Hearing of the Health Subcommittee of the House Energy and Commerce Committee. Subject: Making Health Care Work for American Families: Saving Money, Saving Lives. Chaired by: Rep. Frank Pallone (D-NJ)

Statement

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REP. PALLONE: Today we're having our final hearing in this series on "Making Health Care Work for American Families," and today we'll examine how to get more value out of our health care dollars by improving quality and lowering costs.

Earlier this week the Department of Health and Human Services issued a report on rising health care costs and the impact these costs are having on American families, businesses and the federal government. According to this report, the U.S. spent $2.2 trillion on health care in 2007 or $7,421 per person, and this comes to 16.2 percent of the gross domestic product, which is nearly twice the average of other developed nations.

If health care costs continue to grow at the current rate they will account for 25 percent of GDP in 2025 and 49 percent in 2082. Clearly this level of health care spending is simply not sustainable.

So we need to figure out how to change the trajectory of health care costs. Bending the cost curve even in the slightest degree will help mitigate further growth and generate significant savings to our health care system. The difficult part is figuring out how and that's why we're here today.

Part of the problem is how we pay for health care services. There's an old saying that you get what you pay for. In this country we pay for the quantity of health care services provided, not the quality of the service, so it should come as little surprise that as utilization rates increase, health care costs rise and quality suffers.

But this isn't the story across the board. There's a lot of variation in the delivery of health care throughout our nation. In parts of the country, certain health care services are seeing tremendous growth in utilization, yet in other parts there are concerns that patients aren't receiving enough of recommended care.

So we need to understand better what explains this variation and how it's impacting our health care system in terms of both cost and quality. Significant work has been done in this area by researchers at Dartmouth, including Dr. Jonathan Skinner who we'll hear from today.

I think it's also important to note that these problems are prevalent throughout the health care system. A lot of people like to point to public programs like Medicare and Medicaid and use them as a scapegoat for health care costs run amok, but the challenges we face with costs and quality aren't endemic to just public programs. Private insurers and employers must also begin to rethink the way they pay for health care services. Changes to Medicare payment policies can help drive that change.

And finally, I want to mention that we'll also be examining the role of transparency when it comes to the delivery and purchasing of health care services. This has been a priority for our ranking member, Mr. Deal. I agree that consumers have the right to know what they're paying for when they see a doctor or enter a hospital, but that right also extends to other areas, such as purchasing health care coverage.

I think we need to be cognizant that transparency, while certainly a good thing, does have its limits. It's not realistic to expect transparency to be a panacea to controlling health care costs. Some, if not most, patients simply won't be in the position to use this information to shop around for the best health care.

I want to thank our witnesses for being here today. I'm looking forward to your testimony. And I now recognize Mr. Deal for the purposes of his opening statement.

REP. NATHAN DEAL (R-GA): Thank you, Mr. Chairman. I want to thank you and I want to thank the witnesses in both panels today for your appearance.

Certainly the first panel today will raise a number of issues facing Congress. Chronic care is consuming a larger share of health care spending. Treatment remains uncoordinated and oftentimes duplicative as a result of fragmented care and escalating costs threaten the coverage of millions of American families.

I'm particularly appreciative that the chairman is willing to hold a panel hearing today on the second panel relating to health care transparency. As most of you know, I'm currently making final revisions to my legislation, Health Care Transparency Act of 2009, which seeks to address many of the issues stemming from the exorbitant cost of medical items and services.

My legislation addresses a core problem in our health care delivery system which affects millions of American families. Medical bills remain the leading cause of personal bankruptcy in this country, and with these concrete hard facts in mind, it bears asking why anyone would want to inhibit more transparent, fair priced health care market -- fair prices in the health care market.

I have some charts -- and I'm going to ask if someone would put those charts us while I make a few more statements.

While the first reaction of many people in Washington would be to create thousands of pages of new pricing regulations to help solve the problem, I want to make it clear that I believe the best solution to be to simply follow President Obama's call for increased transparency and require any health care provider receiving federal funding to publicly disclose the price they charge the uninsured, the underinsured, and other self-pay patients.

Given the efficiencies created in today's Internet-based marketplace, particularly as the health care industry makes dramatic steps toward wide adoption of HIT and EMR technologies, the task would be simple and would empower millions of Americans with critical information about the cost of their health care.

Another and equally important component of the proposal would be to require health insurance companies to provide more information to patients before services are rendered. As you know, there are a number of factors which affect reimbursements provided by insurers such as deductibles, co-pays, and coinsurance rates and whether or not the provider is established as an in-network or out-of-network provider.

And I think people should know before they receive the services exactly what those services are going to cost.

Now, the charts that you see here are pictures made by staff members on a trip to Tanzania, Africa. And they're in Tanzanian shillings, and $1 United States approximately 1,300 Tanzanian shillings.

Now, the brown chart there is taken at a community hospital in Tanzania and it's in the -- the chart is located in the front of the reception area at the hospital. As you might be able to translate there, ultrasound, there is the equivalent of costing $4 U.S. Now, that's a little deceiving because GDP and the gross domestic product of Tanzania is very low.

The white chart is a list taken outside the outpatient ward at a community health clinic. Now it seems a little bit surprising to me that in what we would definitely call a Third World country, their people going to their health providers have the right to know what the cost of their services are going to be and they're publicly posted. I challenge you to find very many comparable environments in the United States where these prices are posted for the public to know before they receive the services, and I think that is a shame and something that should be addressed and we hopefully, in this health care reform that we will undertake, will have the opportunity to do that.

We shouldn't criticize Third World countries when they have greater transparency than we do.

So thank you, Mr. Chairman. I appreciate your indulgence and thank you for having both of the panels here today.

I yield back.

REP. PALLONE: Thank you, Mr. Deal.

Our chairman emeritus, Mr. Dingell.

REP. JOHN DINGELL (D-MI): Thank you, Mr. Chairman and I commend you for holding today's hearing.

In the health care reform debate in which we're now engaged, everybody can agree on at least two things. We must reduce the costs of our health care system so that it doesn't bankrupt our families and businesses and even government at all levels, and we must increase the quality of care so that we can get a better value for our dollar.

This means a way must be found to see to it that we can control these costs and reduce the acceleration in growth of the costs that is moving forward.

The cost of our health care system is on an unsustainable path and we must now act to bend the cost curve before it's too late. We have created a system that makes money by running more tests, doing more surgeries, prescribing more drugs even if the data doesn't back up the particular course of treatment. And of course it involves buying large amounts of enormously expensive equipment as essentially a business promotion device.

One of our primary goals in drafting health care reform legislation will be to provide ways to incentivize value of care over volume of care. We must reform our health care system in a way that rewards providers for quality health care, reduces the number of hospital re-admissions, incentivizes primary care and moves providers in the direction of creating integrated health care systems. And wellness must be a concern of ours as we go about this business.

We must recognize the need for consideration of evidence-based data in determining treatment plans in an effort to highlight treatments which are most cost-effective.

We should not be led to believe that only the most complex and most expensive procedures are the most effective. Most times this is not the case. Studies show that standardizing certain procedures can save lives.

For example, training staff on a simple matter like proper hand- washing procedures is still one of the best ways to prevent hospital- caused infections. Marking surgical sites on the patient's body is another way to reduce medical errors. And this committee has had to address questions involving amputation of the wrong leg or removal of the wrong breast from patients in treatment errors of the most egregious sort.

Pre-and post-surgical checklists ensure that patients are receiving the best practices as developed by the medical community instead of a variability in quality of care are a necessity.

Finally, we must create greater transparency in the health care marketplace. Transparency efforts must include a wide variety of information that allows patients -- consumers to make well-informed decisions about insurance plans, services and providers.

A national health insurance exchange could be a very helpful event in this regard. Such an exchange, which would offer a range of private insurance options in addition to a public insurance plan, could simplify paperwork and make the difference among plans, including costs and services offered, more transparent to the advantage of patients and to the advantage of the system.

I look forward to hearing the testimony of our witnesses today about how we can improve the quality of our health care system while also reducing overall costs. Their incitement will be valuable in our meeting of the challenges ahead of us.

I thank you and I yield back the balance of my time.

REP. PALLONE: Thank you, Chairman Dingell.

Gentleman from Illinois, Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): Thank you, Mr. Chairman. One thing great about especially this subcommittee is we have active members who are in the health care profession -- doctors; we've got Lois, who's a nurse. They really bring a great benefit of actually been practitioners versus us here, just lay people trying to figure out this very complex process. So I do -- it's a -- I've said it a couple of times. It's really a joy to be back on this subcommittee.

I think there is a new concern. Mr. Deal in his opening comment talked about, you know, government forcing transparency because we are in process of being a big payer.

And as you see with the TARP and the Wall Street bailout and GM now, with the administration being able to tell the CEO to leave -- I would expect more of that for anybody who gets government money of any size, shape or form.

I'm not sure this is good for the country, but we are in a new era and so if you're getting government money, expect government to start making decisions all the way down.

As to one of the bills we had on the floor last night said that we may be able to determine the salary of the janitor in a corporation that accepted TARP money. So figure how that's going to affect health care in this for the Medicare and Medicaid. And I think you have to look at -- because as most people say, Medicare and Medicaid is a driving factor on health insurance reimbursements. So you can't discard the underpayment by the government on these two provisions.

I'm not sure how much time -- I don't know if we're going that quickly, but if it is then I'll yield back if -- unless -- is you hit the time right.

REP. PALLONE: All right. Thank you.

Mr. Green?

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. I want to thank you for holding this hearing today on the health reform and access to care.

Currently there are 47 million uninsured in our country. Overall health care is consuming an ever-increasing amount of our resources. Health care estimates are now 16 percent of our GDP and this rate could hit 20 percent by 2017 and, as our chairman said, 25 percent later.

Current estimates show that we're spending approximately $8,000 per person on health care per year. Unfortunately, we're paying more for cost of health care but individuals are receiving less care for their money. Even though we have access to the most advanced technologies, fewer individuals seek treatment due to cost.

The current economic times highlight the fact that more individuals are uninsured simply because their companies cannot afford health insurance and the employees cannot afford the premium. Premiums are high because we have a reimbursement rate policy including (SGR ?), which does not adequately cover the cost of treatment.

We also have a fee-for-service system to reimburse physicians for volume which often rewards physicians who perform more procedures that are focused on better outcomes.

As we work to improve our health care system, we hope we will finally address our payment system to encourage better health outcomes and treatment. I believe this is the root of our high-cost health care and unfortunately prevent individuals from having access to quality and affordable health care.

I want to thank our witnesses for appearing today and I look forward to the testimony. I'd also like to submit on behalf of my college Representative Engel written testimony for the record from the National Home Infusion Association, Mr. Chairman, and I yield back my time.

REP. PALLONE: So ordered, without objection.

The gentleman from Pennsylvania, Mr. Pitts.

REP. JOSEPH PITTS (R-PA): Thank you, Mr. Chairman, for convening this hearing.

As we discuss health care reform, I think we can all agree that patients should be more involved in their own care and treatment, but we will never drive down the out of control costs of health care if individuals do not take personal responsibility for their choices and behavior.

Too often, though, individuals' hands are tied. In many cases, they do not have the one tool that might arguably be most important in driving prices down and quality up -- to helping them make the very best decisions for their own lives, and that is information.

What is the true cost of an emergency room visit or CT scan? What about the same CT scan in the county next door? Of the two hospitals nearest my home, which has a lower hospital-acquired infection rate or lower error rate during surgery? If I'm a self-pay patient, what am I paying compared to the person next to me who has private health insurance?

None of us would accept this lack of transparency in other areas of our lives. I can pick up items in a supermarket, compare them using nutrition labels. All the information I need to decide which item is healthiest is right there.

We all know that knowledge is power and that is why I commend Ranking Member Deal on his draft legislation, the Health Care Transparency Act, designed to get consumers the information they need to make informed choices about their health care.

Mr. Chairman, I look forward to hearing the thoughts and testimony of the witnesses and thank you and yield back.

REP. PALLONE: The gentlewoman from Colorado, Ms. DeGette.

REP. DIANA DEGETTE (D-CO): Mr. Chairman, I think this is a very important hearing and I will waive my opening statement in order to get more time on questioning.

REP. PALLONE: The gentleman from Georgia, Mr. Gingrey.

REP. PHIL GINGREY (R-GA): I want to thank you, Mr. Chairman.

We've heard a lot of testimony over these past few weeks concerning the critical problems our health care system is currently experiencing. Health care costs are rising faster than inflation and wages and those costs create barriers to care for many, both insured, underinsured, uninsured and, of course, including lower income families and those with chronic illness and the disabled.

We do need to fix health care so that everyone has the ability to see a quality doctor or to receive lifesaving treatment. We also need to reform long-term care, pay providers based on quality of care they give patients and not just volume. We need to end defensive medicine through meaningful tort reform and support the creation of a complete system of electronic health records. I think this goes hand in glove with my colleague from Georgia, Ranking Member Deal, on his Health Care Transparency Act.

This Congress is now on the verge of considering legislation that could fundamentally change the way we access health care in this country. Both sides of the debate want to make our current system of health care better. One side, though, believes that reform should happen through direct government control. The other side -- our side -- believes that in order to make our system better, we need to fundamentally strengthen what works in health care and strengthen the doctor-patient relationship.

My hope is that as Congress works together in a bipartisan way to achieve meaningful reform that strengthens the doctor-patient relationship for every American and makes health care accessible and affordable for every American.

Thank you, Mr. Chairman, and I yield back.

REP. PALLONE: Thank you.

Our subcommittee vice chair, Ms. Capps.

REP. LOIS CAPPS (D-CA): Thank you, Chairman Pallone.

Welcome to all of our witnesses and thank you for taking the time to be with us. Today's hearing is particularly important because it asks the question that is at the heart of our health reform debate: How do we improve the health of Americans while decreasing the skyrocketing cost of health care? The answer lies in how we define and reward health care delivery. We must stop persisting with a complicated, cobbled-together system that really basically treats illnesses.

Instead, we need to create a streamlined and comprehensive system which, at its core, strives to prevent illness and maintain health. In order to make that change in health care we so desperately need, information-based coordinated care that finds some way to reward prevention is important.

This, I believe, is absolutely essential and a way to bring down costs as well. So I look forward to hearing from our witnesses today, and I yield back.

REP. PALLONE: Thank you.

The gentlewoman from Tennessee, Ms. Blackburn.

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman.

This has been an interesting -- very interesting series of five hearings.

And so you all are the ones that are going to finish this up for us today and we welcome you all. I especially would like to welcome Mr. Smith, who is on the first panel and has been so diligent in helping me with health care issues in Tennessee, and I appreciate that, and Dr. Herzlinger, who has also been someone I've gone to for advice through the years, because in Tennessee we have had the system of TennCare. And as many of you know and have heard me say during this series of hearings, the mismanagement -- very serious mismanagement issues -- that surrounded this program have caused some serious financial budgetary implications for our state.

And I'm one of those that, as we have worked through this hearing it has reaffirmed to me how important it is that we have consumer empowerment, transparency, increased accountability in the health care delivery systems. Without that, we're going to see continued mismanagement of programs such as the TennCare program.

Mr. Chairman, I will have to tell you. The hearing title was curious to me. Saving money, saving lives -- I wish we had said saving lives while saving money and expecting better outcomes in health care delivery.

Welcome to you all.

I yield back.

REP. PALLONE: The gentlewoman from Florida, Ms. Castor.

REP. KATHY CASTOR (D-FL): Thank you, Mr. Chairman.

And welcome to all of the witnesses.

You know, there's this great new technology that's available to members of Congress and others where we can hold telephone town hall meetings and I did that Monday night. And the call goes out to everyone in your district and they can just stay on the line or they can hang up if they're busy.

We did it on the economy because folks are really struggling right now. And in my community, where unemployment's over 10 percent and we have a very high foreclosure rate, I answered question after question on health care -- the affordability. And we did this online poll where people can just press a button. Where do you get your health care? And we had -- at one, we had about -- we had over 4,000 people on the line. And wasn't very scientific, but most receive their health care through their employer -- employer-based health insurance, but every question was -- we just can't afford it any longer. It's out of control.

The parent who had health care through the employer but their son was blocked -- prevented because of a pre-existing condition for him participating. Left them out -- just completely out in the lurch.

The retired schoolteacher who still has a benefit through the school district is struggling with how to pay for prescription drugs. And that really hit home because that morning I was at a community health center with a pharmacy that had 340-B pricing -- the lowest -- and I could not -- I can't rationalize the difference there.

So this is the front-burner issue and I look forward to your expert testimony on how we make health care more affordable for Americans.

Thank you.

REP. PALLONE: Thank you.

Gentleman from Texas, Mr. Burgess.

REP. MICHAEL C. BURGESS (R-TX): I thank the chairman.

We do have really a distinguished panel -- two panels before us this morning. Of course, Dr. Goodman, from down in north Texas. Being a representative from Fort Worth I won't say Dallas, but nevertheless I'm still glad to see you here because I think your wisdom will be great.

Dennis Smith obviously has been a great help to me in crafting some of these things.

Dr. Cassel, we've crossed paths numerous times before and certainly appreciate your testimony this morning.

Dr. Herzlinger and Ron Bachman, appreciate you being here as well.

I support transparency and competition. I think our efforts must not drive behavior into the shadows but should truly try to better our care and empower the patient. If we want to move into a robust system of consumer-directed health care, clearly transparency is going to be a critical issue. I had introduced legislation on this in the last Congress and perhaps will do so again.

I realize it is a somewhat contentious task when you're dealing with all the stakeholders, but I do believe it's worth the effort.

Just a word on comparative effectiveness. I think we need to be realistic about how we use comparative effectiveness. Realistically, we need to use it as a reference for how physicians treat their patients, but it should not supplant the individual physician's judgment as a hard and fast rule for health care delivery.

Let us not forget, when Medicare was introduced in 1965 that in the statute itself it said, "Nothing in this legislation shall construe that the Medicare legislation will interfere with the doctor's ability to treat the patient." I think we'd be wise to keep that in mind today as we go through this.

I'll yield back the balance of my time.

REP. PALLONE: Thank you.

Gentlewoman from Illinois, Ms. Schakowsky.

REP. JAN SCHAKOWSKY (D-IL): Thank you, Mr. Chairman.

I just wanted to point out that no longer is the problem of the cost of health care -- access to health care reserved for the 47 million people that don't have health insurance but is really affecting so many more.

First, we know that only giving someone an insurance card is not going to fix our health care problems. The Commonwealth Fund estimates the 25 million insured people can't afford the gap between what their insurance covers and what their medical bills demand and that number is growing exponentially every day.

Second, in 2007, health care accounted for 17 percent of our GDP but our health care system ranked last or next to last on five dimensions of a high-performance health system: access, efficiency, equity, quality and healthy lives. And so we have to be starting to pay for quality care.

And finally, I want to talk about transparency. With all our current technological advances, there's no reason why we cannot access information about insurance practices.

As Diane Archer will outline in her testimony, it's impossible to hold insurers accountable without knowing, for example, how they calculate premiums and other cost-sharing requirements, their denial rates, loss ratios, their prescription drug rates or the in-network versus out-of-network care rates.

My office recently met with a group of insurance agents who complained of being unable to get this kind of -- this type of insurance from insurance plans. That was insurance agents. How can insurance agents accurately represent and sell insurance products if they don't have all the relevant information consumers need to make coverage decisions?

We can create a system that's not only accessible -- one that efficiently and properly focused on providing quality care.

Thank you, Mr. Chairman. I yield back.

REP. PALLONE: Thank you.

Gentleman from Iowa, Mr. Braley.

REP. BRUCE L. BRALEY (D-IA): Mr. Chairman, thank you for holding this hearing on the issues of cost and value in our health care system.

Creating a health care system that emphasizes quality of care over quantity of patients seen has been a long-standing priority of mine. Studies regularly show that the state of Iowa ranks right at the top of our nation in terms of quality of care, but Iowa health care providers receive some of the lowest Medicare reimbursements in the country. The current fee-for-service system incentivizes the quantity of patients seen over quality of care, which results in higher costs and an emphasis on the bottom line rather than patient outcomes.

A system that provides clear incentives for quality of care would also improve access to care for patients in rural America. Despite the well-documented success of Iowa's health care system, Iowa health care providers lose millions of dollars due to outdated geographic practice indexes. These antiquated figures ensure that some parts of the country receive drastically lower Medicare reimbursement rates than other parts and have led to a shortage of doctors and medical personnel in rural America.

There's already a physician shortage in Iowa and the existence of these GPCIs provides further disincentives for treatment of those who need it most, Medicare patients. We need a system that emphasizes quality, efficient care with value-based measures. This will reduce costs and improve America's quality of care.

And I'll yield back.

REP. PALLONE: Thank you.

The gentlewoman from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman. I really want to commend you, Mr. Chairman, for this series of hearings that you've held, "Making Health Care Work for American Families."

We've touched on a wide array of issues of great importance as we look at national health care reform.

Over a period of a few months, President Obama, during the transition, invited Americans to host and participate in health care community discussions to talk about how to reform health care in America. And these discussions showed us -- showed that more than anything, Americans are worried about cost and that's no matter whether they have insurance or not. The financial burden of health care is a daily concern. It's something that keeps them up at night.

This situation obviously cannot persist and we have this tremendous opportunity in front of us right now to reform our system and rebuild it for the next generation.

And Mr. Chairman, I look forward to the opportunity to work closely with you over the coming months to produce comprehensive health care reform legislation that addresses these very significant concerns of our constituents. So thank you for this series of hearings and our hearing today.

Thank you to our witnesses.

REP. PALLONE: Thank you.

Gentlewoman from Ohio, Ms. Sutton.

REP. BETTY SUTTON (D-OH): Thank you very much, Mr. Chairman, and thank you for holding this important series of hearings.

Today's hearing, "Saving Money, Saving Lives" will address the cost of health care and transparency in our health care system. You know, we've all -- we're all aware that American health care is the most expensive in the world. The Kaiser Family Foundation's March 2009 report on health care costs notes that the U.S. spends 90 percent more than any other industrialized country on health care.

With such high costs, one would think that our health care system would be exceptional, but as indicated in previous hearings, there are serious access issues in this country resulting in 47 million Americans without health care. Families USA estimates that each day in Ohio, two Ohioans die because they lack health coverage.

I look forward to hearing from our panel today as they address ways in which our health care system can cut down on cost while maintaining and even enhancing quality. I also look forward to hearing from our panelists as they address the role of transparency in our health care system.

And I thank you again, Mr. Chairman, and yield back my time.

REP. PALLONE: Thank you.

Our ranking member, the gentleman from Texas, Mr. Barton.

REP. JOE BARTON (R-TX): Mr. Chairman, I'm just going to submit my statement for the record, but how can we oppose a hearing entitled, "Making Health Care Work for American Families: Saving Money and Saving Lives"? Can't get any better than that, so --

REP. PALLONE: Thank you for the compliment on our message.

REP. BARTON: Glad to be here and I want to especially welcome Mr. Goodman, who's a good friend of mine, and we're glad to have a conservative viewpoint on this panel.

Thank you, Mr. Chairman.

REP. PALLONE: I think that concludes the opening statements by members of the subcommittee. We'll now turn to our panel.

A word of warning: We might have a vote and have to interrupt, but hopefully we'll get through the whole panel.

Let me welcome you and also introduce each of you. Starting on my left is Dr. Jonathan Skinner, professor of economics at the Dartmouth Institute for Health Policy and Clinical Practice; and then we have Dr. Christine Cassel, who is president and CEO of the American Board of Internal Medicine and the ABIM Foundation; Dr. John Goodman, who is president and CEO of the National Center for Policy Analysis; Dr. Bruce Sigsbee, president-elect of the American Academy of Neurology; Dennis Smith, who is senior research fellow in health care reform at the Heritage Foundation; and Dr. Jerry Avorn, who is professor of medicine at Harvard Medical School.

We have each of you -- we ask you to give five-minute opening statements, which obviously become part of the record, and then when you're done we'll have questions from our members again.

Dr. Skinner?

MR. SKINNER: Thank you. Thank you, Mr. Chairman and distinguished members of the committee, for the invitation to join you today.

Variations in per capita health care spending are now well recognized.

REP. PALLONE: We'll have you speak and then we'll break after you, so please continue.

MR. SKINNER: Less well known is that growth in spending has also varied dramatically across the United States, as we've shown in Slide 1.

Had Miami Medicare spending during 1992 to 2006 been as restrained as San Francisco's, its cumulative savings would have been enough to buy a new Cadillac Escalade for every elderly person in Miami, thus solving both the problems of Medicare and the problems of the auto industry.

The variation in growth rates may appear small, ranging from 5 percent in Miami to 2.3 percent in Salem, Oregon, but compounding makes a huge difference. If all U.S. regions scaled back their growth rates by just over one percentage point, as San Francisco already has done, the Medicare program would save more than $1 trillion by 2023.

What explains higher spending? Almost all of the differences in spending across both regions and academic medical centers are due to the greater use of what we refer to as supply-sensitive services.

Next slide.

Medicare enrollees in higher-spending regions are hospitalized more frequently for conditions that could be treated outside the hospital, see physicians more frequently, are referred to specialists more often and have more physicians involved in their care.

And more care isn't always better care. Patients in high- spending regions report being less satisfied. Physicians describe greater difficulty communicating with other physicians or maintaining adequate continuity. Health outcomes such as survival following a heart attack are no better or worse in -- or -- and sometimes worse in high-spending regions.

What's going on? We believe that the lower quality care is largely because the payment system reinforces the fragmentation of care. Many medical decisions are in the gray area where judgment is required and physicians follow local norms.

Income pressures on both hospitals and physicians motivate the purchase of new, profitable technologies and the referral of more patients to specialists or to the hospital.

To discourage these expensive treatments with little benefit, it's important to get the prices right, but it's also important to pay attention to quantities. Until the Dartmouth atlas came along, no one knew that in Elyria, Ohio, the rate of cardiac stents, a common and expensive procedure to reduce blockage in the heart, was three times the rate in neighboring Cleveland and seven times the rate in Pueblo, Colorado.

On average, Medicare enrollees at the NYU hospital spend more than a month of their last six months in a hospital bed compared to just 15 days at the University of Rochester.

The current Medicare system is like contracting with a new home builder, agreeing on the price per square foot but letting him decide whether to build you a mansion or a cottage.

What's the solution? I think a necessary first step is the formation of accountable care organizations, or ACOs. An ACO is a local network of providers that can manage the full continuum of care. It must be sufficiently large to accurately measure quality and expenditures, yet small enough to be manageable.

Primary care or multispecialty networks and integrated delivery systems are all examples of "shovel-ready" ACOs. Our research has shown that the formation of ACOs would require little disruption of current physician referral patterns and that almost all physicians and hospitals could feasibly participate in such networks. My colleague Elliott Fisher has written about the path forward in creating these networks.

I want to talk about the potential of ACOs in extracting some of that $700 billion in estimated wasteful U.S. spending on health care. The obvious sources of savings are the high-cost regions where per capita Medicare expenditures are nearly double the national average.

One could cap payments for a small number of outlier hospitals with off-the-charts expenditures or cut reimbursements for high-cost providers who don't participate in ACOs. I expect few hospitals will find these restrictions binding, since there are so many avenues for high-cost hospitals to scale back spending and thus avoid penalties.

Another approach is to restrain the growth rate in spending. Elsewhere we have described a plan to share savings with ACOs able to ratchet back growth in health care costs. This approach encourages cost-saving technology and discourages investment in gray area health care with high profit margins and uncertain benefits.

These policies have the advantage of not penalizing even high- cost providers, but they do not deliver cost savings until future years.

In sum, I believe that accountable care organizations are central to claiming some of that $700 billion in wasted health care spending. While I recognize the practical challenges, it's hard to see any other approach generating the magnitude of savings we need.

REP. PALLONE: Thank you, Dr. Skinner.

We have -- how many votes? We have three votes, so probably about half an hour.

MS. : Five.

REP. PALLONE: Five? Five. Okay, then, we're talking probably at least 45 minutes, maybe even an hour. Maybe even an hour. But obviously we need you to stay here, so we'll reconvene after the five votes.

The committee -- subcommittee stands in recess. (Sounds gavel.)

(Recess.)

REP. PALLONE: (Sounds gavel.) Subcommittee will reconvene.

We left off with the -- and I apologize, I thought an hour but it ended up being more like an hour and 15 minutes, I guess. We heard from Dr. Skinner, so next is Dr. Cassel.

DR. CASSEL: Thank you, Chairman Pallone and Ranking Member Deal. I really appreciate the invitation to testify about improving health care value.

My name is Christine Cassel. I'm a board-certified internist and geriatrician and president of the American Board of Internal Medicine and ABIM Foundation.

ABIM certifies about one-third of all practicing physicians in the United States. We are the largest of the 24 certifying boards that constitute the American Board of Medical Specialties. The certifying boards are independent nonprofits that do not accept industry funding. We test, monitor and certify that individual physician specialists have the knowledge and skills required to practice in their designated specialty. Because growing research demonstrates that higher standards for doctors means better quality for patients, board certification standards are recognized as an important component of the accountability frameworks of both public and private payers.

So I very much appreciate the committee's leadership in examining the link between quality, cost and value in our health care system.

I want to make three points in my testimony today.

First, while there are abundant opportunities to improve value across the health care system, the gap is widest and most distressing among those with multiple chronic conditions and those facing the end of life.

Second, well-designed delivery system innovations can help to close that gap.

And third, the success of delivery system innovations stands or falls in large part on the shoulders of highly trained and accountable physicians and teams of health care professionals.

More than half of Americans have at least one chronic illness, and chronic diseases, as this committee knows, account for a third of the years of potential life lost before age 65 and is the single biggest challenge in our growing elderly population. As we know, the problem is not the lack of spending. More than 75 percent of our $2 trillion health care bill is spent on chronic disease care. Too often the problem is failure to deliver the right care at the right time and, importantly, to coordinate care across the complex care needs involving multiple providers and settings in a patient-centered way. In fact, according to MedPAC, Medicare could save $12 billion a year by reducing unnecessary hospital readmissions, improving care transitions and care coordination and enhancing primary care.

A more patient-centered approach, especially to palliative and end-of-life care, could also contribute greater value to our health care system. Research shows that when patients' needs and preferences are the focus of care decisions, fewer resources are spent on aggressive and futile technical interventions, patients receive more timely referrals to palliative and hospice care, and patients and their families have better quality of life in the days that remain. Payment reform needs to support the physician who has the skills, the evidence base and the relationship to make this happen.

As this committee also knows, the models to improve care for patients with chronic conditions and those at the end of life are now being developed and tested, and we're hearing about some of those today. In 2008 the American Board of Internal Medicine, along with 10 other specialties, began recognition of a new specialty of medicine in palliative and hospice care so that patients and payers could be more confident of the providers' skills. Patient-centered medical homes also hold out the potential to simultaneously reduce costs and improve quality. The concept promotes efficient use of office practice design as well as professional recognition and remuneration of the primary care physicians and geriatricians who are needed to manage and lead such practices.

However, these very same professionals are in very short supply. A study last year showed that 2 percent of graduating medical schools expressed -- graduating medical students expressed interest in seeking careers in primary care or internal medicine. Given this reality, medical homes and related models are going to need to make the very best use of the generalist physician skills that we can get to manage these complicated patients and to use the talent and experience of other members of the clinical team to support prevention and coordination. Those team skills are also not in common supply in our medical world or in our medical -- or taught well in our medical schools.

The medical home model to date has focused mostly on system-level improvements like health information technology. These are necessary but they are not sufficient. For the medical home concept to deliver on its promise, the designers have to create incentives for long-term relationships and effective utilization of care between the highest need patients and their physicians. Primary care and geriatric physicians will need the tools -- both incentives and accountabilities -- skills and experience to support care coordination beyond the confines of their practices. The seven to 10 to 15 other specialists that the patient is also seeing also need incentives to share the information that they have with that medical home. And the medical home also needs two-way communication not just with physician specialists but with hospitals, nursing homes, rehab centers and other community resources.

Finally, I'd like to suggest that specialty board certification and maintenance of certification offers a way to enhance, improve the physicians' skills and to ensure that they can continue to keep up to date to manage complex patients. What we require of physicians to maintain their certification includes regular, formal skills testing, practice monitoring and self-evaluation and quality improvement, including tests of diagnostic skills, clinical judgment, systems management and the translation of medical knowledge and evidence into practice. All of these tools use national quality forum-endorsed measures where they exist. Now all leading health plans put a premium on physicians who participate in this process in their reward and recognition programs.

We have also been involved recently in discussions with Senate staff to recognize this process of maintenance of certification in the pathways within the Medicare PQRI program, and we look forward to working with you and would ask the House leadership to give this idea similar consideration as a way of reducing the burden on doctors of redundant measurement requirements and a way of enhancing evidence- based approaches to setting levels for quality of care.

So in conclusion, stronger infrastructure, better connectivity and physician payment reform are all essential elements of a patient- centered medical home, as well as effective health care reform. But at the end of the day my message to you is that the quality and value of health care for complex patients also rests in great part on the skills and judgment of the physician in relationship with the patient.

Thank you very much.

REP. PALLONE: Thank you, Dr. Cassel.

Dr. Goodman?

MR. GOODMAN: Thank you, Mr. Chairman, members of the committee. I promise to stay on time.

DR. CASSEL: I'm sorry.

MR. GOODMAN: That's all right.

All bureaucratic systems tend to show a similar pattern, whether it's the National Health Service in Britain or Medicare in Canada or the Texas public school system or the U.S. health care system. In all these systems what you tend to find is a sea of mediocrity punctuated by little islands of excellence. In health care people point out that if everyone in America went to the Mayo Clinic for his health care, we could cut the national health care bill by a fourth and quality would go up. If everyone went to the Intermountain Hospital System in Utah we would cut spending by one-third and quality would go up. So invariably in all these systems people ask, "Well, why can't everybody else be like the islands of excellence?"

There are two characteristics of these islands. Number one, they tend to be randomly distributed, and that is because there's no reward for excellence and no penalty for mediocrity. And two, whatever makes them good is originating on the supply side of the market and not on the demand side. And the problem for us is that we don't understand why the good organizations are good. We don't know how to replicate them. And we don't have any model that tells us how to manipulate them.

Now, despite this fact there is huge interest in pay-for- performance systems in Washington and elsewhere around the country. And yet we've been doing this in education for almost two decades now -- certainly in my state, the state of Texas, we've been doing it -- and I can't see what we've had any positive results. Now, if it's true that everything that anybody can point to that they like in health care is originating on the supply side of the market and no one can point to any example where a demand-side reform is causing any commendable response, then it would seem to me that we ought to focus on how we get these kinds of supply side changes, and I have three recommendations.

First, we should stop penalizing what we like. When Mayo Clinic saves money for Medicare, it's losing money for itself. Same for Intermountain. When the Geisinger Health System, which was in The Washington Post just this week, offers a warranty on its heart surgery so that the buyer doesn't have to pay again if they screw up and there's a readmission to the hospital, Geisinger is saving money for Medicare, but it's losing money for itself. So we need to turn this around. Medicare ought to be willing to say, at least we'll pay 50 cents on the dollar when you're saving us money.

So that's reform number two. The second thing Medicare needs to do is tell all the other hospitals what it has done. We want other hospitals to know that we've rewarded innovations that improve quality and reduce costs and then invite all those other hospitals not to copy what Geisinger has done -- because we don't know that Geisinger is really doing it the best way -- but to come forward with their own suggestions for repackaging and repricing their services.

And number three, we need to extend this offer to every hospital, every doctor, everybody on the provider side. Medicare ought to be open for business. It ought to be open to hear from any provider who suggests a different way of being paid, with three rules. Number one, the cost to government cannot go up. The quality of care to the patient cannot go down. And they need to tell us six months out or 12 months out how we're going to measure all of this to make sure we've abided by rule one and two.

This is a totally different approach than the pay-for-performance approach. What I'm suggesting is let the supply side of the market, which knows far more than anybody on the buyer's side, let them to decide and propose how we improve quality and reduce costs. And every doctor in America can think of ways that you could reduce costs and eliminate waste. And it's just under the current system they have no incentive to do so.

Both in education and in health care we have the same fundamental problem: The entity that pays the bills is not the entity that benefits from the services. And that is the source of the inefficiency that we find.

In health care, wherever there's not a third party -- wherever there's no Medicare, no Blue Cross, no employer -- things actually work pretty well. If we look at those markets like cosmetic surgery, LASIK surgery, the walk-in clinics in shopping malls, TeleDoc -- which does telephone consulting -- the concierge docs, medical tourism, in all these markets where it's just patient and doctor and no third- party payer, you always find price transparency. You often find quality transparency. You have cost control. You frequently have electronic medical records, electronic prescribing. Doctors often are using telephone, e-mail. In other words, doctors dealing with patients on their own tend to deal with patients the way other professionals -- lawyers, engineers, accountants, and so forth -- deal with their clients. We need to open up the supply side of the market and encourage this.

This morning, Mr. Chairman, I've talked about freeing the doctor in this system. We also need to free the patient, and I have written about that elsewhere.

Thank you.

REP. PALLONE: Thank you, Dr. Goodman.

Dr. Sigsbee?

DR. SIGSBEE: Good morning, Mr. Chairman, Ranking Member Deal and members of the committee.

I'm here to talk about this morning -- or actually now this afternoon -- about how realigning incentives within the health care delivery system will lead to better quality medicine and will serve the Medicare population.

As an introduction, I'm a practicing neurologist. I'm also medical director for a nearly 50-physician multispecialty group and responsible for quality in that group, and I'm also incoming president of the American -- president-elect of the American Academy of Neurology.

Right now, as many have already pointed out this morning, we have misaligned incentives within the health care delivery system and payment structure. And in very real sense we have procedure-centered care, not patient-centered care. And the focus should be on what's important for the patient, for the individual patient. I'm not suggesting that we cut payment for proceduralists, but what I am suggesting is that we need to adjust the payment system so we have a balanced work force.

There are certain consequences of the current incentives that have been reviewed before and I'm sure you've heard testimony on. But at least from my own perspective as a neurologist, where we're responsible for taking care of diseases that are important to the Medicare population, such as Alzheimer's, ALS, Parkinson's, stroke, we're suffering the same work force crisis that primary care is suffering.

Also intrinsic in the current fee schedule is actually not just a lack of incentive but barriers to quality. Certainly it's not at all valued by the payment structure. I have had physicians tell me that they did not want to get involved with quality efforts because it took them away from revenue-generated (sic) activities. And also if you look at it, ambulatory quality systems are still in their infancy, unlike hospital quality systems that have developed over the last several decades. We're still trying to figure it out. It takes a great deal of effort and energy to make these systems work. And they also are quite costly. Health information technology is an important tool. You also need health care coordinators and others that really make it work.

PQRI in my view is an abject failure. Pay for performance as it currently exists does not encourage -- actually is viewed as an ineffective quality measure. But quality can be done very effectively, and I'd like to give you at least my own personal story in this.

I'm a member of a three-physician neurology group. We have a Joint Commission Stroke Center at our hospital. Before we went through the certification process, we thought we were doing a great job of taking care of stroke patients, until we actually started measuring what we were doing. And we were not doing as well as we thought or expected of ourselves. By placing the quality systems in place, by constantly monitoring, by developing a system of care that includes EMTs out in the field all the way through rehabilitation, we are taking very good care of those patients. We consistently exceed national stroke center benchmarks in terms of the quality of care that we provide. And it's that kind of in-the-community effort that's really required for effective health, for quality measures. And it (serves ?) an example.

And to really look at a payment structure and at least in terms of the incentives, what's really important? And you've heard about accountable health care organizations, medical home. But what you're really trying to do is create a system where you're trying to incent the behaviors that are really important for patient care.

Certainly productivity is important -- not sort of the hamster mill of turning, but you need certainly enough physician work to have access for the Medicare population. Quality is critical, patient satisfaction, and really a good experience with the health care delivery system and confidence in the care that they're getting. But also you need to encourage the physicians to work on improving the systems of care. Care is no longer just one physician and one patient. It's across a whole system of care. For example, the stroke center, we have trained the EMTs so they can recognize stroke and deal with it appropriately. So you really have to have the whole system involved. And it has to be patient-centered care.

And how do you create those incentives? There's a lot of discussion about health care delivery systems, but in fact in the last four or five years there has been a great deal of experience with creating physician compensation systems, which we're really talking about, and creating a balanced way of trying to incent physicians to do exactly the kinds of things that I'm talking about.

And in fact, they've developed and most places that now employ large groups of physicians have moved to what they call a blended compensation system, which includes both a salaried component as well as an at-risk component that can be determined not based on only productivity but also on quality, patient satisfaction, and also what's termed citizenship, which is contributing to health care delivery systems. And no matter what system you involve, if you don't implement the proper incentives in that system it will not really be an effective way and really encourage the kind of health care that we would like.

So based on this experience I am recommending that no matter what system we move ahead with that there be a blended payment structure that includes the right incentives, which not only will be good in terms of cost control but will be good for patients.

Thank you.

REP. PALLONE: Thank you, Dr. Sigsbee.

Mr. Smith?

MR. SMITH: Thank you, Mr. Chairman. It's a great pleasure to be with you again.

First let me hasten to say my views, my testimony are my own. They don't represent the position of my current and certainly not the position of my former employer, the federal government.

I do perhaps have a little bit different perspective than my colleagues here on the panel in terms of the experience of actually running these programs for the last 10 years or so of my life. It gives me perhaps a different perspective, seeing Medicare and Medicaid -- two government health plans -- up close and personal.

And one of the things that I think is striking to me is that they have to be part of the equation as well. Medicare and Medicaid account for approximately 45 percent of health care spending today. They're going to go up to 50 percent. So any idea that we can do this without involving reform in the entitlement programs would seem to me doesn't work.

It's been 15 years since Washington tried this sweeping types of reform of -- that's being currently discussed today. But in that time states have been trying to do this. We have states as diverse as California, Massachusetts, Oregon, Tennessee, Hawaii, Maine and Washington have all struggled with universal care. I would suggest that we learn from them, since they've already tried it, and see what lessons there are. And then certainly we have Medicaid itself, the experience of the last several years in dealing with the great growth in eligibility in Medicaid, et cetera. So there is a great deal to learn from.

I think one of the things also is the expectations. Right now and I think in all of these states the promise was being made to the people, not only those who were uninsured, but the people who were insured as well. The promise to them was this was going to be cheaper for everybody, and everybody's going to save. We're hearing that today. The president has made the promise that the average family is going to save $2,500 on average. That's $2 trillion over a 10-year period of time. In recent -- the last few weeks and months we've made commitments to spend another $1 trillion over 10 years on health care. So it seems to me right off the bat we're $3 trillion apart from where the American people think we should be in terms of addressing the issues of health care.

Again, I think we need to try the approach of lowering the cost first. Then it will become more attractive to people and that they will actually purchase it. I think the experience especially in California and Tennessee are very important lessons to today.

First, dealing with the issue of mandates, what does that do to the cost of care? I think the discussion in California was very reflective since we have that in recent memory, where you started off with mandates, mandate participation. Then you were mandating a particular type of coverage. Then you were also mandating how much people were actually going to spend on it. You became -- you started a circular effect in which the mandates actually kept driving the price tag even higher yet. And I think that that in itself contributed in large part to why reform in California failed.

Tennessee as well -- Tennessee -- the story of TennCare was not started as a health care issue. It was started as a budget issue. And accordingly, TennCare from the very beginning I think was crippled and doomed to failure. It took a lot of years; it spent a lot of money before the program itself was dramatically changed.

So in terms of solutions, where do we look? For my way of thinking, look at what model has actually been very successful in getting people covered, although that in recent years we've had some struggle, but the dynamics, anyway, of employer-sponsored health insurance.

What advantages do they have? First, they have the advantage of the tax code, in which individuals have a tax advantage to buy it through the employer, so level the playing field between individuals buying it on their own and individuals who are buying it through employers.

Secondly, the dynamics of group purchasing -- individuals, when they go to the marketplace on their own, they're all on their own. They're all by themself. Well, in group purchasing, in employer- sponsored, you're in a group. You get the discounts that is offered to the group, and you do not have the underwriting that goes on in the group setting.

The entitlement reforms themselves, as I said, Medicare and Medicaid, in my mind, have to be a large part of it. My colleague at the end of the aisle talked earlier about the "disparence" (sic) in Medicare payments between Florida and hospitals -- between Florida and San Francisco, but he didn't say why. The reason why is government actually interferes in the marketplace. We see time and time again in Medicare and in Medicaid where government artificially steps into the market, allows one hospital, for example, to leap three counties away so they get the higher reimbursement of an MSA from a higher payer. So we're interfering in the market all the time is part -- so I think part of the solution is resisting that temptation.

We have plenty of quality initiatives in Medicare. We've got -- I think in many respects the things that we're discussing today have been discussed for a great -- for a long period of time. There's in many respects nothing new under the sun in types of those issue.

But I think the one thing that would be particularly helpful is transparency. People should know what they are actually paying for, what they're actually buying. We tried this in the Deficit Reduction Act of 2005, where we tried to bring transparency to prescription drugs and ended up being sued by the pharmacy community, who didn't want those drugs to become public. But transparency itself I think is a great advantage, very important element that is absolutely missing.

And finally, I think the long-term care, the long-term care in Medicaid -- we are unnecessarily paying -- spending too much on long- term care for services that people don't really want. Talking to people with disabilities, they want to be in their own homes in their own communities, not in institutional care. So we have to fix the FMAP in Medicaid to rebalance the system.

Thank you very much.

REP. PALLONE: Thank you, Mr. Smith.

Dr. Avorn?

DR. AVORN: Mr. Chairman, members of the committee, thank you for the opportunity to testify today at this very important time for the nation's health care system.

My name is Jerry Avorn. I'm a professor of medicine at Harvard Medical School. And for nearly 30 years my research has focused on the effectiveness, safety and affordability of prescription drugs and how those drugs are used by doctors and by patients. I've taught and practiced geriatrics and primary care internal medicine at several of the Harvard teaching hospitals since 1974, and I'm the author of a book, "Powerful Medicines," which deals with many of these concepts.

We doctors badly need more information about the drugs we prescribe. Our ability to take the best possible care of our patients is severely hampered by a lack of this information. There's also a need for our patients to be astute consumers of the medical choices available to them, and the nation increasingly expects those who pay for health care to be able to make the smartest possible choices. The information gap I'll discuss today limits decision making on all of these fronts.

By history and by law the FDA is not mandated to evaluate new drugs or devices against other treatment options. Its enabling legislation requires it to approve a drug for marketing if the manufacturer demonstrates effectiveness, which may simply mean that it works somewhat better than a dummy pill. But I've never had a patient say to me, "Dr. Avorn, please prescribe me something that's a little better than nothing." Patients and doctors want to know the best treatment for a particular condition, but that isn't the evidence that the preapproval testing system was ever designed to collect.

Many observers feel that changing the legal standards for the drug approval process would be infeasible, and many others argue that it would be undesirable. In any case, once a product is marketed, important new information about its safety or effectiveness could be collected, which would be very important for doctors and patients to know about, but which is beyond the purview of the initial approval process itself.

Once a new product is on the market its manufacturer is likely to launch a massive sales campaign. The pharmaceutical industry spends much more of its revenues on marketing and on promotion than it does on research and development. The most costly new products are the ones that are most aggressively advertised to doctors and to patients, whether they represent a real advance or not.

A time-tested generic drug may be the most effective treatment for conditions like high blood pressure or diabetes, and generics often have the most well-established safety records as well, and are likely to be the best value economically by a long shot. But the profit margins on generics are wafer thin, so their manufacturers don't have the resources to take out expensive ads on the evening news or to send perky salespeople to doctors' offices to offer us free meals and gifts to persuade us to prescribe those drugs.

This skews the use of medications as well as other interventions toward the costliest choices, even when they are no better than the alternatives and may even be worse. Other perverse economic incentives can take hold when expensive treatments or tests -- like chemotherapy or MRI testing -- become profit centers of their own for the doctors who prescribe them or order them.

The manufacturers of drugs and devices are investor-owned companies, not public health agencies. That's not a moral judgment. It's just an economic fact. Given these companies' responsibility to maximize return to their shareholders, it would be naive to expect these companies to be a good source to fund and disseminate studies that could sink one of their products.

There is a clear and embarrassing track record of drug makers actually suppressing the results of research if it showed problems with their products. This has happened with antidepressants like Paxil, the cardiac surgery drug Trasylol, the cholesterol medication Baycol and many others. And there are examples of this problem from nearly every field of medicine.

At the beginning of this decade my own research group wanted to study the apparent link between Vioxx and heart disease, while that drug was still on the market. We had to seek funding for the research from its manufacturer, Merck, since there was so little federal support available to do this research. When our study found a clear link between Vioxx and heart attack, well over a year before it was taken off the market, Merck tried to persuade us to de-emphasize some key results, take a co-author off the paper, and then they dismissed the very methods that they had previously supported. Clearly this is not the ideal way to fund studies of drug safety and comparative effectiveness.

Until now it has not been anyone's job to determine how well alternative treatments work and how safe they are compared to each other. We are often totally in the dark as doctors when we try to choose between several drugs for the same condition, since those studies are rarely done. Our patients probably think that we are playing with a fuller deck than we are. Perhaps members of Congress think so as well. We are not.

As bad as the situation is for drugs, this informational gap is even worse for other kinds of health care intervention. A new medical device, like a pacemaker or defibrillator or artificial hip, mostly needs to show that it's not dangerous, not how well it works or whether it is better than existing products. And new surgical procedures or new imaging studies like MRIs and CAT scans don't have to show that they benefit patients at all.

The worst consequence of this information deficit is that it prevents us from taking the best possible care of our patients. But at a time when the nation can't afford to provide health care for all of its citizens, and even people with insurance, as we heard earlier, have problems paying for that care, the economic aspect of this problem is also quite important. The U.S., as you heard earlier today, has per capita health care costs that are the highest in the world by a great deal. Yet our medical outcome data are overall no better than those of many other industrialized countries and often much worse.

In these rough economic times, when more and more people have to pay for health care out of pocket, high costs can mean no care at all. And for Medicare and Medicaid, not knowing which treatments work best and which have the best value and which are safest leads to patient outcomes that are worse than they need to be and costs that are increasingly unaffordable for the federal government and therefore the taxpayer as well as for the states.

There is a solution to this problem. It is based on the same concept that underlies all of modern medicine, and it's the reason that we're not still using leeches and purgatives to treat most diseases. It is the idea that well-conducted scientific studies can show us which treatments work best for a given medical problem and are the safest. This information can be gathered through well-established methods of randomized trials as well as observational studies.

The latter kind of research, which my group at Harvard performs, can review the clinical experiences of millions of people to learn how well similar patients did with different treatments. These kinds of observational studies can also enable us to ask questions about special subgroups of patients, such as minorities or children or the very old, the very groups that are often underrepresented or even excluded in the clinical trials that drug manufacturers perform to win FDA approval.

This kind of research is a public good, like clean air and good highways, which needs to be supported by government. The private sector is simply not going to do the research to identify drugs that are absurdly mis-priced or toxic any better than the private sector was able to identify financial instruments that were absurdly mis- priced or toxic. This kind of applied research is not something we should fold into the missions of the National Institutes of Health --

REP. PALLONE: Dr. Avorn, I'm sorry --

DR. AVORN: Yes, sir.

REP. PALLONE: -- but you're two minutes over, so if you could kind of summarize.

DR. AVORN: Okay, I will wrap it up.

There's a way that we can get this information to physicians as well as make sure that it's out there in the literature. For a number of years my colleagues and I have been doing a process called academic detailing, in which we bring information to doctors much as sales reps do for the drug companies. The idea is that the states -- in this case several states in the Northeast -- support nurses, pharmacists to go to doctors' offices and bring information that is not about sales but is just about the best possible way of taking care of patients. And we've shown over the years that this is a way of improving care and actually paying for the program's cost.

In summary, there are ways in which we think that we as physicians can take better care of our patients and save money for the health care system at the same time. Senator Kohl on the Senate side has introduced a bill to support this academic detailing outreach to doctors. I'm pleased that members of this committee -- Representative Waxman and Pallone -- have also introduced a bill that would do the same thing on the House side. The goal is to get us doctors the information we need to take better care of patients, improve those outcomes and save money at the same time.

Thank you.

REP. PALLONE: Thank you, Dr. Avorn.

Thank all of you.

We'll take questions, and we'll start with myself. In each case we have five minutes.

My questions actually are of Dr. Skinner.

I'm trying to get two in here, one about the startling statistic about $700 billion in health care spending each year is wasted, which is about the size of the economic recovery package that we enacted, and it represents about a third of all health spending. Now, my understanding is when you talked about $700 billion it's money spent on services that are not effective or that may even be harmful. But if you'd explain, where does this estimate come from? What do you mean by wasteful spending? And why is it so large?

MR. SKINNER: Thank you. That's a great question. That is a big number.

We had done some studies from Dartmouth that looked at outcomes of, say, heart attack patients, hip fracture patients, a very large number across the country, where we had very good, detailed information on how sick they were when they arrived. Heart attack patients are -- everybody's admitted to the hospital. You have some good information on how well they're doing.

And what we observed in some areas spent 60 percent more on these patients, but they didn't do any better, and if anything, they did a little bit worse. And so we added up the number and came up with a number between 20 and 30 percent for the Medicare population. We extended that to the general population, the under-65 population, which -- and also, we also viewed this as sort of a lower bound in some way, because probably even the most -- what we found to be the most effective, cost-effective areas could also probably improve a little bit as well. So --

REP. PALLONE: So it's private as well as public. It's not all --

MR. SKINNER: Yes. We don't have direct information on private. But we made inferences based on the Medicare population.

REP. PALLONE: Now, what do you suggest we do to avoid this waste in passing health reform? I mean, I know you talk about the creation of ACOs, accountable care organizations, that would reward physicians and hospitals for effective management in costs and quality. How would that address the problem? Is that your answer?

MR. SKINNER: Well, I think of ACOs in some way as very flexible -- a very flexible approach that enables whatever kind of health reform that comes in to at least get at what we see is the fundamental problem in health care, which is nobody's accountable in the system, that primary care physicians are overworked; they get patients, they send them to the ER if they're -- if they can't deal with them in their offices. There are one or two patients. There's a lot of fragmentation. All of these problems basically are allowed to grow and to cost us money and to result in bad care. And the ACOs are ways to try to stop that --

REP. PALLONE: But how would they solve it? Because, you know, I don't want just another managed care organization. How are they going to help us?

MR. SKINNER: Absolutely. I think the last thing we want is to live through the 1990s again with the problems of managed care. I think the improvement over managed care is that this is an example of providers, of these highly skilled physicians and other providers, working together to try to basically sit down. Maybe this primary care physician that I mentioned earlier who may not have admitting privileges at the hospital in sending their patients to the ER, they could actually get together with the people at the ER and figure out more effective ways, more cost -- ways to save money when they get difficult patients that come into their door.

REP. PALLONE: But are you going to do it by changing the payment system, or -- I mean, what's the mechanism? What's the enforcement mechanism? (Laughs.)

MR. SKINNER: Yeah, no, it's two things. One is, you have to get the prices right. This is easy for me to say as an economist. But you also have to pay for the right things. Right now we're paying per MRI. We're paying on the basis of quantities. And so basically Medicare pays whatever people decide to do. What we need to do is pay on the basis of -- is reward on the basis of total expenditures -- that is, prices and quantities.

REP. PALLONE: You know, there was an article -- I'm going to ask unanimous consent to put this in the record -- it's an article that's in today's New York Times about this study that finds that many on Medicare return to hospitals. Without objection, so ordered.

But are you familiar with that? I mean, is that an example of how we could --

MR. SKINNER: Exactly.

REP. PALLONE: -- of something that needs to be addressed, obviously, right?

MR. SKINNER: Yes. I mean, right now -- I mean, another example -- that's a very good example. Another example was when a hospital figured out that when people came in with back pain that if they sent them to see a nurse practitioner rather than send them home and have them wait to go see the surgeon that in fact that most of them went -- most of the back pain sufferers got better and went back to work. But the problem was that the hospital was losing so much revenue because it wasn't doing as much back surgery. And so they actually --

REP. PALLONE: The bottom line is you're going to have to create some sort of financial incentive. I mean, this article talks about a financial incentive for hospitals that -- where the person -- where they don't have such a return rate.

MR. SKINNER: Yes.

REP. PALLONE: And you would do the same things with doctors and group practices and all that.

MR. SKINNER: Exactly.

REP. PALLONE: All right. Thank you.

Mr. Deal?

REP. PALLONE: Dr. Burgess?

MR. : He wanted to see the article.

REP. PALLONE: Oh, you want to see it. Sure. Yeah, sure, go ahead. It was in today's New York Times, and it's -- basically says that, you know, that there are a lot of hospitals where they have a high readmission rate under Medicare because they don't give people proper services when they leave so they come back.

MR. : Right.

REP. PALLONE: And one way of addressing it is to, you know, create a financial disincentive for that to the hospitals.

You're okay? All right. I didn't hear you. I'm sorry. So it's so ordered.

Mr. Deal?

REP. DEAL: Thank you.

Well, you all have been interesting, and you all have indicated the complexity of the issue that we face by the diversity of the subject matter that you've addressed, all of which was within that umbrella of health care reform. And I thank you for your testimony.

But it's hard for us to get a handle on all of this, as I think you all understand. I think part of it is that we are trying to figure out objective standards to apply against subjective matters.

For example, we have interfered with the private marketplace to the extent that in the private marketplace a patient used to go to the doctor because they knew what his reputation was. You know, he was a better doctor than the other doctor who was in town, and so therefore they gravitated to him. Nowadays, there is -- and this is the transparency issue in another format -- nowadays, patients don't know what their Medicare doctor got paid. They get those billing forms.

They can't decipher that. Even in the private insurance market, all they really know is what their co-pay was and what their deductible might be for the whole year. Nobody knows what providers are being paid for. They have no objective matter of judging the results.

And what we are doing is we're saying we're going to transfer the ability to make those judgments to either the government through Medicare, Medicaid and modifications of the reimbursement system based on results. Certainly, I think results ought to be what we're -- good results is what we all ought to be looking for and trying to achieve.

Now, in that regard, Mr. Smith, you referred to the fact the president says we're going to save every family $2,500 a year in their health care cost. How do we do that?

MR. SMITH: Mr. Deal, I think it means moving backwards from where we are, because I think what we are -- the approach thus far that I've been hearing about is actually going to increase costs rather than lower costs. But I think to start with that pledge of $2,500 -- which I think is -- that is what is getting the American families interested in health care, and I think they expect to deliver on that -- I think we have to change the dynamics of our current entitlement programs. I think that we have to bring about the changes that, left to the market, will help lower those costs.

As I said earlier, so many times we actually interfere in the market. One of the things, for example, is the tremendous growth in Medicaid and in SCHIP. We have actually taken healthy families and money out of the market. When we did that, we raised the costs for the people who were left in the market. This was the crowd-out effect that we talked so much about in SCHIP. So I think part of that is to return people back into the market rather than segmenting people off.

The beneficiaries I think would benefit that -- from that in terms of the continuity of care. I think we unnecessarily drive up costs. When you get on Medicaid for the first time, for example, then a child is supposed to go for a checkup. No matter that he just had a checkup a month ago, we're going to insist that we actually drive up the cost of care. So I think that's a large part of it.

And in Medicaid, I mean, we're talking about 45 million lives. To put that back into -- to put those lives back in the market I think would be at least a stabilizing effect on the market.

REP. DEAL: Let me ask Dr. Goodman, would you comment about the same thing? How do we save every family $2,500 a year?

MR. GOODMAN: Well, all of the proposals that I heard from the health care advisers to President Obama, all the items they've mentioned have been costed out by the Congressional Budget Office, and the CBO says there will not be savings in these programs. These are all, in my opinion, demand-side attempts to try to change how doctors practice medicine. And as I said in my testimony, I don't believe you can have great savings coming from the demand side of the market.

We need to free the doctors and the hospitals. They know where the waste is. They know how efficiency improvements can be made. And we need to give them an incentive to do so. And that -- I think what that means is empowering the secretary to allow every hospital to come to Medicare and have a different deal, have a different arrangement.

REP. DEAL: Are some of --

MR. GOODMAN: On the readmissions, let the hospital have a warranty, and so Medicare doesn't pay for the readmission. But we have to pay more for the initial surgery. And we should be willing to do that, because a warranty is worth something.

REP. DEAL: Are some of the stark anti-kickback provisions an impediment to doing exactly some of those things?

MR. GOODMAN: They are huge impediments. They may be doing some good, but they do a lot of harm. And so if we're going to renegotiate and let the providers come forward and say we want to be paid a different way, there has to be a way of getting around those stark restrictions.

REP. DEAL: Thank you.

MR. GOODMAN: That's essential.

REP. PALLONE: Thank you.

Gentlewoman from Florida, Ms. Castor.

REP. CASTOR: Thank you, Mr. Chairman.

Dr. Skinner, your data that shows the variations by region is astonishing, and I'm very sensitive to it coming from the state of Florida. South Florida is just infamous, so that we have high- spending regions and low-spending regions and we can't really explain this by the difference in illness or prices. There's no guarantee that folks in south Florida are getting, you know, much better quality of care.

So I am particularly interested in your finding that the lower spending regions rely on primary care physicians to a greater extent. Can you give us a few examples of this? And why do you think primary care is more available, or is it more widespread in those regions? Is it simply that in those regions people need more, or they have access to a better work force? Could you lay that out in some detail for us?

MR. SKINNER: That's a great question.

I think understanding where physicians settle is -- and where they decide to live and decide to practice is a fascinating but as yet somewhat not well understood question, because there is a free market in where physicians go.

But it seems to be that -- and I guess the -- it seems to be that the approach of the primary care physician is to look at an individual and to think there may be -- for example, for chronically ill patients, there may be different organs which are failing, but let's think about how we can coordinate that care and think about treating that individual, whereas I think sometimes the emphasis of a specialist is on that part of the body to which they're most highly trained to understand.

And in many cases you want to have a specialist on the job. But I think it can also lend to a large number of -- in regions with lots of specialists, you can get many, many people treating the same -- many different physicians treating the same patient. And there are these what economists actually call network externalities in which I may be doing something as a physician which I think is best for my patient but I don't know what all of the other physicians are doing as well, and sometimes the things I do may interact with what they do, resulting in not better outcomes.

And so I think that's the best way I can think of to explain why in some areas -- even within Florida, which is sort of a microcosm of these variations -- you can find some regions where lots of people are being treated by multiple physicians, but they don't seem to be doing any better.

And obviously there's a balance -- you need to have specialists in any system, but on the other hand, in some sense, you also want this idea of a medical home where somebody is coordinating all of that care.

REP. CASTOR: And Dr. Cassel, I've met with a number of physicians and they will share cases where a patient has come in and gotten a diagnosis and gotten tests but they want a second opinion, so they go to another physician, they get another set of tests, they go another place. There must be some answer to controlling -- you know, if we're going to encourage a medical home but you still want patients to have some flexibility, but there must be something we can do in cost structure and reimbursement structure. What do you recommend?

DR. CASSEL: Well, thank you for that question.

There is indeed, and the medical home concept and the accountable care organization actually are linked because they have to do with giving somebody the accountability to make sure that that coordination happens.

So, for example, the patient with many complicated illnesses who's seeing 10 different specialists and those specialists don't communicate with each other could be taking medications that interact, they could be missing major things -- you could end up in unnecessary hospitalizations and readmissions, et cetera. So, you know, you can actually make a patient sicker by too many doctors.

Now, on the other side of the coin the point that you point out, which is that the informed patient -- it's a good thing that patients are asking for second opinions in my opinion. I think that's what we want patients to do, to be asking of a surgeon how many of these procedures have you done and what's your complication rate, et cetera, and particularly in the diagnostic arena, to making sure that they get the right diagnosis. I believe physicians ought to be open to that and they ought to welcome that.

In a well-functioning system, though, you would have an electronic record and you would have relationships with those specialists where you wouldn't need to do the same test over again just to get another doctor's opinion. You would share your records with the other doctor, and why should they have to order the same test all over again, put the patient not only to the expense but to the risk that every medical intervention entails?

So I think you can create an accountability system around this. Part of the problem both of these notions are trying to solve is that 50 percent of the physicians in the United States don't practice in Geisinger or Mayo -- they practice in single, solo practice or very small practices where they don't have that connectedness with their colleagues.

We need to create some incentives for them to do that and to share records and to share the well-being of the patient around organizing that patient's care.

REP. PALLONE: Thank you.

Gentleman from Pennsylvania, Mr. Pitts.

REP. PITTS: Thank you, Mr. Chairman.

Dr. Goodman, as you know, I'm sure many large employers are feeling the brunt of ever-rising health care costs, and many companies, such as Safeway, among others, have created innovative ways to lower costs and improve health. Unfortunately, because many small employers fall under HIPAA requirements, they're not able to take advantage of this same opportunity.

I'd like to know your thoughts on this. Should we change HIPAA to allow small businesses to take advantage of these opportunities? If so, you know, how would you change the law?

MR. GOODMAN: I think we should, and in particular I think we need some pretty important changes in how we deal with the chronically ill, because that's where most of the money is spent. And we need to be able to -- employers need to be able to make risk-adjusted deposits to the accounts of the chronically ill so the diabetic patient, for example, can manage his own money, or the asthma patient can manage his money.

A lot of care can be managed by patients in their homes. A lot of care can be self-managed. But if we're going to ask patients to manage their own care, they need to be managing the dollars. To make that possible you need for the employer to be able to give different amounts of money to different employees depending on their condition.

And we also need a change in the health savings account rules so we can get rid of this idea of a deductible. We need to just carve out areas of care and say the patient's going to be responsible for certain things; we're going to put money in the account so he can do it.

And the model for this, interestingly enough, comes from the Medicaid pilot program cash and counsel, which is I think now in all 50 states. It's hugely popular. Patients like it and I haven't heard a single criticism of it.

So that needs to be done and we need clarification from Congress on what employers can do -- the large ones as well as the small ones.

REP. PITTS: You also advocate making insurance portable, I believe. How would allowing people to purchase insurance across state lines affect costs? Do you believe that the people can choose the plan that best fits their needs, or they need help? How would you change it?

MR. GOODMAN: Well, I do think we need a national market for health insurance, and of the two questions you asked that's the easier one. Just let insurance sell across state lines the same way life insurance sells across state lines.

The harder issue and the far more important one is how do we make health insurance portable? Because I think that's the next really big issue in health care and in some ways, for employers, the sick patient is like a game of musical chairs and it's intolerable for the employer, it's not good for the employee.

So much better if employers could make a fixed-dollar contribution to a plan that's owned by the employee which he takes with him from job to job, that travels with him through the labor market, and we've proposed a way to do this for the state of Texas with Blue Cross of Texas. We think it's one way to do it nationwide.

Probably I would let the states experiment with ways to convert the small group market into a market for portable care, but that's really, really important and I think portability is maybe the most important health care issue that you all are looking at.

REP. PITTS: How about risk pooling?

MR. GOODMAN: Well, you know, the risk pool is there because we're failing on the portability side. We are always going to need a risk pool if somebody falls through the cracks and for some reason doesn't have insurance and has health problems, and so that's a way to get health insurance to those people.

But if you're in a system where you're insured and you stay insured and you take your insurance with you, then you will never need the risk pool. So the risk pool should be there but they should be used infrequently.

REP. PITTS: Thank you.

Mr. Smith, could you speak as to the issue of government plans competing along with private plans and your thoughts on that?

MR. SMITH: Yes, sir. I think it's an oxymoron -- government plan can't compete against the private plans because eventually there will be no private plans because the government plan will eat them all up.

It is not a level playing field between government being a competitor in there where it can control benefits, it can control how much somebody is paying, et cetera. All of the advantages are on their side of it. They clearly would want to advantage itself and it would create the rules to do so.

So eventually, the private plans would not be able to compete so we would end up, later if not sooner, under then a government plan, which I think would be a huge mistake. We've seen experiences of government plans and I think that the private sector -- and when there is real competition, and I had mentioned earlier I think part of our problem is we keep interfering with the competition and say we don't want competition in many respects, whether it's specialty hospitals to where doctors can go out and form a group and provide a superior process. Government comes along and says no, we don't want you to do that. Many respects we don't want competition against our community hospitals, so we change the rules and bend the rules to advantage somebody else.

So fundamentally, I think there's not a level playing field when a government plan is involved.

REP. PITTS: Thank you.

I see my time's up.

REP. CAPPS: Thank you.

And now I turn to Mr. Sarbanes of Maryland, please, for your questions.

REP. JOHN P. SARBANES (D-MD): Thank you. Thank you, Madame Chair.

Thank you all for your testimony. There's two geriatricians, I think, at the table. I spent 18 years working with seniors in the health care arena and so I'm very focused on that. I also have a district that includes one of the most rapidly aging populations in the country, in one portion of it.

So on the question of the work force, specifically today, if you were trying to encourage somebody to go into that line of work, what are three or four or five things that you would offer them, that you would change, that you think would incentivize them to pursue that kind of a career, Dr. Cassel and Dr. Avorn?

DR. CASSEL: Thank you, Congressman Sarbanes. Great question, and particularly at this time where all of these models of reform are based on the idea of not just better outcomes but also more efficiency.

You're going to have to have somebody who really understands that complexity of the science base and the evidence base and where all the skills of working with a team that, as you know well, geriatric medicine involves.

So the answer is how do you create those incentives? I would say value, respect and doability. And so value really is reimbursement. Geriatric medicine is now the only sub-specialty I know of internal medicine -- you know, we have internists who train and they become cardiologists and they become critical care specialists, and every time they get an additional training they make more money.

In geriatrics, after you do your internal medicine training you get more training in geriatrics and you make less money than the internist makes, and so it's amazing anybody does it at all. But the few dedicated people who do it do it because they really find huge rewards in that and it makes sense to them that the aging population needs this.

So we have to find a way in the payment reform discussions to appropriately value that additional training and that additional skill, and I think there's lots of ways that we can do that and I'd be happy to talk with you and the committee staff more about that.

And the second is respect. You might find it odd that I put that in there but I think Dr. Avorn can reinforce this -- that within the medical profession part of how you're respected is kind of by what the public thinks and what you're paid, and that value equals something, some combination of that. And if other specialists really believe that what you bring to the table adds value, then that adds a lot to the respect.

Right now it's such a small and in some ways embattled specialty that most specialists don't have any experience of working with a geriatrician, they don't know what that can value. The people who understand this now are aging baby boomers who've gone through this now with their parents. And if they can find a geriatrician they say oh my god, I didn't know they made doctors like that.

So we somehow need to create systems, and accountable care organizations might be one example of that, where there would be a defined role for that person, really taking advantage of their skills, taking care of the most difficult patients and the most challenging patients. So that's the second thing.

And the third is doability, and this gets back to delivery redesign as well, because right now in the fee-for-service system in order to actually even just make the expenses of your practice and take home a reasonable salary to support a family, most geriatricians who are in private practice are doing things like Botox and, you know, laser skin surfacing because what Medicare pays them for that complicated coordination of care -- helping that patient and family find ways to stay out of the hospital, stay out of the nursing home, keep themselves as functional as they can with their Parkinson's disease and all of their conditions -- nobody pays them to do that.

REP. SARBANES: Right, right.

DR. CASSEL: So instead, they're wasting all that training doing Botox. So that's a real misuse, it seems to me.

So I think it actually wouldn't be that hard to do within some of the things that I know the committee's considering within the payment reform.

REP. SARBANES: Thank you.

I just have a few seconds left, Dr. Avorn, if you want to add anything.

DR. AVORN: Yes, sir. Just very briefly, my answers are exactly parallel to Dr. Cassel's. It has a great deal to do with reimbursement. Students come into medical school wanting to be primary care doctors, take care of the elderly, deal with chronic disease, and they come out of medical school looking for residencies in dermatology and plastic surgery.

It is because they see their role models, and the people who are doing well and being rewarded by the system, both public and private, are the folks who are doing procedures. And the doctors who are simply taking care of chronically ill people are reimbursed in a manner that makes it virtually unaffordable to do that kind of work.

So I think Medicare and Medicaid as well as the private systems could do a great deal in moving from a procedure-based reimbursement system, particularly invasive procedures, and toward a comprehensive care of the patient kind of system, and we've heard about that for a number of ways today.

And then the last point is it also would help if we had a health care delivery system that was structured so that the geriatrician, like the primary care doctor, didn't feel that he or she was out there waving in the breeze.

If there was some integration of the system so that one was really part of a care network as opposed to somebody out there in left field, that would also make it a little bit easier to do what is probably the hardest job in medicine and the least well paid.

REP. SARBANES: Thank you, that's a great point.

I know Congresswoman Capps and I are very focused on school-based health centers with respect to children, but there's also delivery models you can pursue with respect to seniors, community-based clinics, where do we reimburse, et cetera, that I think can advance the ball, so thank you very much.

DR. AVORN: Absolutely.

REP. CAPPS: Thank you.

Dr. Burgess for five minutes.

REP. MICHAEL C. BURGESS (R-TX): Thank you.

And thank you all -- really, it's been a fascinating discussion this morning. I've got a number of questions I want to ask. If I interrupt you during your answer it's not because I'm being rude, but I do have a lot of things I want to get through.

First, Dr. Skinner, I want to talk just a little bit about the accountable health organizations. I spent a fascinating morning in December down at the Center for Health Transformation talking to four of the clinics that had participated in the physician group practice demonstration project where they're talking about things that sound very similar to the accountable care organizations.

In fact, one of the things that came up on the discussion was re- hospitalizations and giving someone a doctor's appointment with their primary care physician within five days of their discharge from hospital for decompensated congestive heart failure resulted in an almost disappearance of the re-hospitalization. So a very low-cost activity with a very high yield on the other end, so clearly these are areas that it's incumbent upon us to explore.

One of the things that came up -- how do we force doctors into these types of practice models? And I'm not a big one for forcing so I put forth another idea and I'd just like to get your thoughts on it. Medicare, of course, is a federal program. It's not a state program; it runs across the country.

If we have groups that conform to all of the parameters set forth for accountable care organizations -- and granted, this will be flexible and this will change over time -- but if we have groups that are willing to do that, the doctors within that group, if they were offered protection from liability under the Federal Tort Claims Act, like we might do with a federally qualified health center, it seems to me that's a way to bring doctors into that type of practice.

In fact, you might see accountable care organizations set up just to see Medicare patients so that they would be provided that cushion from liability. Do you think that that is an idea worth exploring?

MR. SKINNER: Absolutely. I think that that's a win-win. I don't like to think about forcing doctors into ACOs, but I think there's also this -- that many physicians are concerned about SGR payment cuts and that's another way to incentivize maybe making it worth physicians' while, to start thinking seriously about whether there's a potential for an ACO in there area as well. But the more that these organizations grow up, spring up out of existing physician hospital networks, the better.

REP. BURGESS: Yes, sir.

Let me go on. Dr. Cassel, I wanted to ask you just a couple of questions. Actually, it relates to some testimony Dr. Skinner gave about the high cost of end-of-life care, the amount of money we spend within the last few weeks of a person's life -- not really being certain that we're doing much to provide value.

Now, Dr. Smith talked about how we do sometimes do things and we make ourselves do things that aren't necessarily a good return on investment. When we did the Medicare Modernization Act we required that everyone coming into Medicare now have an EKG on their welcome to Medicare physical, even if they've had an EKG just a year or two before in conjunction with a surgical procedure.

What if we were to offer -- not require, but offer -- an educational module on advance directives on that welcome to Medicare physical? We could do it right after the EKG, in fact. The patient's there (laughs) -- and putting their clothes back on and could have this educational module. Sure, pay the doctor, pay the gerontologist for their expertise in providing this education; maybe even incent the patient with some sort of break on the part B premium or some other things of value that we could return to them.

But what do you think about exploring that as an opportunity for getting more people into thinking about planning for what happens at end-of-life care?

DR. CASSEL: That's a very interesting idea, Congressman Burgess, and I think I'd like to consider it with you. I can imagine the physicians not exactly liking that idea for most healthy -- you know, let's remember the Medicare age group between 65 and 85 --

REP. BURGESS: It's the new 40. Well, they're getting the Botox.

DR. CASSEL: (Laughs.) Yeah, they're the ones there for the Botox, that's right.

So they might be kind of put off by that, like why are they making me look at this?

REP. BURGESS: Again, it's not a requirement but an offer.

DR. CASSEL: There are very good models of shared decision-making -- and again, the group at Dartmouth has been very involved in these and others as well -- that show that when patients have all of the information and interact with their caregiver around that information, they almost always make more conservative choices about their care, and it's their choice.

REP. BURGESS: Well, I'm going to interrupt you, not because I'm not interested but I have one last thing I want to get to, and I do want to work with you on that concept.

DR. CASSEL: It was a good idea. I like it.

REP. BURGESS: What about the concept -- we had some other testimony earlier in the past couple of weeks regarding Alzheimer's disease, and if you look at the numbers, if people are correct in some of their projections, the numbers are just absolutely staggering from a public health cost.

You talked about the gerontologists being out there kind of on their own, and sometimes it's a lonely existence, but with the interconnected world in which we live and we are constructing, would there be an opportunity for creating essentially a virtual center of excellence for the long-term management of the Alzheimer's patient, perhaps even considering some early diagnostics with things perhaps we can do with genomics, the monoclonal antibodies offering perhaps some real choices for early treatment?

Is there a place in what we're looking at in the road ahead for developing this type of virtual center of excellence so that the practitioner's not kind of left out there by themselves on this?

DR. CASSEL: So this would be a clinical center, not necessarily a basic research center.

REP. BURGESS: Well, certainly you could have a physical basic research center, but a lot of practitioners who are in medium-sized communities may have a population of, say, Alzheimer's patients within their larger sphere of patients.

If they could link in with other practitioners in, again, a virtual center of excellence, Alzheimer's patients are not likely to require surgery to improve their condition, but the medical management, the long-term management, is really so critical.

REP. CAPPS: Excuse me, Dr. Burgess.

DR. CASSEL: And much of the reason is that geriatricians, as Mr. Sarbanes pointed out, are not widely available so you don't even have that expertise. And many physicians don't know what to do -- they don't pick up early symptoms of Alzheimer's disease, and if they do, they're not sure what to do about it and they may prescribe medication unnecessarily, et cetera.

So I think it's a wonderful idea. As you may know, I was part of the Alzheimer's Study Group with Newt Gingrich and Bob Kerrey and Justice O'Connor and others.

REP. CAPPS: Dr. Cassel?

DR. CASSEL: And that was one of our recommendations, was that there be resources for community providers.

REP. BURGESS: Great.

REP. CAPPS: Thank you.

REP. BURGESS: Let's work on this.

Thank you.

REP. CAPPS: Thank you.

And I recognize myself now for five minutes.

I will start with you, Dr. Avorn, because you speak a great deal about comparative effectiveness, and it's been a pretty hot topic around here. I'm particularly interested in your comments about translating information into better patient care decisions, and I wondered if you'd mind using my piece of legislation, a bill I've introduced, as an example.

It's called the -- and it's an acronym -- HEART for Women Act, and among other things it would require the FDA to collect and make available information about how drugs and devices work differently in patients of different sex, race, ethnicity, so forth, the goal being that a health professional could determine which drug might be most effective in their particular patient.

Could you explain how this might be helpful for comparative effectiveness research and why it's important that we have a data collection or information like this for quality of care and outcomes?

DR. AVORN: Sure. Right now we have a perhaps efficient, perhaps skimpy approach to approving drugs, such that if it is better than, let's say, a dummy pill over a brief period of time in healthy -- or people then we know will take it in achieving perhaps a lab test change instead of a clinical change, the drug gets approved.

That leaves kind of in the dark patients who may be excluded from those trials. Often they are minorities, often they are women, often they are other vulnerable groups -- the very elderly, for example -- and then the doctor faced with trying to care for those people does not have the information from the clinical trials that we would like to be able to make a scientifically based decision for that patient, not the patients who are like the ones in the clinical trial.

And so where comparative effectiveness research would help would be that it would make it possible to fund studies that would zero in on particular at-risk groups. Let's say a group of scientists, physicians, consumers would say we don't really know enough about the management of, let's say, congestive heart failure in blacks or atherosclerosis in women, or how Asians metabolize drugs differently, and we would identify on the basis of the medical need for the information studies that could be done --

REP. CAPPS: May I interrupt you? Just because I want to move to another topic as well, but would you kind of locate such a place at FDA or might it even be multidisciplinary in terms of different --

DR. AVORN: I think FDA's job is to approve new drugs and we should have it --

REP. CAPPS: Where would you locate this?

DR. AVORN: I would locate this in a trans-NIH/AHRQ setting that is a health care research, biomedical research entity that would then be able to make recommendations scientifically.

REP. CAPPS: I hope we can follow up on this topic.

DR. AVORN: I'd be happy to.

REP. CAPPS: I just opened it up, I know.

I want now with the rest of my time to address you, Dr. Cassel, because you spoke a great deal about the importance of coordinating care and the role of the entire clinical team in providing preventive care. That's a very important topic to me.

But so many people talk about a medical home, which is in itself a fairly new phenomenon or label. I'd like to propose that we discuss it and talk about it as a health home. When we think of the word "medical" we think of medical doctors and medicine and techniques.

Rather, I believe we could be talking about the health of the patient as the sort of core and all of the panoply of health professionals involved, and I wondered if you would sort of give a couple of ideas of how this might work.

I'm a nurse, and so I'm thinking of the different participants on this team and how that might be coordinated, but I also want to have you close by talking about the structure, how the reimbursement would work in such a model. I'm aware that in oncology there's a whole team already, oncology nurses, who deliver much of the care for which there really is no designation.

DR. CASSEL: Thank you. And first of all, I completely agree with you. I think that the term "medical home" grew up in this model from pediatrics, which you're probably familiar with, which was where it first began.

And it is to my mind unfortunate because, particularly from the perspective of a geriatrician, it's all about the team. And care coordination function I don't think can actually be done by a solo physician or two physicians in an office with a medical assistant. I can't imagine how they could actually effectively do that unless they outsourced it or something like that.

So to my mind you actually need this larger team to qualify for being a medical home. Now that's not in the Medicare demo legislation. There's a lot of reasons why you want to be able to have those small doctor practices.

REP. CAPPS: I only have a few seconds. If we can demonstrate that this is important, how -- it only will work if people get reimbursed.

DR. CASSEL: So how we do it is I think there have to be some kind of bundled or global payments rather than just -- because right now Medicare pays the doctor and you couldn't have Medicare pay every different health professional and still have that add all up to everybody being accountable for working as a team. We know this from private industry.

You want to have people work as a team, you pay them as a team and then you have the team figure out a lot about the reimbursement. So some mixed model that involves some degree of global payment would be my answer.

REP. CAPPS: Thank you.

REP. SHIMKUS: Madame Chairwoman, I'd like to defer to my colleague Mr. Shadegg and then I'll take the next one. Thank you.

REP. JOHN B. SHADEGG (R-AZ): I thank the gentleman for deferring and I thank Madame Chairman.

Dr. Goodman, I'd like to begin with you. You spent a lot of time in your prepared testimony discussing with how the system isn't working well for doctors, patients, employees, employers, people in the nontraditional workplace, insurers, the uninsured, and I tend to agree with you.

And I want to kind of explore that, I want to explore -- first of all, I assume the reason that it's not working very well is that the structure isn't suited to make it work very well for those people, is that correct?

MR. GOODMAN: Yes, it's an institutionalized and bureaucratic system. It doesn't work like a normal marketplace and therefore people don't have the opportunities to improve services and lower costs and raise quality the way they would do in, say, the market for other professional services.

REP. SHADEGG: Indeed, it certainly doesn't operate like a normal marketplace, because in this marketplace the consumer of the good doesn't buy the good. That's kind of bizarre, isn't it? I mean, I'm the consumer of my health care, I'm the guy that goes and sees my doctor -- I did over the Christmas break, went and saw a doctor.

But I didn't hire that doctor and I didn't hire the plan that hired that doctor, I just signed up to work here at the Congress.

Is that a part of the distortion of this marketplace, and is there even a marketplace in health care?

MR. GOODMAN: Well, that's the fundamental cause of the distortion. As I said earlier in my testimony, it's also the fundamental cause of the distortion in the education market, which has many of the same problems. The entity that benefits is not the entity that pays the bill.

If I could just say, there are emerging health care markets where third parties aren't involved -- cosmetic surgery, LASIK surgery, the walk-in clinics, the concierge doctors. All of those areas are where the market's working well. You have price transparency, you have price and quality competition.

So if we contrast those two markets, you can see radical differences.

REP. SHADEGG: I would argue that the problem we have in the current health care market for most Americans is that it's all controlled by third parties. I'm a ploy (sic) or one just kind of pawn being moved around and my doctor is one also, and the whole thing's being controlled by my employer, who doesn't really care too much about -- I mean, he'd like me or she'd like me to have good health care but that's about it, and then by the plan that my employer buys.

I sent my staff an e-mail a little while back where I said, okay, let's assume that going to work in Congressman Shadegg's office meant that Congressman Shadegg was going to provide you free lunch every day. And I posited that for one of my employees I'd go buy him a ham sandwich every day and for another one I'd go buy them a salad.

The problem is that the employee that I bought the ham sandwich for actually hates ham and the employee for whom I bought the salad can't stand salads. That's kind of the way the so-called health care market works, isn't it?

MR. GOODMAN: Well, that's why I entitled those sections "Free the Doctor," "Free the Patient." But also free the employer; he's not happy with this, either.

REP. SHADEGG: He's not happy with it. I think the problem with health care in America today really comes down to two things: the uninsured -- and I think we need to cover them all, every single one, and I've dropped a bill to do that -- and costs, and costs are spinning out of control.

I kind of drew this up. Here are the costs of inflation in our society and here are the costs of health care or health insurance. Health insurance is rising exponentially faster -- or health costs are rising exponentially faster than any other area, right?

MR. GOODMAN: Twice as fast as income growth. And by the way, it's not just a U.S. problem; that's happening all over the developed world.

REP. SHADEGG: Including other places where they've divorced the consumer from --

MR. GOODMAN: Everywhere, all over the --

REP. SHADEGG: -- the payer.

MR. GOODMAN: Yeah.

REP. SHADEGG: I just have a question for you. In auto insurance, I happen to note that I can't go home one evening and watch TV and not see two, three, four, five auto insurance commercials where the little gecko comes on and says he wants my business or the State Farm guy comes on and says he wants my business.

But I note that I never see a commercial like that from UnitedHealthcare or any of the health care companies. Is that related to this problem?

MR. GOODMAN: Well, I do see some insurance commercials but these are commercials for buying insurance in the individual market. They're not commercials for group insurance.

REP. SHADEGG: And what percentage of the American people get their health care in the individual market?

MR. GOODMAN: Oh, less than 10 percent.

REP. SHADEGG: And what's the government tax policy do to those people?

MR. GOODMAN: It discriminates against them. If you're self- employed you get to deduct your premium but you don't get relief from the payroll tax, and if you're just off on your own you get virtually no tax relief.

REP. SHADEGG: You get smacked. You get smacked right in the face. You get told, well, you can buy health insurance and we think you should, because we really don't want you to show up at the emergency room where you can get free care, but since we've told you we want you to go get health insurance, we're only going to charge you one-third more for it -- roughly one-third more for it -- because you've got to buy it with after-tax dollars, right?

MR. GOODMAN: Yes. The uninsured who happen into an emergency room more often than not get charged more than any other payer in the emergency room.

REP. SHADEGG: How well does a system of that type, of the type we have now, where you've divorced the payer from the consumer and you've put these people in between them, how much would that be helped by substituting the government for where the employer and the insurer or the plan is right now? Instead of having the plan, how much by contrast would it be helped if we made a direct connection between consumers and providers -- hospitals or doctors -- by allowing people to have the money they need to buy the plan that suited their needs?

MR. GOODMAN: Well, not very much help by the government, because in my opinion, the private insurance is almost as bad as government insurance. Half the people in the country are on a government plan, and --

REP. SHADEGG: Fifty-seven percent, I hear.

MR. GOODMAN: And the private plans pay the same way the government plans pay, so there's really not all that much difference. The markets where you really see a lot of difference are the emerging markets where there are no third-party payers at all, and those are working remarkably well.

REP. SHADEGG: Kind of like auto insurance, where people can buy directly from the auto insurer and get their car repaired?

MR. GOODMAN: Yeah, but I was thinking of markets where people pay directly for care.

REP. SHADEGG: Good enough for me. Thank you very much.

My time's expired.

REP. CAPPS: Mr. Shimkus for five minutes, please.

REP. SHIMKUS: Oh, thank you.

Dr. Avorn, and I'm not sure who else talked -- I'm not going to get very deeply in this, but I am concerned about this cost- effectiveness issue, and it was raised earlier. What's, in a cost- effectiveness ratio, fighting aggressive cancer for 10 months or allowing the person to die because they have aggressive cancer in two weeks? If that was scored out budgetarily, what would cost more?

DR. AVORN: First, I think it's important to distinguish between collecting the information about what works and what is safe for patients and what is a good buy on the one hand versus coverage decisions which are really quite separate, so that one can imagine collecting the data about which treatments are the safest and the most effective versus their price.

That's separate from what Medicare or Medicaid or a private insurer may choose --

REP. SHIMKUS: Well, let me tell you why I mention this -- because like everybody does, when we meet with folks we may have personal relationships of things that are going in everybody's life like this. I talked about my concern is a rationed care system developing under cost. I was, again, at a student forum and one of the students popped up and said, you know, well, it doesn't make sense to fight aggressive cancer for 10 months. The cost-benefit analysis doesn't score out.

So for us to say that that's not part of a debate which I think eventually we move to if we don't keep private insurance as a very important option in this country, if we move to a public option which destroys the private insurance provision and then we go to a one-payer system, that is my concern -- a rationed care system which will decide when you get care based upon budgetary aspects.

And that's why those of us who are -- this comparative analysis, cost-effectiveness, that's where our concern comes from, and I just wanted to throw that out to talk about that. And let's just kind of segue, and this will be -- I think the chairman submitted this for the record, The New York Times article. Is that correct?

So my question's going to be related to Medicare and really segue into Medicaid. One of the provisions that's being discussed here is Medicare for all. Okay, now if you believe this article, "Doctors are Opting Out of Medicare," and if you go around your congressional districts and talk to physicians, this is what we know is occurring.

With this growing access to care issues, if we add millions of people to the Medicare system, a Medicare for all, does that help or hurt this problem of doctors fleeing? Anyone want to comment?

Dr. Goodman.

MR. GOODMAN: It hurts it. What's happening now is Medicare is paying below market -- let's say 30 percent below market -- but not everybody can get below market. If you're a doctor, the first patients you want to see at the beginning of the day are the ones who pay market, and Medicare would be next, and Medicaid, which pays below Medicare, would be at the end of the line.

If you try to put everybody into a system that's under-paying, then you exacerbate the supply side, and yes, it'll make the rationing problems worse. And rationing by waiting is not access to care.

REP. SHIMKUS: Anyone else want to comment?

Mr. Smith?

MR. SMITH: Yes, and in my opening remarks I did suggest that people look at the experience of Medicaid over the past several years, which resorts at the end of the day very much to price controls, to where you have real access problems for the Medicaid population.

One-third of all Medicaid ambulatory visits are to an emergency room or to an outpatient hospital facility. So this is where a single payer system ultimately drives you to because you have now overburdened the system. As we have seen with states, then the reaction to that is to squeeze back against the providers to try to lower the costs that way.

REP. SHIMKUS: Did the Medicaid question get asked? Does anyone want to swap their current insurance policy for Medicaid? Did that get asked of the panel? Can we go through Dr. Skinner all the way down?

Who would -- let's start with Dr. Skinner and I'll end with that question. Would any of you opt out to go to Medicaid over the insurance product that you currently have?

You don't need to direct him, Dr. Cassel. Let Dr. Skinner answer. (Laughter.)

MR. : He needed help on that.

MR. SKINNER: Well, I happen to have a pretty good plan, so I would not.

REP. SHIMKUS: So you would not accept Medicaid as an alternative.

MR. SKINNER: Not everybody is so fortunate.

REP. SHIMKUS: Dr. Cassel?

DR. CASSEL: I'm not sure why -- what is the background of that question?

REP. SHIMKUS: The question is the debate of if we have uninsured and we provide them access to Medicaid as an option, would you personally be willing to give up your current insurance product for Medicaid? The question is, is that a good deal?

DR. CASSEL: Well, firstly, there are very --

REP. SHIMKUS: But the real question I'm posing is with the insurance that you personally have, would you trade that if offered Medicaid in a trade?

DR. CASSEL: No. If I were uninsured, you bet I would.

REP. SHIMKUS: Okay, thank you.

Dr. Goodman.

REP. CAPPS: I don't think we're going to make it through the end of the line.

REP. SHIMKUS: I think we will, if they'd answer the question.

MR. GOODMAN: Of course not. I wouldn't trade it for Medicare, either.

REP. SHIMKUS: Thank you.

DR. SIGSBEE: I'm going to be distinctly different. I would. In my area --

REP. SHIMKUS: We had one last week that said they would.

DR. SIGSBEE: Medicaid pays for all medications. You don't have to have anything out-of-pocket, so that I would, actually. From a provider standpoint, though, Medicaid pays below the cost of providing the service so it would be --

REP. SHIMKUS: You might have some access issues then with doctors not wanting to see you.

DR. SIGSBEE: You would have some serious access problems and it would be unsustainable to be in medical practice.

REP. SHIMKUS: Mr. Smith?

MR. SMITH: No. There are 56 different Medicaid programs, and in due respect to my colleague here, there are states that say you can have four prescriptions a month. So you don't have unlimited access to prescription drugs.

REP. SHIMKUS: Dr. Avorn?

DR. AVORN: There are 47 million Americans who would say absolutely yes to the question --

REP. SHIMKUS: No, the question is you.

DR. AVORN: Well, I happen to be an affluent American who has good coverage.

REP. SHIMKUS: So your answer is?

DR. AVORN: I would not want Medicaid.

REP. SHIMKUS: Thank you very much.

REP. CAPPS: Well, now it's time to say thank you very much. The panelists have been amazing in your forbearance of all the questions, but also your testimony is valuable as we go about making some very important decisions in Congress affecting health care. Thank you very much.

DR. CASSEL: Thank you.

REP. CAPPS: We will excuse you and give you a break and ask for our second panel to take places at the table.

In the interest of time, we have three of our four panelists, and one will be here shortly. I will introduce the three, and then we'll ask you to begin, Dr. Ginsburg, and I will introduce Mr. Bachman when he arrives.

We're pleased that you are here with us this afternoon: Paul Ginsburg, president of the Center for Studying Health System Change; to be followed by Dr. Regina Herzlinger, professor of business administration at Harvard Business School. I'll jump over to Diane Archer, director of the Health Care Project, Institute for America's Future.

And Dr. Ginsburg, you may begin your five minutes of testimony.

MR. GINSBURG: Thank you, Madame Chairman, Mr. Deal and members of the subcommittee.

REP. CAPPS: You might want to turn on your microphone and pull it a little -- there.

MR. GINSBURG: Sure, I got that.

I appreciate the invitation to testify on price and quality transparency of health care services.

In theory, more information on provider prices and quality can lead to lower prices and higher quality. Those consumers who choose differently will benefit. And if enough people make different choices, providers will be motivated to reduce their prices and increase their quality, extending the benefits beyond those acting on the information.

But today the reality does not line up well with the theory. Few consumers use such information to make choices. The tools to measure and communicate price and quality information are primitive at this point, and most consumers are not incentivized to consider price and not aware of the variation in quality among providers.

Focusing first on price transparency, the key factor limiting the potential impact today is a lack of incentives in today's insurance benefit designs. There's little reward for choosing lower price providers. And this is even a problem in high deductible plans with savings accounts.

Much of the information that's available to consumers is not in forms that they can use. Hospital care is not priced in units that are meaningful to patients, such as per stay or per episode. Some information now provides ranges per episode, which is progress.

The same issue with physicians: Fee levels do not provide insight into what services will be provided. And information that state governments and the federal government is provided are not reflective of people's health insurance. Also there's a legitimate unwillingness by consumers to choose providers on the basis of price when they have little, if any, information on provider quality.

There are some risks of unintended consequences of additional price information. For one, if the information discloses contracts between hospitals and insurers, this risks driving up prices. This is an accepted perspective in antitrust policy throughout the world that when markets are highly concentrated, disclosure often leads to higher prices. And another unintended consequence is that some consumers, particularly those who don't have incentives to look for lower prices, will use price as an indicator of quality and go to the higher priced providers.

There are opportunities to do better. If we reform provider payments, this would create much more meaningful prices for consumers to respond to. Now, insurer high-performance networks can be seen as a first step in this direction, although success has been limited by the use of different measures by different insurers and lack of engagement of physician leaders.

Information on charges by out-of-network providers and on what insurers pay for these services can be helpful. There are large differences in what the patient pays between in-network and out-of- network providers, and the database to be developed in the state of New York will support an important increase in transparency about out- of-network care.

Now, quality transparency is much more challenging than price transparency. The measurement is very complex. Much of the measurement of quality these days is based on processes rather than outcomes because of such limited data on outcomes. And process measures of quality are inevitably going to be limited by our lack of knowledge about effectiveness. We need to know what processes really do improve outcomes.

Providers are a key audience for quality information so that even if consumers don't use it, there's a lot of potential with providers. They are highly responsive to quality measurements and they take steps to improve quality, even if there's no pressure from consumers. And the example that Dr. Sigsbee on the first panel mentioned in his practice is a great example of the phenomenon.

There are important roles for governments in advancing quality transparency in addition to the reporting that governments are doing now. They can convene provider leaders and insurers to agree on common measurements. This would enhance the credibility of measures to providers and also avoid excessive burden on providers from multiple reporting requirements. Sponsoring effectiveness research to strengthen -- will strengthen the ability to assess quality. And there's potential for the private sector to analyze and communicate the public data, such as trusted not-for-profit organizations like Consumers Union or commercial data vendors like WebMD.

In conclusion, transparency has the potential to increase the value from our underperforming health care system. The benefits are probably very small now, but there is potential to increase in the future. But we could lose in pursuing transparency by over selling its potential and deluding ourselves that other steps to increase the value in health care are not needed.

Thank you very much.

REP. CAPPS: Thank you.

And now we turn to Regina -- Dr. Herzlinger.

MS. HERZLINGER: Thanks so much, Madame Chairwoman, Ranking Member --

REP. CAPPS: Is your microphone on?

MS. HERZLINGER: Thanks so much, Madame Chairwoman, Ranking Member Deal. I'm used to screaming in a classroom -- (laughs) -- so I thought I was all right. I'm honored to be here.

What does health care reform mean? Sure, most people want to buy reasonably priced health insurance policies, especially if they're threatened with unemployment -- as, sadly, we are in this economy. But many people don't want government to control the process. So I think there's going to be a lot of wrangling as these two opposite points of view gets sorted out.

But there is a health care reform that can be much more readily implemented, and that is transparency. Everybody wants the government to help them make buying decisions by providing good information. They like SEC data about corporate financial performance, EPA data about cars' pollution, and USDA and FDA data whether our chuck roast is prime or choice grade and the cleanliness of the supermarket. Expert, clear communicators help consumers interpret these sometimes arcane data, ranging from Consumer Reports for cars to media business gurus for stocks.

When it comes to our troubled health care sector, Americans want government to provide information too. Why do we know more about the quality and prices of our chuck roasts and supermarkets than about our surgeons and the hospitals in which they practice? But Americans do not want the government to use this data to evaluate the cost- effectiveness of products or to buy on their behalf.

Franklin Delano Roosevelt, that great president, understood the distinction between government enabling information and government making decisions on our behalf when he opted for transparency to cure the stock market's collapse during the Depression. FDR was advised by his counselors that the government evaluate all securities. He rejected that advice. Instead he created the Securities and Exchange Commission. He called it the truth agency. It was going to tell the truth about the corporate sector to require corporations to disclose their results using GAAP, which were audited by independent certified public accountants. The SEC armed the -- was armed with hefty enforcement power. The SEC has been a miserable failure in its regulatory function, but extensive academic research demonstrates how successful its truth-telling mission has been.

Transparency has lowered the cost of capital because when investors are uncertain about performance, they require high returns. Transparency helped protect against misappropriation of shareholder returns by managers; you see it right now with a current outcry against CEO compensation. Most importantly, it enabled appropriate allocation of our resources. Investors reward productive, socially responsive firms more than others.

In contrast, we know virtually nothing about the quality and cost of medical providers or about the performance of our hospitals and our insurance. Transparency would enable a woman who's contemplating a mastectomy to know the death and disability rates of potential surgeons, infections, clots, medical errors like leaving a sponge, rates of re-admission, infection rates and the prices they charge for similar kinds of patients.

Transparency would also enable consumers to better evaluate their insurance firms through information, for example, about the number and types of complaints the firms receive from irate customers or medical care providers and their responsiveness to them. This kind of transparency will enable properly informed consumers to reform health care by selecting the providers and insurers that give them the best value for the money.

Some contend that transparency leads to price collusion. If this were true, every yogurt on your supermarket shelf would bear the same price. It doesn't because the yogurt industry is highly competitive. Collusion is possible only in the highly concentrated oligopolistic markets. Transparency facilitates the government's prosecuting price- fixing competitors in these industries.

You are all too young to remember the NASDAQ scandal where dealers rounded up to the nearest eighth of a penny. The reason that we know about that scandal is that information was transparent, and academic researchers found the collusion. It led to a $1 billion payout by the colluding oligopolistic securities firms.

Voluntary disclosure does not work. How do I know that? We have no information. As demonstrated elsewhere in our economy, transparency through a truth agency will go a long way to reforming health care. Representative Deal's bills captures the essence of what this kind of health reform is all about.

Thank you.

REP. CAPPS: Thank you very much.

And I would like to welcome to the panel Mr. Bachman -- Ronald Bachman, senior fellow at the Center for Health Transformation.

You are recognized for five minutes, please.

MR. BACHMAN: Thank you. Yes, I'm Ron Bachman, senior fellow at the Center for Health Transformation and my mission in life is to solve the uninsured problem. And so the transparency issue before us today is very much a part of that, in my opinion.

Transparency means the public disclosure of honest, meaningful decision-making information. Clearly, the public has a right to know key information to maintain their health and safety.

When up to 98,000 patients die each year from hospital errors, citizens have a right to know where these are occurring. When 9,000 deaths occur from medication errors each year, the public has a right to know the facts. When hospital-created complications and provider- induced viruses are more deadly than the original medical condition, patients have a right to know.

The best way for the public to change poor business behaviors is to improve -- and to improve quality and lower cost is for the guilty businesses to lose customers. Unfortunately in health care, the consumer is rarely the customer. The consumer is one who uses the service. The customer is the one who buys the service and pays the invoice. In health care, the customer is usually the third-party payer -- the insurance company, the HMO or the group plan.

New-generation health plans are financially empowering health consumers and transforming them into health customers. To become an effective health customer, one has to have both a financial stake in purchasing and the information to make informed decisions. You cannot have a quality health care in any system without both.

Financially empowering plans with savings options increased 5 percent in 2007 and 8 percent in 2008. Employers with three to 200 workers are the fasting growing group -- up 13 percent.

With account-based plans, individual worker premiums are 40 percent less than other plans; family premium are 30 percent lower. The average employer account funding is over $800 for an individual and over $1,500 for family coverage each year. In 2008, 71 percent of employers offered incentives for health and wellness or disease management programs -- up from 62 percent in 2007. The incentives averaged $192 per person, per year.

Account-based plans are not just for the healthy and wealthy. In 2009, young families, 25 to 40, had balances averaging over $7,000 in these accounts. By the end of 2008 the average savings accounts total over $8,000 for individuals and over $10,000 for families. The newest products are developing more information to help individuals make informed choices with those dollars.

Historically, transparent cost and quality information has been hard for plans and the public to access. Providers have maintained the argument of confidentiality, proprietary needs and competitive advantage. With empowered individuals, these arguments rapidly dissipate.

National insurers, some providers, specialty vendors and state governments have been taking the lead in requiring disclosure of provider cost and quality information. Each insurer or hospital has limited data, states differ on their reporting requirements, budgets limit the expansion of publicly funded information access, and inertia of the status quo slows progress in meeting patient information needs.

The federal government can advance the cause of empowering individuals with information by passing basic national standards for provider and insurer transparency. Congressman Nathan Deal's legislation is on the right path.

A governor of Georgia once said that to have better prisons, we needed better prisoners. Today that parallel may be to have better health at lower cost, we need better patients. The CDC tells us that behaviors determine 50 percent of health. By far, the individual turns out to be the most important variable in the health care cost equation. It's not doctors, hospitals, pharmaceuticals or other care providers. Access to care has only a 10 percent impact on health status; genetics, 20 percent, and environment, 20 percent, make up the remaining factors.

Congress is a powerful legislative body, but you cannot change the laws of human nature. You cannot make recalcitrant patients take medications or comply with physician orders. You cannot make citizens eat properly, exercise regularly or seek preventative care. The bottom line is you cannot legislate personal responsibility.

Congress can, however, create an open, transparent, information-rich environment that supports greater engagement by individuals in their own health and health care decisions.

In general, individuals will not take care of themselves just for the sake of good health. If that were true we would not see the rampant growth in obesity and the epidemic of diabetes. We are typically American. We want to be paid to do the right thing. We want incentives, rewards and recognition. We want some financial control and we need information and help with making the right decisions.

Blue Cross/Blue Shield studies show that patients with financial and information support have more than three times the number of members engaged in smoking cessation, more than three times the number of members engaged in stress management programs, more than double the number in diet and nutrition education programs, and nearly two and a half times more likely for those patients to be in exercise plans.

A major interest in Congressman Deal's legislation is disclosure of self-pay charges. When I started to negotiate provider network reimbursements back in the early 1990s, the expected discount from hospital charge masters -- their so-called retail price -- was typically 5 to 15 percent. The discount game has led to artificially high retail price lists where discounts are now 80 to 90 percent off of those charges.

No one pays the retail prices except the uninsured. Those most vulnerable and least able to pay are charged the list rates. Many who cannot, or do not, pay these artificial charges are hounded by collection agencies for monies that are 10 times or more above the cost of actually providing the services.

As with the Georgia governor's call for better prisoners, it's time to free consumers from the dark prison of ignorance. You can make information easier to find and easier to understand. You can eliminate arbitrary price discrimination against the uninsured. The need is to pull back the curtain of secrecy on cost and quality. Congress can make a difference in saving lives and saving money by supporting the individual's right to know.

While the country debates reform of health care, on one fact you should all agree: The need for transparency is critical to the outcome in that debate.

REP. CAPPS: Thank you, Mr. Bachman.

And now we turn to Diane Archer for five minutes, please.

MS. ARCHER: Madame Chairwoman, Mr. Deal, thank you for inviting me to testify about transparency in the private health insurance system and how it can help American families. At the Institute for America's Future we've studied the issue extensively and concluded that the private health care system will never work well for American families without significant changes in the current disclosure practices of the private insurance industry.

Here's why: If you wanted to buy a car you'd have a vast array of public information about differences among them -- from fuel efficiency, to annual maintenance, cost to crash test performance. But what can you find out about the various makes and models of private health plans? Practically nothing, it turns out. So what is the value of having so many choices?

Even the most sophisticated among us have little idea what we're paying for when we buy insurance. Does it cover Tamoxifen if I'm at risk for breast cancer? How much is the average out-of-pocket cost for typical prenatal care? What percentage of total claims were denied last year? What will a particular service cost me?

Private insurers, in sharp contrast to the public Medicare plan, have been able to keep confidential claims, cost and quality data, on the ground they're business trade secrets. We can't find out what specific services will be covered and when, or average out-of-pocket costs for typical conditions, let alone which insurers deliver the best value for our premium dollars. Informed consumer choice is a myth.

To build an efficient health care system, we need insurance company performance information. I've spent the last 20 years helping people navigate both Medicare and private insurance, for a long time as president of the Medicare Rights Center. I want to take you briefly through the structural issues that may preclude needed transparency from the private insurance industry, the data we need from private insurers, and how health care reform can address these issues.

In America today people can't compare health plans based on value; the health insurance market is broken. In a competitive market, insurers would be marketing to health care users, demonstrating why they deliver the best value health care for people with cancer, diabetes and heart disease. Their message would appeal to the 20 percent of the population who consume 80 percent of health care dollars. Instead, if they deliver great care to people with costly needs, they don't want people to know.

Twelve years ago, in a New York Times Magazine cover story that I keep by my side, Helen Darling, now president of the National Business Group on Health, made this point very succinctly, quote: "I've been sworn to secrecy by one plan that has the best AIDS program in the world. They don't want people knowing about it. They couldn't handle the results. Ideally, if we lived in a wonderful world, we would want a plan to win prizes for their wonderful care. But in reality that would kill them."

To maximize their profits, health plans compete for enrollees least likely to use their product. Therefore, health plans do not advertise the specific treatments and tests covered, the conditions under which they are covered or the price of services. This is precisely the information we need to know.

Different private plans offer different value health care. The best of them help ensure doctors deliver good care. Yet coverage decisions are largely considered proprietary and unknown. And we don't know whether insurers are adding value or simply increasing their profits.

A New York State Medical Society survey revealed that 90 percent of doctors said they have had to change the way they treat patients based on restrictions from an insurance company, and 92 percent said insurance company incentives and disincentives regarding treatment protocols, quote, "may not be in the best interest of patients."

Are insurers spending our premium dollars wisely? Are they helping to ensure that our doctors provide us reasonable and necessary care? We don't know.

What data is needed to evaluate health plans and help people make informed health care choices? The kind of data we get from the public Medicare plan: the specific services they cover and the amounts they pay, claims data and denial rates. Members and prospective members also need to know the average out-of-pocket costs for treating different conditions.

This data will help give us meaningful choice and over time will help us in efforts to compare health outcomes for people with different conditions in different health plans. As important, disclosure of this data would promote better insurer behavior. Right now, the countless reports of insurer abuses suggest that the lack of transparency allows insurers to delay and deny care and reimburse inadequately for services rendered, seemingly arbitrarily.

Up until now we have bought into an opaque and inefficient private health insurance model that has not met our health care needs. Regulations will never address the insurers' obligation to put profits first. But we can drive accountability if we require far greater transparency from the insurers.

A public health insurance option is also essential. A public health insurance option sets a benchmark for coverage, drives competition among insurers to rein in costs and, through its willingness and ability to be transparent and accountable, can promote the value and systemwide change that is needed to guarantee everyone in America quality, affordable health care.

Thank you.

REP. CAPPS: Thank you. Now we -- and I thank each of you for this interesting panel.

Mr. Deal, why don't you begin with your five minutes of questioning?

REP. DEAL: Thank you.

And thank you to all of you for waiting this long to be here for this. Obviously, as you know, transparency is an issue that's of importance to me.

You know, almost every other thing in life we know what the cost of it is. Health care we don't know. We don't know the results. We don't know what the effectiveness is of hospitals or of individual practitioners within the medical community.

So transparency on all of those fronts I think is an important ingredient. For those who would say that just because people don't pay for things out of their pocket, that doesn't mean that -- it means that they're not concerned about the cost, I would like for them to have been in conversations with family members when they have a relative who's been transported to the hospital -- the one thing that they always complain about is the $700 ambulance fee charged to transport their loved one for less than a mile.

Now, you can believe they focus in on those kind of things and they want to know why public programs are paying what they consider to be exorbitant prices. The trouble is, they don't know those kind of things in their health care in general. So I appreciate the testimony that we've received.

I think, Mr. Bachman, you almost sounded like I wrote your speech for you there. I think I agreed with virtually everything that you said. How do we deal, though, with this question of disclosure of pricing -- price transparency? How do we get a handle on that, how do we best accomplish that objective?

MR. BACHMAN: Well, there are a number of areas. First, I'd like to say that the transparency that I believe is appropriate goes beyond even what's been suggested in your bill here. I think transparency on service costs, how well you're being treated, the time in the waiting room, bedside manner, things that are not clinical but are more service-oriented, is important disclosure.

The way we get at it, I think, is a couple of things. One of the issues that was not mentioned in the earlier panel, I didn't mention it and I hadn't heard the words here, is the Internet. We're now seeing a tremendous growth in what's called Web 2.0 -- people talking to other people about their experiences with providers and physicians. So we're having people talking to other people that's creating a disclosure; that's one thing.

The second thing is a growing interest -- it's slow, but there are vendors out there that are beginning to encourage providers to create package pricing so that you have one price. How much is it going to cost to treat my diabetes for the next 12 months? And that way if there is a package pricing, it's sort of a combination of the old capitation rates and fee-for-service mainly, but it's where the provider says I can take care of you for this amount of money, and the services don't have to fall into the traditional CPT codes or ICD-9 or DRGs. It's what the hospital can show and demonstrate will work best, and employers are buying into that, but that is only at the beginning stages.

The third area that's going to push that is, that is what is actually happening; I think your chart showed a Third World country. Well, that is actually happening today in most of the areas like Singapore and other countries that are getting medical travel -- medical tourism, if you will -- and hundreds of thousands of people are going across the ocean in order to get services that are one-tenth the cost at better hospitals, more modern hospitals, many of them managed by the major brand-name facilities in this country, and they're being treated by doctors that are trained in the United States as well. And they're being approved by quality organizations that approve quality hospitals in the United States as well.

So I think there's a gathering of a number of forces to push us in the right direction.

REP. DEAL: Dr. Herzlinger, we heard Dr. Ginsburg talk about pricing on a per-episode basis, and I think we're hearing a lot of talk about how do we refigure compensation for services and episode- based -- you called it package pricing, I presume it's sort of the same concept -- Dr. Herzlinger, how as we -- I think we'll certainly look at that issue very closely because it appears to be coming from a variety of sources -- how do we make that kind of pricing information available, not just the fact that the services are being bundled but the costs associated with that bundling?

MS. HERZLINGER: If you are asking about the administrative model -- isn't that correct?

REP. DEAL: You suggested something similar to the SEC, I think.

MS. HERZLINGER: Yes, well, the most transparent market in the world is the financial market and it's led to what's called efficiency in the market. It doesn't mean that it's perfect; we know it's not perfect, but it is the most transparent market.

There are countries all over the world that are adopting the SEC model and the reason they're adopting it for their own financial markets is that that model creates the best transparency. The SEC model has two parts: one is the iron fist; that is the SEC. SEC has tremendous enforcement power. The velvet glove is an organization that's now called the FASB, and that is a group of stakeholders. They're experts in measurements, accountants, people from the business community, CFOs of companies and consumers. And then velvet glove is the one that actually determines what should be measured.

Companies have to comply with these standards. If they don't, the iron fist of the SEC comes along. It's been a fantastic model that countries all over the world emulate. We should use it for health care; it works.

REP. DEAL: Madame Chairman, I know my time is out, but I would ask unanimous consent to include a letter from the executive branch of the state of South Carolina, supporting the concept of transparency.

REP. CAPPS: Without objection, so ordered.

And now I allow myself five minutes to ask my questions too, and as you may have noticed, the buzzer rang and we do have votes on the floor at the same time. We can wrap this up but we won't be able to go to a second round, which is unfortunate.

Dr. Ginsburg, you testified that one of the key barriers to making price transparency work is the lack of transparency on quality of care. It's clear that hospitals' prices may be low because they're understaffed or they use cheap medical devices and so on and so forth.

As you have pointed out, consumers may assume that high-priced providers are high-quality providers, an assumption that may have no basis in fact. So where do we stand -- this is a large question for a short amount of time -- in producing information on provider quality that could be accurate and usable by consumers?

If we require quality transparency tomorrow, would there be any standard, would there be information available, and what should we be doing now, or taking some steps in this direction as we seek to reform health care?

MR. GINSBURG: Well, in the case of hospitals, we do have some data.

REP. CAPPS: You may turn on your --

MR. GINSBURG: Yeah, I think it's on.

REP. CAPPS: Okay.

MR. GINSBURG: In the case of hospitals, we do have some quality data. I think a lot has been accomplished when the Medicare program offered an incentive to hospitals: If you would report on these measures, we'll pay you a little bit more. Virtually all the hospitals have done this. I don't think consumers are making much use of it now; it's pretty fragmented. But when it comes to the hospitals themselves, everything that they are reporting to Medicare or to the Joint Commission, they are focusing on improving.

And the example we had on the first panel about when physicians and hospital leaders see low quality in their practice, they're very motivated to do something with it. So I think in the next few years we can get a lot of mileage out of quality reporting and transparency just from the provider reaction to it, even if consumers using it, I think, is many years down the road.

As far as price transparency, I don't have, you know, problems with it, in general. I think there's potential for it definitely down the road and my main caution was that we shouldn't get too wound up in how much it will accomplish in the short run. There are a lot of other things that have to be done to improve our health care system.

REP. CAPPS: Thank you. I know there's more follow-up because I'm also interested in how consumers can benefit by this as they make their decisions and out into the community settings that clinics and so forth, which is where a lot of decisions get made. But I want a turn, because there are just a couple minutes left, to you, Ms. Archer.

A key feature that consumers are interested in for most products is the warranty or guarantee. They want to know if something goes wrong, there's a way to get the problem resolved. In the health insurance market, we've heard story after story about denial of claims, some very egregious, appeals rights in place on paper but really not very effective.

The problem is, consumers don't even know about their rights before they purchase health insurance. Can you describe what information about appeals and grievance procedures would -- should be there, available to consumers in language they could understand? And do you think that more transparency on appeals and grievance procedures will be -- is the way we should go in terms of insuring the consumer -- that insurers will do the right thing?

MS. ARCHER: Yeah, thank you for that question. Actually we have a big lesson to learn from Medicare on this front. The way Medicare works, its data about what it covers and under what circumstances are all on the Web, and if a doctor performs a procedure that's medically unreasonable or unnecessary and delivers it, it's the doctor who actually gets stuck holding the bill because the doctor can go online and find out in advance what is covered.

If the doctor thinks it's really necessary, the doctor can tell the patient, yes, I think you should have it but Medicare won't pay for it, and have the patient sign in writing that he or she is willing to pay privately. If Medicare doesn't pay, the patient can then appeal, and has gotten a written notice about it. So the patient isn't stuck with a lot of bills from insurer denials that often patients in the private insurance marketplace face because no one knows, including the doctor in many instances, ahead of time whether the insurer is going to cover the claim or not.

So I think that model is a model that could easily be adopted to the under-65 population to help, to help patients in terms of protections financially if a service a doctor wants to give them is --

REP. CAPPS: Could this be accepted by the private sector?

MS. ARCHER: It should be accepted by the private sector because it's the fairest way to protect the patient from receiving medically unreasonable and unnecessary care from a doctor. Why should the patient receive the service if it really is unnecessary? Everybody is on notice that's what the insurer thinks.

If the insurer is wrong, if the outside world says the insurer is wrong, the insurer is going to come under attack, under public scrutiny and will have to change its practices. If it's appropriate, and what the doctor is doing is inappropriate, then the patient shouldn't be absorbing the cost of the care.

REP. CAPPS: I wish I had time to ask others what you think, but you believe, Ms. Archer, that Medicare does provide at least some kind of model for doing this?

MS. ARCHER: An excellent model, and then I think, just to your second question, I think that denial and grievance information needs to be public so that, again, it can be scrutinized and people can understand what insurers are doing.

REP. CAPPS: Thank you, again, very much, all of you. This is abrupt because of our call to the floor, and I appreciate very much your testimony. The reason the microphone is needed is that this is part of our record now and we appreciate that, as I say, as we go about making some important decisions.

MR. BACHMAN: Thank you.

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