COMMITTEE ON WAYS AND MEANS CHARLES B.  RANGEL, New York, Chairman
FORTNEY PETE STARK, California SANDER M.  LEVIN, Michigan JIM MCDERMOTT, Washington JOHN LEWIS, Georgia RICHARD E.  NEAL, Massachusetts MICHAEL R.  MCNULTY, New York JOHN S.  TANNER, Tennessee XAVIER BECERRA, California LLOYD DOGGETT, Texas EARL POMEROY, North Dakota STEPHANIE TUBBS JONES, Ohio MIKE THOMPSON, California JOHN B.  LARSON, Connecticut RAHM EMANUEL, Illinois EARL BLUMENAUER, Oregon RON KIND, Wisconsin BILL PASCRELL JR., New Jersey SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida ALLYSON Y.  SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama	JIM MCCRERY, Louisiana WALLY HERGER, California DAVE CAMP, Michigan JIM RAMSTAD, Minnesota SAM JOHNSON, Texas PHIL ENGLISH, Pennsylvania JERRY WELLER, Illinois KENNY HULSHOF, Missouri RON LEWIS, Kentucky KEVIN BRADY, Texas THOMAS M.  REYNOLDS, New York PAUL RYAN, Wisconsin ERIC CANTOR, Virginia JOHN LINDER, Georgia DEVIN NUNES, California PAT TIBERI, Ohio JON PORTER, Nevada
Janice Mays, Chief Counsel and Staff Director Brett Loper, Minority Staff Director SUBCOMMITTEE ON HEALTH FORTNEY PETE STARK, California, Chairman
LLOYD DOGGETT, Texas MIKE THOMPSON, California RAHM EMANUEL, Illinois XAVIER BECERRA, California EARL POMEROY, North Dakota STEPHANIE TUBBS JONES, Ohio RON KIND, Wisconsin	DAVE CAMP, Michigan SAM JOHNSON, Texas JIM RAMSTAD, Minnesota PHIL ENGLISH, Pennsylvania KENNY HULSHOF, Missouri
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also, published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined.

Advisory of March 14, 2007, announcing the hearing

WITNESSES

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and Medicaid Services

Mark Miller, Ph.D., Executive Director, Medicare Payment Advisory Commission

Peter R. Orszag, Ph.D., M.Sc., Director, Congressional Budget Office

SUBMISSIONS FOR THE RECORD

Center on Budget and Policy Priorities, statement

National Center for Policy Analysis, statement

Pennsylvania Health Law Project, PA, statement

SCAN Health Plan, statement

The Center for Medicare Advocacy, Inc., statement

Visiting Nurse Associations of America, Boston, MA, statement

HEARING ON THE MEDICARE ADVANTAGE PROGRAM

Wednesday, March 21, 2007

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, D.C.

The Subcommittee met, pursuant to notice, at 2:51 p.m., in Room 1102, Longworth House Office Building, Hon. Fortney Pete Stark (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

Chairman STARK.  If our guests would find seats, we can begin the hearing.  Certainly begin it with an apology for the unexpected voting series that makes us almost an hour late.  For that I, to the witnesses and our guests, I apologize, but it was entirely unavoidable and we will proceed.

The Medicare Modernization Act of 2003 (MMA) (P.L. 108-173) made changes in how private plans are paid in Medicare and the types of plans that exist and it dramatically increased the number of plans.  Now Medicare Advantage (MA) covers about 19 percent of the Medicare beneficiaries back to the highs that it enjoyed perhaps eight years ago, still less than one in five Medicare beneficiaries.

We spent about $56 billion on these plans in 2006 and without any changes, were informed that the growth in enrollment and spending will continue to increase.

In spite of these changes, we have as a Committee never held a hearing on the Medicare Advantage Program and so this is the first of what will be a series of hearings on the program.

When private plans asked to join Medicare in 1982, they told us they could provide Medicare benefits better and cheaper than the Government.  As we fast forward 25 years, we are now losing money for every person who enrolls in a private plan.  The latest analysis by the Medicare Payment Advisory Commission (MedPAC) indicates that Medicare is on average overpaying Advantage plans by 12 percent, we are paying 112 percent of what we otherwise would pay.

Now that number varies geographically and by plan.  In some areas, plans are getting north of 140 percent.  Of plan types, private fee-for-service plans are the highest in the outlier portion of that, receiving an average of 119 percent of Medicare fee-for-service plans--payments.  We will hear more from all of our witnesses on these details.

The Academy of Health Information Professionals, Blue Cross, Blue Shield and others have been claiming that payment reductions will reduce health care access for lower and moderate income seniors and decrying a goal they ascribe as wanting to get rid of the Medicare Advantage program.  I would like to be clear on that.

I know of no one on this Committee who has any intention of eliminating Medicare Advantage Program plans.  However, neither should we allow any Medicare provider or sector to insulate itself from both oversight and consideration of payment changes.  To do so would be completely irresponsible for this Committee and for any Member of Congress.

We have a major task in front of us, between the physician payment issue, the need to reauthorize and improve the State Children's Health Insurance Program (SCHIP), the need to manage and oversee Medicare.  To do all of that, I believe that everything must be on the table, doctor's payments, hospital payments, post acute payments, drug plan payments.  Indeed, Medicare Advantage payments as well.

Medicare Advantage overpayments raise the Part B premiums for everyone and decrease the Part A trust fund faster than would occur if payments were equalized.  In an effort to improve and protect Medicare, we can't focus on one part of the program at the expense of others.  They must all work together to ensure that Medicare meets its design and that is providing health care for America's senior citizens and people with disabilities, with quality care for the beneficiaries, reasonable reimbursement for the providers.

We have experts before us representing the Centers for Medicare and Medicaid Services (CMS), which runs the Medicare Advantage Program; MedPAC which provides Members of Congress with expert, nonpartisan, empirical advice on Medicare payment policies; and the Congressional Budget Office (CBO), which calculates the costs or savings of proposals that we choose to enact.

I look forward to today's discussion and to collaborating with my colleagues to plan additional hearings to investigate all facets of the Medicare program.  We need to refine the payment structures to ensure an equitable and efficient program that serves all the beneficiaries and taxpayers well.

I again apologize to all of the witnesses and to Mr. Norwalk, who thought she was getting off easy by being first, going to get out of here by now.

I would make, before you start with your testimony, Ms. Norwalk, I would make one admonition.  It is basically for our staffs.

Witnesses have generally been asked, where possible, to get us testimony and/or exhibits at least a day ahead.  I can read quickly and I can read on my way to work.  You sent yours last night, but for the staff, they have to stay until eight or nine o'clock at night to go through it.  So I say this, generally to all witnesses who will appear before us.  If you want to be friends with the staff, get the testimony in ahead of time.  It will make their job a lot easier and I know your staff appreciates that as well.

So, we look forward to your testimony.  Please enlighten us in any manner you would like.

I am sorry, Mr. Camp.  Mr. Camp.

Mr. CAMP.  Thank you, Mr. Chairman.  Thank you for holding this important hearing.  I too wanted to thank everyone for waiting while we had that lengthy series of votes on the Floor.

I think by now we are all well aware of MedPAC's recommendations to reduce payments to Medicare Advantage plans to that of traditional Medicare.  In doing so, according to CBO, we would save $65 billion over five years.  As a result, some advocates and Members of Congress have indicated that this $65 billion could be an easy and noncontroversial way to fund a variety of health care spending efforts.  I think we have to consider carefully who will be affected by these proposed payment cuts.

History has shown that reducing payments to these types of plans will reduce access for seniors living in rural areas like mine.  Beneficiaries will lose the additional benefits and care coordination that Medicare Advantage offers.  We also know that low-income seniors may be negatively affected.

Administrator Norwalk has noted that Medicare Advantage plans have a disproportionately greater number of lower income beneficiaries enrolled in their plans, which provide assistance in paying Medicare deductibles, copays and catastrophic costs that Medicare doesn't cover.  We also know that arbitrary reductions will fall hardest on minority seniors.  Twenty-seven percent of Medicare Advantage enrollees are minorities, compared to just 20 percent in fee-for-service Medicare.

That is why, just last week, national organizations representing minority groups like the National Association for the Advancement of Colored People (NAACP) and League of United Latin American Citizens (LULAC) voiced their opposition to cutting Medicare Advantage Programs.

Cuts to Medicare Advantage may also affect chronically ill Medicare beneficiaries.  CMS data shows that Medicare Advantage enrollees are more likely to utilize preventative care and less likely to delay care because of costs than those enrolled in traditional Medicare.  These proactive steps are the keys to better managing the health care needs and improving the overall health of chronically ill Medicare beneficiaries.

I agree with those who have raised concerns about the various types of plans and whether they provide the same level of benefits and coordination to justify higher payments.  We must closely examine this issue and I welcome the Chairman for this hearing to do that, but also we must do so carefully, lest we risk dramatically reducing access to quality care.

I hope to work with the Chairman on any proposed changes to the Medicare Advantage program to ensure that beneficiaries continue to receive access to many of the benefits that many plans currently offer, while also ensuring taxpayer funds are being wisely used.  I thank the Chairman again and yield back my time.

Chairman STARK.  Ms. Norwalk, please proceed.

STATEMENT OF LESLIE V. NORWALK, ACTING ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES

Ms. NORWALK.  Thank you.  Chairman Stark, Representative Camp and distinguished Members of the Subcommittee, thank you for inviting me today to discuss the Medicare Advantage Program.  As you know, this program is a valued, important option for millions of people with Medicare.

Working closely with Congress, and this Subcommittee in particular, we have refined Medicare Advantage (MA) over the years to promote strong plan participation across the country.  With a vibrant marketplace of plans for 2007, beneficiary enrollment is now at an all-time high.  I am proud of these successes and stand committed to working with you in the days ahead to preserve choice for people with Medicare.

I am pleased to report that this year, beneficiaries selecting a Medicare Advantage plan are receiving, on average, an estimated $86 per month in benefits, over and above what original Medicare provides.  Such additional benefits vary by plan but can include lower cost-sharing, enhanced Part D prescription drug coverage, Part B and D premium reductions, and access to items and services like hearing aids, routine physicals, or vision exams that original Medicare does not cover.

All Medicare Advantage plans offer care coordination and disease management services currently not available through original Medicare.  These added benefits yield important results.  For example, MA beneficiaries are more likely than those in original Medicare to receive necessary preventative services, including pneumococcal vaccines and influenza vaccines, mammography, colorectal cancer screening and prostate screening.

Seventy-three percent of Medicare Advantage enrollees receive immunizations to protect them against pneumonia, compared to 64 percent of beneficiaries in the traditional Medicare program.  These findings are corroborated by MedPAC and others.

MedPAC's March 2007 report to Congress stated that private plans have the flexibility to use care management techniques that fee-for-service Medicare does not encourage, and they have greater incentive to innovate.

Thanks to the hard work of this Subcommittee, CMS and many others, legislation has significantly impacted plan participation and beneficiary interest in Medicare Advantage over the years.

Chart 1, up on the screen, demonstrates payment reforms enacted by the MMA have helped propel beneficiary enrollment in Medicare health plans to nearly 8.3 million people, up from a low of 5.3 million in 2003.

In other words, nearly 20 percent of beneficiaries are now enrolled in a private plan, which includes Medicare Advantage and other plan options such as pace or cost plans.  Clearly, we have learned from two sentinel pieces of legislation that preceded the MMA, the Balanced Budget Act of 1997 (BBA) (P.L. 105-33) and the Benefits Improvement and Protection Act of 2000 (BIPA) (P.L. 106-554).

The BBA increased rural payment rates, but also significantly restrained payment in areas that historically had relatively high private plan participation.  Following the BBA, BIPA attempted to stop the decline in the program by increasing the national floor and creating a second, higher urban floor.  Unfortunately, plan offerings remained compromised and enrollment continued to decline.

Not until the MMA's immediate payment improvements took effect in 2004, did plan participation and enrollment rates begin to improve.  In addition, the MMA's payment refinements have helped smooth over some of the geographic payment differences we see in original Medicare.  I appreciate how important resolving such differentials is to many on this Subcommittee.

Concurrently, both enrollment and plan participation are better distributed geographically than ever before.  Prior to the MMA's program refinements, beneficiaries in many States, and rural areas in particular, lacked access to a Medicare Advantage plan.

As Chart 2 shows in red and yellow, a vast majority of the country either had no plans or just a single Medicare Advantage plan option in 2003.  Los Angeles County and South Florida were, in fact, the only areas in the country with 10 or more plans.

In contrast, today 10 or more plans are available almost nationwide as indicated by the blue area in Chart 3.  A significant portion of the country has more than 25 plan offerings, and rural areas in the upper Midwest, New England, and even Alaska, have multiple plan offerings.

Improved choice and plan availability lead, in turn, to strong enrollment.  Chart 4 highlights the current distribution of Medicare Advantage enrollees across the country.  As you can see, people with Medicare from California to the Carolinas, from Minnesota to Miami, in Michigan, North Dakota, Texas and Illinois all are relying on Medicare Advantage plans and the valuable benefits that they provide.

For example, one plan available for no premium in California provides the following: a zero deductible drug benefit, including generic drug coverage in the gap; coverage for lengthy hospital stays with no copayment including days beyond what original Medicare allows; $1,000 aggregate deductible in contrast to the original Medicare $992 hospital deductible per illness and the $131 Part B deductible; a $10 copayment for network physician visits rather than 20 percent coinsurance; and a $3,000 catastrophic limit on out-of-pocket expenses for Part A and B benefits.  Then finally, vision services and physical exams that are not covered by original Medicare.

These benefits are not unique.  Beneficiaries in North Dakota who, prior to the Medicare Modernization Act, had virtually no private Medicare plan option, now have access to very similar plans, including: a zero premium plan that features zero dollar deductible for prescription drugs; coverage for an unlimited number of hospital days each benefit period; a $15 copayment for primary care physician visits; dental, hearing, and vision benefits; and, coverage for preventive services.

To further demonstrate the significance of this program, Medicare Advantage plans are also a valuable choice for low-income and minority beneficiaries.  A higher proportion of low-income beneficiaries and minorities have chosen Medicare Advantage plans over traditional fee-for-service.

We have prepared for each of you an initial packet of background information showing the status of Medicare Advantage in your State.

In closing, I believe Medicare Advantage is a critical component of Medicare's future.  Beneficiaries are turning to Medicare Advantage plans at unprecedented rates for better benefits, better care management, and better protection against catastrophic expenses.

I look forward to continuing this discussion with each of you to preserve these choices for current and future beneficiaries.

Thank you, and I am happy to take any questions.

[The prepared statement of Ms. Norwalk follows:]

Chairman STARK.  Let us do some numbers.  You have a real advantage over me, because I have my shoes and socks on, but you have several times in your testimony, and I can't find the exact wording, but you have implied that there is a higher percentage of both minority and low-income beneficiaries in Medicare Advantage plans, disproportionately so.  The numbers that I am looking at, and tell me where I am wrong, suggest that among all Medicare beneficiaries, approximately, for example, 11 percent are African American.  Does that jive with your--

Ms. NORWALK.  Sir, the number I have is almost 4.3 million out of 43, so just under--

Chairman STARK.  So, somewhere around 10 percent.

Ms. NORWALK.  Right.

Chairman STARK.  Then what I am showing is that among all Medicare beneficiaries, less than 20,000 a year in income, we have about 47 percent, 20 percent less than 10, 27 percent in the 10 to 20 range.

Ms. NORWALK.  I think that is--yes.

Chairman STARK.  Then I am showing that in the Medicare Advantage programs, which is only 20 percent or a little less than 20 percent of the entire Medicare population, 10 percent are African Americans.

Ms. NORWALK.  I actually have a slightly higher number.  So, I have 851,000 versus just under 8.3.  So, actually, it is over 10 percent.

Chairman STARK.  Okay, but not very much different from the 11 percent.  So, what I would--

Ms. NORWALK.  Slightly under fee-for-service and over--

Chairman STARK.  What I would suggest to you is the makeup ethnically of Medicare Advantage plans is no different than the makeup of the entire Medicare program.  Would you stipulate to that?

Ms. NORWALK.  The proportion is slightly more in Medicare Advantage for African Americans, also for Hispanics.

Chairman STARK, but slightly.  Like 1 percent of 20 percent, which by my numbers is a half a percent of the entire population.  The same thing would hold true for lower income.

Now less than $10,000, I am reading that people under $10,000 in income make up 16 percent of Medicare Advantage but they make up 20 percent of all Medicare beneficiaries.  So, there are slightly fewer poor people.

Ms. NORWALK.  I actually think that is because of Medicaid, the Medicaid provisions that--

Chairman STARK.  I would just go on to tell you that Medicaid in Qualified Medicare Beneficiary (QMB) and Specified-Low Income Medicare Beneficiary (SLMB) is a whole heck of a lot better than any Medicare Advantage plan.

Ms. NORWALK.  They are very important programs.

Chairman STARK.  Much more.  You haven't mentioned them, which I think is somewhat--I won't call it disingenuous; somebody got their words taken down for that, but to ignore the fact that a majority of the lower income people, particularly those in the less than $10,000 group are dual eligibles or QMBs and SLMBs, which have the best possible economic--the dual eligibles pay nothing.

Ms. NORWALK.  As they should.

Chairman STARK.  It doesn't get much better than that.

Ms. NORWALK.  Right.

Chairman STARK.  Okay.  Well, I just wanted to suggest this idea that there is a huge number of people--now, that is not to suggest that in the urban areas where there is a larger concentration by number of low income and, unfortunately, minority population, there are a large number of Medicare Advantage members and for many of them, their premiums are lower, but what you don't mention is that in many of these plans, that is great if they don't get sick.

You have said, for instance, Medicare Advantage beneficiaries face lower hospital copayments, but I could tell you there are a lot of plans out there that charge more than $200 a day for the first 10 days in the hospital.  Now that, by my math, is a whole heck of a lot higher than the $992 the fee-for-service deductible covers.

So, what I would further, and I wonder if you would agree, there is a wide difference in the efficiency and generosity of these plans.  That they are not monolithic.  Is that a fair assessment?

Ms. NORWALK.  It is a fair assessment that the benefit packages from plans vary greatly across either areas across the country and so forth.  So, I can tell you generally, in terms of the extra benefits, that 90 percent of all plans do provide additional hospital day stays.  All regional Preferred Provider Organization (PPO) plans are required by statute to provide catastrophic coverage across-the-board.

So, other than that, I think generally they do need to provide A, B benefits.  I know that, in the past, you have been concerned about discrimination and whether or not plans have set up their benefit packages that may be in a way that is discriminatory.

Chairman STARK.  Sure.  Offering health club memberships as an extra benefit is not apt to appeal to a sedentary person like myself.  If I got a discount at Thank God It's Friday's on the first pint, that might be different.

Okay, well, I have used up more than my time and I would like to hear what Mr. Camp has to say.

Mr. CAMP.  Thank you very much.

Going back to this issue of who gets served by Medicare Advantage plans, I notice in the letter that the NAACP released, they said 40 percent of African Americans without Medicaid or employer coverage rely on comprehensive benefits and lower cost-sharing in Medicare Advantage that they don't find in traditional Medicare.  Is that an accurate statement?

Ms. NORWALK.  I don't know if I have the numbers with me--that focus specifically--I don't know if I have them here, that have the employer plan piece taken out, but we can certainly get them to you.  I think that is an important point.

With all the questions that we ask today, there are often differences in everything from payments--or everything from the bids that plans submit and the employer community often does things differently than what people may have access to in the individual Medicare Advantage market.  So, I think they are important questions to ask.

I don't think we have it here today, but I will see if I can get it for you for the record.

[The information follows:]

I don’t find that figure at all surprising since Medicare Advantage offers great value, especially to individuals of limited means who don’t have supplemental Medicare coverage through Medicaid or a former employer.  We have not done an analysis looking specifically at the proportion of minorities who don’t have other supplemental coverage who have joined MA plans.  My written statement indicates that we have looked at MA enrollment of individuals from minority groups.  That analysis showed that MA enrollees are more likely to be from minority groups than beneficiaries in FFS Medicare.  Specifically, of beneficiaries in MA plans, 27 percent are minorities, whereas in FFS Medicare, 20 percent are minorities. 

Mr. CAMP.  All right, I appreciate that.

I guess to try to highlight some people that have argued that there really aren't additional benefits in Medicare Advantage compared to those in traditional Medicare, is that criticism--there has been criticism of the Medicare Advantage plan to that effect.  Is that criticism accurate and, if not, could you please describe some of the additional benefits that plans offer?

Ms. NORWALK.  I think that most plans offer, as they are required to by statute, some very significant additional benefits.  The statute requires if there is a difference between their bid and the payment benchmark, that they return 75 percent of that difference to the beneficiary in the form of additional benefits.  The other 25 percent reverts back to the Treasury.

So, what I did is, I took a look at a number of different types of benefits.  So, as I noted earlier, 90 percent of all plans offer additional day stays in the hospital.  Most plans waive the three-day hospital stay requirement before they are admitted to a skilled nursing facility.  I have a whole list here in terms of percentages.

Seventy-seven percent provide routine hearing tests, 98 percent have routine physical exams and so on and so forth.

So, there is a significant range of benefits that are provided to beneficiaries.  Some of the most popular relate to cost-sharing, such as zero premiums, rebate of the Part B premium, zero premium drug benefits, coverage in the gap, particularly for generic drugs, and the like.  So, there are, without question, some very important additional benefits provided to Medicare beneficiaries.

Mr. CAMP.  Yes.  I think it is important to know that that goes beyond just sort of optical and physicals.

Ms. NORWALK.  I actually have an example in Midland, Michigan.  There is, for a $25.50 premium, a plan that has drug coverage with no deductible, a $3 copay for preferred drugs, no inpatient hospital costs at all and no copay when something is provided in-network.  For doctor visits, there is a $7 copayment for primary care and a $20 copayment for specialists.  Not only that, they have got dental services, hearing services, physical exams and health and wellness education.  So, in your county in Michigan, I think that beneficiaries have some pretty good options available to them.

Mr. CAMP.  Thank you very much.

In the Balanced Budget Act, Congress reduced and cut the Medicare Advantage payment.  What happened after that?

Ms. NORWALK.  I think what--if I recall my history from 10 years ago--do you want to put up that one chart, the first chart?  Thanks.

The Balanced Budget Act was really--one of the things it wanted to do--the first one--was to pay more to rural areas.  This Committee, this Subcommittee, has discussed with me earlier in budget testimony the concern about the payment differentials between fee up front and fee-for-service.  A lot of what the Balanced Budget Act wanted to do was recalibrate some of that to provide more choice in rural areas, something that you didn't see very much of before 1997 and, frankly, even thereafter.

Those payment changes, one of the things that happened was it reduced payments in other areas.  Consequently, as you can see from this chart, you can see that the enrollment, which is the left-hand column, peaked after the Balance Budget Act amendments took effect and then enrollment declined precipitously thereafter and started to rise after some of the BIPA changes and then the Medicare Modernization Act changes.  So, there is no question that the legislation that has happened around Medicare Advantage makes a very big difference in enrollment and, not only that, additional benefits that are provided.

Mr. CAMP.  All right.  Thank you.

Thank you, Mr. Chairman.  I see my time has expired.

Chairman STARK.  Mr. Thompson, would you like to inquire?

Mr. THOMPSON.  Thank you, Mr. Chairman.  Thanks for holding this hearing.  Ms. Norwalk, thank you for being here to testify.

In your written statement, you note that Congress created the Medicare+Choice program to correct perceived flaws, including significant payment differences across geographic areas.  I don't see this helping.  As a matter of fact, I can point to and hear a lot about disparity in payments between northern and southern California.  I know on this Subcommittee, we have had discussions, the same issue raised by other Members.

Why is this still such a huge issue, huge and outstanding issue, with the Medicare Advantage program?

Ms. NORWALK.  Well, I think what these payment changes were intended to do, particularly the MMA payment changes, were to increase floor payments.  So, for example, in a rural area, where typically if you compare the payments, for example, Dade County is one of the most prosperous--or most expensive counties from a fee-for-service perspective.  If you compare, say, Dade County with any of the number of rural floors, so the rural floor this year is $692.  That is an increase from what you would be paid in a rural county typically.

Consequently, so if you are looking--if you are in many areas around the country, the fee-for-service differentials between fee-for-service and Medicare Advantage generally would have been even higher if there hadn't been a rural floor adjustment.  So, the rural floor is intended to--

Mr. THOMPSON.  Let me just submit for your consideration that if you are in a northern California county and you are paying more than someone in--considerably more than someone in a southern California county, it is little comfort to know that you could be paying even more.  There is a very glaring disparity that is hurting real people trying to get health care.  I think we need to take a little different approach to this.

Ms. NORWALK.  I actually think the floors, when the MMA was passed, the floors were really intended to address the fee-for-service disparities.  That is why you have rural floors and urban floors at a set level without regard to what the fee-for-service reimbursements are there.

So, that is not to say that there isn't plenty of work to do generally around fee-for-service differentials, as we have discussed before.  I think that there is, but in the meantime, a lot of what the discussion is, is going back to basically a flat fee-for-service rate for Medicare Advantage.  My point is, that merely can perpetuate the differences that you would see in Dade County, Florida, for example, versus planned payments in North Dakota or--

Mr. THOMPSON.  My point is that there are people who are being affected because of this disparity and it is a problem.

You had mentioned earlier, made some comments about the extra benefits on the MMAs and I would just like to know that if CMS has data on the utilization of the extra benefits in the plans?  It is one thing to have extra benefits.  It is another thing if they are not being used.

Ms. NORWALK.  I will have to ask whether or not we--I will have to check whether or not we--what information, specifically, we collect on that piece.  If we have it, I am more than happy to give it to you and otherwise figure out if we have some proxy if we don't have the specifics.

[The information follows:]

In 2007, enrollees in MA plans are receiving, on average, additional benefits with a value of $86 per month.  Plans provide an average of about $108 in additional benefits, primarily cost sharing and premium buydowns, as well as specific benefits such as routine vision and dental care.  Plans charge, on average, a monthly premium of about $22 for these benefits, yielding a net average value for enrollees of $86 per month. 

The Centers for Medicare & Medicaid Services (CMS) monitors the care delivered by managed care organizations (MCOs) through the collection and analysis of standardized clinical performance measures and beneficiary satisfaction surveys.  For this purpose CMS has been collecting MA data via Health Employer Data and Information Set (HEDIS), Consumer Assessment of Healthcare Providers and Systems (CAHPS), and Medicare Health Outcomes Survey (HOS) for nearly ten years.  Additionally, CMS has created the Complaints Tracking module, a tool that collects and tracks beneficiary complaints.  CMS also collects data from MCOs in conjunction with the annual bidding process.

Mr. THOMPSON.  It seems to me it is something we have got to get because it doesn't really matter if benefits are available if nobody is using the benefits.

Ms. NORWALK.  No, I appreciate that.  We should have that for purposes of considering risk-adjustment and the relative health of beneficiaries.  I am just not sure if it is exactly as you would describe it, but I will see what we can provide to get you that.

Mr. THOMPSON.  Then I was just informed that the American Association of Retired Persons (AARP) has come out against the overpayments for the Advantage plans.  Do you have any comment on that?

Ms. NORWALK.  Well, I don't characterize it as an overpayment.  I characterize it as additional benefits for Medicare beneficiaries as--

Mr. THOMPSON.  So, is AARP still against it, irrespective of what you call it?

Ms. NORWALK.  I haven't seen what AARP said, so I am going to presume that you know better than I do.

Mr. THOMPSON.  I didn't mean to interrupt you.  Go ahead.  Your comments on that?  Irrespective of what you consider it, what are your comments on their opposition to the overpayments?

Ms. NORWALK.  I think it is unfortunate.  They have many beneficiaries--of the 8.3 million, a significant portion, of course, are going to be those who are members, I would imagine, of AARP and I think that they do receive important benefits from that.

Moreover, the importance of the changes that the MMA did is beyond just the additional benefits.  It is really to ensure that people in rural areas of the country have access to these sorts of plans.  Reverting back to where we were at, the MMA may lead us to lose a significant amount of ability for many beneficiaries to sign up for Medicare Advantage plans.  So, I think it really serves a dual purpose.

So, I would have to disagree with the outcome of the AARP analysis, whatever it happens to be.

Mr. THOMPSON.  Thank you.

Chairman STARK.  Mr. Hulshof, would you like to inquire?

Mr. HULSHOF.  Thanks.  Welcome back, Ms. Norwalk.

Looking about the room, I think probably most folks here are intimately acquainted with many of the acronyms we have used.  I think we chased off a student group who were here momentarily.  Which is interesting, when you consider that as we move to 78 million senior citizens that will depend on Medicare when the Baby Boomer generation has retired, it is going to be the young folks who will be in the work force who will be supporting this right now unsustainable program down the road.  So, as I do each time you come before us, just for the record and those that may review the record later, BBA of course is the Balanced Budget Act.  It was signed into law in 1997, I believe.

Then BIPA is the Benefits Improvement and Protection Act and that was the year 2000.  Again, I would note parenthetically that each of those two bills was with a divided Government, a legislative branch of one party, executive branch of another.  There was some give and take in the fact that these changes were made.  Certainly as we move forward, I hope again that spirit of cooperation is there with this continued divided Government.

I also acknowledge we have an exceptional panel coming up.  One of the things, Ms. Norwalk, that we are allowed to do is to anticipate and read their testimony coming up.  So let me mention a couple things and get a reaction from you.

Dr. Miller, in his written testimony, will tell us that the Medicare program needs to put some financial pressure on both fee-for-service and the Medicare Advantage programs, in addition to bringing quality initiatives in.  I think the idea is to compare apples to apples.

One of the things that Dr. Miller points out in his testimony is that Medicare Advantage, while they use bidding, and he puts that in quotation marks, as the means of determining plan payments and beneficiary premiums, the bids are against benchmarks which are often legislatively set.  Again, I acknowledge that.  As he will tell us later, I am sure, the commission believes that financial neutrality is important as we consider possible changes between fee-for-service and Medicare Advantage or other private plans that we may contemplate.

I take that point but let me also make sure that my facts and figures are correct.  Is it not true that CMS employs roughly 4,000 individuals and contracts with about another 22,000 to run Medicare and Medicaid?  Are those numbers roughly?

Ms. NORWALK.  4,500 employees and I thought we had 80,000 contractors but maybe it is less than that.

Mr. HULSHOF.  I think the information I have is at least in fiscal year 2006, CMS, Centers for Medicare and Medicaid Services, spent roughly 3.2 billion in operation costs.  How am I on that number?

Ms. NORWALK.  That sounds right.

Mr. HULSHOF.  Okay.  Medicare Advantage overhead costs are actually built into their plan bids, is that true?

Ms. NORWALK.  That is correct.

Mr. HULSHOF.  You mentioned a couple things of actual legislative mandates or requirements for anyone who wishes to offer a Medicare Advantage plan.  For instance, I think you mentioned PPOs are required to provide catastrophic coverage.  Is that also true?

Ms. NORWALK.  That is correct.

Mr. HULSHOF.  Are other Medicare Advantage plans required to provide disease management programs to enrollees?

Ms. NORWALK.  No, they are only required to provide Medicare Part A and Medicare Part B benefits.

Mr. HULSHOF.  Are there any other requirements that the Medicare Advantage plans have to factor in, however?  The point of this, Dr. Miller, as you come up later, is we try to talk about this neutrality.  There you are.  Good to see you.

What other mandates or legislative requirements are there that Medicare Advantage plans have to factor in, in addition to the overhead costs we have talked about and the catastrophic coverage?

Ms. NORWALK.  There are a number of different things.  The first, you alluded to it earlier in terms of the quality requirements and quality reporting that they do and provide indications of quality metrics to their enrollees.

In addition, of course, you are automatically in fee-for-service as a default, but from a Medicare Advantage plan, you need to market in order to get enrollment to tell people your existence and so forth.  So, there are a fair number of costs that may be associated with that.  You also need to do appeals and grievances and a lot of other things that can add additional costs if you are in a Medicare program that would have to be included in the bid.  So, call centers and all sorts of things to make sure that beneficiaries can have access to information, whatever it is that they need.

Mr. HULSHOF.  I guess as a final comment I would make, and Mr. Camp, I think, has brought out the fact that especially in rural areas and preventive care, and again I know I am flogging the same dead horse--it is not a dead horse necessarily--but the frustration that we consistently have that we aren't able to factor in the inherent costs that we will save through preventive care.  We again touched on this many times as far as Medicare Part D picking up the costs of certain drugs.  Of course, we know it is going to eventually save lives and have procedures that don't have to be done.  I think if we are truly trying to find that comparing apples to apples, that preventive care that is offered through Medicare Advantage, unfortunately we don't get to count the cost savings as we are trying to make these comparisons.

Ms. NORWALK.  Correct.

Mr. HULSHOF, but that is my editorial comment.  I appreciate it, Mr. Chairman.  I yield back.

Chairman STARK.  Mr. Kind, would you like to inquire?

Mr. KIND.  Thank you, Mr. Chairman.  Thank you, Director Norwalk, for your testimony here today and your patience with us.

I also appreciate the efforts you have made, and your staff, as far as getting together with me in the not-too-distant future to talk about an interest very important to the State of Wisconsin, and that is the survival of Senior Care, which is due to expire, the Federal waiver, at the end of June.  It is an incredibly popular program with 103,000 seniors enrolled in it in the State.  It has received bipartisan support from the creation to the existence to the extension, hopefully, with the Administration's cooperation later this year.

Just from budgetary terms, it seems like a no brainer, because if we extend Senior Care for another three years, as the governor is proposing in his waiver application, it would save the Federal Government $403 million that three years because, per beneficiary, it is much cheaper to provide services under Senior Care than Part D.  The combined State and Federal savings is close to $700 million.

So, I am looking forward to having that meeting so we can discuss in more detail what the Administration's vision is with Senior Care, what we can do working together.  Hopefully we can set that up soon.

As a new Member of the Committee, I haven't had a chance to really wade into the weeds yet in regards to Medicare Advantage program, certainly not to the extent that you have, but a few things do jump out at me initially.

If you take a look at the Congressional Budget Office score with Medicare Advantage plans, for every new enrollee that we do have going into Medicare Advantage, the budget baseline goes up.  Do you accept that proposition?  Is that a fact of budgetary life that we are facing right now?

Ms. NORWALK.  Yes.  With the way the program is currently structured, most Medicare Advantage payments would be higher than fee-for-service.  I might add that our actuaries may have different assumptions than the CBO and I don't think--

Mr. KIND.  I think we will have Mr. Orszag here a little bit later testify about the budgetary implications.  Some call it the overpayment, you refer to it as more services, which can be a good thing, but I think at some point, we in Congress need to wrestle with just the fundamental philosophical fact and that is, what the goal ultimately is.  Is it extending more coverage, providing more options with more services but at a higher price to seniors compared to traditional fee-for-service?  Or is it, try to find savings so we can extend some coverage to all people in this country, including children, the SCHIP program?  We are trying to find tens of billions of dollars right now in the budget resolution and how we can maintain the integrity of SCHIP over the next five years, but also dealing with the 46 million uninsured.  That is just a fact that we are going to have to come to grips with in regards to where Medicare Advantage is going, but including these private fee-for-service plans.

My question for you is, how confident are you that you are getting--CMS is getting enough data in regards to the administration of these Medicare Advantage plans, the efficiencies of these plans, the administrative costs, the profit margin in order for us as policymakers to make some of these policy determinations?

Ms. NORWALK.  We do have a fair amount of information in terms of all the things that you listed.  I think you each will have a handout that looks at the ratio of the Medicare Advantage plan bids to fee-for-service, it looks something like this.  I thought this was important because it looks at the different types of plans, the local coordinated care plans, the regional PPOs, the private fee-for-service, and then segments out the individual plans versus the employer plans.

One of the things that you see here is that local Health Management Organizations (HMOs) and PPOs submit their bids to us--and the bid to CMS is basically what are we bidding to pay for regular Medicare Part A and Part B benefits.  One of the things you will notice is that the local coordinated care plans actually come in under Medicare fee-for-service.

Now, it is the legislatively set benchmarks, as Dr. Miller will testify to later, I am sure, that change the payment rates.  The regional preferred provider organizations are new.  They have basically just started, so they do have some additional startup costs.  They also have to provide the catastrophic coverage.  You will see that their average rate for individual plans is just under 113 percent of fee-for-service.

Private fee-for-service and regional PPOs also need to network across an entire--

Mr. KIND.  Let me ask you on that in particular, because based on what little information I know about private fee-for-service, and I understand they are still in their infancy, this seems to be on the cusp of really exploding.  Especially if companies figure out the advantages with their retirees out there under this.

Do we have the capability of gathering enough data to make some judgments about these private fee-for-service plans?

Ms. NORWALK.  I think we do.  I was referring to the regional PPOs, which are yet a separate plan option than private fee-for-service, and they have different goals in terms of the reasons why those plans were set up.  Now, private fee-for-service, their average bid is just under 115 percent of regular fee-for-service, in terms of what they would provide the A, B benefit for.

We do have a lot of information on each of these plans, differentiated between individual and employer.  I think, looking at that very carefully, combined with where these plans are being offered and the access that is available to Medicare beneficiaries is important to consider, as we look at all the important--

Mr. KIND.  Can we get our hands on information with regards to administrative costs in administering these plans, profit margins that these plans are realizing?

Ms. NORWALK.  I don't know in terms of what--typically, in terms of what we collect, specifically as to that, I will have to go back and ask.  I think that what they have asked for recently has changed, or the past number of years has changed as the bidding process changed, but I will go back and find out what is available.

[The information follows:]

CMS has historically published aggregate payments by plan type, and CMS continues to publish the county rates used to develop plan-specific benchmarks.  However, CMS does not publicly release monthly prospective payment amounts, administrative costs, or the profit margins by plan due to concerns about propriety information being distributed.

Mr. KIND.  That would be helpful.  Thank you.

Thank you, Mr. Chairman.

Chairman STARK.  Mr. Becerra, would you like to inquire?

Mr. BECERRA.  Thank you, Mr. Chairman.  Ms. Norwalk, good to see you again.  Thank you for being with us.  I would like to follow up on Mr. Kind's questions.

Is there any information, any data--are there data that you would like to have with regard to the administration and efficacy of the Medicare Advantage program that you are currently not collecting or not allowed to collect?

Ms. NORWALK.  Not that I can think of.  I will have to give that some more thought and get back to you. 

[The information follows:]

The Medicare Advantage program would benefit greatly from being able to collect the HEDIS and HOS measurement sets from Private Fee for Service (PFFS) plans.  HEDIS is the most widely used measurement set in managed care, and the HOS survey is the only measurement set in use that produces health outcomes measures.  Both of these measurement sets are used by CMS for internal contractor surveillance purposes, for audit selection purposes, and for public reporting initiatives. 

Currently, all Medicare Advantage contracts except for PFFS and MSA plan contracts are contractually obligated to report these two measurement sets at their own expense.  A provision in MMA section 722 currently excludes PFFS contracts from these data reporting requirements.  As PFFS continues to grow, it is critical that CMS collect these measurement sets from these contractors for its internal contractor assessment programs and for publicly reporting quality of care information on the various choices available to beneficiaries. 

There is nothing that jumps to mind, jeez, if we only had that piece of information, it would make it much easier to make these determinations.  So, I have a good sense of why I think we are seeing these different bidding amounts for the different types of plans.

Medicare Advantage, particularly if you are a local HMO, typically costs you 97 percent versus 100 percent fee-for-service to provide the Medicare A and B benefits.  They have been around a long time, so that sort of makes sense.

Mr. BECERRA.  Do we have a profile of the people who are signing up with Medicare Advantage, to get a sense how they fit the profile of the average senior, of the average individual that age, health wise, geographically, all the demographic information?

Ms. NORWALK.  We do.  We do have a lot of that.

Mr. BECERRA.  What about the information about the private fee-for-service plans?  As I understand it, there is some information that is proprietary that CMS cannot review in determining how they--how they come up with their level of reimbursement?

Ms. NORWALK.  Yes, the rules around private fee-for-service are, indeed, different from the regional PPOs and the local coordinated care plans.

Mr. BECERRA.  Is there any information from the private PPOs--

Ms. NORWALK.  I do think that you have raised a good point.  To step back a second, so private fee-for-service, separate from the other Medicare Advantage plans, one of the concerns when they initially created--

Mr. BECERRA.  I am going to run out of time, and I have one other very pressing issue.

Might there be, if there is an area, if you can just let us know, identify that, maybe we can work with you to see if that is something we can move into.

Ms. NORWALK.  Absolutely.  Great.

Mr. BECERRA.  I want to spend the rest of my time, and Mr. Chairman, I hope you will indulge me, a more pressing issue for me back in southern California, in Los Angeles, in the next 10 days, King Hospital, which is a hospital that has helped a very modest income, a very disadvantaged community for many, many years, is on the verge of losing its contract with CMS to provide services under the Medicare provider agreement that it has with CMS.  I know they have been waiting for a while for CMS to give them word.  I know CMS has been working with them closely to try to help them in this process of radically reforming their services, because of the difficulties they have been having.

I think they are doing everything they can to get to the point where they will be able to pass any type of test about their services that they are providing, but I know they are waiting for word.  They are asking for an extension until mid-August, August the 15th.  My understanding is that CMS has not given them word or is telling them perhaps one month.

That won't help them do or complete the radical transformation they are undergoing.  It won't help them preserve the 250 residency slots that they have to help teach the next generation of physicians, which also provide services to a lot of folks who have very modest insurance policies that they can use.

I am wondering if you could tell me today what CMS is planning to do to make sure that King Hospital continues to operate, and a lot of folks in southern California continue to receive services that are critical and of quality?

Ms. NORWALK.  As you know, Martin Luther King Hospital initially had some significant quality issues.  So this is really about the quality of care that is provided.

Mr. BECERRA.  I am there with you, if you could fast forward to--

Ms. NORWALK.  I have been working closely with Bruce Chernof, who is the medical director of LA County.  One of the issues, really the only issue under which we granted them the initial extension from October until March 31, was so that they could downsize.

Mr. BECERRA.  Yes.

Ms. NORWALK.  Their initial assessment to us was, in fact, that they were on track to downsize by the end of this period.  So, they have recently sent in new information to us saying that they need more time to downsize.  We are reviewing that and taking a look at that, and that is what we will be basing our determination on.  That is different, by the way, than giving them more time to pass a survey.

So, we want to be sure that we have a full understanding of the facts before we make a decision.  I also appreciate it is critical that this decision be made in short order.

Mr. BECERRA.  I think that is their point.  They are doing something that most hospitals would never do, in that they are re-shifting virtually everything, their operation.  What they are finding is that it is not as easy as you think, because they are also providing care at the same time.

If for one day the contract expires, were let to expire, they lose all 250 of those residency slots, because the contract is with USC--excuse me, with the county.  So they cannot renew a contract if it is to another provider.  So it is essential that we get word.  Not on March 30, the day before it expires.  They need to continue planning, because they are spending millions of dollars in preparation for this at the behest of CMS.

So, I am hoping that we can get word very quickly from CMS.

Ms. NORWALK.  Absolutely.  I have every intention of getting--there is a phone call I have already made today to figure out if we can resolve the issue.

Mr. BECERRA.  Thank you so much.

I yield back, Mr. Chairman.

Chairman STARK.  Mr. Johnson, would you like to inquire?

Mr. JOHNSON.  Thank you, Mr. Chairman.

Ms. Norwalk, do you know how many plans bid under the benchmark this past year?

Ms. NORWALK.  Well, I know the majority of the Medicare Advantage plans did, so I think it is a high--

Mr. JOHNSON.  Those plans enjoyed extra benefits as well, did they not?

Ms. NORWALK.  Yes, those beneficiaries in those plans do enjoy significant extra benefits, that is correct.

Mr. JOHNSON.  Tell me how the benchmark changes over time.

Ms. NORWALK.  The benchmark over time has changed mainly because of legislative changes.  So, one concern, for example, is that there were not a sufficient number of plans in rural counties.  So those beneficiaries who lived in rural areas did not have the advantage of choosing a plan.  So, what they did is, they put in a floor which would raise the payment levels to Medicare Advantage plans and did that above the fee-for-service rate.  So, that was something intentional to increase the plan participation as well as enrollment in rural areas, and it has succeeded tremendously.  We have much more enrollment in rural areas and far greater numbers of plans and choices for beneficiaries in rural areas.

Mr. JOHNSON, but if you raise the benchmark, is it costing them more in rural areas to run those?

Ms. NORWALK.  It doesn't necessarily cost beneficiaries any more in a rural area.  In fact, rural areas often have plans with low or no premiums and have all the same types of additional benefits that you might see in other areas.  It really depends on where that floor payment is in terms of the amount of the additional benefits.

Mr. JOHNSON.  Would competition lower the benchmark over years, do you think?

Ms. NORWALK.  The benchmark is legislatively set and it really focuses on an update to either fee-for-service payments where Congress says the floor is X.  Now, what does impact changes are the bids.  The bids are intended to be competitive.

Mr. JOHNSON.  You think the system is okay in that regard?

Ms. NORWALK.  Well, I do think it does provide terrific extra value for Medicare beneficiaries.  Many of them count on it, and particularly those who can't afford additional supplemental benefits, many who don't have the luxury of retiree coverage, for example.  They, in particular, would miss additional benefits if there were plan changes, much like what happened after the Balanced Budget Act.

Mr. JOHNSON.  It might be helpful to have information on clinical outcomes of patients as opposed to traditional Medicare which pays for whatever services are needed.  Are there steps to move toward capturing that information?

Ms. NORWALK.  I think we might be able to provide some of that.  We do know a lot from a Medicare beneficiary survey we did a couple years ago about the ability to access providers, for example, the trouble of getting care, how easy it was to see a doctor, and so forth, as well as preventative services compared to fee-for-service.  Uniformly across all measurements, the Medicare Advantage plans did a better job with their beneficiaries in making sure they had their preventive care, or it was easier for those beneficiaries to see a physician, for example, or they were more likely to have a regular doctor.

Mr. JOHNSON.  It just costs more to go first class, doesn't it?

CBO indicates there will be consequences of lowering the payment and plans will leave the areas and beneficiaries will not have the options that they do now.  So, it seems to me that the 65 billion that seems to be on the table for the taking is not free.  Could you discuss that?

Ms. NORWALK.  I do think it is an accurate assessment, if you look historically at what happened after the Balanced Budget Act, where they changed the payments, you found plans did a number of things before they pulled out.  The first thing they did was they basically restricted their provider network, so fewer providers were available.  They reduced the number of additional benefits that were available to plans, and then ultimately they pulled out of the market.

I can assure you, having talked to a lot of Medicare beneficiaries, they were incredibly irate at losing their Medicare Advantage plan.  So, I do think that we, in looking at these payment streams, do need to consider what the ultimate effects will be.

Mr. JOHNSON.  It probably would effect the rural areas first?

Ms. NORWALK.  It will absolutely affect the rural areas.

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

Chairman STARK.  Mr. Pomeroy, would you like to inquire?

Mr. POMEROY.  I would, Mr. Chairman, thank you.

I will begin by saying I don't know much about Medicare Advantage plans, they haven't been too prevalent in my market.  Even though I have been a Committee on Ways and Means Member now for three terms, I have had very little traffic into my office to discuss Medicare Advantage plans.

I used to be an insurance commissioner.  In fact, I am the only former insurance commissioner in Congress, so I am surprised that those that are advocates of Medicare Advantage plans filling the room today have not been beating a path to my office to discuss this interesting new dynamic of health insurance reimbursements and this value added to Medicare.  It would have been obviously advantageous to them, I think, to begin the discussion with other Members of the Congress and the preceding Chairman at an earlier date.

That said, as I try to get a handle on what is represented in Medicare by the value of this extra payment, I am just not quite certain.  We get extra benefits, some get extra benefits.  Well, that is good.  Is it equitable then across Medicare to offer a Medicare Advantage mechanism that gets some extra benefits while others don't get extra benefits?

Then other questions that will be before this Congress are, well, if you look at that extra payment providing these extra benefits to a few Medicare recipients, would that be--is there a more compelling aspect of health policy, for example coverage for children, where that money should be applied instead?

So, as we sort our way through this, your comments I found very interesting.  You are the CMS director, so I don't suppose it is fair to ask you to weigh whether or not we should put the extra money here, plussing up a Medicare benefit for a few, or whether we should redirect it toward uninsured children.  That really goes beyond what we pay you to do on our behalf as the CMS director.

I would say this, though.  You are in charge of administering a Medicare system.  Why should we find it compelling to continue to support Medicare Advantage plans and their extra cost when those not in those plans don't get those extra benefits?

Ms. NORWALK.  I think it reminds me a little bit of the discussion we had during the budget hearing.  How, if I recall, you were very unhappy with the variation in payment rates for fee-for-service.  That, particularly if you look at Dade County or Miami, Florida, the payments there are significantly higher than the fee-for-service payments that you see in North Dakota.

Well, if you base the Medicare Advantage payment system entirely on Medicare fee-for-service, you end up perpetuating that differential.  What the intention was with the MMA and having a rural floor was to close that gap between fee-for-service and Medicare Advantage, so that in rural areas of the country, we could provide benefits that normally you would see in very populated urban areas like Miami or in any number of other places across the country, where the fee-for-service rate was higher--

Mr. POMEROY.  Actually, if I might just pursue this, I think you raised an interesting point.  We are very concerned about this disparity in rural reimbursements.  That led me to negotiate with the then Chairman about a $25 billion addition to rural reimbursements under fee-for-service.  In fact then Committee Member Nussle and I offered an amendment which was included in the MMA, plussing up those rural reimbursements.  I incurred some dissatisfaction by some of my Democrat colleagues in supporting the bill.

Many of those provisions are expiring, having run their three years.  It was contemplated at the time they would be reauthorized, but the three years are running out.  Clearly, they have had a lot more to do about bringing fairness to rural reimbursements than Medicare Advantage.

Do you have a position on extending the three-year authorizations that are expiring that were initially put in relative to rural reimbursement rates under the MMA?

Ms. NORWALK.  Can I get back to you and get the official Administration position?  I didn't ask that question before I came today.  Perhaps I should have, but I didn't anticipate it.

[The information follows:]

The Centers for Medicare & Medicaid Services (CMS) has made a strong commitment to rural health issues and has made many significant regulatory and departmental reforms to address the needs of rural America. 

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) included a number of provisions to enhance beneficiary access to quality health care services and improve provider payment in rural areas.  The provisions in the MMA continued two payment policy trends that have increased rural provider payment rates in recent years: (1) an expansion of opportunities for rural hospitals to receive cost-based payments from Medicare and (2) an increase in rural PPS payment rates so that they are closer to urban payment rates.  These provisions include the creation of a new Physician Scarcity Area bonus payment program along with an updated Health Professional Shortage Area bonus payment program, which reward both primary and specialist care physicians for furnishing services in the areas that have the fewest physicians available to serve beneficiaries; the development of a graduated adjustment/add-on payment for low-volume hospitals; the redistribution of unused resident positions, with hospitals located in rural areas receiving top priority for such positions; and significant improvements to the Critical Access Hospital program, including increased payments to 101 percent of reasonable costs and flexibility to use up to 25 beds for acute care.

CMS has also been directed to conduct a number of demonstrations focused on the delivery of care in rural areas.  For example, section 409 of the MMA established a demonstration to test the delivery of hospice care in rural areas; section 410A of the MMA established a 5-year demonstration for up to 15 hospitals to test the feasibility of establishing Rural Community Hospitals; and section 434 of the MMA authorized a new demonstration project under which Frontier Extended Stay Clinics in isolated rural areas are treated as providers of items and services under the Medicare program.

Many of the provisions in the MMA were time limited but have been extended in later legislation, including the Deficit Reduction Act of 2005 (DRA) and the Tax Relief and Health Care Act of 2006 (TRHCA).  CMS has worked expeditiously to implement all of the provisions in recent legislation, recognizing their importance to rural communities.  Although the President’s fiscal year (FY) 2008 Budget did not include proposals to extend the expiring rural provisions, CMS will continue to work with Congress to address disparities in rural reimbursement and to improve the quality and value of care delivered to all Medicare beneficiaries. 

Mr. POMEROY.  I would be interested.

Ms. NORWALK.  Yes, absolutely.

Mr. POMEROY.  I would like your acknowledgment.  Obviously, that has much more to do about rural rate equity than Medicare Advantage; is that correct?

Ms. NORWALK.  I think both are important in terms of rate equity, but I would not disagree with you that it is a critical piece, vis-ŕ-vis--

Mr. POMEROY.  For example, we have 104,000 Medicare recipients.  We have 4,000 on Medicare Advantage.  Obviously, fixing the Medicare reimbursement has much more to do with rural equity.

Ms. NORWALK.  I think that is in part because the plans are new to North Dakota.

Mr. POMEROY.  I am not saying where the future may go or whatever.  I am asking you a specific question.  Which is the bigger deal?

Ms. NORWALK.  For today, that is correct.  I would agree, your point today is correct--that it has a bigger impact today, but I think that over time, if the program was allowed to continue, Medicare Advantage would have a bigger impact in North Dakota because a lot of the plans that you have there today are new and beneficiaries haven't learned about them.

Mr. POMEROY.  It is my understanding you are reimbursing agents significantly higher to enroll in the Medicare Advantage plans.  How are companies enrolling?  What are the market distribution reimbursements to get people into a Medicare Advantage plan?  I have had insurance agents tell me it is a great deal.

Ms. NORWALK.  Well, it probably depends on the plan and the broker.  I can't speak to it generically, but I am more than happy to see if we can find some information and get back to you.

[The information follows:]

CMS Medicare Marketing Guidelines provide specific guidance regarding the use of persons employed by an organization to market a plan.  Organizations that directly employ or contract with a person to market a plan must ensure through monitoring that all marketing activities comply with applicable MA and/or Part D laws and all other Federal healthcare laws.

The guidelines explicitly state that compensation structures must:

“Provide reasonable compensation in line with industry standard for services provided.”

CMS is aware that organizations sometimes use performance-based compensation, tying compensation of a person performing marketing to the volume or value of the person’s sales.  As a result, the rate of payment may vary between an MA plan, MA-PD plan and a PDP.  Based on a marketing representative’s reasonable measure of service and industry standards, rate of payment may vary among one organization’s plans and between competitors.  

It is important to CMS that the beneficiary chooses a plan based on the beneficiary’s needs as opposed to the financial interests of the person performing the marketing.  Therefore, the rate of payment to a marketing representative should not vary based on the health status or risk-profile of a beneficiary.     

Because an organization is required to use only a State licensed, registered, or certified individual to market a plan, if a State has such a requirement, CMS expects an organization to comply with a reasonable request from a State which is investigating a person that is marketing on behalf of a organization, if the investigation is based on a complaint filed with the State. CMS also encourages an organization to report a person that markets on the plan's behalf to the appropriate State entity, if an organization believes that the person is violating a State's licensing, registration, certification, insurance or other law.

Mr. POMEROY.  Are those extra costs coming back into agent reimbursements?

Ms. NORWALK.  No, all additional costs, 75 percent by statute, need to go back to the beneficiary.  The additional 25 percent goes back to the trust funds.

Mr. POMEROY.  Thank you.

I yield back, Mr. Chairman.

Chairman STARK.  Ms. Tubbs Jones?

Ms. TUBBS JONES.  Mr. Chairman, I seek unanimous consent to be skipped for this round if I can go up first on the next round.

Chairman STARK.  You want to rest up a little?

Mr. Emanuel.

Mr. EMANUEL.  I have one question, Ms. Norwalk.  Mike Thompson had asked about this, so I want to follow up.  He had talked to you about the actual benefits side and the payment.  It deals with the reporting by Medicare Advantage plans.

We don't actually have any record of actual benefits that individuals are receiving.  The question I have for you is, yet we are making the payments with no record.  We know that the benefits exist, a la on paper, but as an option, as a potential, do we have any way of getting that information so we know that we are getting what we are paying for?

Ms. NORWALK.  We have to know something, because we risk-adjust every beneficiary.  So, the healthier beneficiary, somebody who is 65 and joins a Medicare Advantage plan, for example--

Mr. EMANUEL.  I am more than willing to yield to the Chairman of you would like.

Chairman STARK.  Yes, that isn't responsive.  The risk adjustment just deals with the beneficiaries and their health status.  It has nothing to do with the benefits they receive or the extra benefits.  That is not used in the compilation of the risk adjustment.

Ms. NORWALK.  Well, actually the point I was making, Mr. Chairman, is that in order for us to figure out what their health status is, we actually have to know something about the services that were provided to them.

Mr. EMANUEL.  So, you think this information--

Chairman STARK.  No, you don't.

Mr. EMANUEL.  I am going to take back my time from both of you for one second.

Ms. Tubbs Jones, she can have also the first question next time if that works it out.

All right.  How do we get to the fact of what actually are the benefits for the payment in a very specific way?  Could you help me on that?

Ms. NORWALK.  I will go back and check and find out exactly what it is that we have in-house to determine any number of things and just see what we could either do as a proxy, or see what we have specifically.

[The information follows:]

In 2007, enrollees in MA plans are receiving, on average, additional benefits with a value of $86 per month.  Plans provide an average of about $108 in additional benefits, primarily cost sharing and premium buydowns, as well as specific benefits such as routine vision and dental care.  Plans charge, on average, a monthly premium of about $22 for these benefits, yielding a net average value for enrollees of $86 per month. 

The Centers for Medicare & Medicaid Services (CMS) monitors the care delivered by managed care organizations (MCOs) through the collection and analysis of standardized clinical performance measures and beneficiary satisfaction surveys.  For this purpose CMS has been collecting MA data via Health Employer Data and Information Set (HEDIS), Consumer Assessment of Healthcare Providers and Systems (CAHPS), and Medicare Health Outcomes Survey (HOS) for nearly ten years.  Additionally, CMS has created the Complaints Tracking module, a tool that collects and tracks beneficiary complaints.  CMS also collects data from MCOs in conjunction with the annual bidding process.

Mr. EMANUEL.  The only worry we would have, and I don't think it is by party, I think it is more of a concern from a side point of being an advocate for taxpayers, we obviously don't want to be paying for a service if it is not being provided and only exists on paper.  Okay?

Ms. NORWALK.  I anticipate that one of the things that we could look at, for example, are appeals processes.  So, if a beneficiary is in a plan and doesn't have access to a service, the beneficiary would complain about it.

Mr. EMANUEL.  I think that is safe to assume.

Ms. NORWALK.  Yes, it is safe to assume.  So, that is one of the things that leads me to think that these plans are actually providing benefits.

Not only that, when we did the Medicare beneficiary survey that I referred to earlier, the information we have comparing Medicare Advantage to Medicare fee-for-service leads me to believe that they have a usual doctor, and so on and so forth, they have an easier time finding a doctor, et cetera.

So, whatever else it is that we have in-house, I am more than happy to figure out a way to provide that.

Mr. EMANUEL.  Since you will look at that, just do me one favor as you ask other folks to look at it and get the information.  The assumption if people aren't complaining about it, because that assumes, the assumption you made was that they then are receiving it because they are not complaining, it is a double negative, basically.  Don't assume people know they have something.  I couldn't tell you everything that my Blue Cross plan offers me in the Federal health employee system.  Now, mainly because I don't have patience.  My wife always said if we had a fourth child, we would name it Patience as a subtle reminder to me.  I don't sit down and study it.

So, don't assume that folks are sitting there studying that, so therefore if they are not complaining, therefore they are receiving it.  That makes a presumption I am not sure I would be comfortable with.  Okay?

Ms. NORWALK.  Fair enough.

Mr. EMANUEL.  Thank you very much.  I yield back.

Chairman STARK.  Mr. McDermott, would you like to inquire?

Mr. MCDERMOTT.  Thank you, Mr. Chairman, for allowing me to sit in on the Committee and participate.  I really come because when we put in the Medicare Advantage plans, we based it on fee-for-service rates.  I come from one of those places where fee-for-service is considerably less than other parts of the country.  That is true of Oregon and some plans in Minnesota, perhaps some in Wisconsin.  I think it is important for the Committee to understand that the basing on fee-for-service in the area makes for huge inequities in this program.

So, part of what we are talking about here is not applicable to some areas of the United States like the Northwest.  I think you would confirm that?

Ms. NORWALK.  Absolutely.  There is no question that a lot of what I wanted to bring to people's attention today is that the reason you have the legislated floors that we have, particularly in rural areas, was to address some of the variation that you see with fee-for-service and to not carry that over into the Medicare Advantage program.  So, that is correct.

Mr. MCDERMOTT.  I would also like to put in a word for the floor in urban areas.

Ms. NORWALK.  Likewise, the urban floor has made a very big difference.  So, both the rural and urban floors, and I don't mean to put one over the other, but both have the same concept.  Legislatively, let us make sure if there are disparities on the fee-for-service side, that we don't carry them over into Medicare Advantage.

Mr. MCDERMOTT.  Any kind of proposal that would say, let us take a percentage reduction as though it was one program in the country would only increase the problems of areas like mine where we are barely making it with the floor.

Ms. NORWALK.  I think that is correct.  There are lots of difficult choices in front of this Committee.  I think it is important that we appreciate all the different facts.  We are more than happy to get for you, if you would like, some details about your State and all the specifics in terms of payments.  If that would be helpful, we can provide that.

Mr. MCDERMOTT.  I would appreciate it if you would provide the Committee with some estimate of what an across-the-board cut would mean to Oregon and Washington and Minnesota and several others.

Ms. NORWALK.  We have that information by State and we are more than happy to give it to you.

[The information follows:]

Establishing an MA payment policy such that plan payment rates would not exceed 100 percent of FFS would adversely affect most counties in the United States.  Only 5.5% of counties with about 7% of enrollment already have benchmarks established at 100% of FFS in 2007. Capitation rates in all other counties (94.5%) and for all other beneficiaries (92.7%) would be reduced.  The counties where the impact would be the largest are the counties that were paid on the basis of either of the floors or the blend in 2004. These categories represent almost 2/3 of all counties and more than half of all MA enrollment.

In terms of specific impacts on Oregon, Washington, Minnesota, and other States:

• Preliminary estimates of the impact in Minnesota of limiting payment to 100 percent of FFS are -$629 million over five years (FY 08-12, effective 1/1/09).  Ninety-four percent of Minnesota counties, with 98% of Minnesota MA enrollees, would likely have benefits or plan choices reduced under a proposal that limits payments to 100% of FFS.
• Preliminary estimates of the impact in Oregon of limiting payment to 100 percent of FFS are -$1,836 million over five years (FY 08-12, effective 1/1/09).  Ninety-seven percent of Oregon counties, with 98% of Oregon MA enrollees, would likely have benefits or plan choices reduced under a proposal that limits payments to 100% of FFS.
• Preliminary estimates of the impact in Washington of limiting payment to 100 percent of FFS are -$1,275 million over five years (FY 08-12, effective 1/1/09).  One hundred percent of Washington counties, with 100% of Washington MA enrollees, would likely have benefits or plan choices reduced under a proposal that limits payments to 100% of FFS.
• Preliminary estimates of the impact in California of limiting payment to 100 percent of FFS are -$6,001 million over five years (FY 08-12, effective 1/1/09).   Ninety-eight percent of California counties, with 100% of California MA enrollees, would likely have benefits or plan choices reduced under a proposal that limits payments to 100% of FFS.
• Preliminary estimates of the impact in New York of limiting payment to 100 percent of FFS are -$1,812 million over five years (FY 08-12, effective 1/1/09).  Ninety-four percent of New York counties, with 63% of New York MA enrollees, would likely have benefits or plan choices reduced under a proposal that limits payments to 100% of FFS.

Mr. MCDERMOTT.  I would appreciate that.  Thank you very much.

Thank you, Mr. Chairman.

Chairman STARK.  Thank you.  I am going to take a second round here if I may for a minute.

Ms. Norwalk, one of the statements that you made was that beneficiaries in Medicare Advantage enjoy extra benefits.  I think the operative word there is enjoy.  Now, it would seem to me to enjoy it, you have to use it.  You also suggested that they are doing a better job and implied, because of incentives, that Medicare Advantage plans are doing disease management, care coordination, providing--not offering--preventative services.  That they have good clinical outcomes.

I am going to ask you, and I would imagine half that second row behind you is CMS staff.

Ms. NORWALK.  Bless them.

Chairman STARK, but it is my understanding that you have and receive absolutely no data on service utilization from any of the Medicare Advantage plans.  Is that not correct?

Ms. NORWALK.  Well, that has certainly been discussed here today.  I am going to have to go back and find out exactly--

Chairman STARK.  No, no, no.  Stop.

Is there anybody back there in the CMS staff that can raise their hand and say you get any service utilization data?  The fact is, you don't.  It has never been required.

So, to even suggest that you know what kind of extra benefits are being used is fallacious.  You don't collect the data.

Now, quit kidding us.  They may put the data on their web, but if people aren't using it, if they are not paying for it, if they are not doing disease management, if they are not doing care coordination--and you don't know.

Ms. NORWALK.  It certainly is in their best interest to do disease management.

Chairman STARK.  Wait a minute.  All right, look, what is in their best interest is profit.  Let us not go down that road.

What I am suggesting is that--and it may not be important.  I am not suggesting it, but to suggest to me that enjoying extra benefits, I understand that many of them may have it on their list and in their sales promotion.  Certainly if you do have that utilization data, we would love to see it, but I am, I think, advised that it is not collected.

So, then I would like to go on one other area.  That is, do you know, and if you don't will you provide us within the next week, how many marketing complaints?  I am getting back to where Mr. Pomeroy was.  How many marketing complaints have you received on Medicare Advantage plans?  Can you tell us whether any of those people have been penalized?  That would be of some interest.  I don't care from whom, but--

Ms. NORWALK.  I believe we responded to you in January about that very same issue with the full panoply of what we are doing.  It concerns me greatly the abuse of marketing agents.

One of the things that we are doing with the National Association of Insurance Commissioners is we've got an MOU that has been out, I think 15 States or so have signed it, so that we can do better coordination to make sure that marketing agents are properly reprimanded.  Of course, they are State licensed.  We have also been working very closely with the plans and if we find out that there is a problem with a marketing agent--

Chairman STARK.  Well, I guess what I am asking you is have you found out any?  Could we have some indication of how many complaints there have been?  We hear of episodes, but that does not necessarily give us any idea of if there are marketing abuses.

Ms. NORWALK.  I will update our January letter.

[The information follows:]

The Part C Complaints Tracking module (CTM) contained 242 complaints related to marketing for Medicare Advantage-Prescription Drug Plans from January 1, 2007 through mid-April 2007.  Of these 242 complaints, 78 are still considered “open,” while 164 are considered “closed.” 

Where appropriate, CMS takes corrective action against plans who have had marketing complaints filed against them.  Since the fall of 2005, seven Medicare Advantage plans have had actions, including warning letters and corrective action plans, taken against them in response to marketing violations.

Chairman STARK.  I would like to know the answer.  On the assumption that there is no data collected on service utilization, my feeling is that that should be done.  I don't think we can make any decisions on the value of these plans unless we know not what they are offering but what they are actually doing.  I am more concerned about disease management, preventative services that are actually being carried out rather than just in the breach.

I would end my second round by asking two questions, I guess.  If, as is suggested in one of the next witness's testimony, that 32 million people in round numbers are paying $25 a year extra in their Part B premium to support the overpayments, as they are referred to, to Medicare Advantage plans, I fail to see the fairness in that.  I would lead secondly to suggest that if these extra benefits, whatever they may be, are--and you have mentioned coordination of care, disease management, which we don't have in fee-for-service, but why not?  If these benefits are, in fact, desirable, disease management, care coordination, preventative services, clinical outcomes data, then why don't we get busy to put them into the service of the vast majority that four out of five beneficiaries are using?  That would be doing something for the entire country and I think would be fair.  We may not be able to afford it right out of the box, but we could work toward that.

Doesn't that seem reasonable?  That if these benefits are good, they should be in fee-for-service?

Ms. NORWALK.  I actually have two points to that.  The first is that all beneficiaries have the option of choosing a Medicare Advantage plan.  That is one of the benefits that the MMA has done, it has given beneficiaries options when they didn't have them before.

To your second point, one of the programs that the MMA also added is the Medicare Health Support Program, or what was then called the Chronic Care Improvement Program.  The intent of the program was to figure out how we could implement disease management and chronic care improvements and coordinated care and so forth in Medicare fee-for-service.  Now, we have some pilot programs that are under way currently.  If they end up providing some positive results, I think that we would do that across the fee-for-service setting.

Chairman STARK.  I will end this, but what you are in effect saying is the Government is encouraging people if they want extra services to go into the higher cost programs because, on average, 112 percent.  Therefore, you are depleting the Medicare trust fund by encouraging people to move that way.  The more that do it, the more financial peril you will put the Medicare program into.  That doesn't wash either, I'm afraid.

Mr. Camp, would you like a second round?

Mr. CAMP.  I would.

Ms. Norwalk, I just wanted to say that there is a difference between--to follow up on some of the other questioning--between traditional fee-for-service Medicare and Medicare Advantage with regard to administrative expenses.  The 3.2 billion in administration that CMS has is not factored into fee-for-service Medicare but is factored into Medicare Advantage plans; is that correct?

Ms. NORWALK.  Correct.  Yes.

Mr. CAMP.  Also, the disease management, care coordination, prevention programs and others are important aspects of Medicare Advantage that could bring down costs in the future.  Is that accurate?

Ms. NORWALK.  Absolutely.

Mr. CAMP.  The other point I would like to ask you about is that Medicare Advantage plans, according to your testimony, are required to collect and apply quality performance data to quality improvement and chronic care management projects; is that correct?

Ms. NORWALK.  Correct.

Mr. CAMP.  They are also required to--

Ms. NORWALK.  Except I don't think private fee-for-service is, but the rest are.

Mr. CAMP.  Medicare Advantage plans are required to collect quality data?

Ms. NORWALK.  Generally correct.

Mr. CAMP.  They are also required to make this information public?

Ms. NORWALK.  Correct.

Mr. CAMP.  That information can be used by beneficiaries in making a choice of whether or not to enroll in a traditional fee-for-service or Medicare Advantage plan?

Ms. NORWALK.  Absolutely.

Mr. CAMP.  Tell me if you could quantify the administrative expense in Medicare Advantage, what would that be?

Ms. NORWALK.  I don't know that I have the number off the top of my head, but the administrative loss ratio would vary, I suspect, across plan types.  Not only across plan types, but across individual plans.  So, for those regional PPOs, for example, covering a wider area, they would have a more expensive administrative package because they need to contract with providers across a wider area.  So, new plans have typically higher costs and those that are established would have lower costs.

Mr. CAMP.  Following up on Mr. Stark's question, if there is something we need to address in fee-for-service Medicare, I would be interested in knowing what you think that is.

Ms. NORWALK.  Absolutely.  If I might get back to the Chairman for two seconds, if you would indulge me?

Mr. CAMP.  Yes.

Ms. NORWALK.  My crack staff pointed out that in terms of the additional benefits of the $86 additional on average, about $18.40 are the additional benefits.  All of the rest of the benefits relate to cost-sharing.  So, in terms of whether or not they are used, if you actually get a service, most of them buy down the amount of cost-sharing that you have, buy down the premium amounts, savings on the basic drug coverage and the like.  So, the--

Chairman STARK, but if they got the service, but if they don't get the service, there is no savings in cost-sharing.

Ms. NORWALK.  Well, for premiums there would be, obviously.  So, premium buydowns and the like.

Thank you, Mr. Camp.

Mr. CAMP.  Thank you.

If good value is or is not being provided for fee-for-service plans, what do we need to address in fee-for-service?

Ms. NORWALK.  I think there is a lot that needs to be addressed in fee-for-service.  Quality is top among them.  Making sure that we are paying for quality services.

That is not to say that physicians don't all want to provide quality services, but oftentimes what we will see is, for example, the number of hospital readmissions that we have in this country, of the hospital admits, readmissions in 30 days, half of them haven't seen a doctor since they were discharged from a hospital.

A lot of things that are happening are far less likely to happen in the Medicare Advantage world because they are going to do better care coordination because it is in their best interest.  So, I think there are a lot of things that we could learn from Medicare Advantage and it would be great to apply some of those in the traditional Medicare fee-for-service program.  So that is just one example.  I could come up with many if I had more time.

Mr. CAMP.  All right, thank you.  Thanks very much for your testimony.

Chairman STARK.  If there are not any other Members who wish a second chance to inquire, I would like to thank you, Ms. Norwalk, for your patience and again apologize for keeping you later than I think you ever dreamed you would be here.

Ms. NORWALK.  Thanks for having me on the first panel.

Chairman STARK.  The second panel will consist of Dr. Mark Miller who is the executive director of the Medicare Payment Advisory Commission, who serves as our right and left hand in advising us in the intricacies of the Medicare system.

Dr. Peter Orszag, who is the director of the Congressional Budget Office.

Welcome, gentlemen.

Hi-tech testimony here.

Mark, I guess you are first on the list, so we will let you lead off.  How is that?  Whenever you are settled, proceed to enlighten us in any manner you would like.

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

Dr. MILLER.  Okay, Chairman Stark, Ranking Member Camp, distinguished Members of the Subcommittee, MedPAC is a congressional advisory commission charged with making payment recommendations.

Chairman STARK.  Just one question.  If you are as sight challenged as I am, are your slides--do I have them someplace?  Okay, thank you.

Go ahead.  I am sorry.

Dr. MILLER.  MedPAC is a congressional advisory commission charged with making recommendations for both fee-for-service and managed care plans.  When we make these recommendations, we try to consider three perspectives, assuring beneficiary access to quality of care, assuring that each tax dollar is well spent, and assuring that providers are paid fairly.  When we make these recommendations, we also keep in mind that our legislative mandate asks us to consider what is necessary to pay an efficient provider.

The commission has long supported managed care plans as an option in Medicare.  We believe that plans do have the flexibility to use care management techniques that fee-for-service does not have.  We believe that if paid appropriately, they have the incentive to be efficient.

The commission supports a principle that Medicare payments should be neutral.  That is, we should pay the same amount regardless of whether a Medicare beneficiary enrolls in fee-for-service or a managed care plan.

The current Medicare managed care payment system is not neutral to beneficiary choice and does not encourage efficiency.  This is because it is based on an inflated set of administratively determined benchmarks that plans bid against.  On average, those benchmarks are 116 percent of fee-for-service payment rates.  That is the number that is the upper right-hand corner of your slide.

If plans bid below these benchmarks, and most plans do, they keep three-fourths of that payment to use for additional benefits.  Under this system of benchmarks and bids, we estimate that on average plans are paid 112 percent of fee-for-service.  That is the far right number in the second row of your slide.

It is important for you to understand that this 12 percent goes to additional benefits, but it is also important for you to understand that these payments are financed from trust fund, general revenue and beneficiary premiums, premiums paid by all beneficiaries regardless of whether they are in managed care plans or not.  We estimate that approximately $2 per month is charged each beneficiary in Medicare to pay for the 12 percent above fee-for-service.

For these reasons and others, for the last several years, MedPAC has recommended that Medicare set the managed care benchmarks at 100 percent of fee-for-service.  The commission recognizes that this proposal would create disruptions for some beneficiaries and plans and has pointed to the need for a transition, but at the same time, the commission recognizes that current enrollment trends towards the highest paid plans makes the situation more and more difficult to address as time goes on.

A second principle that the commission has embraced is that payments should be equal across plan types.  Given the current system, we have very different payment levels across plans.  For example, HMOs are paid 10 percent above fee-for-service.  Whereas private fee-for-service plans are paid 19 percent above fee-for-service.  Those are the two circled numbers on your slide.

This is based on where plans draw their enrollment from.  As you have heard, different counties have different payment rates.  That results in significant variation in what we pay and in what plans offer.

Furthermore, there are other differences among the plans in terms of administrative requirements.  That gives some plans advantages over other plans.  For example, regional PPOs are protected with risk corridors.  Medical Services Account (MSA) plans do not have to return any money below the bid to the Treasury.  Private fee-for-service plans do not have to report at the same level quality data and they are not required to create networks.

The commission has made recommendations to try and level the payments across plans.  One of those recommendations was to eliminate the PPO stabilization fund.  Other recommendations we have made are in the appendix of your testimony.

A third point that I would like to make is that there is some good news here.  There is evidence that plans can be more efficient than fee-for-service.  Again, you have sort of heard this.  Plans that do submit bids to CMS that essentially say how much does it cost for us to provide the traditional fee-for-service benefit?  Those bids vary from 97 percent of fee-for-service--sorry about that--97 percent of fee-for-service to 9 percent above fee-for-service for private fee-for-service plans.  Let me say that again.

HMOs are able to deliver this benefit on average at 97 percent of fee-for-service, whereas private fee-for-service plans deliver it at 9 percent above.

To put this differently, private fee-for-service plans are not more efficient than fee-for-service and all additional benefits, on average, that they provide are through the additional payments.

In contrast, on average, HMOs are more efficient than fee-for-service and at least some of the additional benefits that they provide are provided through efficiency.  We believe at the commission that it is this efficiency that we should be pursuing through our payment policy.

I know I am over or just out of time.  In closing, I would like to say that given the long run sustainability problems in Medicare, we think that all steps should be taken to promote efficiency in fee-for-service and managed care plans.  We acknowledge that there are efficiency losses in fee-for-service and much of the work that we do at the commission is designed to create policies to make fee-for-service a better operating system.

Similarly, we believe that we should be striving for greater efficiency among managed care plans and paying them more appropriately.

I look forward to your questions.

[The prepared statement of Dr. Miller follows.]

Chairman STARK.  Thank you very much.

Dr. Orszag.

STATEMENT OF PETER R. ORSZAG, PH.D., M.SC., DIRECTOR, CONGRESSIONAL BUDGET OFFICE

Dr. ORSZAG.  Thank you very much, Mr. Chairman, Congressman Camp, other Members of the Committee.

I can be brief because many of the key points have been made, but let me just focus on three primary points.

First, Medicare Advantage plans have grown rapidly both in terms of enrollment and in terms of Medicare spending.  You can see that in the uptick between 2005 and 2006.  CBO now projects that enrollment in Medicare Advantage plans will continue to increase rapidly in coming years, rising from roughly 19 percent of Medicare beneficiaries this year to 26 percent of beneficiaries by 2017.

That projected increase is driven largely by CBO's expectation of very rapid growth in enrollment in private fee-for-service plans, which rose from 200,000 members at the end of 2005 to more than 1.3 million members in January 2007.  Almost all of the difference between our March 2006 projection, which you can see on the screen, and the March 2007 projection is because we now expect much more rapid growth in private fee-for-service and, as the chart shows, in January alone almost 500,000 beneficiaries were added in the private fee-for-service sector of the Medicare Advantage program.

In terms of spending, payments to Medicare Advantage plans amounted to almost $60 billion in 2006.  CBO projects that those payments will total $1.5 trillion over the 2007 to 2017 period, and that the share of Medicare spending on Medicare Advantage plans will increase from 17 percent last year to more than 25 percent in 2017.

Again, consistent with what I just said about enrollment, private fee-for-service plans will account for a rapidly growing share of Medicare Advantage spending with payments to such plans increasing from approximately $5 billion in 2006 to almost $60 billion in 2017.

The second point which has come up repeatedly already and I won't belabor it is that Medicare payments for beneficiaries enrolled in Medicare Advantage plans are higher on average than what the program would spend if those beneficiaries were in the traditional fee-for-service program and, as a result, shifts in enrollment out of the fee-for-service program and into private plans increase net Medicare spending.  Our estimates are roughly consistent with the ones that have already been presented by MedPAC, suggesting that payments to Medicare Advantage plans are approximately 12 percent higher than per capita fee-for-service costs this year.

Third, that cost differential underscores a number of policy options that would reduce spending in the Medicare program.  I will mention two briefly.

The first option would be to reduce the county level benchmarks under Medicare Advantage to the level of local per capita fee-for-service spending.  Relative to spending under current law, CBO estimates that this policy would save $65 billion over the next five years and $160 billion over the next 10 years.

In addition to this reduction in costs, reducing payment rates in this way would leave less money for health plans to offer reduced premiums or potential supplemental benefits.  That change in turn would make the program less attractive to beneficiaries and lead some to return to the traditional fee-for-service program.  Indeed, by CBO's estimates, enacting this policy would reduce enrollment in the Medicare Advantage program by about 6.2 million beneficiaries in 2012, or about half of the projected enrollment in that year.

I have also shown here the budget savings from other reductions that are less significant than going to 100 percent of local fee-for-service costs.  One thing that I would point out is the fact that there are any savings at all in reducing to say 150 percent of local fee-for-service or 140 percent shows that there are some counties that are that high, in which the benchmark is that high relative to the average local fee-for-service costs.

Another option discussed in the testimony involves eliminating the double payments for indirect medical education.  As you may know, under traditional fee-for-service, Medicare pays an additional amount to compensate for the costs associated with teaching hospitals.  Those payments under the Medicare Advantage program are both included in the benchmark and then also paid for each Medicare Advantage beneficiary, so there is a double payment.  CBO estimates that if you eliminated that by taking the Indirect Medical Education (IME) payments out of the benchmark in most counties, the reduction would be roughly $13 billion over the next 10 years.

I just want to conclude by noting that the primary, the central long-term fiscal challenge facing the Nation involves health care costs.  There is a wide variety of evidence suggesting that health care cost growth can be constrained at minimal or no adverse consequences in terms of health for most Americans, and moving the Nation toward that possibility, which will inevitably be an iterative process, is essential to putting the country on a sounder long-term fiscal path.  So, I would hope that changes to the Medicare program would be evaluated with that broader perspective in mind.

Thank you very much, Mr. Chairman.

[The prepared statement of Dr. Orszag follows:]

Chairman STARK.  I want to thank both of you.

Mark, in addressing the access issue in the service of low-income people in urban areas, my sense is that Medicaid, QMB and SLMB would be a far better financial deal for those low-income people if all the people who were eligible in those areas put into it, but I am somewhat puzzled as to what we would do in rural areas.

I am presuming that the rural areas would have at least primary care physician service and some hospitalization, either emergency rooms or available acute care, but how do you proceed to provide in the rural areas the advantages or perceived advantages of the better--and by better, I mean in terms of quality of services, preventive care and so forth--how do you cover that in the rural areas?

I want to say one other thing.  Don't you have on your board--and I am sure they weren't all universally agreeing.  You don't have to name your MedPAC trustees, but you have representatives who represent rural areas, rural hospitals, as well as urban centers.  I presume that this was not a unanimous choice among your trustees to level the playing field on Medicare.  Maybe it was, but I presume it wasn't.

Dr. MILLER.  I don't remember the specific vote, but it was overwhelmingly--there was an overwhelming majority that voted for this.  That is one point.

Another point, you asked about the rural--

Ms. TUBBS JONES.  Mr. Miller, could you put your mic down a little more, because we are having a hard time hearing you over here.  I know you can hear me, because I talk loud.

Dr. MILLER.  You can't hear me?

Chairman STARK.  That mic is a little weak, so we will let you squeeze in closer.

Dr. MILLER.  Now I can't remember the question.

The vote was--I got it--the vote was relatively unanimous on the payment rate.

You said something about rural representation.  We don't try to and we don't think of people of rural, urban, but there a number of people on the commission who have a rural background and a rural experience and have dealt with rural issues through their careers.  We don't try to categorize people rural, urban, but there are several people who have rural experience.

Then I think your question was, how do you deal with these benefits in rural areas.  A couple of things.  We have made a series of recommendations on the fee-for-service side in order to begin to take the fee-for-service sector towards a more accountable and measurable outcome, with the hope that behind that, Medicare's fee-for-service payments will also begin to reflect that.  So, that if physicians practice conservative medicine and practice medicine that results in providing preventive benefits, they would be paid more or hospitals would be paid more.  That is certainly one way to go at it.

Another thing implied in your question is really, if this is a question about expanded benefits for people in rural areas or low income people or whatever the case may be, I think the question, the way the commission would go at the question is, what is the benefit that we are getting?  Who is eligible for it?  How should we pay for it?

If this mechanism of five different plan types, paying different amounts of money, providing different benefits packages, I think the commission's view of that would be this is not a particularly targeted way of doing that.

You mentioned these other programs like the QMB and SLMB programs which would be available to beneficiaries whether they are in urban or rural areas and arguably are more targeted.

Chairman STARK.  One more question.  You do not, as I understand it, call for the benchmark of these Medicare Advantage plans to be immediately dropped to 100 percent?  I think you have some different recommendations of how we could ease down over time to approach over time getting to parity or getting to 100 percent.  Can you explain what you have in mind there?

Dr. MILLER.  Yes, and it is not real complex.  We have started to have--we made this point when we made the recommendation.  We have discussed it actually some in our last meeting, but just think about it logically.  There are sort of three ways you could proceed, and there are all kinds of variants but just to keep it relatively straightforward, you could freeze the rates at their current levels and let fee-for-service catch up.  That would be a very long transition and that might be viewed as a positive thing, but on the other hand, it means that the highest paid areas would remain the highest paid for the longest.

A second strategy you could use is to bring all of the rates down at the same rate.  So, if you are at a high 140 percent county, you come down at the same rate as, say, a 110 percent county.  There again, that has the virtue of being equal across all of the areas, but probably leaves the highest cost areas alone the longest.

The third, and you can figure this out logically where I am going, the third is that you come down fastest on the highest areas.  So, you bring the 140s, the 130s down faster and then you pick up the 20s and the 10s as you come down.  That would have the effect of hitting the highest cost areas immediately and the lower cost areas later.

Chairman STARK.  Thank you.

Mr. Camp, would you like to inquire?

Mr. CAMP.  Thank you, Mr. Chairman.

We have had a lot of testimony about Medicare Advantage plans providing disease management and there have been several examples that show that those programs have reduced costs, emergency room visits, hospitalizations and even some procedures.  Did CBO take into account the ability of Medicare Advantage plans to control program costs by managing chronic disease?  Something that a traditional fee-for-service program is not able to do?

Dr. ORSZAG.  Briefly, yes, but let me make three quick points.  The first is that CBO, in other contexts, has looked at disease management and other programs like that.  The evidence is often not as compelling in terms of cost reduction as some reports would suggest.  We are always welcoming more evidence on that.

The second thing, actually I will just make two points.  The second thing is, as I mentioned in my testimony, most of the growth that for example explains the difference relative to last year in our projections involves private fee-for-service plans where many of the care coordination and disease management programs are at least a less salient feature of their activities.

Mr. CAMP.  Well, certainly it is going to take some time before you see cost savings, in that it is a long-term project.  This is part of my problem with MedPAC's recommendation, is that I don't think that the programs are inherently comparable because they are different programs.  Yet MedPAC continues to suggest that one is paid differently than the other without really taking into account, in my view, the difference in the two programs.

So I guess I would like your comment on that, Dr. Miller.

Dr. MILLER.  I think there are a couple of things to say there.  I think some of the thinking at the commission is that managed care plans, the idea behind them is that they come in using, let us just say for the moment, a closed network and care coordination techniques and should be able to underbid fee-for-service.

When we talk about using fee-for-service as a standard, we don't necessarily think it is a great, well functioning program, but why would you actually go and pay more for something that is not functioning as well as fee-for-service?

So, the philosophy works like this.  That if the managed care plans come in, and can actually underbid fee-for-service, they can use that money to provide additional benefits, attract beneficiaries to fee-for-service, and grow their enrollment.  We do see them as very much operating different types of care, but we think that the payments and the ability to do the additional benefits should come from efficiencies.

There is one other point that I would like to make.  I think there is another concern on the part of the commission that you will hear this, that plans will say, I know you are paying a lot now but we will be efficient in the future and you will save money.  There is a feeling among the commissioners that there is not a lot of incentive to produce efficiencies in a system where plans are being paid this much.

Mr. CAMP.  Dr. Orszag, which areas of the country would be affected the most by your assumption of a 100 percent benchmark as a percentage of fee-for-service costs?  How would that affect the country, not only geographically but also what populations of the country would be affected and how?

Dr. ORSZAG.  In Table One of our testimony, we provide some evidence or some information about the distribution of, for example, the difference between plan bids and per capita expenditures.  There is related information on the ratio of benchmarks to average fee-for-service costs, but clearly, the distribution will mimic to some degree what you saw with Ms. Norwalk's charts about the distribution of where Medicare Advantage beneficiaries are.  It is also important to remember that Medicare Advantage costs vary, or bids, I should say, vary a lot less across the country than fee-for-service costs do.  So, in high fee-for-service cost areas, you tend to see Medicare Advantage bids that are not as high than in the lower cost areas.

Mr. CAMP.  So, just to summarize, which areas of the country would that be?

Dr. ORSZAG.  That will often--well, it depends, but it will often involve many of the things that we mentioned in the testimony.  It include rural areas and other areas where the previous floor payments are still significant.

Mr. CAMP.  I realize my time has expired, but just to finalize, how many seniors would lose their Medicare Advantage plans if the benchmark were at 100 percent?

Dr. ORSZAG.  As I mentioned in my oral testimony, by 2012, if you move to 100 percent of fee-for-service in each county, we project that Medicare Advantage enrollment would be roughly 6 million people lower than in our baseline, and that is about a 50 percent reduction.

Mr. CAMP.  Thank you.  Thank you, Mr. Chairman.

Chairman STARK.  Ms. Tubbs Jones, who cut a deal.  Forbearance last time earns her second spot.

Ms. TUBBS JONES.  It is okay, I cut a deal, Mr. Chairman.  Thank you very much for holding to the deal.

Dr. Miller, how are you this afternoon?

Dr. MILLER.  Okay.  How about you?

Ms. TUBBS JONES.  I am blessed, thank you.

I come from Cleveland, Ohio.  In Cleveland, according to the Census statistics, 13 percent of the individuals age 65 and older are below the Federal poverty line, and 56 percent of the population is African American, 2 percent Hispanic.

I want to make inquiries of you with regard to the impact that the cuts to Medicare Advantage plans will have on the delivery of health care services to the minority populations in my congressional district and across the country.  What is your assessment of what impact that will have, sir?

Dr. MILLER.  I don't have a specific impact by minority status or income status, but I think that your point is taken.  It is correct that in areas that are currently paid, where the counties are currently paid well above fee-for-service, and I don't know your area specifically, but there may be a floor in place there, it is likely that plans will have to scale back their benefit packages or, in fact, have to pull out.

What I would like to say is that we have looked at the data and we believe, and this is a point that I was trying to make with the slide, there are managed care plans now and they have, on average, and they have a lot of the enrollment now, they are able to deliver fee-for-service benefits below what the fee-for-service program provides.  That means that there would still be plans that are able to provide benefits and able to provide additional services.

Ms. TUBBS JONES.  Mr. Miller, were you around back in 1997 when the Medicare Advantage plans left Ohio and left people high and dry with no kind of health care at all, sir?

Dr. MILLER.  I was around when the plans exited, yes.

Ms. TUBBS JONES.  You realize how many people were left out there, aged people, concerned about what doctor they would go to, who would they see, how would they be covered.

I want to, before you go on, are you familiar with a doctor by the name of Kenneth Thorpe, sir?

Dr. MILLER.  Yes, I am.

Ms. TUBBS JONES.  From Rollins School of Public Health, sir?

Dr. MILLER.  I know where he is.

Ms. TUBBS JONES.  Are you familiar with his research?

Dr. MILLER.  I have seen a letter that he did for Blue Cross Blue Shield.

Ms. TUBBS JONES.  Even though it was done for Blue Cross or Blue Shield doesn't mean that his research isn't of value, though, right?

Dr. MILLER.  I am just saying that is what I saw.

Ms. TUBBS JONES.  Yes, but I am just trying to make the record clear that just because it was done for Blue Cross or Blue Shield doesn't denigrate his research at all?

Chairman STARK.  Would the gentlelady yield just on that point?

Ms. TUBBS JONES.  Yes.

Chairman STARK.  I have a letter from Mr. Thorpe here expanding on that.  I would like to make it a part of the record and I will share it with you.

Ms. TUBBS JONES.  I thank you very much, Mr. Chairman.

[The information follows:]

Ms. TUBBS JONES.  I thank you very much, Mr. Chairman.

I just want to refer to some of his research.  Thanks, everybody.  I got the letter, too.  One of my eyes in my glasses is out, so if I don't read it--as a matter of fact--thanks.

I want you to go to the back of the letter.  The back of the letter says that my 2005 research on this topic found the following, that Medicare Advantage disproportionately covers low-income families and that Medicare Advantage serves a high proportion of minority beneficiaries.

Then on the front of the letter it says that if you reduce the cost to these Medicare Advantage programs, we are going to find ourselves in a similar situation as 1997.

The reason that we created or that we went into this new proposal for health care coverage for seniors was it was to deliver better services to the seniors.  The Medicare Advantage programs cover seniors who don't fall into the--and I don't know these acronyms--SLMB and QMB.  So, that means they are just above the low-income level that QMB and SLMB cover.

Meaning that if you take out Medicare Advantage programs or you address or deal with that funding problem, you are targeting a group of folks who have nowhere else to go.

I am sure I am almost out of time, so I will give you whatever time I have to answer my question.

Dr. MILLER.  Okay, I think there are three things to say.  We have not independently gone through these numbers, but you did hear some of the exchange at the beginning.  There are a couple of different ways you can do this analysis and I think Ken's analysis very much focuses on a specific income group and then eliminates people who either would be eligible for Medicaid and have employer coverage and then calculates his numbers.  I think it is just important, because there is confusion and there are different ways that one can calculate this number.

To that point, we haven't independently done it.  So I don't--

Ms. TUBBS JONES.  You haven't done it.

Dr. MILLER.  That is--

Ms. TUBBS JONES.  Let me finish.  Experience says to you that if you close down the Medicare Advantage programs, there is a population of people who are without health care coverage and they are a population who have chronic health problems that are not covered by other health care plans.

Dr. MILLER.  Well, just to be clear, they are not uncovered.  They are eligible for Medicare.  For traditional Medicare, first point.  The second point that I would like to make is that what this comes down to in terms of an argument is a benefit expansion for a group of people.

I think if the Congress is interested in a benefit expansion for low-income beneficiaries, and this is part of the exchange that was over here, I think the question is what benefit, who is eligible and who pays?

What is happening right now with these particular plans are, you have very different benefit packages, you are paying very different amounts of money.  I think this is really important, it is not just available to the low income.  A person of high income can also enroll in these plans.

Ms. TUBBS JONES.  I am not arguing that high-income folks can't enroll in the plan and high-income folks are not my worry, because high-income folks can buy whatever kind of health care they want to buy.  All they have got to do is walk up to the Cleveland Clinic and say, I want to buy a heart or I want to buy whatever it is.

The concern that we are talking about right now is the people who are at the lower echelon of income, who most often have access and need for programs like this.  See, understand, I am one of those who support providing health care to everybody and we figure out how we pay for it, but in light of one of the fact that I am one of the few people that support that kind of process, we are stuck with 7,000 different types of plans and it is as a result of your recommendations and others who said that this is the way we ought to do health care, that we ought to package it out and sort it out and different people get different things and pay different money.

So, all I am saying to you, Dr. Miller, is before we go down the road of changing what we have right now, let us make sure we don't change it on the backs of low-income and minority people who already receive disparate health service and access to health care.  All the studies say that.  That is all I am saying to you, Dr. Miller.

Dr. MILLER.  I understand your point.

Ms. TUBBS JONES.  I am out of time.  I thank you very much for the opportunity.

Dr. MILLER.  I understand your point.

Chairman STARK.  Mr. Hulshof, would you like to inquire?

Mr. HULSHOF.  Thank you, Mr. Chairman.

I would say to my friend from North Dakota that I have just been copied by your scheduler, and she has been inundated with schedule requests for you.

Dr. Miller, just a couple of--see if you agree with these statements.  I recognize the time.  I will stick to my 5 minutes.

Does MedPAC believe that Medicare beneficiaries should be able to choose between the traditional program and the alternative delivery systems that private plans can provide?

Dr. MILLER.  Yes.

Mr. HULSHOF.  Does MedPAC believe private plans may have greater flexibility in developing innovative approaches to care?

Dr. MILLER.  Yes.

Mr. HULSHOF.  Does MedPAC believe these plans can more readily use tools such as negotiated prices, provider networks, care coordination and other health care management techniques to improve the efficiency and quality of health care services?

Dr. MILLER.  They have the potential to do that, if they are paid in a way that drives that, yes.

Mr. HULSHOF.  No trick question.  I took this exactly out of--this is your testimony.  I just wanted for the record to underscore those points.

Dr. MILLER.  Right.

Mr. HULSHOF.  In the few minutes I have left, Dr. Orszag, you said no compelling cost reduction based upon the chronic disease management or preventive care.  So, there are some cost reductions but what does not compelling mean?  Or elaborate when you said in your response or perhaps in your testimony there have not been compelling cost reductions that you have seen at CBO?

Dr. ORSZAG.  CBO has done a review of disease management, the literature on disease management programs.  I want to emphasize, we would welcome additional evidence and additional studies.

The cost impact as opposed to perhaps the quality impact, the cost impact from disease management programs has not been overwhelmingly proven.  Which is why, in a lot of CBO scoring and other things, those programs often do not yield cost savings.

Mr. HULSHOF.  In the period of time, and perhaps we can do this via letter or maybe later conversation, the period of time that you considered would have been what period of time to determine cost savings?

Dr. ORSZAG.  That was a CBO report that was based on the available literature over varying periods of time.

Mr. HULSHOF.  Okay, I will get back with you on it, because what I am mindful of is that it took an act of Congress for us to force traditional Medicare to have preventative care like colorectal screenings, pap smears, mammograms and a host of other things, it took an act of Congress for us to put that into law.  It took another act of Congress for us to have this pilot program Ms. Norwalk talked about as far as chronic disease management.  That, of course, was just recently done.  So I think the period of time that CBO included is important.

This is not a criticism of you or anybody at CBO.  In 1997, we cut the capital gains tax rate and we heard from joint tax Committee, here is what we expect the revenue impact to be, and it was wildly off, just as it was again in the most recent reduction of the capital gains rate.  That is again--you are bound, as we are bound by you, as your official scorekeeper for us, we are bound by the limits to which human behaviors or what have you are included in your assumptions.

So, again, maybe now is not the time--

Dr. ORSZAG.  If I could just add very quickly, one of my key priorities over the next several years is to expand CBO's health work.  We have formed a new panel of health advisors.  We are going to be revisiting all of the evidence on these key topics.  I would again welcome additional evidence.  I was just reporting what CBO has found thus far.

Mr. HULSHOF.  Very good.  The last few minutes I have is to underscore again, because I had pulled out on page 15 and 16, and you have touched on this briefly, and that is eliminating double payments for IME, indirect medical education.

Dr. ORSZAG.  Yes.

Mr. HULSHOF.  Now, again, the idea was payments to teaching hospitals in the traditional fee-for-service sector should include this adjustment to account for the fact teaching hospitals often have greater expenses than other hospitals and often treat more complex conditions.  Is that an accurate statement?

Dr. ORSZAG.  That is correct.

Mr. HULSHOF.  Now, one of the proposed suggestions you have for us as policymakers is to eliminate the double payment.  Often the teaching hospitals, I understand it then, are getting the IME amount to treat patients that are enrolled in Medicare Advantage; is that right?

Dr. ORSZAG.  That is correct.

Mr. HULSHOF.  All right.  So, we are actually talking about reducing the IME payments to the teaching hospitals, or just the way that we are using the county benchmarks?

Dr. ORSZAG.  The option that I provided to you is to take the IME payments out of the benchmarks in the counties where the fee-for-service spending was the binding constraint on determining that benchmark in 2004, 2005, or 2007.  The Administration has proposed, instead, doing it on the other side.  That obviously could have different incidents and different results.

Mr. HULSHOF.  Thanks for that.  I will yield back to the Chairman.

Chairman STARK.  Mr. Johnson, would you like to inquire?

Mr. JOHNSON.  Thank you, Mr. Chairman.

Dr. Miller, in your SGR report, didn't you say that capitated payments would help encourage more efficient health care?

Dr. MILLER.  Yes.

Mr. JOHNSON.  Medicare Advantage plans, I think, provide those kinds of incentives for efficiency, isn't that true?

Dr. MILLER.  That is also what I said here.  They can, given the way that they are structured, they definitely have the potential for efficiency gains if they are paid an appropriate amount.

Mr. JOHNSON.  So, if CBO is right and these plans will leave if we take away the extra payment, which means extra benefits, how can we make sure all Medicare beneficiaries are encouraged to sign up for anything?  Plans are going to leave them and they will lose benefits.  Is that true or not?

Dr. MILLER.  What my response to that would be, is that again, through our analysis, we think that there are plans currently available that can provide the benefits--can provide services that are more efficient than fee-for-service and still provide additional benefits on top of that.  It will not be as many plans as are currently available, and plans will probably have to adjust their benefit packages, but there are plans that can provide additional benefits even under 100 percent benchmarks.

Mr. JOHNSON.  Well, are there any particular parts of the country that would be affected more than others?

Dr. MILLER.  Yes, this was touched on earlier.  Any part of the country that has the so-called floor counties, which are counties where the payment rates are set very high above fee-for-service, for example, they can be as high as 140 percent and even more than that in some instances, areas like that which can be rural areas, but there are also urban areas, certain urban areas that have what is called an urban floor.  Those payment rates are set well above fee-for-service.  Those would be the areas that would probably feel it first.

Mr. JOHNSON.  Okay, but you can't predict for certain what will happen, can you?

Dr. MILLER.  The reason that you can't is because plans could respond in a number of ways.  Plans could respond by running tighter coordinated care programs and trying to become a more efficient entity.  Or they could respond by leaving the program.  That is why it is difficult to predict.

Mr. CAMP.  Will the gentleman yield for just a minute?

Mr. JOHNSON.  I yield.

Mr. CAMP.  I just want to follow up on something Mr. Johnson is saying which is, you say that capitation is good because it brings efficiencies into the system.

Without the enhancements of additional services, why would anyone go into a capitated plan?  That is the real problem with your testimony today.

Dr. MILLER.  I hear you.  I think a couple of things.  I just go back to a point that I was making.  There are some plans, and I put that slide up, there are some plans that right now can deliver traditional fee-for-service benefits more efficiently than fee-for-service.  For many, that was the going in proposition of managed care plans.  In theory, they should be able to do that.  If they are coordinating care, they should be able to be more efficient.  Then, with that efficiency, provide the additional benefit to the beneficiary, bring more beneficiaries in and work in that way.  That is the underlying assumption.

The other side, just to try and respond to your question, I think the dilemma the commission sees to the way that you have constructed the question is, if you set the higher payments out and you bring people in through these benefits and ultimately the program can't sustain it, it is two problems.  What motivation do I have as a plan to be efficient if I am being paid well above fee-for-service?  Two, if in the long run we can't sustain those payments, then basically we have brought plans and people in and then had to pull the rug out from under them again.

Mr. CAMP.  I just wanted to make the point.  It is Mr. Johnson's time.  So, I yield back.

Mr. JOHNSON.  Thank you for your comment.

Thank you, Mr. Chairman.

Chairman STARK.  Thank you, Mr. Johnson.

Mr. Pomeroy, would you like to wrap up for us?

Mr. POMEROY.  Thank you, Mr. Chairman.

I think there may have been value in the Medicare system in terms of trying private sector ways of getting the benefit out to achieve greater cost savings and efficiencies, but if that was the case, you would expect it to save money, not cost you more money.

If, on the other hand, the rationale for Medicare Advantage is we want to extend benefits, then you would think you would do it in more of a systemic way or systematic way than the randomness of just having various private sector plans right in various areas and you hope they get a little better benefit.

To me, it falls short on each point of analysis.  It is not saving us money and it is not delivering in a broad based way extra benefits.

On the other hand, I feel badly about turning course again.  For those people that are involved, including 4,000 in my district, and more than a million nationwide, they are about to see the world change again.  This jacking around into a plan, out of a plan, into a plan under promises and having the promises be cut because of Congress's action, that is all very regrettable.  For some that are getting almost a Medicare supplement type benefit now with their Medicare Advantage, maybe my colleague Tubbs Jones's constituents that can't afford a Medicare supplement, they are going to be hurt.  Again, that is terribly regrettable, too.

The prospects of taking maybe these extra benefits that some are benefitting from and trying to do it across the system would get quite expensive.  Dr. Orszag, do you have any notions in terms of how increasing systemwide the payments to try and get those extra benefits out there to everybody, what the implications of that would be on a cost standpoint?

Dr. ORSZAG.  Well, I guess you could take the cost numbers that I gave you for moving to 100 percent of fee-for-service and then recognize that Medicare Advantage even in the out years is only projected to be slightly over a quarter of all beneficiaries and see that it would be many multiples of the numbers that I gave you for moving in another direction.

Mr. POMEROY.  Dr. Miller, do you have any?

Dr. MILLER.  I don't have numbers, but, in terms of what that would cost, but it wouldn't necessarily be, if I am following the discussion here, it is not necessarily expanding the benefit to all beneficiaries.  If you are trying to target low-income beneficiaries, then, there is a subset of beneficiaries that you would be going after.

Mr. POMEROY, but there are ways to target, if we make a policy decision to target and try and enhance the benefits for low-income beneficiaries that may not be able to afford Medicare supplement policies, we can do that in a program driven way that would be much more equitable across the country and probably effective at getting people into plans, than just slapping some money out there to plans and saying please go take this where you will?

Dr. MILLER.  Yes, and there are examples of these things.  What is referred to as the Medicare savings programs, which are the QMBs and SLMBs.  So based on a certain income level, a beneficiary's premium and copayments are subsidized or just the premium is subsidized.  There is also a low-income subsidy in the Part D benefit, which are much more--this is who is eligible for it, this is what they get, here is where the money comes from.

Mr. POMEROY.  Your testimony reveals, and I don't know if you are reflecting the MedPAC board, a certain lack of enthusiasm for Medicare Advantage plans.  Is that correct?

Dr. MILLER.  No, that is not correct.  I have to say this in response to that it is very important to know that first of all, the commission does support managed care plans and choice.  I am going to say this, the commissioner, republican, comes from the managed care industry, feels very strong that managed care plans have the ability to innovate and to provide good, good services.

Even coming from that orientation, his view is that if you don't pay properly, you don't create the conditions for those plans to innovate.  What he believes is that if we pay properly, the plans that will come to the table will have two characteristics.  They will be efficient and able to provide additional benefits through that efficiency, and they will be there to stay because the business model is not built on excessive payments, it is built on efficiency.

Mr. POMEROY.  I agree.  I think that is a very interesting perspective, one we ought to pursue.  If we want people in managed care, because it is going to be cheaper, then we shouldn't pay more than fee-for-service for it.  That seems kind of basic to me.

My time is up and our time is up.

Chairman STARK.  We have a minute to the vote.

Mr. POMEROY.  All right, thank you, Mr. Chairman.

Chairman STARK.  I want to take part of that minute to thank both of you for your help.  Believe me, we will be back to you often in the next couple of months.  Thanks, both of you, very much.  The meeting is adjourned.

[Whereupon, the at 5:01 p.m., the hearing was adjourned.]
[Submissions for the Record follow:]

Center on Budget and Policy Priorities, statement

National Center for Policy Analysis, statement

Pennsylvania Health Law Project, PA, statement

SCAN Health Plan, statement

The Center for Medicare Advocacy, Inc., statement

Visiting Nurse Associations of America, Boston, MA, statement