OIG
investigate exactly what the consequence of this would be.

[The information follows: The Honorable Tom Price Submission]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Mr. Price. And the reason that that is important is that CMS uses claims
data to determine whether or not folks get the kind of coverage or care
that they need.

And, in fact, that is an inaccurate determiner of whether or not that
patient is actually receiving the right care. So I am hopeful that the OIG
will give us a report that actually reflects the sincere problems that are
out there on the ground.

Thank you, Mr. Chairman. I yield back.

Chairman Brady. Dr. Price, thank you for bringing this idea forward.

Mr. Renacci.

Mr. Renacci. Thank you, Mr. Chairman.

I want to thank the witnesses. It is always interesting to come to these
hearings and hear some of the concerns and issues. I, too, want to follow
up with what Dr. Price talked about.

I am actually a member who had a DME company and went through competitive
bidding before I came to Congress. I can tell you it was an interesting
process because, as I thought I was doing a good job, I lost the
competitive bid to another party.

I lost the bid to another party who then turned around and tried to sell me
the bid back. And I know some of that cannot occur anymore with--
hopefully--Mr. Tiberi's bill, which requires securing a security bond.

And with competitive bidding, again, the name sounds right, and I heard one
of my colleagues talk about it being a Republican issue. Hey, Republicans
and Democrats, it doesn't matter whether it is a Republican idea or a
Democrat idea. It is a bad idea if it is not working.

And what I saw in competitive bidding, it was driving good companies out
and, at the same time, it was not giving clients the adequate equipment
that was needed.

And that is, Mr. Steedley, one of the things I know that you said. It is
interesting. There was a company in Ohio that actually came to me. They had
won a bid for a certain number of canes at a certain price.

And it was also ruining their reputation because, although they provided
the certain number of canes at the certain price, it appeared that people,
because there weren't enough other competitive companies out there, were
continuing to come to them. And they didn't want to provide any more canes
at the price because it was not in their best interest.

Are you seeing some of those same instances in the business model that you
are currently running?

Mr. Steedley. Yes, sir. And, to your point, the binding bid legislation is
actually not going to go into effect for several more years. So that
remains a little problematic.

To your point, there is a company in Orlando, Florida, that come to visit
specifically--and I met with these folks. So I am talking from my personal
experience here.

They won every single bid in round 2, all 90 MSAs in every product category
in those bids. And to what you said a few minutes ago, their intention was
to just resell those bids to desperate providers. It is still going on.

Mr. Renacci. Well, see, I wasn't even aware of that. And that is an issue.
I mean, I had to live with it, and it became a process where other
companies were making money and actually driving the cost down, causing
providers to have to sell their product at less than actually a price they
could afford to pay.

Do you see that also in the current situation where pricing mechanisms are
far below cost of actually providing the service?

Mr. Steedley. Yes, sir. That continues. You know, if you look at even from
the Association perspective, we are seeing a contraction now in the
industry. Some of those folks are being bought by larger companies.

Just from a financial standpoint--and I think we are all businesspeople in
the room--I can tell you those businesses are being bought sometimes for
pennies on the dollar.

But, unfortunately, there are other providers that are going out of
business because they did not win the bid. And, at some point, because they
lost all that business in that area, they are gone and then the other
providers that are left don't have enough left to sustain themselves
anymore. So they are now going out of business.

What we are seeing, in essence--and competitive bidding is not the right
word for this. What you are really seeing is a decimation of this industry.
The lowest cost providers out there, the home care communities, are being
taken apart slowly at this point.

And we talked a little about transparency. I said that in my opening
statement earlier. We don't have good data from CMS that shows the
correlation from the decrease in the part B spin here and what that
translates into on the part A side.

I have spoken to patients that are telling me, because they can't get
service, they are going to the emergency room or they are being admitted at
some point for other problems subsequent to poor equipment or no equipment
at all.

Mr. Renacci. I know you touched on this a little bit. But this practice
does have--for me, it has some concerns about patients and the actual care
they are getting.

I know that, when I operated in multiple cities in rural and urban areas
prior to coming to Congress--health care, nursing home facilities--and I
can tell you that it is always more costly and many times in those rural
settings.

Just briefly, what are you seeing with patients? You touched on that, but I
want to make sure we hit home on that. What is happening to those patients
that aren't getting the proper equipment?

Mr. Steedley. You know, I can tell you--and I just saw this the week before
last, I believe--what you are seeing is, people say, ``Well, there is no
problem with these patients, no access issues. At some point, what is going
on is some of these folks that would ordinarily have got a different piece
of equipment now are getting equipment that is no longer the best for them.

For instance, the case I am referring to, the lady was an elderly lady that
was walking around very ambulatory, COPD or CHF, whatever her issues were,
but was carrying one of those great big, heavy e-tanks around with her. And
when I talked to her about that, she has a closet full of them because the
provider that won would not give her a smaller, lighter weight portable
tank because the cost of that system was more expensive.

Mr. Renacci. Thank you very much.

Mr. Chairman, I yield back.

Chairman Brady. Thank you.

I would like to thank today's witnesses for their testimony today.

We are going to continue this discussion about competition within hospitals
and community hospitals and physician-owned hospitals, as well as looking
at are there better ways to create savings from a durable medical equipment
bidding as well as high-quality service to seniors.

And before I finish, I can see Mr. McDermott is anxious to submit a
document for the record.

Mr. McDermott.

Mr. McDermott. Thank you, Mr. Chairman.

For the record, I would like to submit a letter from Medicare Rights, which
basically is in support of the competitive bidding process and ask
unanimous consent.

Chairman Brady. Without objection.

[The information follows: The Honorable Jim McDermott Submission 2]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Chairman Brady. Going forward, in continuing the discussions we had today,
we will also be looking at issues of physician shortages, of disparities in
rural health care within Medicare, as well as looking at improved programs
on inpatient, outpatient and other hospital payment systems. So we will be
encouraging input from both these witnesses as well as those in the
audience today.

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

With that, the committee is adjourned.

[Whereupon, at 11:51 a.m., the subcommittee was adjourned.]

[Submissions for the record follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]