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THE NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICARE

MEMBERS OF COMMISSION

SENATOR JOHN BREAUX, Statutory Chairman

REPRESENTATIVE BILL THOMAS, Administrative Chairman

STUART H. ALTMAN, Ph.D.
SENATOR J. ROBERT KERREY
REPRESENTATIVE MICHAEL BILIRAKIS
REPRESENTATIVE JIM McDERMOTT
REPRESENTATIVE JOHN D. DINGELL
SENATOR JOHN D. ROCKEFELLER, IV
SENATOR WILLIAM H. FRIST
DEBORAH STEELMAN
REPRESENTATIVE GREG GANSKE
LAURA D=ANDREA TYSON, Ph.D.
ILLENE GORDON
BRUCE VLADECK, Ph.D.
SENATOR PHIL GRAMM
ANTHONY L. WATSON
SAMUEL H. HOWARD
BOBBY JINDAL, Executive Director

The Commission met at 12 noon, the Minneapolis Convention Center, Minneapolis, MN, Senator Breaux presiding.

Present: Senator John Breaux, Representative Bill Thomas, Representative John Dingell, Senator Bill Frist, Representative Greg Ganske, Illene Gordon, Representative James McDermott, Bruce Vladeck, Anthony Watson, and Bobby Jindal.

Senator BREAUX [presiding]. The Commission will please come to order. We ask you to cooperate with us and ask that our Commission will come to order for this first field hearing meeting. We welcome all of our guests in the audience who are in this room. We thank them for being here. We thank you for your participation and for your involvement in something that is incredibly important. There are also folks that will be filling up an overflow room in which there will be television monitors so that they may also be able to watch the proceedings of the National Commission.

We also have televisions, I understand, that we have set up in the lobby in order that people who are interested who just happen to be in the lobby will also be able to watch and see what we are doing at our first Commission field hearing.

I would like to introduce some of our Commission members who are here, but let me pause on that until the other two get here so we can introduce them all at the same time.

I would like to recognize and acknowledge that Senator Paul Wellstone was with us, or here this morning earlier and had to depart, but extends his greetings as well in his State to everyone who is here as well.

We have some Members of Congress who I would like to turn to our cochair Congressman Bill Thomas from the State of California so he may recognize them, if he would do so.

Mr. THOMAS. Thank you, Mr. Chairman. We have Representatives from Minnesota with us, Jim Ramstad, who was with us earlier I believe, had to return early to Washington, but Gil Gutknecht has been with us, and David Minge is with us, and we have former Member Tim Penny. Once you=re sentenced, it=s almost for life.

And we appreciate all of the hospitalities that you have provided to us, especially the site visits which allowed us to magnify ourselves out into the community, one of the reasons that we came to the greater Minneapolis/St. Paul area. Thank you, Mr. Chairman.

Senator BREAUX. Thank you, Congressman. I=d like to also echo that. Being from way down in south Louisiana where the Mississippi River begins I always--or ends, I always wanted to see where it started, and it was a great pleasure flying over this miniature Mississippi River, I guess, compared to New Orleans, but we=re connected directly and I think in more ways than just the river that passes through our States. It=s been a very wonderful experience this morning.

Let me now introduce some of our Commission members. As many of you know, the Commission was appointed by an act of Congress and there were appointments made by the various leaders of the Congress, including the President of the United States. I think that we can be very proud of the fact that we have a very outstanding Commission who are very dedicated who bring a tremendous amount of expertise to this issue.

I would like to first introduce, I=ll call him Dr. Congressman Commissioner Greg Ganske, and we=re delighted to have Greg as one of our Commission members being with us from the State of Iowa I would add.

Next, Commissioner Bruce Vladeck, who is Dr. Vladeck, who is a former head of the Health Care Financing Administration, or HCFA, which is the agency of the Government that ran Medicare, so he brings a very valuable degree of information to us.

Next we have Illene, Ms. Illene Gordon from Jackson, MS, who works for the Senate Majority Leader Trent Lott, runs some of their offices in the State of Mississippi and spends a great deal of time on a day-to-day basis dealing with actual Medicare recipients, beneficiaries, with the problems and concerns that they have and is very valuable to the Commission.

Next we have again Congressman Dr. Jim McDermott. Jim, from the State of Washington, is a doctor as well as a Member of Congress, and has a very strong interest in trying to make sure that the quality of the Medicare Program is there and has been a very valuable member of our Commission.

On my far left over here we have Commissioner Anthony Watson. Mr. Watson is involved in the Medicare Program as a person who delivers services to literally thousands of beneficiaries and brings to this Commission a great deal of expertise in how we need to involve the providers in trying to solve some of the very difficult problems that are facing us and making sure at the same time that quality health care is there for all of the beneficiaries.

Next to Commissioner Watson is again Senator Dr. Bill Frist, who in his former life was a heart and lung transplant surgeon, and we try to get him to transplant some of his knowledge to the Commission and ultimately to the U.S. Senate, and Dr. Frist is a very valuable member of our Commission from his practical experiences that he=s had over the years.

Next we have from the State of Michigan, Commissioner and Congressman John Dingell, who brings a great deal of the history of the importance of this program, having been one of the Members of Congress who was there in 1965 when the Medicare Program was passed and signed into law, who actually was then the presiding officer in the Congress of the United States when the Medicare Program was passed by the House of Representatives, and we=re delighted to have him here.

Executive Director is Mr. Bobby Jindal, who is the person who actually ran health care programs from actually the State of Louisiana and has brought many innovations to that program.

I would like to make just a few comments to try and set the stage on why we=re here and what we hope to accomplish and do it as briefly as I can, but help to set the stage for all of you to understand some of the background that=s involved.

No. 1, we=re here to learn. We felt it very important as a Commission to get out of Washington, to get into the field, to hear from people who deal with these problems and these systems every day, and I think we could not have picked a better place than the Minneapolis/St. Paul area.

As these charts that I have over here suggest, there will be a serious problem, some call it a crisis, facing the Medicare Program when the so-called baby boom generations begin to retire in the year 2010. Last year the Congress and the President agreed on a very historic balanced budget agreement that extended the life of the Medicare part A trust fund from the year 2001 until the year 2008. Part A, as you all know, is the hospital insurance portion of Medicare that covers inpatient services provided by hospitals as well as skilled nursing, home health and hospice care.

Right now Medicare is paying part A=s bill out of a built-up surplus in the trust fund. Unlike Social Security, which continues to take in more revenue through the payroll taxes than it pays out in Social Security benefits, Medicare is actually spending more than it takes in and has been doing that since 1995. Last year alone the Medicare Program spent $9.3 billion more in benefits for beneficiaries than it received through its part of the payroll tax. By the year 2008 Medicare part A trust fund will be insolvent as the first chart indicates. This is 2 years before the first baby boomer retires. We must do something to address the addition of 77 million baby boomers to the Medicare Program, American citizens born between the years 1946 and 1964.

As the second chart illustrates, there will be 76 million people receiving Medicare benefits in 2030, up from the 39 million people today. By the year 2040 the number of Medicare beneficiaries will have doubled from its present level to 80 million Americans. As many of you are aware, Medicare is a pay-as-you-go system, meaning current workers pay their payroll tax, which in turns pays the benefits for the current Medicare beneficiaries.

Another reason the demographic crisis is so severe is that there will be fewer workers paying payroll taxes to fund the current beneficiaries= hospital bills. Fewer people paying and more people participating in the program, and that is chart No. 3.

In 1960, 5 years before Medicare was created, there were 4.5 people working for every person in the program. Today there are 3.9 workers paying the payroll tax for every beneficiary receiving benefits. This number is expected to decline to 3.5 workers per beneficiary when the baby boom generation begins reaching 65 years old in 2010. The ratio of workers to beneficiaries is expected to decline even further than that, down to 2.2 workers for every beneficiary in the year 2030 as the last of the baby boomers become eligible for Medicare.

But we also must remember that there is more to Medicare and the problems facing the programs than just numbers and solvency issues. We are talking about a health delivery system and the very real needs of the beneficiaries and future beneficiaries. While the growth in future Medicare outlays per beneficiary over the next 30 years will increase significantly, the other side of the story is that Medicare beneficiaries are paying an increasingly large amount of the health care costs themselves.

Chart No. 4 points out that Medicare pays about 53 percent of the total health care costs of the beneficiaries, including the portion of part B that is financed by premiums. The remainder comes from the beneficiary themselves who pay out-of-pocket expenses, and they pay premiums for supplemental private insurance plans by employers who contribute to retiree health plans or by Medicaid and other sources as well.

So another thing that we have to be sensitive to is that Medicare beneficiaries generally have modest or low incomes. Chart 5 points this out. Almost 11 percent of the elderly live in poverty, and three-fourths have incomes below $25,000. Only 5 percent have incomes of over $50,000. Clearly any changes we make that shift more costs to beneficiaries could have devastating effects on the quality of life for many who are elderly.

We must remember in 1959 that the poverty rate among older Americans was 35.2 percent. We never want to return to a poverty rate of 35 percent for our elderly, but we also don=t want to unfairly burden future generations and leave our children and our grandchildren with an insurmountable national debt.

So we have a unique opportunity during this time of general prosperity in America to begin planning for the demographic tidal wave that we will experience in a very short number of years. We are going to do everything in our power to put Medicare on a path that works for everyone.

We are going to continue to hear from people outside of Washington, DC, and people who have used the program like many of you in the audience today, as we go down to the point of March 1, 1999, where we must make a report from this Commission. Reaching an agreement on what we should do will require compromise and cooperation on all of our parts, but we shouldn=t forgo this historic opportunity by failing to act. The problem will only be harder if we postpone and wait longer and longer to solve this problem.

In addition to today=s field hearing, we are also looking at other ways to get public input, which will be critical to the process. For instance, doing teleconferencing, doing videoconferencing and other means. Every Commission meeting that we have had so far has been covered in full by C-SPAN. We have a national Website for people to find out what the Commission is doing. We have had 13 Commission and task force meetings since March 6, all of which have been open to the general public.

With that I would ask my cochair if he has any comments. I know you may have something on the Website, I understand that you may lay that out for the folks as well.

Mr. THOMAS. No, I thought we would go briefly, as part of the introduction, Mr. Chairman, into the sites that we visited. One of the reasons that the Commission chose the Minneapolis/St. Paul area was that in a relatively small geographic area we have the opportunity, as we did going out into the community, to examine what Minnesota is doing in terms of managing in a responsible way relatively few dollars for many of their programs in comparison with other States.

Obviously technology is critical, and how we harness technology in the new funding mechanisms, and that we were able to do here as well. Also, because of the urban/rural relationship in this area and the State of Minnesota, looking at innovative ways in which integrated programs have been offered, and then important to everyone is the way in which we can begin to first of all measure quality and then talk about implementing that quality.

To that end we had selected four locations that either members or staff attended and interestingly enough, when Commissioners were allowed to choose their own locations, it tended to center in two particular areas, although as I said, staff attended all of the briefings and will bring back to the Commission the valuable information that has been collected.

One of the sites was to look at the coordinated financing for dual eligibles under the Minnesota Senior Health Options, how the payments are integrated, the process of obtaining waivers when you want to carry out demonstrations that don=t normally fall under the structure that=s provided at the Federal level, and some of the motivations and necessities generated from Minnesota=s financial structure on the innovation of health care environment.

The second location was the impact of new technology using the Medtronic location and local technology firms, especially the relationship between technology and health inflation, and as we move more to limited dollars in a prospective payment system, how this might change the relationship between, historically, technology as a cost plus driven by pure innovation versus, in a managed care environment, what technology can do with limited dollars.

The third site, which was attended by several of the Commissioners, was examining the coordinating care for dual eligibles in a rural community utilizing the Fairview University Medical Center and the Mayo Health System as a visitation site, looking at the use of telemedicine, as you mentioned, Mr. Chairman, in an integrated care way, and I would wonder if any of you who attended that site, either you, Mr. Chairman, or Ms. Gordon or the gentleman from Iowa, Mr. Ganske, might want to provide some observations as to what was particularly interesting to any of you on the site visit.

Senator BREAUX. Dr. Ganske?

Mr. GANSKE. Well first of all, Mr. Chairman, I=m glad to be here. I=m from Des Moines, IA, I promise I=m not going to tell any Minneapolis jokes today, no Minnesota jokes, and definitely no Viagra jokes. [Laughter.]

I thought the visit to Fairview was particularly useful. It was a very well-put-together program, got a lot of information on integrated health systems. But probably I think for me the most valuable part was actually getting to talk to some Medicare patients who were in the hospital and getting their perspective on the way the system is currently functioning, as well as some recommendations on what we should do to help improve it, and for me that was the highlight of the visit.

Ms. GORDON. Mr. Chairman, I appreciate being here, and thank you so much for inviting us to come to Minneapolis. It=s my first trip here and I=m very impressed. I am from Mississippi, I am a Medicare recipient, and I work on a daily basis with people who are Medicare recipients, so I know some of the problems firsthand.

This morning we were able to see some of those problems, and I think it was very, very interesting that we were able to talk to people who are dually funded with Medicare and the Medicaid and the innovative ways that they are used to help these people. I appreciate very much being here.

Senator BREAUX. Well I thank Mrs. Gordon. Being from Louisiana, I always love people on the Commission who speak with no accent. [Laughter.]

I can understand her perfectly well. I would just make a note that I understand our people in the overflow room had a technical audio problem in the beginning but I understand it is now working, and I certainly will tell them they really have not missed anything other than the preliminary comments that were made. We now will begin.

Mr. THOMAS. Mr. Chairman, we have one more site if you have any comments on the site you visited.

Senator BREAUX. I did the same one with Dr. Ganske, and I think the staff did the Medtronic site.

Mr. THOMAS. Well the fourth site was measuring quality, and as was repeated over and over, if you can=t measure it you can=t manage it, and we had a number of Commissioners who I think quite rightly are interested in the quality question. Obviously quantity is important but with the limited dollars, how you spend those dollars is becoming more and more critical. And how you measure quality, how you do followups is interesting to a number of members. I attended that one, Dr. Frist attended it, Dr. McDermott attended it, Congressman Dingell, Bruce Vladeck attended it, and Tony Watson attended it. So it was one, I think, that did strike a responsive chord in members, and if any of those members would want to respond briefly as to what seemed to be to them the most useful aspect of that visit. Anyone?

AUDIENCE MEMBER. Turn it up a little.

Senator FRIST. Mr. Chairman, I would just say that the bottom-line message is that we=ve come a long way in terms of measuring quality but we have a long, long way to go. It=s an evolving science, it=s one that is limited by data that=s available, it=s one limited in part by what to do with that data once we attain it.

I=m impressed by what we heard this morning in terms of both the importance of the data, which we know, but also the impact that it can have on how medicine is delivered for Medicare recipients, Medicaid recipients, and people broadly. It=s going to take a continued investment, it=s going to take public and private partnerships, and clearly we will have a role to play in that evolution of defining quality and applying it.

Senator BREAUX. Any other comments from any of our Commissioners?

Mr. VLADECK. I just, if I may, it was a useful reminder once again how a database with 38 million insured people could potentially be used to achieve very significant improvements in the quality of medical care as well potentially as savings from that improvement in quality. The irony which our hosts were too polite to dwell on, although they mentioned it, that as more and more Medicare beneficiaries enroll in managed care plans, recipients--most plans do not have the same data capabilities that United does and we=re actually, our ability to continue to track those patterns of utilization in care is something we need to pay a lot of attention to.

Senator BREAUX. Thank you. Commissioner Watson?

Mr. WATSON. I would just comment that United=s presentation was indeed impressive, but there are other ways to measure quality and I wanted to take note of whom I consider one of the outstanding managed care leaders in this country, George Halvorson of HealthPartners, the CEO. George, why don=t you stand so people can see you? He will talk about quality this afternoon and I think he will have some very interesting information for us.

Senator BREAUX. OK. Well then we will--John, do you have anything?

Mr. DINGELL. Not right now.

Mr. THOMAS. Let me say briefly. The one thing that struck me was that although the potential is great, the concern is that if we don=t move responsibly at the Federal level we may not be able to collect the data in a uniform fashion that would provide the best possible opportunity for making sure that people receive quality health care.

Senator BREAUX. OK. We have two panels and then we will take a short break and then we will have two additional panels to conclude today=s, this afternoon=s hearing. The first will be on purchasing coalitions, which will deal with the experience of private employers and how they are handling it. The three major managed care or Medicare risk insurers in the Minnesota market are Blue Cross and Blue Shield of Minnesota, HealthPartners and Allina.

Minnesota has had more experience with managed care in the private and the Medicare sectors than most other States have and has a relatively high penetration rate, particularly in the Minneapolis area. This panel will discuss the impact of the Balanced Budget Act and the role of the private sector and Minnesota=s transformation from a high utilization to a low utilization state, and managed care=s experience in providing care for the disabled, for the chronically ill and for other populations.

I just introduced panel 2. Sorry, folks. Let=s keep that in mind. No wonder Washington can=t get things straight.

Where is the--it=s the purchasing coalitions. OK, well let=s see, where are we going to find that. OK, panel 1 is the purchasing coalitions. Excuse me for that. The second one will be considered introduced when they come up. [Laughter.]

The first panel will be representatives of the Buyers Health Care Action Group, which is a coalition of 27 large Twin Cities-based self-insured employers including 3M, General Mills and Honeywell. This panel will give our Commission the opportunity to hear from private employers regarding their experience in purchasing health care for their employees.

Rather than contracting with managed care companies, the Buyers Health Care Action Group contracts directly with 25 care systems, which are groups of hospitals, clinics and medical practices. This panel will address how the Action Group and the care system providers have addressed many of the questions involved in the so-called Medicare+Choice implementation, the potential for private purchasers to contract directly with the providers, and the effect of the coalition on quality and cost.

So, gentlemen, we would ask you to take your places. With us today are Mr. Steve Wetzell, who is the director of the Buyers Health Care Action Group; Mr. Thomas Ebert, who is president and CEO of the Employers Association; Mr. Mike Anderson with 3M; and Mr. Mark Fisher, who is CEO of the St. Croix Valley Health Care.

Gentlemen, we are pleased to have you with us. We would ask you to summarize your thoughts and then Commissioners will be able to ask a question or two if we have some questions.

Steve, we have you listed first.

Mr. WETZELL. Thank you, Mr. Chair.

Senator BREAUX. Speak right into the mike so hopefully everybody will be able to hear.

Mr. WETZELL. It=s a pleasure to be here today and welcome to Minnesota. I hope you=re enjoying our nice, cool southern weather.

Mr. THOMAS. Can you hear in the back?

AUDIENCE MEMBERS. No.

Senator BREAUX. Hold it up a little bit closer to you. Just speak directly into the mike. It seems to be working from up here.

Mr. WETZELL. Thank you, Mr. Chair, and thank you for the opportunity and welcome to Minnesota. We have nice cool summers here compared to Washington, DC, as you=ve noticed today, I=m sure.

Senator BREAUX. It=s cool for me.

Mr. WETZELL. It=s a pleasure to share our experience. The Buyers Health Care Action Group is an employer-owned and governed purchasing coalition, and we have been working together since 1988 and have been purchasing health care together since 1993. The program we=re going to share with you briefly has been in effect since 1997.

We have designed and implemented a program that we believe returns control over the day-to-day decisionmaking on how medicine should be practiced to physicians and hospitals and their patients, and we want to make a point right up front. We=re going to talk about an alternative to HMO=s, but Minnesota is fortunate to have some of the best HMO=s in the country. Most employers around the country would be very happy to be in this market and have the options we have, and they have done a good job in controlling costs and improving quality, but we believe that we have an alternative to improve the system even further.

We have decided to pursue a new type of health care purchasing due to a number of concerns and we think the concerns we have with this market are relevant to other markets across the country as managed care matures and spreads. We have been concerned with our historical inability to make doctors and hospitals directly accountable to patients, and as a result we have relied on health plans and other third parties to create and manage networks of providers to control cost and quality, instead of creating incentives for providers to compete directly with each other based on what consumers value.

The networks that have been organized by the health plans on our behalf have become very large and are virtually identical, with 70 to 80 percent of doctors and hospitals participating in all the major competing networks in this community, and as a result patients and employers really can=t tell anymore, in our opinion, which doctors and hospitals are giving us better quality or lower costs because they are all available through three very large networks that are pretty much identical.

We have been concerned about market consolidation and we=re worried about this on a national basis. We have very successful health plans. They=ve built a very large market share with three health plans controlling about 80 percent of the market, and that is a concern from our perspective relative to competition. And barriers to entering the market are very high and we think it=s unlikely that new health plans will be able to enter this market to stimulate more competition.

And up until recently providers have been responding to the growing economic power of health plans by consolidating on their side, too. So in effect we were concerned about an arms race. Health plan consolidation creating larger and larger payers followed by provider consolidation as they organize into larger networks to protect their interests, and we weren=t sure all that was going to, in the end, benefit consumers.

We=re concerned about this consumer and physician backlash about managed care. Health plans have been hired by employers to negotiate with doctors and hospitals to lower prices and manage utilization. Providers and consumers are concerned whether the budgets are adequate to deliver good quality or if necessary care is being denied, although we do not believe that Minnesota health plans routinely deny necessary care and do a good job of balancing those tough decisions.

We=re concerned about our inability to measure quality at the provider level and our continued reliance on third parties to manage care in lieu of giving quality indicators on different providers and hospitals directly to consumers, and finally we=re concerned about competition based on risk avoidance instead of managing care. Powerful incentives still exist in the marketplace for insurers to compete on avoiding risk to protect financial margins as opposed to competing on managed care. Again not their fault, it=s just the economic incentive that exists in the marketplace today.

To address these concerns we designed and implemented a new program in 1997. The goal of the program is quite simple. We want to return control over health care systems to health care professionals and consumers through a marketplace in which providers compete based on what consumers value most, which is quality, service and cost. We are offering our consumers a choice of provider-sponsored and organized managed care networks.

We=ve entered into direct contracts with more than 20 provider-sponsored networks in the community representing more than 95 percent of the doctors in the greater Twin Cities area. These provider-covered networks include doctors, specialists, hospitals and health care professionals who have been invited to organize their own networks, decide how they want to take care of their patient needs and set their own budgets based on what they think they need to practice good medicine but still have a competitive price.

The care systems or networks are setting their budgets on a risk neutral basis. We are risk adjusting our payments and moving money from care system to care system based on their illness burden to eliminate incentives to avoid to compete based on avoiding sick people. The consumers are given cost and quality information comparing all of these provider-sponsored networks. Consumers who enroll in lower cost networks are rewarded with a lower premium, and we believe this creates price competition between networks that are managed and governed by providers.

We use a common administrator to pay claims. This gives us economy of scale, relieves doctors and hospitals of the burden of arranging for administrative services that they=re really not trained to worry about; paying claims, tracking eligibility. We own our own data and we know exactly where our money is going.

We apply extensive quality standards to care systems. We measure and publicly report patient satisfaction at the care system level comparing medical groups. We audit care systems to ensure they meet our quality standards, and we offer them cash awards based on their quality.

Consumers have reacted favorably to the program. About 135,000 beneficiaries are enrolled in the program. Early enrollment data has provided evidence that consumers are rewarding better providers by moving to lower cost or higher quality providers. In effect, the consumers are voting with their feet rather than employers or health plans deciding which doctors they can go to.

Our costs are increasing at a rate that is below increasing, the increases being experienced by other employers in the market, even though we do not negotiate with doctors and they=re setting their own rates, so we believe price competition between physician groups is controlling costs without entering into what can be adversarial negotiations over budgets.

And finally we appreciate the opportunity to share our experience and we look forward to sharing any more details that the Commission may find of value.

Senator BREAUX. Thank you, Mr. Wetzell, for your presentation. We=re going to get all the presentations on the table before we ask questions. Let me urge you to try and summarize to the extent that you can. We have a lot of people to testify and I think your backgrounds have all been presented to us so we want to make sure we get to the questions as quickly as we can.

Mr. Ebert?

STATEMENT OF THOMAS EBERT, PRESIDENT AND CEO, EMPLOYERS ASSOCIATION

Mr. EBERT. First of all a major disclaimer. I have nothing to do with the Buyers Health Care Action Group, although I don=t object to sitting with Steve. [Laughter.]

And second, Governor Carlson has asked that I tell an Iowa joke but I=m not going to.

Senator BREAUX. Send it to us in writing.

Mr. EBERT. I am actually here representing smaller employers in that the Employers Association is the only large purchasing pool of small employers in the State of Minnesota. So while we agree with many of the fundamental philosophies expressed by Steve, we have had to take a little different approach.

In the early nineties our members came to us indicating that they were having a lot of pain obviously with health care costs rising all the time, with no basic reason or explanation as to why costs were going so high, nor were there any demonstratable facts in the fact we=re getting better quality for those particular increasing costs.

And it was also apparent that one of the largest purchasers of health care in this country, small employers, was not at the table when it came time to talk about what needed to be done or what should be done or what could be done to incent both the health care system and our employees to effectively use the system and to improve quality.

So on that basis the Employers Association set up a subcorporation and started to do, put together purchasing pools for smaller employers. We were 22 years with Prudential, we spent the last 4 years with Medica, and I will tell you that it has worked very well in that many of my members currently have less costs and health care than they had in 1991.

The bad news is that Medica has declined to renew the contract, and as we currently are sitting we are trying to, through some special legislation that has been set up in Minnesota, again put together another purchasing pool, hopefully on a 5-year basis, and again hopefully with some rate guarantees, but in fact if that does not occur the small employers again are back to incredibly high costs. We=re seeing very large premium increases currently and no place to go. And that is the role that we=re trying to play on their behalf. Thank you.

Senator BREAUX. Thank you very much. Mr. Mike Anderson from 3M?

STATEMENT OF MIKE ANDERSON, MANAGER, 3M COMPANY

Mr. ANDERSON. Thank you.

Senator BREAUX. Move that mike real close so everybody can hear.

Mr. ANDERSON. I=m Mike Anderson from 3M Company, we=re one of the member companies of the coalition. I=ll start with why we participate in the coalition. It really originates with our philosophical agreement with the goals of the coalition. Our overall 3M program focuses on quality of care. We do a number of things around encouraging preventive care for our employees= families and retirees, as well as a lot of times reviewing providers= quality of care practices.

We believe that high quality care will ultimately lead to lower costs. And therefore our alignment or BHCAG=s alignment on improving overall performance through quality of care emphasis, service delivery and other areas such as costs will, aligns very well with 3M.

We think the care system model now that=s been in place for a couple of years really puts the ownership and accountability with the key stakeholders, our employees, the providers, the other stakeholders, and believe that it provides opportunity to drive competition into the marketplace. As Steve mentioned, in this market there=s been a few very large health plans and we were interested in helping drive some of the competition among providers. We think that=s the appropriate level to compete and differentiate on price, service and quality.

The ownership and accountability aspects of the coalition are crucial to our support. We really want our employees to be involved in health care decisions and therefore need better tools, better information and a better atmosphere to create informed consumers. We also like what the model is doing around, with the providers, creating more accountability responsibility at that level, and have seen good evidence of quality activities occurring at that care system level.

As far as our satisfaction overall then with what we=ve seen to date, we=ve been very satisfied with the delivery of the program as well as the direction that the, this plan is moving. We=ve seen it evolve over the last 5 years and are hopeful of continued evolution. Employees have been satisfied.

The interesting thing about that is as we look at our employee satisfaction data we see a lot of variance, and that=s really what we=d expect to get at this, so I=ll conclude there.

Senator BREAUX. OK, thank you. Mr. Mark Fisher.

Mr. FISHER. Thank you. My name is Mark Fisher, I=m the president and CEO of the St. Croix Valley Health Care and I=m the administrator for the Stillwater Medical Group. St. Croix Valley Health Care is 1 of 25 of the competing care systems within the BHCAG Choice Plus model. Our care system network is made up of 150 primary and specialty physicians and providers. We have a very close working relationship with our local community hospital and receive tertiary care here in the Twin Cities.

Our primary care services are made up and provided through the Stillwater Medical Group, which is 50-physician provider organization made up of predominantly family practice, pediatrics, internal medicine and OB/GYN. Stillwater Medical Group has been in existence for over 70 years. We serve over 60,000 patients totally within the St. Croix River Valley, which is about 25 miles east of here, so as you flew in it was one of major rivers that you probably flew in over, which has a population of about 100,000 in both Minnesota and Wisconsin.

We like five things about the care system model. First, the care system model provides choice for patients, employers and providers through the provision of knowledge and information, which helps all of us make informed decisions about which relationships make sense.

Second, patient/doctor relationship is the focus in this model. There isn=t a Captain May I precertification telephone number to call somewhere in another State before proceeding with doing the right thing for the patient. Doctors and care providers are trained and take an oath to act as the patient advocate, and the care system model enables them to do that.

Third, there=s more stability in the marketplace for all participants in this type of a care system model. Patients don=t have to change physicians year to year depending on which health plan their employer may choose. In the care system model we decide which hospitals and specialists we work with based on long-term relationships reflecting the quality, service, access and cost in that order.

Physicians and providers control their own destiny through accountability to the patients that they serve. So we=re accountable to those people that we serve directly in the care system model.

Last, we decide where we want to price ourselves and the marketplace decides if we provide value.

No. 4, there are improved risk adjustors for patient care. We are appropriately paid for sick patients who need more care, but at the same time expect to receive less for those who don=t need that same level.

And, fifth, we have access to cost, quality and performance information at the care system level, which is very useful as we benchmark and find ways to improve and expand our care processes, including such things as midlevel practitioners and providers, which we bring into our practice so we can remain competitive. Furthermore, we have some responsibility for the development and the implementation of credentialing, case management, utilization review and quality improvement for our own care system.

How is it going and what do we see in the future? We=re very optimistic about the process that has taken this far. We=re very pleased. We=re excited about pursuing the model with others for small to medium employers, county and state purchasers, and other Federal programs including Medicare. Thank you.

Senator BREAUX. Thank you very much to all of the panelists. I think it=s good information. What we=re trying to do is look for solutions to the Medicare problems but we=re looking at the private sector to see what=s happening in the private sector that may fit into the Medicare Reform Program.

Mr. Wetzell, I mean the fundamental question I need to ask is that most managed care is contracted through insurance companies to be able to set the programs up. You=re doing something quite differently as I understand it. Your company, the Buyers Health Care Action Group, really contracts directly with the providers. You do not go through insurance companies to do that. I understand that maybe at one point you did. My question is what are the pros and cons? If you=ve done it both ways, what are the advantages in the way you do it today for how many employees?

Mr. WETZELL. We have about 135,000.

Senator BREAUX. 135,000 employees are doing it directly through you and you=re doing it directly through the docs and the hospitals and the health care providers. Why did you change, what are some of the advantages or disadvantages over the way you used to do it?

Mr. WETZELL. Well the issue, Senator, arose not so much who holds the contracts. In fact, there isn=t any reason that a health plan or any other party couldn=t hold the care system contracts. It=s what the incentives are inside the health plan for consumers and providers, and I=ll use an example. Historically if you have a health plan negotiated on your behalf as an employer, they go to a physician group and try to negotiate discounts, and the incentive for the health plan is to maximize the difference between what they=re paid in premiums and what they pay to providers. And the position that would leave an employer in, HCFA, if we=re acting as an employer for Medicare beneficiaries, is if the consumer=s doctor wants too much money, the employer or that health plan has to make the decision for the consumer. Your doctor is too expensive, you=re out of the network, trust us, we=ve decided which doctor you should go to. And that=s one of the fundamental incentives we=re trying to create, is let the doctors organize themselves, manage their own care, set their own budgets, and then let the consumers decide which doctors and hospitals give them the best value.

Senator BREAUX. Suppose a member of your association feels that they are not getting proper coverage or treatment or tests or what have you from the doctors that are providing the services. What can they do or what do they do?

Mr. WETZELL. Well the first place they go, if it=s a concern with patient care, is directly to their doctor, because we are trying to give those doctors as much discretion as we possibly can to make those day-to-day decisions. So if they think they=ve been pushed out of the hospital too soon, they go back to the doctor that looks them in the eye and talk to them about that. So that=s where the point of decision is. After that, if there=s still a disagreement, then ERISA kicks in, the Federal law that governs self-insured plans, and there=s a consumer appeal process under the Federal ERISA law that kicks in.

Senator BREAUX. My final question then is some would perhaps argue that you=re not needed, what you do is not needed, a better way would be to give every employee perhaps a voucher and let them go out and find where they want to go. Can you comment on what you think about that idea?

Mr. WETZELL. We agree. In the end, if we had a market that was competing on value, our employers do not want to make these decisions for their employers or be this involved in health care. They would rather be retailers and bankers and public utilities than people worrying about health care. But we don=t have a market that we think competes on the right incentives, so until we get a market that we can turn over to the consumers, we feel we have to remain active.

Senator BREAUX. But could an individual--a followup. Could an individual employee have the clout that=s necessary to be able to get the best deal financially and benefit-wise?

Mr. WETZELL. It depends if the market=s competing on the interests of individual consumers. If the market is competing based on what individual customers value and they can see how doctor groups and hospitals compare on cost and quality, we believe consumers have the ability to protect themselves in health care just like any other service. They=re just not being given the tools to protect their own interests in the marketplace right now.

Senator BREAUX. Questions from our Commissioners?

Mr. THOMAS. I would like to follow up on that. I think that was one of the reasons we had such interest in United in terms of how you measure quality. How have you begun the process of trying to evaluate? You say someone can make a decision about a doctor. Do you have information which you disseminate for people to make choices and then do you collect the experiences of those more than 100,000 lives that you have to feed back into the system? How do you go about measuring quality with your structure, Steve?

Mr. WETZELL. Well there=s two types of quality assurance. One is quality for public accountability and then the other is quality the providers can use for internal improvement. And the quality for public accountability is done primarily through an annual patient survey that we do that is available through an Internet site that=s been put together by HealthPartners, who has our current administrative agreement, and has done a fine job of building that infrastructure for patients to access quality information on providers.

We do not have clinical quality indicators, more technical indicators of quality like bypass surgery, for example, because of concerns of patient confidentiality rules and the ability to access records to measure quality, and issues related to financing. That=s very expensive to do and our employers cannot do that on our own.

Mr. THOMAS. You mentioned the ERISA protections for ultimate determination of a plan. Are all of your members self-insured?

Mr. WETZELL. Yes, this is a fully self-funded program.

Mr. THOMAS. All right. Then I would ask Mr. Ebert. Obviously as small employers you don=t currently get the benefits from ERISA, you=re operating under the State law, is that correct?

Mr. EBERT. That is correct.

Mr. THOMAS. Would you find any advantages if you were able to operate similarly to Mr. Wetzell=s group under a different structure such as ERISA?

Mr. EBERT. Certainly it would level the playing field and get us out of the State mandates and State taxes and certainly would make it easier for us to organize.

Mr. THOMAS. Do either of you have retirement programs as part of the health care package, either for the large or the small employers?

Mr. WETZELL. We have a limited number of early retirees in our program. We do not have any seniors in the program for two reasons; it=s a relatively new program and there are issues with how Medicare reimbursement rules work that would not allow us to extend this program as it=s currently designed to a senior population.

Mr. THOMAS. Thank you very much.

Senator BREAUX. I have Mr. Bruce Vladeck and Greg Ganske and Bill Frist and Jim McDermott for questions. Bruce?

Mr. VLADECK. Just a couple questions so I can better understand how this new process works, which I understand has been in place for about a year. I think it was you, Mr. Wetzell, who said that more than 90 percent of the doctors in the community had signed up in one of these plans?

Mr. WETZELL. That=s correct.

Mr. VLADECK. Are we to take it that 90 percent of the physicians practicing in the greater Minneapolis area would meet some screen or standard of quality that would satisfy a third-party observer and that=s why they=re all signed up?

Mr. WETZELL. We=re using basically the same standards for screening physicians and facilities that are used under State HMO law in terms of board certification and accreditation.

Mr. VLADECK. So there is no additional quality criteria in terms of provider participation at this point?

Mr. WETZELL. Yes. Yes, there are at the network level. For example, we require that these networks demonstrate that they have a provider-governed continuous quality improvement program. And to make sure that exists, they=re required to put an employer on their board of their quality improvement initiative. We also publicly disclose patient satisfaction indicators, which goes beyond what=s available in some insurance programs in the community, and we also are trying to incent quality through a quality award that bases cash awards on patient satisfaction, preventive care services and clinical quality improvement programs inside these networks.

Mr. VLADECK. But the clinical quality data I thought you said is not available to outside individual parties.

Mr. WETZELL. We do not have publicly available clinical quality indicators, not because we don=t want to, but because we don=t have the patient volume or the cash, or we believe even the legal authority to do chart reviews and some of those things that are necessary to get clinical quality indicators into the public=s hands.

We have supported a public effort called the Minnesota Health Data Institute, which would hopefully be the vehicle to get that information to all Minnesotans, no matter who their health care plan is, but to date that organization has not been able to produce quality indicators.

Mr. VLADECK. How much--maybe Mr. Fisher can answer this question. How much actual movement of patients from one provider to another has there been as a result of this new system?

Mr. FISHER. Within Stillwater----

Mr. VLADECK. Within your group for example. Relative to normal attrition or new enrollments, what change have you seen?

Mr. FISHER. Within the Stillwater area we have not seen a lot of activity in the last 6 months in this product. We=ve seen probably a 6-percent growth, but again this is a very small part of our business. It=s approximately 2,000 members. We provide care to all of the major HMO=s that Steve referenced. So we have quite a long history of providing managed care and this was a new opportunity for us, but at this early stage it=s a relatively small part of our business.

Mr. WETZELL. Perhaps I can respond. From 1997 to 1998 we saw enrollment by care system or network change from the highest increase in enrollment, it was about a 57-percent increase for one care system compared to their prior year enrollment, which was a low-cost care system with about average patient satisfaction, and the, we had one care system that lost almost 20 percent of its beneficiaries, which was a high-cost care system with below average patient satisfaction.

Mr. VLADECK. 20 percent or 57 percent of what kind of number?

Mr. WETZELL. The 57 percent was on a relatively small base. The 20 percent was on a relatively large base. It was our third highest enrollment of any network, and they lost one in five patients among the employers that have fully implemented the price differentials at the consumer level.

Senator BREAUX. Dr. Greg Ganske?

Mr. GANSKE [inaudible]. Quality and low price.

Mr. VLADECK. That=s national average [inaudible] enrollment.

Mr. WETZELL. We have that data, it=s publicly available. We would be happy to share it with the Commission.

Senator BREAUX. We would like to have it if you could. Thank you, Steve. Dr. Ganske?

Mr. GANSKE. I think the direct contracting model as established by BHCAG, I guess that=s how you pronounce it, is interesting because it attempts to address a serious flaw in the Medicare HMO Program, namely the lack of an effective risk adjustor, which gives plans and incentives to attract healthier seniors. You made a brief mention to your risk adjustment. Can you give me some details on how BHCAG is doing that type of risk adjustment, and if that would be applicable to Medicare, for instance, with our Medicare risk contracts?

Mr. WETZELL. Well, first, BHCAG doesn=t actually do the risk adjustment. We carve that all out and subcontract it to a third-party administrator that does it on our behalf, and HealthPartners currently does that as our agent. The risk adjustor uses ambulatory care groups, or ACG=s, which were developed at Johns Hopkins University, and that risk adjustor basically uses claims-based data that=s routinely gathered in any fee-for-service payment environment, and then groups patients literally patient by patient based on what their diagnosis is, and then we adjust budgets off of that risk adjustor when we set or actually determine reimbursement for the different competing care systems.

Mr. GANSKE. So they are looking at primarily the CPT codes that are submitted then and their frequency?

Mr. WETZELL. That=s correct.

Mr. GANSKE. And that is a commercially available program?

Mr. WETZELL. That=s correct.

Mr. VLADECK. That is in fact what HCFA is planning to use for the Medicare risk adjustment in 2001, if the HMO=s ever give them the data.

Mr. THOMAS. And if HCFA ever gets started.

Mr. WETZELL. And if I may offer a comment. The provider community has been extremely cooperative with our experimentation with a risk adjustor. We are moving money around and there are winners and losers, and even the providers that are, quote, losing by the risk adjustor have cooperated with the program and they deserve a lot of credit.

We believe that just indicates how anxious the physician community is and how willing they are to experiment to deal with the perverse incentives that are in the market right now.

Mr. GANSKE. Recent stories have suggested that health care inflation, which has been slow for some time in Minnesota, has returned. Some have suggested that the initial good results of direct contracting were a result of care systems underbidding in order to attain or maintain current market share, but now that they have some experience with the program they have raised their rates to more realistically reflect longer term costs.

I think, Bruce, we saw, we=re seeing sort of the same thing happening with that Centers of Excellence idea in Medicare.

Maybe, Steve, this would be addressed to you. Do you have any evidence to suggest whether direct contracting will have any long-term effect on health care inflation or were you seeing an initial discount based on these health groups trying to maintain their market share?

Mr. WETZELL. Well there are two components of cost, one is administrative cost and the other is actual cost of care. Our administrative costs are about 9 percent of total plan cost. The most recent benchmark data we have to compare to the more traditional HMO alternatives is from 1997, when our administrative fee was running about $11 per person per month and HMO administrative fees were reported to the Department of Health running somewhere between $13 and $16 or $17. So we are running at a lower administrative cost.

The cost of care, we had exactly the experience you shared, Senator Ganske, which is the first year we saw aggressive pricing from traditionally high-cost medical groups that were concerned with losing market share. They were unable to hold that price position so their costs came back up in 1998. In effect that=s the first year the real cost was given to the marketplace. And we just got our budgets for 1999 and we saw high-cost systems lose market share in 1998 when they put their real price out there. Patients moved, and the budgets for 1999 reflect that. And we are running at a rate of increase that is well below everything we=re hearing about fully-insured HMO products in this market entering the third year of the program.

Mr. VLADECK. What rate is that?

Mr. WETZELL. We=re running somewhere in the mid-single digits, somewhere around a 5-percent trend, which in this market as we understand it is pretty good compared to what=s going on with other folks like Mr. Ebert=s customers.

Senator BREAUX. Dr. Bill Frist?

Senator FRIST. Thank you, Mr. Chairman. I might, with the interest of time, we need to get to our next panel, so I=ll keep my questions shortened to one question, but I want to have the reflection maybe from Mr. Fisher, maybe from Mr. Wetzell.

As we struggle to, on this quality issue, to reach out and obtain information from individual physicians, physician offices, there=s a tendency for us in government to say we need the data, we need the information, it is useful, it changes physician behavior, for us to mandate it, for us to go into individual physicians and say you fill out this form, give us the data. As the science evolves we will best figure out how to use that data, give it back to you, address the issues of confidentiality. That=s sort of the simplistic approach, I think, but it=s something that maybe we=re moving toward, I=m not sure. I personally hope not.

But I mean we have to get the data some way so we need to incentivize the system where individual physicians are willing in their own practices to look at quality data. They recognize it=s important but they don=t have, they don=t want to necessarily take the time, spend their money, put in the information systems unless it=s of some benefit to them or to their patients.

Do you find that with your focus on value, recognizing that some people might charge more but it=s because they think they=re doing a better job, that they are putting more money into quality information systems, that they do a better job doing a heart transplant or knee surgery, do you find that that makes people more willing to participate in their own physician practices to collect that data and then share that data or not?

Mr. FISHER. Our experience has been that, and it goes back through continuous quality improvement in some of the early days. Stillwater Medical Group was a founder in the Institute for Clinical Systems Integration, which looked at some of the early quality and guidelines, so it=s part of our organization. It=s part of how we do business.

I find that the physicians particularly are very data-driven and very data-sensitive, and you have to make sure the data is right, that it does in fact portray what=s taking place. What we do is use that information in a way that we blind the data up, we don=t need to have physicians pointing fingers at each other, but we use it to improve the care process. We use it to improve our mammography rates. We use it to improve our various tests and procedures.

When we use it in that format, the physicians are constantly pounding on the door saying I want more data so that we can understand how we can improve this so that when it gets out in the marketplace we look pretty good, because we want to be accountable for what we do. So I find that if we were to use a kind of a finger-down approach with data, I think you would get the desired result, or the end result that you talk about taking.

But instead we=ve used the data in a way that the physicians are very participative and in fact are very supportive, as we participate with organizations like Steve=s and others in the future.

Senator BREAUX. Dr. Jim McDermott. Congressman?

Mr. MCDERMOTT. Thank you, Mr. Chairman. I think we=re here to talk about Medicare so I want to ask a Medicare question. Some of you cover retirees, and one of the proposals made is to extend the age at which people would get Medicare to 67 or someplace older. For those of you who are covering retirees, is that good for you, bad for you? Something your company would come out and support or your employers would support?

Mr. ANDERSON. This sounds like my question.

Mr. MCDERMOTT. Well I think Mr. Wetzell also represents a whole bunch of people----

Mr. ANDERSON. Yes, he does.

Mr. MCDERMOTT [continuing]. So not just you.

Mr. ANDERSON. Yes. As far as 3M, I mean it=s, certainly the impact would be the increased costs or liability to the corporation, because we do cover as a supplementary plan our retirees, so we do supplement that. But the costs obviously are, most of our costs come from our retirees we cover before they hit that senior age. We are supportive of trying to address this problem. Whether that=s the right solution, I guess I don=t think we=re ready to take a position, but we=re very cognizant and understanding of some of the huge issues that are around this, and that may be one aspect of this that would need to be implemented to fit with what=s happening with Social Security.

Mr. MCDERMOTT. What proportion of 3M=s health care costs go to retirees?

Mr. ANDERSON. It would be about probably 25 percent, 20 percent.

Mr. MCDERMOTT. 25 percent?

Mr. ANDERSON. In that range currently. But over time that, of course, will grow.

Mr. MCDERMOTT. And are you considering retirees people from whatever early-out age they may take, 55 or 60----

Mr. ANDERSON. Yes.

Mr. MCDERMOTT [continuing]. Right on through, and then you cover them into. Do you pay their costs, covering their deductibles on their Medicare as well?

Mr. ANDERSON. We offer a plan that does supplement, pays the prescription drugs and then pays, offers protection for regular medical expenses. So we supplement with things that aren=t covered by Medicare, or we have an out-of-pocket maximum that Medicare does not, and that=s really the two biggest components of Medicare that we found are shortfalls is the prescription drug and out-of-pocket protection.

Mr. MCDERMOTT. Do the employees have to pay for that out of their retirement from 3M or is it just a benefit that you give to them as part of the retirement benefit package?

Mr. ANDERSON. For the retirees that are in the Medicare-type population, they pay $25 a month that we set as a 5-year guaranteed price. That will go to the year 2001. So they are paying that rate to get the coverage that supplements Medicare. And we=ll relook at it, of course, after that point in time.

Mr. WETZELL. The reaction to employers on raising the age will depend on what that employer is doing. If I were to speculate, employers that have substantial early retiree populations for which they are bearing the full liability would tend to be concerned about raising the age because as soon as Medicare kicks in it takes the liability off the employer-sponsored plan.

Those that don=t have that kind of coverage are going to care less about it. The one thing I think I can say on behalf of our members, and one reason we=re very pleased to share our experiences, is we don=t think that either straight fee-for-service Medicare for all beneficiaries is affordable, although that doesn=t mean it shouldn=t continue to be an option, and we don=t think that just a straight HMO environment as it=s been built is necessarily the best way to do managed care either.

So what we=re looking for is contributing what we=ve learned so that Medicare gets the best value it can, because we recognize it=s going to affect our employers or the other, and then as far as how employers feel about retiree ages and things like that really depends on what they=re doing with their retirement plans, and you saw that a bit with the debate over employer mandates way back in 1994.

Mr. MCDERMOTT. Thank you.

Senator BREAUX. OK. Commissioner Tony Watson?

Mr. WATSON. Mr. Wetzell, I=m trying to follow your program. Could you outline for me what services that you purchase from the managed care program and which ones you do for yourself? I don=t----

Mr. WETZELL. Well the coalition itself operates with virtually no staff or structure. We operate BHCAG with a staff of three people and a budget of less than $1 million a year. We=re just a frame through which the employers organize a co-op and demand what they want from the market. The vast majority of our administrative services are currently provided by HealthPartners, one of the local health plans, that provide----

Mr. WATSON. That=s a managed care program.

Mr. WETZELL. They are the third-party administrator for the program that the employers have structured.

Mr. WATSON. And they pay your claims?

Mr. WETZELL. That=s right, and we pay them a flat administrative fee with performance guarantees, and we could not have built and brought this program to the market without their help. They do most of the administrative infrastructure, and that=s where all the health plans can play is to provide that infrastructure to operate this kind of program. HealthPartners does that and they do it well. The employers reimburse the providers directly based on the budgets that the providers have submitted to the coalition.

And it=s very important to understand that BHCAG is not a health plan, it is not building another layer of infrastructure. The last thing we want is another layer of administrative infrastructure in the system.

Mr. THOMAS. What=s the percentage for that service you get managing the plan?

Mr. WETZELL. The administrative fees----

Mr. THOMAS. What do you pay? Yeah, what=s the administrative fees?

Mr. WETZELL. Those fees are about 9 percent of total plan costs, which from all benchmarks we=ve seen, even in this market, which is a nonprofit health plan market which operates at very low administrative overhead by national standards, we=re still convinced from the benchmark data we have that we are beating the administrative costs of folks that are buying more traditional programs.

Mr. THOMAS. Do you get data back through the various contracting structures as to who=s responsive and who=s not, and do you use that as a management tool through the third party?

Mr. WETZELL. I=m sorry, I didn=t understand the question.

Mr. THOMAS. If you=re utilizing them for paying the bills and carrying out, they obviously have differing relationships with differing delivery systems.

Mr. WETZELL. That=s right.

Mr. THOMAS. And that information is fed back through you for decisionmaking?

Mr. WETZELL. Well the data flow----

Mr. THOMAS. As to whether you continue to carry a particular folk?

Mr. WETZELL. The data flow is, there=s claims data that flows from the administrator to the employers so they know where their costs are going, and then also a data flow that goes from the administrator to the care systems so that they know where the costs are inside their own networks, and then there=s also, of course, data to the consumers on quality and cost that=s publicly available, if that answers your question.

Mr. THOMAS. But you also have the business transaction between----

Mr. WATSON. But that managed care=s programs, networks and services are available to your members?

Mr. WETZELL. Some of them are and some we elect not to purchase. What we have purchased are primarily data management and enrollment services and claims adjudication services.

Senator BREAUX. I thank everybody. I think everybody has had questions which have been very helpful. I have one followup. Mr. Fisher, I get the impression that some people would say you=re not necessary.

Mr. FISHER. That I=m not necessary?

Senator BREAUX. Your company, not personally. Personally I know you=re necessary.

Mr. FISHER. Don=t tell my wife about that. [Laughter.]

Senator BREAUX. I=m just talking generically speaking in the sense that if employees get together and do their own thing, they don=t really need an insurance company to set up the delivery system, that it=s more appropriate for hundreds of thousands of employees to contract directly with doctors and hospitals, you don=t need an insurance company to do all of that for them.

Mr. FISHER. I=m not an insurance company.

Senator BREAUX. Well tell me what you do and why your operation is necessary?

Mr. FISHER. Basically we are a care system network. We came together to be one of the competing care systems centered around a primary care organization called Stillwater Medical Group. We then contract with approximately a hundred other specialists, those that we=ve contracted with for years; orthopedics, gastroenterology, those types of specialties we don=t have. I=m the administrator in the group, so I am the business manager for Stillwater Medical Group.

Senator BREAUX. But you do that for a fee, it=s a for-profit company. I=m not criticizing that, but that=s the business that you do. Why wouldn=t, I mean what Mr. Wetzell is doing is allowing the employees to sort of do it directly with the doctors and hospitals and not have to have someone else do it for them.

Mr. WETZELL. There=s a little bit of confusion, Senator. Mr. Fisher is one of the groups that we direct contract with. What we=re basically doing, if you want to put this into language that=s familiar to the Medicare debate, is we=re direct contracting with provider-sponsored networks, and Mr. Fisher is from the management structure of one of those provider-sponsored networks. So he represents the providers that have organized their own network.

Senator BREAUX. He does the work with the docs and the hospitals and everything else?

Mr. WETZELL. That=s right.

Senator BREAUX. So he comes to you as a package ready to go for your employees?

Mr. WETZELL. This is still a form of managed care, although governed and driven by physicians instead of insurers, but you still need infrastructure to bring together specialists and hospitals and primary care doctors, and that=s who Mark represents is that infrastructure that=s bringing the providers together at the local level to form the equivalent of a provider-sponsored network.

Senator BREAUX. We have established now that you=re necessary.

Mr. FISHER. Thank you, thank you. [Laughter.]

Senator BREAUX. Congressman John Dingell has a question.

Mr. DINGELL. Thank you, Mr. Chairman. Gentlemen, we have back home a number of small business groups that have organized to provide different kinds of services to their members, not the least of which is health insurance. I=m curious about your situation with regard to retirees which was raised by Mr. McDermott.

If we were to make changes in the retirement system of Medicare, that would impact on you because you have, you have the business of providing health care for certain numbers of your retirees if we were to reduce the level of benefits or change the level of benefits, that would impact the way you relate to your employers, the way your employers relate to the different plans, isn=t that so?

Mr. WETZELL. That=s correct.

Mr. DINGELL. Now you do have, as I would note first of all, several categories. You have those that are simply retired, they are covered under Medicare under one set of circumstances. You have a number of persons who are 65 years of age and older who are covered by part A of Medicare but I think probably not part B. But do you do what many of our employers do, large and small, for example, small employers would have, I think, probably a relationship like you, but the large employers have literally integrated the Medicare payments into the payments that they make for the, for their retirees= benefits.

And I think perhaps you and Mr. Ebert might want to comment, if you please, Mr. Wetzell, on this particular situation and how a change would affect you in your several organizations and of your various and several members, and I think Mr. Ebert might want to comment on how this would impact the larger employers in connection with their administration of their retiree plans.

Mr. WETZELL. Well the, there=s a lot of answers to that question. First and foremost in this State, and I=m sure you=ll hear it from the next panel, is just what=s going on with AAPCC rates as a direct impact on employers in the State. It makes it virtually impossible for HMO=s to offer a risk-bearing Medicare contract and not lose money. So what employers tend to end up with is fee-for-service alternatives in this market because of AAPCC rates. So that=s one place where it has a direct impact on the employers and they in effect get locked into a fee-for-service market.

Where Medicare has gaps in coverage, for example prescription drug coverage, employers that have senior plans typically offer supplemental plans and then they coordinate benefits with Medicare. The administrative costs for those supplementary plans tend to be very high because you=re running your claims through two different insurance plans in effect. So what you find with supplementary plans is a disproportionately high administrative cost because you have to run a claim through twice literally for every single claim.

So how we integrate with Medicare, what Medicare does with fee schedules, AAPCC rates and coverage has a direct impact on employer coverage, because the costs Medicare doesn=t pick up go right to the employers that have seniors.

So in the current environment we have no ability to leverage our size to deal specifically with that issue, which is one of the things we would like to change in our new product.

Senator BREAUX. Thank you.

Mr. WETZELL. Thank you, Congressman.

Senator BREAUX. OK, thanks to this panel very much, you have been very helpful and very informative and we appreciate your taking the time to be with us.

We would like to welcome up our second panel, which as I=ve said I=ve already introduced, and our presenters on the second panel dealing with managed care plans and experience in this area will be Ms. Deborah Glass, who is vice president for government programs at Blue Cross/Blue Shield of Minnesota; Mr. George Halvorson, who is CEO and president of HealthPartners; and Mr. David Strand with Allina Health System, and vice president and president of Medica.

Gentlemen and Ms. Glass, we welcome you, we=re glad that you are with us and look forward to your comments. Ms. Glass, we have you listed first so if you would proceed?

Ms. GLASS. Thank you very much.

Senator BREAUX. Hold that mike real close, Ms. Glass, if you could and----

Ms. GLASS. All right.

Senator BREAUX. Thank you.

Ms. GLASS. Good afternoon. Thank you very much for inviting us to be here today. I want to say that I=m particularly pleased that you=ve chosen to hear from Blue Cross and Blue Shield of Minnesota because I believe that our success in providing high quality and appropriately priced health care in a highly competitive environment presents a compelling case study as you look at the future of the Medicare Program.

Today we have over 140,000 Medicare enrollees and a wide variety of health care options, and we also act as the fiscal intermediary for Medicare in this State. We believe that we represent a microcosm of the Medicare Program, that is, we mean that we are available in the most densely populated urban areas, as well as in the parts of the State where the average population is only two people per square mile.

Fifteen years ago Blue Cross looked very much like what traditional Medicare looks like today; open access fee-for-service networks with little oversight or care management activity. Today we=re still statewide, we still offer a broad range of product and network options. We have high levels of enrollee satisfaction, low disenrollment rates, and we=ve maintained our position as a market leader with over 1.7 million members.

We=ve done this in an environment where we have faced serious competition from several large, well-managed HMO=s. I believe that the energy and creativity which we have applied to making health coverage options available and affordable for Medicare enrollees in all settings, both rural and urban, has relevance as you contemplate the changes now occurring in the Medicare Program. The questions that you must address are ones that we have already grappled with; how to maintain both choice and affordability, how to provide safeguards for patients to ensure quality care, how to provide relevant and timely information to existing and prospective enrollees, how to provide enough flexibility to allow programs to be responsive without opening doors to potential abuse, and most importantly, how to maintain the integrity of the overall Medicare Program as you allow different financing and care models to emerge.

None of these are easy, yet I look at Blue Cross of Minnesota which has maintained its commitment to all enrollees, offered creative and innovative quality and care management solutions even in its open access, broad network products, and which has managed to thrive and remain affordable in a highly competitive managed care environment, even with 70 percent of our enrollees continuing to choose open access network products.

So it can be done, but it must be done by viewing the entire program holistically by allowing innovation and creativity, not just in the newly emerging Medicare+Choices Program, but in all parts of the program by assuring that the programs, whatever their underlying financing or network structure, are predicated on applying consistent, fact-based information to allow providers in the system to measure, improve and streamline that care delivery.

Certainly one huge and immediate problem for Minnesota is the absolute inequity in AAPCC levels. This inequity must be addressed. But I=m hopeful that you will also address the rigidity and inflexibility of the current Medicare Program and allow greater opportunities for creativity in the more traditional fee-for-service options like Medicare Supplemental Programs and Medicare Select.

At Blue Cross it=s our business and our commitment to serve the broad spectrum of Medicare enrollees. We are most willing to offer the insight from our experiences to help you in assuring the long-term viability of a robust range of Medicare options throughout the 21st century. Thank you very much.

Senator BREAUX. Mr. David Strand?

Mr. STRAND. Mr. Chairman, members of the Commission on the Future of Medicare. Medica currently serves approximately 1 million members in the State of Minnesota and we have been contracting with the Federal Government for 15 years now to serve Medicare beneficiaries, currently serving 70,000, half of whom are in a Medicare risk contract. The success of our efforts we think is demonstrated very vividly over the years by a voluntary disenrollment rate of just over 1 percent within that population.

A couple of introductory comments before the Q and A then. This market worked very well from a risk contract perspective in the 1980=s and early 1990=s. We added benefits beyond the Medicare coverage package, we coordinated care for members with complex needs, we invested in prevention programs to help improve members= current and future health, and we helped providers improve the efficiency of care delivery.

At one point the number of individuals in a risk contract was approximately 60 percent of the Medicare market. Unfortunately today that number is just 9 percent. Why has that occurred? In large part because Federal payment policy has penalized this community=s success. Flat or falling revenues under the risk contracting payment formula has led plans to reduce benefits, raise member premiums and eventually convert off of risk contracts to cost-based alternatives. In short, the formula has penalized efficient communities like ours, and unfortunately this problem was not corrected by the Balanced Budget Act.

Our recommendations for the future are these: First, create sustainable markets nationwide. A different payment approach will be needed to create the kind of functional markets that will produce value for beneficiaries and savings for the government.

Second, ensure equitable benefits to all beneficiaries regardless of geography. Some seniors should not enjoy more benefits than others just because of where they live, especially since all of us pay into the Medicare Program at the same tax rate.

Third, pursue savings in proportion to market efficiency. As the Dartmouth Atlas so clearly demonstrates, there are significant savings to be had in the Medicare Program, but those savings are unevenly distributed across the country. And ironically I=ve just been handed an article from today=s Business Week magazine that indicates that a study done by Jonathan Skinner and John Wenberg indicates that if we were able to bring national care levels close to those prevailing in a city like Minneapolis, you could cut projected Medicare spending by 20 percent, producing a big surplus well into the next century. So we know that the savings are there, it=s just a matter of finding them.

Finally, we believe Medicare payments should be a defined contribution for each senior toward that senior=s choice of a health plan and that contribution should not vary from one community to another, except by the amount needed to adjust for input cost differences and any legitimate differences in the health status of the population. Thank you.

Senator BREAUX. Thank you. Mr. George Halvorson?

Mr. HALVORSON. Thank you. Members of the Commission, I=m speaking on behalf of HealthPartners. We=re a not-for-profit member-governed coalition on health. We are focused on improving the health of our members, and I appreciate giving the opportunity, giving me the opportunity to speak today.

Several other people today are going to talk to you about the unfair and inadequate AAPCC payments made in Minnesota. Minnesota seniors pay the same Social Security taxes and the same Medicare B premium, and it is inappropriate that Minnesota seniors receive a significantly lower capitation contribution than seniors in a number of other States.

But what I want to talk to you about today is a different issue primarily. What I want to talk to you about today is the fact that systematic, organized, outcomes-focused care that utilizes medical best practices is far superior to traditional incident-based fee-for-service care, and I would like to suggest that you place a very high priority on figuring out how to achieve systematic best care under Medicare.

Traditional fee-for-service care is too often used as a gold standard, and I think that=s inappropriate because it is often so inconsistent and idiosyncratic across the country, that you as a Commission ought to be using a very different standard.

Less than one-third of the doctors in this country who are now treating diabetic patients under Medicare would qualify for the minimum standards of care set by the American Diabetes Association. That=s less than one-third of the doctors, and diabetes is the No. 1 cause of blindness in this country, it=s the No. 1 cause of amputations, it=s the No. 1 cause of renal failure that results in kidney dialysis, it=s the single most dangerous comorbidity factor in heart disease, the No. 1 predictor of an early death from that disease, and diabetics utilize 27 percent of the total Medicare dollar. So poor treatment of diabetics ought to be a major concern of this Commission. When only one-third of the doctors are performing at a level that meets the minimum ADA standards, that ought to be an area of concern. Diabetes isn=t alone in that regard.

There are a number of other treatments where the level of care is equally inconsistent. In Strong Medicine, a book I wrote a couple of years ago, I wrote about a study of 135 doctors all given one patient and came up with 82 different treatments for that single patient; 82 different treatments because they may have gone to medical school last month, last year, 10 years ago, 20, 30 years ago, may or may not have had current information.

There is a great inconsistency that goes on in care, and I think that needs to be corrected. Given the time constraints I=m not going to spend time on many other examples, but the recent information about post-heart attack treatment of heart victims is another very good example of that inconsistency.

So what should you be using as a standard? You should be identifying ways of getting medical best practices, of getting outcomes-based medicine, of getting comparative data about the quality of care in front of consumers, and I=m here to tell you that it can be done. We are moving down that road. We have provided consumers through the Internet, you can look up HealthPartners.com on the Internet, information about quality, outcomes, satisfaction levels, service levels, accessibility of thousands of care providers and care systems.

The information that Steve Wetzell talked about earlier relative to providing information about comparative performance is information that we put on the Internet at a care system level and an individual provider level because it=s the appropriate thing to do.

We=ve created a medical practices joint venture with the Mayo Clinic, Park Nicollet Clinics, St. Croix, and a number of other clinics that=s a physician-governed process of identifying medical best practices for several, for three dozen basically health conditions. So we=re rolling out best practices to the community.

That=s the kind of standard that you ought to be setting for Medicare. You ought to be requesting that Medicare function and that the people who provide care to Medicare function along those lines. And if we do anything less than that, then we=re perpetuating a system that wastes lives as well as money. Thank you very much.

Senator BREAUX. I want to thank all three of our presenters. Let me just ask a general question. You=re the largest managed care providers in the State. I mean I=ve always felt that the more I learn about Medicare in today=s modern world, that doesn=t cover nearly some of the benefits that are covered by managed care or by private care organizations. For instance, it doesn=t cover prescription drugs, it doesn=t cover eyeglass prescriptions, it doesn=t cover long-term health care. Many of the managed care plans in the past have covered those things, and I think that Medicare can certainly be improved in a number of ways.

Can you comment, I mean you=ve had some changes in this State, because you probably used to provide a lot more than you provide today but because of your low AAPCC rate you don=t do that anymore. Can anybody comment on how you think that you are better in terms of what you provided than a straight Medicare fee-for-service plan did for most beneficiaries? Can anybody comment on that?

Mr. STRAND. I think that----

Senator BREAUX. I mean why are you--I mean the bottom line is why do you think that you=re better than a straight Medicare fee-for-service plan?

Mr. STRAND. What these plans tend to do, Senator, is to fill in all those gaps that currently exist in the Medicare Program. There are other things that go beyond catastrophic coverage. Paying for the copayment level, the deductibles, and going beyond and paying for things that are very much needed like eyeglasses, prescription drugs, dental. All those benefits really together create a benefit package that is the type that you need to have in place to provide adequate care, adequate coverage to the senior population.

Unfortunately, the problem is without the dollars in this State, with those dollars going to other markets now, virtually none of those benefits exist in the State any longer unless they are privately funded by the Medicare beneficiary paying for it by himself or himself.

Ms. GLASS. I am in total agreement with Mr. Strand=s comments, but I would also add that I think that from a managed health plan perspective, and my plan offers the full spectrum of Medicare options today in all of the different contracting manifestations, but in a risk program the other enormous benefit is the ability to use the Medicare dollars creatively, and I think that that=s something that we really do need to look at is how is it that we can take a program that we spearheaded in northeastern Minnesota to deal with congestive heart failure, which began to say that if we had really intensive outpatient attention paid to people with this particular chronic condition, that we could save substantial dollars, improve the quality of their life and reduce the number of hospitalizations associated with that disease.

And I think those are the kinds of opportunities that present themselves in an integrated approach to the financing of the Medicare Program. And I think that those are the places where we do think we add enormous value.

Senator BREAUX. Mr. Halvorson, do you have a comment on that?

Mr. HALVORSON. Yeah. One of the measures, I think, of our success, David pointed this out earlier, is that even though seniors have to pay $60 to $70 a month out-of-pocket for basic additional coverage, and significantly more for additional coverage that involves prescription drugs, we have the lowest disenrollment rate in the continental United States. People are finding value.

We=re providing solid prevention, we=re providing solid services, we=re providing a minimum of administrative hassle, and the sense is it=s a high-value service. And in the State of Minnesota, even though we are far from perfect and we have all kinds of incidents where we don=t do everything perfectly, the State of Minnesota Data Institute did a survey a couple of years ago, and what they discovered in that survey was that across the board every health plan beat every insurance company in satisfaction levels.

And when it came to Medicare, all of the seniors who had Medicare coverage and an HMO package were consistently happier than the seniors who had Medicare only or Medicare Supplemental.

Senator BREAUX. Questions, comments? Bill Thomas?

Mr. THOMAS. Ms. Glass, you obviously have a broad spectrum of choices and we=re beginning to engage that at the Federal level. How do you market choices to your beneficiaries and how is their information level and how do you assist them in making choices?

Ms. GLASS. That=s a great question. It is, it has been our approach to the marketplace, one, to be broad-based. We are available on a statewide basis. We have TEFRA risk, now moving to Medicare+Choices, only available in the metropolitan Twin Cities today. What we have done is provide all of the information, both urban and rural information, to our prospective enrollees in what we call a portfolio of options that allows people to look at the network opportunities, the coverage opportunities and pricing differentials across the broad spectrum of programs, and also to give them as much information as we can about the quality of the providers that are available and the quality and satisfaction levels of our current enrollees.

This is not perfect, but I think the benefit today for Medicare eligibles looking at this information is that it is the whole picture, not just incremental small pieces.

Mr. THOMAS. Mr. Strand, you indicated that one of the problems is that the dollar amounts are not equitable under the managed care. It=s one of the things we=ve wrestled with, we=ll continue to wrestle with it. It is something that=s going to have to be corrected over a period of time. But you mentioned also that you would prefer a defined contribution structure over the current benefits package.

Implicit in that to me, and I want to make sure that you meant that, was that you would be more interested in moving away from specific benefits in a package and allowing, as Ms. Glass said, a more creative use of the money to meet the needs locally. That, of course, would require an extensive amount of knowledge, wouldn=t it, between the plans and the beneficiaries as to what it was they were getting for their money, and do you feel comfortable that you would be able to transmit that level of information so that the beneficiaries could make a wise choice?

Mr. STRAND. Representative, we have been interested in this community, all of the health plans, in trying to provide a significant amount of additional information to consumers than has traditionally been available in a health care system. The idea behind a defined contribution plan is really to give consumers the type of information they need to make informed choices. It=s very, very important, whether it=s the choice of a doctor, the choice of a benefit plan, the choice of a social service, whatever those needs may be, we think a significant amount of additional information needs to be in the hands of consumers.

With that, as long as that were part of the program, then I believe this type of a defined contribution could approach. Without it, I believe it would be shortsighted to do that. You need to empower consumers, I believe, to have that type of an approach be meaningful.

Mr. THOMAS. Well, Mr. Halvorson, that=s one of my questions and one of the reasons I=m pleased that we came to Minnesota, because notwithstanding the long-term history of quality medicine in Minnesota, some of us were quite shocked at the State legislature=s passage of a law which, I think, makes it more difficult to collect exactly the kind of data that Mr. Strand was talking about so that you could make informed choices.

Have you, in putting your quality packages together in trying to examine outcomes information, found that the Minnesota law which requires the individual consent an impediment to collecting the kind of data that we need to make the decisions for informed consumers?

Mr. HALVORSON. We think it=s going to be an increasing impediment. Up to this point we have been able to gather data and report it in an aggregate way that has allowed us not to, that has not kept us from going forward and doing some of the reporting we need to do. But if it is, if that data, if the laws are interpreted more stringently to not even allow us to aggregate the data, then we could find ourselves in a very difficult situation.

Because we are doing things like identifying for diabetics the relative satisfaction levels that different diabetics have had with various caregivers, and measuring things like the blood sugar, the control levels, and giving that information as comparative information to diabetics. And that=s really important information for someone with diabetes to have. And if we can=t get access to that information, then that whole process is crippled.

Mr. THOMAS. One of our concerns is that if additional States move in this direction, it=s going to make it more difficult to collect the kind of data that we think is essential for statistical examination of best medicine practices, and we=ll be wrestling with that at the Federal level, both for Medicare and for general health practices in trying to collect nonpersonalized data for this purpose.

Mr. HALVORSON. Absolutely. In fact I would think if you were to achieve that as part of your agenda, that would be a major success. Because the potential is there to really stop some important things from happening.

Senator BREAUX. Thank you. Mr. Bruce Vladeck and then Jim McDermott.

Mr. VLADECK. Just a couple questions to clarify things I heard in the course of the statements. Let me start with Ms. Glass if I can. You talked about a portfolio of information you made available to, presumably to potential enrollees or enrollees about the choice. What do you spend per enrollee on that patient education material?

Ms. GLASS. I=m not sure that I can answer exactly what we spend per enrollee. I can tell you overall what our administrative costs are within Blue Cross and Blue Shield, and they are right about 12 percent.

Mr. VLADECK. Well that--maybe the next panel will be able to help us out. There is some real question as to the ability to do that for Medicare beneficiaries on the kind of resources that are available, and I thought it would be helpful to have a comparative private model.

I was also a little bit confused, Mr. Strand, by your statements about defined contribution, because isn=t that what the AAPCC is? Aren=t you saying that you want defined contributions as long as it=s higher?

Mr. STRAND. No, absolutely not, although we could use it. [Laughter.]

If you wanted to do that, it=s fine with us and the senior population of the State of Minnesota. The principle here is a question of tax equity for Minnesota seniors.

Mr. VLADECK. Well don=t--as Congressman Thomas knows, and others, don=t get me started on that. I come from a place where we pay lots of taxes and we never get any crop subsidies, so----

Senator BREAUX. Because you don=t have any crops. [Laughter.]

VOICE. Neither do we.

VOICE. They=re good on the fertilizer, not on the crops.

Mr. VLADECK. We will deal with that issue separately, but I guess at the level of the AAPCC that=s now available in the Twin Cities, if you had greater flexibility on benefits as was discussed, which benefits that you now provide would you eliminate?

Mr. STRAND. I=m not sure we could eliminate any under the current package without beginning to seriously impact the quality of care being delivered to seniors in this State. That=s not the issue. The issue for us is about trying to make sure that there is a significantly large pot of dollars available to every senior, regardless of geography, in the country, allowing them to then be able to choose the benefits that they believe are the best for them, because different seniors will have different health care needs.

Some will have a greater need for prescription drugs, some will have a greater need for dental care or eyewear or other catastrophic events. Really the point I was trying to make was to try to think about a program that allows seniors, for a set dollar amount, be able to pick and choose those benefits that are going to be best suited to their personal needs.

Mr. VLADECK. Well I=m trying to understand how that differs from what many of the Members of Congress who are around this table tried to do with Medicare+Choice.

Mr. STRAND. Well the problem we have with Medicare+Choice is that it did not address the fundamental inequity of the payment system today. We thought we fixed it.

Mr. VLADECK. Wait a minute, we=re back where we started. You would be happy with a defined contribution in this market if it were higher?

Mr. STRAND. Well you can=t separate the two, there=s no way you can do it, it=s impossible to separate the inadequate reimbursement in this State from the programs that are being delivered. That=s--I will admit that, yes.

Mr. VLADECK. Thank you.

Senator BREAUX. OK. I have Jim McDermott, John Dingell and Ms. Illene Gordon. Jim?

Mr. MCDERMOTT. Thank you, Mr. Chairman. I put up a chart for you, and the three low bars to the left are Portland, Minneapolis and Seattle, so I share with you a feeling about this whole issue, and----

Mr. VLADECK. Can I note the absence of any health status or ethnic composition adjustors in this data, and that those differentials shrink enormously if you look at communities, look at the proportion of communities that are nonwhite, for example, in the data? Just note it for the record.

Mr. MCDERMOTT. And so we have a problem. [Laughter.]

Mr. VLADECK. Would the gentleman let me make a point of observation?

Mr. MCDERMOTT. Wait a minute. This is my----

Mr. VLADECK. The bottom line is $350 on that chart. Were we doing this a year and a half ago, the bottom would be 221. So although clearly we haven=t made the impact on the upper end, we certainly have made an impact on the lower end. Thank the gentleman.

Senator BREAUX. Mr. McDermott.

Mr. MCDERMOTT. Let me come at this another way since he=s [laughter]----

My friends are riled up by efficient health care delivery. One of the things that I am trying to figure out in listening to you talk about your problem with using risk contracts under Medicare is if somebody=s in HealthPartners and they have been in their whole life and they come to 65, how do you deal with their continuation in the program if the Medicare contribution is not sufficient? Or is it sufficient to cover their monthly premium? Is that what you accept? Do you accept Medicare as full payment?

Mr. HALVORSON. No, we accept Medicare and there=s a premium charge on top of that. We strongly encourage people to stay with the program but there=s a premium charge on top of Medicare for the full HMO benefit package, and it ranges around $60 to $70 a month.

Mr. MCDERMOTT. So you=re essentially charging them the Medigap policy amount----

Mr. HALVORSON. Right.

Mr. MCDERMOTT [continuing]. Nationwide as a supplement to what Medicare pays to make your program work?

Mr. HALVORSON. Yes.

Mr. MCDERMOTT. Now do you have a system in the State that picks up that 60 bucks for people who don=t have the money, who are poor elderly? The SLMB and QMB, are they implemented in the State of Minnesota or not?

Mr. HALVORSON. We have Medicaid if the person is low income enough, and we do have a program called MCHA that is for low income--actually it=s for people who have been turned down by insurance companies. And there=s a Minnesota Care Program that is for low-income people who are slightly over the Medicaid level, but I don=t think Minnesota Care relates to Medicare, so that would not apply.

AUDIENCE MEMBER. No, we don=t.

Mr. MCDERMOTT. So you=ve got the full range, you=re using the full range of Federal programs under Medicaid? SLMB and QMB are fully implemented in the State. Do you know what percent of the elderly use that in the State?

Mr. HALVORSON. I don=t know the answer to that.

Mr. MCDERMOTT. You don=t know and your statistics don=t cover that?

Mr. HALVORSON. No.

Mr. MCDERMOTT. Because I think that one of the things we did, and I would like to also hear your comments, all of you, will the Balanced Budget Amendment Act of 1997 where we are moving toward a blended rate, improve things for you at all?

Mr. HALVORSON. We ended up with about a 2-percent increase in our Medicare capitation rate, which is lower than we would have expected based on our local costs for----

Mr. MCDERMOTT. What was your increase in costs if you got 2 percent?

Mr. HALVORSON. The increase in costs have been running about 6- to 8-percent increase and capitation went up 2.

Mr. MCDERMOTT. So where do you pick up the other 6 percent?

Mr. HALVORSON. We pick it up two ways. Either we increase the premium charge to members or we subsidize it from the rest of the membership.

Mr. MCDERMOTT. So you cost shift it off to your business contributors or whoever?

Mr. HALVORSON. Tom Ebert=s people pay a little higher premium.

Mr. STRAND. Or, Representative McDermott, in the case of, I think, each one of the organizations, we are all nonprofit organizations, many of us being mission-driven and being dedicated to seniors. In our case we have lost, over 15 years, $30 million in this program. So you say why would you stay in it? Because we believe we need to be in this program to provide coverage for the senior population in the State of Minnesota. But it is not a program that has worked financially for us over those years. We have found other ways to pay for the program.

Mr. MCDERMOTT. Other ways being shifts onto Mr. Ebert=s patients?

Mr. STRAND. Or to the consumers by having them pick up a greater and greater proportion of those debt deficiencies that we=ve experienced.

Mr. MCDERMOTT. You don=t have an out-of-cost pocket limit in your program? How much do people have to pay out-of-pocket?

Mr. STRAND. Oh, there are some limitations on that, but if you=re referring to the premium, the premium dollar contribution by the members have just continued to go up and up and up each year, year after year.

Mr. MCDERMOTT. Do you also have copays and those sorts of things as well in the program itself?

Mr. STRAND. Yes.

Mr. HALVORSON. There are some copays.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

Senator BREAUX. Congressman John Dingell.

Mr. DINGELL. Thank you, Mr. Chairman. Very quickly, Ms. Glass, your programs are both managed care and point of service, is that right?

Ms. GLASS. That=s correct.

Mr. DINGELL. Yours, Mr. Strand, are strictly managed care, is that right?

Mr. STRAND. That=s correct.

Mr. DINGELL. And yours, Mr. Halvorson, are managed care also?

Mr. HALVORSON. Yes.

Mr. DINGELL. Now most of your members, Ms. Glass, are spread around the State?

Ms. GLASS. That=s right.

Mr. DINGELL. And yours, Mr. Strand, are located mostly where?

Mr. STRAND. Mostly in the Twin Cities, although we have been trying to produce a Medicare Supplement policy as well outside the Twin Cities.

Mr. DINGELL. Now, Mr. Halvorson, yours are mostly in the Twin Cities?

Mr. HALVORSON. Mostly in the greater Twin Cities area.

Mr. DINGELL. Mostly. So I note that the two plans that deal mostly with managed care have their membership in the Twin Cities. Are your managed care patients in the Twin Cities?

Ms. GLASS. We have a very small risk contract in the Twin Cities. Back in the late 1980=s we were forced to withdraw from risk because we had gone into the nonmetropolitan parts of the State and we lost $20 million in much shorter than 10 years, so we then switched to a cost-based contract on a statewide basis, which is now closed and now we have reentered the risk market.

Mr. DINGELL. Now this is driving me to the conclusion that managed care flourishes in the Twin Cities but not in the rural areas. Am I incorrect in that assumption?

Ms. GLASS. I would like to at least say that although I think that managed care in the highly competitive Twin Cities marketplace is certainly much more refined and sophisticated than it is in the rural parts of the State, that there is enormous interest throughout the State among providers.

Mr. DINGELL. Interest but not membership.

Ms. GLASS. Well----

Mr. DINGELL. And managed care has been in this State. You were one of the leaders in managed care, both in terms of time and in terms of your membership. And what I=m trying to understand is why is managed care flourishing in the Twin Cities and not in the rural areas?

Mr. STRAND. Representative Dingell, I think, with respect to that, if you look at the commercial population, those that are covered by employers, there is a significant number of individuals who are covered by our policies today. In the Medicare area, however, where the reimbursement has been so low in those rural counties, those of us who have tried to go out in the rural counties have gone out, lost a lot of money and had to withdraw because we weren=t able to make it work financially.

Mr. DINGELL. I=m still driven regrettably to the conclusion that Medicare flourishes here in the Twin Cities--rather that managed care flourishes in the Twin Cities but not in the rural areas.

Ms. GLASS. Could I----

Mr. DINGELL. Since my time is very limited, Ms. Glass, I do apologize to you, but I=ve got a couple other questions I=ve just got to get in and our chairman is looking at me about the time I=m using here.

Now, Mr. Halvorson, can you tell me, let=s talk about the benefit package. What would be the situation for the beneficiaries if you took the scenario that we had, that we see here in Minnesota out 20 and 30 years? Wouldn=t I be fair in inferring that beneficiary out-of-pocket costs would increase?

Mr. HALVORSON. The out-of-pocket costs would--yes. Assuming that Medicare payments do not keep pace with costs, then the out-of-pocket costs would increase because unfortunately they don=t let us mint money.

Mr. DINGELL. Now I want to say this with a great deal of respect because we in Michigan have always observed that Minnesota is a very enlightened State and you believe in doing things for yourself, and I certainly admire that extraordinary quality. You have here in this State a very strong regulatory structure with regard to both HMO=s and with regard to health care systems generally, do you not?

Mr. HALVORSON. Yes, we do.

Mr. DINGELL. And you have what I would call, because of the way your government functions, the homogenous population, the attitudes of your employers, a rather unique set of conditions. I can=t think of another State that does things with the grace and the directness that you folks here in Minnesota do.

Wouldn=t I be fair in inferring that the replications of the rather unique circumstances I see here in Minnesota would be rather difficult elsewhere?

Mr. HALVORSON. I think some of the things that have happened in Minnesota--actually top of head I cannot imagine things that could not be replicated. One of the things that we have been blessed with, because of some of the lack of turmoil in some other areas, has been the opportunity to experiment. But taking something like a diabetes prevention program or a heart disease prevention program and running those out in other markets I think would be very possible and other markets could benefit from that.

Mr. DINGELL. Provided you have the kind of input that you have from industry, the kind of input that you have from State and local units of government, and provided you have the rather special attitudes you see on the part of citizens of this State.

Mr. HALVORSON. We also have very enlightened providers of care that you left out of the equation. But given that, we are still learning things. This gives us an opportunity, that environment gives us an opportunity to learn things that maybe another environment might be too chaotic to learn. Having learned them, it is possible to transplant them.

So the things that we=re doing and identifying--we can run a computer screen now and identify who is at high risk for becoming diabetic. We can also identify interventions that we can take with them. Both the computer screen and the interventions are transplantable. So I don=t think the things that are happening in Minnesota necessarily can happen only here.

Mr. DINGELL. I hope you will forgive me if I have some doubts on that point. Mr. Chairman, I thank you.

Senator BREAUX. Thank you. We have Illene Gordon. Ms. Gordon?

Ms. GORDON. Do I have time, Mr. Chairman, to ask my question?

Senator BREAUX. Absolutely.

Ms. GORDON. Deborah, you mentioned in your talk there a while ago about Medicare Select?

Ms. GLASS. Yes.

Ms. GORDON. Could you elaborate on that? I come from Mississippi where we do not have any HMO=s, Medicare HMO=s in the State. Could you elaborate on Medicare Select?

Ms. GLASS. I would be happy to. Medicare Select is sort of another hybrid opportunity for health plans like mine to move along the spectrum from wide-open access, fee-for-service, toward a more managed environment. And Medicare Select allows us to contract on a sort of preferred provider basis with a less all-encompassing panel of providers. It does still not allow us the kind of flexibility that I think Mr. Dingell was referring to in terms of being able to really be creative and experimental within the Medicare Program itself, and I think that one of the pleas that I would make to you as you look at your overall rethinking of the Medicare Program would be to allow these kinds of programs to stay in place but to give us the flexibility to do more of the kind of management that we find works in the urban areas in places where the urban solutions like the risk program are simply not affordable.

So if we could begin to bring some more of that hybridization to the programs that are available today, I think we would be in better shape.

Ms. GORDON. Thank you.

Senator BREAUX. I=d make the point that, get Congressman Thomas to make a comment here, but Medicare HMO enrollment in Minnesota has fallen from about 140,000 beneficiaries in 1988 to about 61,000 in 1996. I guess you would argue that=s because of the low AAPCC rate basically?

Mr. HALVORSON [nods head].

Senator BREAUX. Congressman Thomas?

Mr. THOMAS. Well I do want to spend just about 30 seconds indicating that the representation from generally the Midwest, Mr. Ganske from Iowa, but certainly Bill Gutknecht and David Minge and Mr. Ramstad, have made it quite clear that they thought the adjustments needed to be made in a fairer way. What you see up on that chart is in fact a significant compression from what it was.

Now I know it doesn=t score a lot of points to tell you that if we had not had the balanced budget amendment go into effect it would have been about a three-tenths of 1 percent increase, so to say you got 2 percent rather than the three-tenths is of some consolation. But frankly, more importantly it meant that those high end didn=t get their usual 9- to 11-percent increases, which was driving the differences even farther apart.

Our goal over the next several years is to compress the difference even more, bring the base up from, as I said, a low of 221 to 350, but then try to figure ways to grow. Unfortunately the fee-for-service costs didn=t go up rapidly enough to trigger the national/local match, which was--is designed to move you closer together.

The fundamental point you need to remember is that although there are a lot of folks who have compassion, when you have to pass it, a majority vote of the House, you have to deal with people who are at the upper end as well, and this frankly was as good as we could get in the timeframe that we were dealing with. This remains a fundamental problem, it needs to be adjusted.

Senator BREAUX. OK, I want to thank this panel for their comments, their presentations, and we look forward to continuing to work with them.

Let me make an announcement at this point. We are going to take a short break. Instead of the 30-minute break, we=ll take, there=s something else that has to be done, we=ll take a 15-minute break. We=ll be back at about 2:10 p.m., 2:15 p.m.

I would ask that everybody in the audience and those that are listening in the other room, that we have some cards that are available outside that would be a card that you could just fill out if you have an idea or a thought that we could benefit from, and these are already available, they are already addressed, you can just turn them in at the desk, because we would like to hear from everybody. Although everybody doesn=t have a chance to make a formal presentation, these cards would be very helpful, and anyone who has an interest in getting us their thought or idea.

And with that we=ll be in recess just for 15 minutes.

[Recess taken from 1:57 p.m., to 2:25 p.m.]

Senator BREAUX. The Commission will please come to order and I would like to ask all of our guests be seated. Thank you very, very much, and all of our Commission members are returning to their seats and we will begin our third panel discussion dealing with current and future beneficiaries, as entitled, education and choices, and obviously information, pertinent information and quality education for our beneficiaries has become increasingly important as both the private and the public sectors offer consumers more and more health care choices that they have to make decisions about.

Individuals must often choose both health plans and the health provider that they get the benefits from. This panel will consider the role of both current and also future Medicare beneficiaries in making choices about their own health care options. The idea is to have a discussion about current and the future beneficiaries= role in making these choices as their options increase, and the role of information brokers and suggestions on how to make consumer education more useful.

I think this is a particularly timely session, given the upcoming beneficiary education campaign that HCFA, or the Health Care Financing Administration, that runs Medicare will begin this fall as beneficiaries learn about the new options that are going to be available to them under Medicare+Choice.

Our presenters will be Kate Stahl, who is Executive Vice President of the Minnesota Senior Federation, and I ask them to please come forward as we call their names. Mr. Martin Kellogg, with Citizens for Choice in Health Care; Mr. Kent Eklund, if I pronounce it correctly, I=m sorry, who is cochair of the Citizens League 2030 Task Force and CEO of Cinncinatus; and Mr. Tim Penny, our former colleague in the Congress from Minnesota, and now a senior fellow of the University of Minnesota Hubert Humphrey Institute.

We welcome all of our presenters this afternoon, and if we could give our attention and we have, Ms. Stahl, you listed first. We are glad you=re here and look forward to your comments.

Ms. STAHL. I would like to thank the members of the Commission for inviting me to be on this Medicare beneficiary panel. Bea Sieber, who was scheduled to be on the Commission today, is ill and I hope I will be an adequate substitute.

Senator BREAUX. Well we welcome you very much and please give her our attention.

Ms. STAHL. Thank you. I am a Medicare beneficiary, the Minnesota Senior Federation=s executive vice president, and have been a volunteer with the Minnesota Senior Federation=s Health Plan Information Center for several years. I=ve been asked to confine my comments pretty much to Bea=s precis, so in order to make decisions regarding Medicare and supplementing Medicares, beneficiaries need information that is clear, comprehensive, concise and yet simple. Jargon should be avoided. The print shouldn=t be fine either for us. [Laughter.]

Beneficiaries also need terminology and definitions which they can comprehend without having to call somebody and say, hey, what does this mean. They also need and want to understand what does Medicare cover, what doesn=t it cover, what will my out-of-pocket costs be. They also need and want to understand what their Medicare supplement or HMO will cover and cost. Also, how does the plan work.

The three biggest concerns Medicare beneficiaries appear to have when making their decision is can I continue to see my same provider? How much will it cost me? Are prescription drugs covered? The Minnesota Senior Federation Health Plan Information Center for several years has published a book called Health Care Choices for Minnesota Seniors, and I think all of you have a copy of this in the information you were previously sent.

This little booklet--yes--lays out the various plans that are available in Minnesota to Medicare beneficiaries, side by side, benefit by benefit, and cost by cost. So you can go down the line and discover what is available, what would work for you and are you going to be able to pay for it.

The information that the beneficiaries have must also be objective and nonbiased. This is where the Senior Federation=s health plan information telephone counselors have been doing an excellent job for several years providing information to people who call in on the phone asking questions about their health care plans. Almost any information that they ask, the counselors are able to answer.

They do not tell you, tell the people who call, what they should do, they just say this is what=s available, you make your choice, what is best for you. We don=t sell or market any health insurance product. That little Health Care Choices booklet is available to all the federation members no charge. It goes to senior centers, libraries, many public places when it=s first published, and anybody can pick them up. Our particular clinic has them also.

Now we have three key words in the Health Plan Information Center. Keep it simple.

Senator BREAUX. Ms. Stahl, thank you very much. I wish I could bring you back to Washington and have you talk to the bureaucrats. [Laughter.]

Mr. Kellogg?

Mr. KELLOGG. Yes, thank you, and I, too, am pleased to have this opportunity to be here today.

Senator BREAUX. Hold that mike, Martin, if you can, right in front of you.

Mr. KELLOGG. OK. I have a few observations on the Medicare system and some comments as to what I think would be an improvement in the way it is set up.

First of all, obtaining care is becoming increasingly depersonalized as a result of Medicare. Diagnostic procedures are relying more upon imperfect files than personal knowledge. The process becomes a form of rationing more open only to those who have time and patience to plod through the necessary bureaucracy of the third-party payer system, the important concepts of patient choice and responsibility having been greatly submerged.

This system is high on complexity and cost and low on delivery, the most predictable consequence from any system which promises delivery of value to be paid for by other people=s money. The most significant improvement that could be made in Medicare would be to move it away from a first-dollar cost transfer system into more of a true insurance system, not paying for all the minor expenses of everyone, but focusing on the less individually predictable major expenses.

The most effective way to establish consumer choice with individual responsibility is the general concept of medical savings accounts. As long as insured or employer-provided medical expenses and Medicare reimbursements are tax favored, so should an individual=s personally incurred medical expenses, as well as accumulating funds for such future needs.

Further, such individual savings accounts for medical purposes should be free of the totally inappropriate use-it-or-lose-it concept imposed by a bygone Congress for flexible spending accounts. Instead, when exceeding a good sum, they should also be available for withdrawals as then taxable, ordinary income, the property of the individual.

The implementation of the above concepts into practical terms would greatly reduce the need for increasingly burdensome managed care while restoring the professionalism and customer service of providers and personal choice and responsibility for consumers. Thank you.

Senator BREAUX. Mr. Kellogg, thank you very much. Mr. Eklund? How close am I to getting it correct?

Mr. EKLUND. Eklund=s fine.

Senator BREAUX. Eklund=s fine?

Mr. EKLUND. Yes, thank you.

Senator BREAUX. You should see what they do with Breaux.

Mr. EKLUND. Pardon?

Senator BREAUX. You should see what they do with my name. [Laughter.]

Mr. EKLUND. Well most of the Swedes in Minnesota can handle it. My name is Kent Eklund and I=m cochair of a Citizens League Task Force called A New Wrinkle on Aging. The Citizens League is a 46-year-old nonpartisan public policy think-tank in a way that has developed a system whereby generalists and specialists come together to study complex policy issues and inform policymakers on our recommendations.

I cochair this task force with Katie White, who=s an associate in health public policy fellowship at the University of St. Thomas in St. Paul.

The New Wrinkle on Aging is a subcontract which the Citizens League has undertaken on behalf of the Department of Human Services here in Minnesota as part of a project called Project 2030. The vision that we=re working on is what will Minnesota be like in 2030 when 1 out of 4 Minnesotans will be over 65 and how do we begin the incremental steps to prepare for that 32-year vision.

We=re studying baby boomers and what we know about them and their impact on future work force, future urban design and future long-term care. I must say we=re just starting our work and so I promise you at the end we=ll submit to you our report in October when we=ve all become experts on these issues.

I have a hard time separating my personal background from my chair background as a 52-year-old baby boomer, but let me say a couple of things we=ve learned about baby boomers in our first 6 weeks. There=s a lot of them. We also know that this is a generation that is one of the very first generations in the history of this country to observe critically the aging process before they get there as they take care of, work with their parents and other elderly persons, and are learning a lot about the current choices and the current providers.

We know that the baby boomers have benefited by the increase in 27 years in age span from 1900 to today, and we know that baby boomers are beginning to consider or reconsider the concept of retirement that, frankly, for the baby boomers a more irrelevant age is likely to be 65, as they retire earlier or later or when they retire they move into rehirement or other kinds of activities.

So one of the big issues we need to deal with is the huge variance in a generation of 77 million. We know the baby boomers are postponing a lot of activities including later families, later college expenses, later savings for retirement, and they come to this with, frankly, relatively low expectations about certain governmental programs, primarily at this point, Social Security, and then finally we know that baby boomers have wide-ranging financial conditions and so very hard with a generation that big to make generalizations.

We know that we=re going to be dealing with at least six hypotheses as we go forward. One, that this society and this economy cannot afford to have all 77 million baby boomers retire at 65. Our economy simply must keep some in the work force, and how we work to continue to reduce any disincentives to continue working, toward moving toward rehirement, paid volunteerism, other supports for continuing to work beyond 65 is a big issue.

Two, we know that much of what is provided in long-term care today, particularly the traditional nursing home, is unacceptable and that that is a product that is likely to be dramatically repositioned over the next 32 years, and there is some fascinating things already going on in this State that we=ve already learned that we could talk about.

Three, that the current Medicaid system, which is basically a welfare model, will be up for disassembly or considerable relooking as baby boomers begin to recognize that the spend-down and some of the other issues embedded in the foundations of current Medicare are not likely to be a preferred alternative.

Four, it=s a generation that has had choices. It=s had choices in public education, it=s demanded choices in careers and it demands choices in health care, and that will be a continued theme as 77 million move toward retirement.

Fifth, the hypothesis that they share with the current older generations in this country, a strong preference for home-based, noninstitutionalized care, and looking at payment mechanisms moving toward better support for noninstitutionalized care.

And then finally, and this will be among our more difficult conversations, is how to deal with the variety of incomes among that 77 million baby boomers and how we deal with the issues that Mr. Kellogg talked about between first dollar and last dollar, how we measure the difference between first dollar and last dollar and how we appropriately incent the private sector, particularly, to work with those boomers who have financial resources and should be weaned from public programs. Thank you.

Senator BREAUX. Thank you very much, Mr. Eklund. Congressman Tim Penny, welcome back.

Mr. PENNY. Thank you, Mr. Chairman, it=s good to be with you today. As you mentioned in your introduction of me, I now serve as a senior fellow at the University of Minnesota Humphrey Institute Policy Forum, and I would offer not as a way of suggestion, because I never did support and still do not support term limits, that there is life after Congress. [Laughter.]

I want to make a few observations on the general topic of choice in competition. As of March 1998, 16.2 percent, or 6.1 million, seniors were enrolled in managed care plans of one sort or another. Only 5 short years ago the percent was 6.2 percent. There=s been significant growth in various regions in the country, a lot of this driven by the capitated rates that are available in those regions, but in Arizona and California the level is about 38 percent, in Oregon 28 percent, in Florida 26 percent, in Pennsylvania 23 percent, Massachusetts 20 percent.

Here in Minnesota we=re at about 9 percent, we had been higher at one point. We=ve leveled off at around 9 percent, and a lot of that again has to do with the concern that was raised by the earlier panel about the payment rates in a State like ours, and in some ways that rate being punitive and penalizing us for the success of holding down overall health care costs.

The bottom line seems to me is that in one form or another, at one rate of speed or another, the future of Medicare is managed care. Roughly 70 percent of today=s private sector workers are in some type of managed care system, they have a familiarity with these systems. I expect that they will not only be comfortable with but anticipate that as they retire they will be able to stay with the same health care plan that they utilized during their working years. And there is evidence that in recent years employers are offering opportunities for these workers to continue accessing a managed care plan as they move into their retirement years. Today roughly 38 percent of all employers offer that option to their employees, and that=s up from 7 percent just a few short years ago.

As baby boomers retire, and this follows on some of the remarks that Kent has just made, I believe there will be enormous political pressure to restructure Medicare to cover a wider range of services than is covered under traditional fee-for-service Medicare today. We will change the Medicare system, just as our generation has changed virtually every other aspect of American society. There will be demands for new drug therapies, demands for chiropractic care, natural medicine, diet-based alternatives and, as Kent mentioned, there will be more of a preference for in-home health options as opposed to institutionalized nursing home care. The big question is can we accommodate these demands for new and different health care deliveries while still controlling costs.

That=s why I have come to the conclusion that injecting more choice and competition into the Medicare system may serve as the only way that we can respond to these seemingly conflicting expectations. True competition among various health care providers should work to keep costs from spiraling out of control, and offering seniors an informed choice among several competing plans should create a marketplace dynamic that causes providers to compete with one another based on service and quality.

In 1997 the Balanced Budget Act began opening up Medicare to choice and competition. I think building on and perfecting those reforms can place consumers, instead of the government, in the driver=s seat. But that will necessitate a lot of attention in the next few years to providing the kind of information that consumers are going to need in order to make those informed decisions, so the balance of my remarks will be focused on consumer information.

There is an excellent General Accounting Office report dated May 6, 1998, on this topic. I expect many of you have read that report. It was delivered as testimony to the Special Committee on Aging. Mr. Breaux, I know that as cochairman of the Commission you would be familiar with the report. It talks about the challenge that HCFA will have going forward in order to offer the kinds of materials and information that will be needed in this competitive marketplace.

It suggests first and foremost that there will be a challenge for funding HCFA adequately to perform this job as it needs to be performed. Obviously HCFA is under requirement by congressional act to develop comparative materials among various plans that focus on premiums, if any, out-of-pocket costs, benefit levels, the service area and disenrollment statistics. The challenge is to provide an apples-to-apples comparison between all of these various categories, and that is really where the GAO report stresses most of its commentary. It talks about the difficulty of comparing apples to apples when terms can be bandied about that seem to mean one thing but in fact mean something quite different.

Many of these plans that offer drug benefits may refer to them as authorized benefits, legend drugs, covered drugs, formulary drugs, and it matters a great deal to the beneficiary if they don=t understand that there=s a dramatic difference in meaning. Even though it seems like drug benefits are offered, these are the terms that will define what kind of drug benefits and whether it=s meaningful to you.

In addition there is some problem with the way we measure disenrollment. A raw statistic tells us very little. And here again HCFA needs to help us understand what a disenrollment number really means. Was disenrollment driven by cost, was it driven by service, was it driven by quality, was it driven by some other factor?

And, finally, the standardized format spelled out in law does ask that each plan, as it markets its plan, provides information on access in terms of doctors, specialists and others that are available through the plan, out-of-area coverage, emergency coverage, any prior authorization rules, any grievance or appeals procedures, and any quality assurance programs that are in place.

Here again we need to build on our recent experience with the Federal Employees Health Benefits Plan to help us come to an understanding of how to lay forth this information for consumers in an understandable, intelligible fashion. Because if we don=t have accurate comparability, if we don=t have understandable comparability, we will not be offering our seniors the utility they need in order to make an informed decision and to serve their health interests in the best manner possible.

Senator BREAUX. Thank you very much, Congressman, and all of the panel members. Like I said, Ms. Stahl, you made some very good points. I mean we=ve had hearings in the aging committee about how they present all this information. I tell you, I mean I=ve sat through those hearings, and as one who is a lawyer and one who helps write the laws, as many of us do on this Commission, I mean I can=t understand it, and I know that someone who may be in their eighties having to look at that, by themselves perhaps, and making that decision, it=s an impossible task.

It=s a challenge because we=re giving people more choices and giving them more opportunities with health care, but it=s very difficult to present it in a simple, understandable fashion, and we are going to try our very best to have the government explain it in a way that even I can understand it and most Americans will be able to understand it, too. You made some very good points. I guess this helps a lot, the way it=s put out, the federation book.

Ms. STAHL. Yes, it does.

Senator BREAUX. I mean this is something that benefits, I guess, the beneficiaries.

Ms. STAHL. These are choices that are available to Medicare beneficiaries but only in Minnesota.

Senator BREAUX. I mean this pamphlet puts it in a way that your friends can understand?

Ms. STAHL. Absolutely. Absolutely. It takes the confusion out of trying to make a decision.

Senator BREAUX. Well anything that can take the confusion out of Washington I support. [Laughter.]

Let me ask, Mr. Eklund, a question about your generation. I just missed being a baby boomer, I=m not a baby boomer, I was there just a little bit before the baby boomers. Not much but a little bit. And the question is an increase in the retirement age. The Senate in the last Congress considered and passed by a recorded vote an amendment to try and help Medicare through its solvency period and the problems. One of the recommendations was to gradually increase the eligibility age, sort of like what is being done with Social Security. Social Security, the argument, I mean we picked 65, John, they tell me because that was the eligibility age the Germans had picked back, way back, and it was basically because no one lived that long so they had a program that started out that everybody was already dead, which was sort of disingenuous on their part.

But having said that, we recommended in the Senate, and something that would affect nobody on Medicare today, nobody on Medicare today would be affected by it, but people not yet on Medicare would have the eligibility age gradually increase an average of 1 month a year for the, starting in the year 2003, that average, that 1 month a year would go into effect, and in 24 years, the year 2027, people would know at that time that they would have to be 67 years old to be eligible for Medicare. Reflective of the fact that people are living longer and are able to be productive longer and able to work longer, and not saying that people who are disabled, they would be eligible whenever they had become disabled, so that obviously was very controversial. Can I have your comments on that?

Mr. EKLUND. I think there are two relationships that need to be addressed here. One is the relationship between retirement and life expectancy. And the fact of the matter is that life expectancy has increased substantially beyond 65 since Bismarck=s Germany, and so to be able to sell the boomer generation on there still is plenty of time after that length in time in life expectancy is an extremely important concept to build into it.

The other principle is an early decision, so that people like me born in 1946 can still have some time at the end stage of a career here to make whatever financial plans are necessary, and that=s that time line principle that I think is important to think about.

Senator BREAUX. So any changes in this area necessarily needs to be phased in very gradually so people can plan and know that when they reach a certain age, not just tomorrow but over a period of time, that this will be the date?

Mr. EKLUND. That=s correct.

Senator BREAUX. So you don=t object with what we were trying to do, it=s just a question of how you do it and a phase-in gradually?

Mr. EKLUND. This is clearly not, speaking as 1 of 77 million is a little dangerous here, but the fact is that that is clearly an issue that we=re going to be working with on our task force as we figure out those expectations.

Senator BREAUX. I appreciate the frankness of that comment, it=s very helpful. Dr. Bill Frist.

Senator FRIST. Thank you, Mr. Chairman. Could I ask each of the panel members of how you chose your doctor? I assume that you have a primary physician, family physician, you may or may not, maybe I should not assume that, but let me just start with Mrs. Stahl and just go down the line. How did you choose your doctor?

Ms. STAHL. I happen to go to the senior=s clinic in one of our local hospitals, and I took the advice of our daughter, who is a coronary supervisor in coronary care at that particular hospital, and asked for the doctor that she recommended.

Senator FRIST. And you=ve been with that doctor for how long?

Ms. STAHL. That doctor, he left for another group unfortunately, but I=ve had some experience with the doctor that I now have and I=ve been with him for 3 years, I=m very satisfied with him, and I feel that he treats me as a person, does not look down on me as an old lady.

Senator FRIST. Did you have your choice among doctors there?

Ms. STAHL. Yes, I did, all the doctors on the clinic staff.

Senator FRIST. And Mr. Kellogg?

Mr. KELLOGG. Through the years I have had a variety of doctors, partly because of the changes that are occurring in the medical profession with the consolidations and so forth. It is getting very difficult to choose and stay with a physician. And I notice that if you have a process that might involve a referral, it=s getting quite unclear to the patient how a referral will be made.

Senator FRIST. And do you have a doctor now, a primary care physician?

Mr. KELLOGG. Yes.

Senator FRIST. And how did you choose him?

Mr. KELLOGG. It was a continuation of a clinic that I began with some time ago.

Senator FRIST. And you=ve been with him for a while, him or her?

Mr. KELLOGG. Yes.

Senator FRIST. And Mr. Eklund?

Mr. EKLUND. I don=t have a doctor, I have a physician assistant and I=m a member of Group Health, and so it was a choice set among the doctors at the clinic and I chose a physician assistant. And I=ve had him for about 8 years as, I guess, my primary care person.

Senator FRIST. Mr. Penny?

Mr. PENNY. I draw my health care through the same sort of system that=s available to Federal workers. The State of Minnesota has a plan for the university. We in turn pick the plan that=s best suited to us. And in our plan our local clinic has a number of, it=s a participating clinic, we have a bunch of doctors there. We can pick among those doctors who we choose to be our primary care provider.

Senator FRIST. I mean do you have a primary care provider?

Mr. PENNY. Yeah, at the local clinic.

Senator FRIST. Let me just real quickly, Ms. Stahl, is your provider a good quality?

Ms. STAHL. Certainly is. He=s an internal medicine specialist and I=m very satisfied with the work.

Senator FRIST. So he=s a specialist that is good quality and your relationship is good?

Ms. STAHL. Excellent.

Senator FRIST. Any other way to measure that?

Ms. STAHL. Beg your pardon?

Senator FRIST. Do you have access to any other information to say he=s a good doctor, he or she is a good doctor?

Ms. STAHL. Primarily word of mouth, mainly from staff there.

Senator FRIST. And, Mr. Kellogg, what about your doctor, is he or she a good doctor? And if so, how do you know?

Mr. KELLOGG. Yes, I feel confident in the physician that I see very occasionally.

Senator FRIST. Good.

Mr. KELLOGG. I am concerned if anything was really wrong where I would wind up. It=s not clear to me.

Senator FRIST. Is there any objective data that you=ve seen that he=s a very good doctor?

Mr. KELLOGG. No, other than referrals.

Senator FRIST. And, Mr. Eklund, you have a physician assistant?

Mr. EKLUND. My PA, I=ve got a good relationship with him, he satisfactorily found the arthritis in both hips that ended a 25-year handball career, and that=s my only chronic relationship I=ve had with him in 5 years.

Senator FRIST. Mr. Penny, any objective data?

Mr. PENNY. We=re pleased. It turns out to be the same physician that delivered all four of our children so we=re generally happy.

Senator FRIST. So patient satisfaction here is your primary, in terms of objective data, keep it simple sort of thing, patient satisfaction ends up being driven--I want to continue but I would be interested, would each of you trust the person you have the relationship with to make the referral to the specialist or would you go out and find the specialist yourself or would you trust that individual if they said you now have heart disease and this is the cardiologist you should see? Ms. Stahl?

Ms. STAHL. Because I am on our Senior Partners Care Program, and if I speak later I will go into more detail about that, but it is described in this little Health Care Choices. My choices, if I want the care under Senior Partners Care, are limited to the hospital where I get my care. It is a teaching hospital. I have access to very, very good care and, yes, I would trust him implicitly. I also discuss things of this nature with our daughter, and she generally just backs everything up.

Senator FRIST. Mr. Kellogg, if your physician, who thank goodness you see rarely, said you have heart disease, you need to see a specialist, this is who I recommend, would you go to that person?

Mr. KELLOGG. I would likely do so.

Senator FRIST. And Mr. Eklund?

Mr. EKLUND. Yes.

Senator FRIST. And Mr. Penny?

Mr. PENNY. I expect so.

Senator FRIST. These are always issues in terms of access, what=s out there today, how we do keep it simple, what data is available, what people use today to make those choices, which really is word of mouth, who talks to who, which is very important to this committee as we look ahead, give people more choice. The referral to specialists is also one because today straight fee-for-service, you can see Bill Frist, heart transplant surgeon for heart disease if you want to, yet most people will rely, if they have that relationship, but it=s an issue that we=ve got to deal with as we look ahead, so that=s very helpful just--I know it=s a small sample, but it really orients our thinking. Thank you, Mr. Chairman.

Senator BREAUX. Thank you. Congressman John Dingell and then Bruce Vladeck.

Mr. DINGELL. Thank you, Mr. Chairman. Mr. Kellogg, you mentioned something that I find has not come to the attention of this panel before. You suggested changing the Medicare Program into medical savings accounts. Would you do that for all senior citizens?

Mr. KELLOGG. I think basically the idea of all senior----

Mr. DINGELL. No, no, would you change it for all seniors or would you allow a choice between the seniors, those who wanted to go into it could, those who didn=t wouldn=t have to? Which would you do?

Mr. KELLOGG. I think it would be generally better if all senior citizens and all citizens had the concept of a medical savings account as part of their health care.

Mr. DINGELL. You=d mandate it then, you=d mandate this for senior citizens?

Mr. KELLOGG. I think you=ve already mandated something different, and if you call that a mandate I suppose that would be true.

Mr. DINGELL. OK. Now I don=t remember any experience with medical savings accounts for seniors. We=ve just begun experimenting with that for citizens generally. Do you have any experience with how senior citizens have fared under medical savings accounts?

Mr. KELLOGG. You know, I think Congress should take the leash off the medical savings account and give it a real shot.

Mr. DINGELL. But we have no experience for senior citizens with the experience they=ve had on----

Mr. KELLOGG. Well, Congressman, you do a lot of things without real experience so I think this would work out. [Laughter.]

Mr. DINGELL. Well I have always tried to be more prudent. I=m curious. If we mandated all seniors, you would have essentially, you would break the seniors down, you would have those who are in very poor health. I=m curious how those who would be in very poor health would fare under medical savings accounts. They would exceed whatever credit they got, whether it was a tax credit that they might get, or whether it was a payment that they would get in cash money from the Federal Government. And I=m curious what would happen to those.

There would be another category who would be in reasonably good health but they would be relatively small in number. They would be able to bank a sum of money against some future liability. I=m curious what would we do with those who had these very large cost overruns, what would befall them?

Mr. KELLOGG. Well the concept of a medical savings account is not involved in large cost overruns as I said. The major medical kinds of expenses would be handled by something more like an insurance program, which is part of the concept of Medicare.

Mr. DINGELL. Well I=ve always heard that these plans involved, you got a sum of money and I=ve heard $4,000 or $5,000. That $4,000 or $5,000 could be invested in part in a catastrophic health care policy, the balance you would bank against some future liability.

Mr. KELLOGG. What I am----

Mr. DINGELL. And what I=m trying to figure out is if you were to overrun the costs that you would have in your catastrophic, plus the cash money that you had banked, then who would have the responsibility for taking care of that senior citizen?

Mr. KELLOGG. I think you=re creating a medical savings account concept that I didn=t state, that I did not say that should be done. I said for the first-dollar expenses there should be made a medical savings account.

Mr. DINGELL. I was interested in that, too. I checked to see if Medicare, first of all doctor bills are 20 percent copay with $125 deductible. Second of all they are, on hospitals there=s $750 deductible. On the first day of hospitalization Medicare pays nothing. On day 2 through day 60 they pay full. On day 60, beginning on day 60 the individual pays a 25-percent copay until the eligibility is exhausted. Is that a first dollar? Is that what you call a first-dollar payment?

Mr. KELLOGG. Those deductibles are good and in the right direction. I think they could be larger, and I----

Mr. DINGELL. But do you call that a first-dollar deductible? That=s what I=m trying to understand.

Mr. KELLOGG. You know, when does the first dollar start? It starts at $1. But I think it could go up a little higher to take care of the situation where a lot of money is going into relatively low medical expenses. Now I think the medical savings account could cover those medical savings expenses and also be----

Mr. DINGELL. But I heard you say----

Mr. KELLOGG [continuing]. A better answer to the supplementary program.

Mr. DINGELL. I heard you say, Mr. Kellogg, that that was a first-dollar deductible, and I=m wondering if you were defining that kind of a payment system as first-dollar deductible.

Mr. KELLOGG. You mean how would I define the first-dollar deductible?

Mr. DINGELL. Yes. I=ve told you what Medicare does, and I=m asking is that a first-dollar deductible? Because that=s what you called it.

Mr. KELLOGG. I=m not sure what you=re asking, but that is a relatively low deductible because a great share of medical expenses in total are for the first $3,000 of expenses that someone has in a year.

Mr. DINGELL. I=ve just told you what Medicare does. You have defined it as being first-dollar deductible, and I=m asking if that=s what you would call a first-dollar deductible?

Mr. KELLOGG. I would make those deductibles higher and support it with a medical savings account approach, and I would take some time to develop that and ease it into----

Mr. DINGELL. I think my time is expired, Mr. Kellogg. Thank you.

Mr. KELLOGG. Mine, too. Thank you.

Mr. DINGELL. Thank you, Mr. Chairman.

Senator BREAUX. Bruce Vladeck?

Mr. VLADECK. Two very, very quick questions. Mrs. Stahl, I=ve been very impressed by this booklet and I was just wondering again, as best you can guess, if you knew what it cost to produce?

Ms. STAHL. I=m sorry, I do not have that information, but I would be very happy to get it and send it to you.

Mr. VLADECK. I would appreciate it if you could get it to the Commission staff.

Ms. STAHL. I would do so.

Mr. VLADECK. I will try to keep the second question as similarly brief. Mr. Kellogg, I=m not familiar with your organization, Citizens for Choice in Health Care. I wonder if you could tell us a little bit about it.

Mr. KELLOGG. Yes. Citizens for Choice in Health Care was founded in 1992 over concerns of the direction that the State of Minnesota was taking in setting up an oligopoly situation with just a few major medical care organizations or health maintenance organizations. And it was also structured with a great deal of bureaucratic structure to set up a much more complex health care commission and many, many rules of regulation. So it was moving toward a nonfree market approach and moving toward a program that would get the government into more and more responsibility and involvement in the health care.

Mr. VLADECK. Is it a membership organization?

Mr. KELLOGG. Yes.

Mr. VLADECK. And how many members do you have?

Mr. KELLOGG. We have about 200 members.

Mr. VLADECK. And are you supported entirely by dues paid by those members?

Mr. KELLOGG. Yes.

Mr. VLADECK. Did you request to speak before the Commission or were you invited by Commission staff?

Mr. KELLOGG. I requested to.

Mr. VLADECK. Thank you.

Senator BREAUX. Bill Thomas?

Mr. THOMAS. I, too, am impressed with the booklet. We=re struggling with the Health Care Finance Administration to put out an information pamphlet on the Medicare+Choice, and the way in which this has been structured is quite good, but I also noticed that there are a number of advertisements I think you would call that. And perhaps, Bruce, in the interest of saving taxpayer dollars we might think about augmenting any booklet put out by the Federal Government with some ads. We can auction off the space on the pages like a Spectrum auction and we might come out ahead. So that=s an idea you and I need to chew on.

Mr. VLADECK. There are many such ideas we could apply to Medicare. Quite lucrative.

Ms. STAHL. May I reply to that, please?

Senator BREAUX. Please, Ms. Stahl.

Ms. STAHL. We are a grassroots organization, we rely on our membership dues. The ads for the Health Care Choices are, help to pay for the production of it.

Mr. THOMAS. I agree with you completely. I think it=s a pretty good idea.

Senator BREAUX. Well I think this has been very, very helpful. I thank each and every one of you for your discussions and the recommendations. Tim, good to see you again. Ms. Stahl, we=ll take your recommendations back with us, as everyone elses. Thank you very much.

Now we=ll go to the last part of our session, which gives folks out there a chance to make comments for us. We=ve tried very, very hard to involve as many people in this process as we possibly can, knowing the limitations on time, but we value what you have to say.

While I was asking some of the questions, Congressman Thomas was up here going through all of the cards and letters that we=ve picked up this afternoon and they are quite extensive. I want him to just make a comment about that. As soon as he makes that comment, then I=ll give you some instructions, if you will, or suggestions as to how we are going to hear from you to make sure that we do it in an orderly fashion in order to make the best use of our time so that as many people as we can hear from will be heard from. So, Congressman Thomas.

Mr. THOMAS. Thank you, Mr. Chairman. There were 90 cards that were submitted, and in trying to break them down into various categories to emphasize where a concern was primarily focused, the majority of them were in a general sense similar to Ken Chrestianson who said, >>Leave it alone, expand coverage to more people.==

Veronica Finken, I believe it is, >>I would like to see Medicare stay as it is.==

Dee Jones, >>Medicare must be preserved as a defined benefit program.==

And then in a general sense additional items were added but the basic thrust was keep >>Medicare as it is.==

The second largest group of specific responses, David Bednarczuk, >>Clean up the $24 billion Medicare provider fraud problem, simplify reporting requirements.==

Charles Spooner looking at the fraud question, again a fraud question.

Mary Gaebel, fraud.

A number, eliminate fraud.

So that was the second greatest concern and we have tried to respond with additional money, and if any member would like to respond to the changes that we made in the Medicare Balanced Budget Act to address the fraud question, no one wants to see a single dollar lost that could go to coverage that otherwise went to fraud, and we are moving forward with a much expanded punishment and detection structure.

The third single largest area, Kate Stahl submitted a card, >>Rx drug coverage would save beneficiaries many dollars. If a copay were used it would still be of great benefit.==

And again Dottie Esslinger, >>Rx drugs.==

Phyllis Allen, >>Prescription drugs,== and so on.

So prescription drugs is an area we=re focusing on, that was the third largest.

For my colleague from Washington who has been single-minded about the single-payer system, there were three specific responses that focused on a single-payer concept or a national or universal health care structure. Two of them that I thought were innovative, Charles Spooner said he wants someone to pay more dollars to foot the bill. Don=t we all. [Laughter.]

Anstice Jurkovich, >>Simple solution. Remove the cap on the amount of wages or salaries subject to the Medicare tax and make all forms of income, not just wages and salaries, subject to the tax.==

If we don=t fundamentally reform Medicare it=ll consume all the dollars the system generates.

Then very briefly, Mr. Chairman, a number of specific focuses that, frankly, were areas that we began to look at as people are looking at a broader-based, more innovative Medicare Program.

Cheryl Lawson, >>Home health care, problems with codes, update software, et cetera, but you can realize a real cost savings by utilizing home care services.==

We do think this is a long-term way to save money, but in a cost-plus system it was the fastest growing area of Medicare expenses and we=re attempting to put a prospective payment system on home health care. It does afford us an opportunity to deliver services in an innovative way which will give better care at a cheaper price.

Jennifer Rogers focused on the medical nutrition therapy, >>It should be covered by Medicare to decrease the cost it spends to treat patients.==

As you know, we added a preventive care package this time. This was one of the items that we were looking at and we=re determining how we might be able to structure medical nutrition therapy.

>>Chiropractic and acupuncture should be added.== Actually we have expanded Medicare into the chiropractic area, and as we look at more holistic approaches, acupuncture is one of those that people are focusing on.

Dorothy Ascheman, >>Pay more for preventive care and don=t pay for smokers.== That discussion will go on outside. [Laughter.]

And Eric Schaefer indicates that he wants to support MSA=s.

So we have the cards, we appreciate the concerns, especially those who are looking at ways in which we can make positive changes to Medicare. As the chairman has said repeatedly, and you see on that chart, if we keep Medicare as it is, it=s one of the more thrilling roller-coaster rides I=ve seen but not one that the system would like to ride in terms of the seniors in the programs that cover their medical needs. Thank you, Mr. Chairman.

Senator BREAUX. And on the question about taxes in order to help pay for it, I mean it=s important for all of us to note that over 70 percent of Americans today pay more in payroll taxes than they pay in income taxes, so that=s something that=s out there.

Mr. VLADECK. You must think that=s a comment on the income tax system, not on the payroll taxes.

Senator BREAUX. Maybe from some perspective. OK, here=s the ground rules. We=ve had comments from people and I=ll give you a chance to use one of the microphones. We have three, I take it, that are set up, one over here. Stand up, the people with the mikes. There=s a mike here, a mike here and there=s a mike over here. We have received comments from people, staff have been working to try and get their comments. They sort of fall into a couple of categories; market-oriented suggestions about what we ought to do, people=s who were defenders of the current system who believe that it=s working fairly well, some who have had some specific recommendations about legislation, and others who are talking about fraud and abuse and some other concerns, and we want to hear from you.

The first we have on the list is Thomas Luchi. We would like to ask that you keep your comments, in order to get everybody, most of you heard, we want you to keep your comments to about 2 minutes. And then that means that if you take longer than that, you=re going to be stepping on someone else=s time so we don=t want to do that either. Tom?

Mr. LUCHI. Thank you very much. Good afternoon, ladies and gentlemen of the Medicare Commission and invited guests. My name is Tom Luchi. It is my pleasure to speak with you as chief operating and financial officer of Family HealthServices Minnesota, a physician-owned and operated care system. Family HealthServices provides a full range of health care services to employees of the Buyers Health Care Action Group sponsored employers and their dependents through their Choice Plus health plan.

Our vision as an organization is a long-term relationship for patients with a family physician of their choice who will assist them in optimizing their health and caring for them in their illness. Our mission as a physician-directed organization is to provide the external interfaces in payer-provided partner and internal management systems support for the sponsoring family physician groups. Family Health Systems is owned by two large family practice groups, East Metro Family Practice and MinnHealth Family Physicians.

In combination they operate 15 clinics for 75 physicians in St. Paul and surrounding suburbs. Family HealthServices functions as a virtual care system, a full range of primary, specialty and hospital services are provided through a unique clinical and financial partnership with East Metro Family, East Metro Health Organization, a network of over 250 specialists, and HealthEast, a major hospital system.

I would like to use my time today to share with you how BHCAG care systems and Family HealthServices are addressing the three biggest resource shortages facing our health care today. Accountability, accountability, accountability.

As health care professionals, managers, manufacturers or marketers, any of us who have the privilege of having a direct or indirect role into the delivery of health care services, we need to focus on our accountability. We need to improve how the limited resources available are used for the care of our patients. Taking the narrow view, assuming the problem is someone else=s responsibility, is no longer acceptable. We must take the long view and be judicious with the application of technology.

As financers of health care services, whether you are an employer, a union leader, a health plan or a politician, there needs to be accountability.

AUDIENCE MEMBER. Time.

Mr. LUCHI. Resources need----

Senator BREAUX. That word was >>time== and it came from the audience, not from us. Wrap it up is what I=m saying, Mr. Luchi.

Mr. LUCHI. Finally, we as consumers need to be more accountable. We need to develop a reasonable expectation of the health care system. We=re not perfect human beings and we cannot expect to live forever regardless of what the advertisers tell us. My comments are not to assume that there is no accountability in the system, I think we are all accountable in our own ways, but we really need to be more jointly accountable if we=re going to solve this problem.

Senator BREAUX. Thank you, Mr. Luchi. Now I want people to speak English and not worry about trying to talk to us in Washingtonian stuff. I mean just tell me what you think. Mr. Don Buckner, AARP representative? Mr. Don Buckner, is he here? Mr. Buckner?

Mr. BUCKNER. Yeah.

Senator BREAUX. How do you feel? About Medicare? [Laughter.]

Mr. BUCKNER. Thank you, Mr. Chairman. My name is Don Buckner, I=m a resident of West St. Paul, MN, and I am the State coordinator of AARP Vote, the nonpartisan voter education program of the American Association of Retired Persons, and this is a volunteer position. I=m retired and have been volunteering with several organizations in the field of health care with related social and economic problems for about 6 years. I=m acutely aware of many individual cases that convince me that the fundamental protection of Medicare just has to be maintained.

I strongly urge the Commission to ensure that Medicare continues to provide a real package of benefits rather than a voucher or similar systems based upon fiscal considerations. It must be a program that guarantees health protection regardless of a person=s income or health condition.

I=m the parent of two adult children and have three grandchildren. My children are employed with good health care coverage but I believe I need to know they will be ensured of health insurance protection when they reach retirement age. Medicare must provide health benefits that will not diminish over time, that we can all count on regardless of age. It is crucial that health care protection be there to help manage costs in retirement.

I also suggest that improvements need to be made in existing gaps in Medicare such as prescription drugs. A woman I know suffering from high blood pressure and diabetes must make a decision every month on whether to buy the drugs necessary to control these conditions or to ration their use due to the ever-increasing costs of medications. Either choice is detrimental to her health and this must not be allowed to continue.

Senator BREAUX. Thank you, Mr. Buckner, right on time. [Applause.]

Let me point out that every word that=s being given to the Commission is being taken down by the lady who is taking it down for the record so other members back in Washington will have that information available.

Linda Robertson, executive director of Living at Home, Block Nurse Program. Question or comment on the specific legislation?

Mr. THOMAS. While she=s moving to the microphone, everyone who wrote us in anticipation of coming here to Minnesota will be part of the record as well.

Senator BREAUX. Absolutely. Linda? Ms. Robertson?

Ms. ROBERTSON. Thank you. The point that I would like to make is that Medicare services go beyond the acute care services and really need to take a look at chronic conditions. That might be arthritis, that might be diabetes, that might be depression. Those are all conditions that people who are elderly are experiencing. In the demonstration project called the Healthy Seniors Project we=ve been able to, and this is a national demonstration, there=s one in Minnesota, one in Arizona, one in New York, and one in Illinois, and we were commissioned by the Federal Government to take a look at home care services, outpatient therapies, and then also to do wellness planning, case management and preventative work.

What we=ve been able to demonstrate in Minnesota is that we=ve been, we have cut down on the acute care services in our treatment group versus our control group. This has to do with case management, it has to do with integrating services in the community, treating people in the community, extensive use of volunteers, primarily for transportation, chore services and friendly visiting for those people who have chronic conditions.

Senator BREAUX. Thank you very much. Prof. Robert Kane?

Professor KANE. Thank you, Mr. Chairman. My name is Robert Kane, I=m a professor at the University of Minnesota, School of Public Health, and hold an endowed chair there on long-term care and aging. I would like to focus my remarks on the area of chronic disease, following up on some of the remarks just made, and particularly how it interfaces with managed care.

Managed care represents great potential to improved care, especially chronic care, but unfortunately it has thus far demonstrated little inclination to make the requisite efforts in that direction. Although we live in an era of chronic disease where almost 95 cents of every elderly health care dollar today is spent on chronic disease, we continue to practice and support medicine as if it were simply acute care.

Chronic care implies continuity. The therapeutic goals are to manage the disease and its consequences to minimize the adverse effects on the patient=s life and to avoid complications. Early interventions have been shown to prevent expensive complications. Much of the primary care can be provided by professionals less expensive than physicians.

The key elements in successful chronic care would include a structured oversight and monitoring program, a management information system that can track patients over time and point to potential problems before they are a crises, flexible staffing and patient-centered care where the patient is the focus of attention, not the care.

Managed care could provide an environment to support all of these activities, but generally it has not. The hope that the incentives inherent in managed care would prompt its operators to adapt these principles of practice has proven unsupported. The arguments that we can simply leave the marketplace to its own devices and that good care will triumph are unfounded. Instead the Medicare system must direct the incentives and provide specific mandates for certain kinds of actions.

Given the aging of the population we cannot afford to maintain the status quo. I would suggest two areas which we need to develop these things. One, management information systems capable of tracking patients over time and indicating when the patient=s clinical course is deteriorating and, two, an annual survey of enrollees. This survey could serve several purposes. One is to screen for potential problems and identify those at high risk. These enrollees could receive special attention and further evaluation. Two, it could provide--cut me off?

Senator BREAUX. Just wrap it up.

Professor KANE. It could provide outcome information on changes in the general health status and condition-specific status for both quality improvement and quality assurance, and finally it could provide a basis for case mix adjustment for capitated rates based on individual enrollee characteristics.

Senator BREAUX. Thank you. Dr. Paul Olson, psychologist? Dr. Olson?

Dr. OLSON. I=m a licensed psychologist in Minnesota. I also serve as a cochair of the Legislative Committee of the Minnesota Psychological Organization. I=m a volunteer of the health care action group of COAC, a grassroots citizens group with a membership of approximately 16,000, for whom universal health insurance has been a major and a sustained agenda.

One of the ways of solving problems is by eliminating undesirable alternatives. Any changes in Medicare which would result in more of our citizens being enrolled in health maintenance organizations is undesirable and even irresponsible.

The written testimony that I=ve submitted to this Commission supports this thesis by citing research that indicates first as a universal, single-payer system independent of employment status, the Medicare insurance program demonstrates superior cost-effectiveness compared to the proliferation and duplication of inefficient private HMO=s.

Second, based upon two recent reviews of about 50 independent studies, I have noted the empirical evidence of compromises in quality that have occurred and would occur if Medicare were dismantled by transforming it into a defined contribution plan resulting in increased enrollment of seniors in the HMO=s which dominate the private sector. I understand my time is up. Thank you. [Applause.]

Senator BREAUX. Thank you, doctor. Actually you left about 20 seconds on the table. Dr. Virginia Dale is one of the persons who wishes to comment. Dr. Dale?

Dr. DALE. Thank you, Mr. Chairman. My name is Virginia Dale, I=m a pathologist in practice at North Memorial Health Care, a community hospital close to here, and I=m currently serving a 1-year term as the chief of the medical staff there, so I speak from that experience in practicing in the community.

I would like to talk about one aspect of the solution for Medicare that I think gets too little attention because we=re all quite afraid of it, and yet it=s part of it that I think we cannot do without. If we=re going to say that health care is a right for all Americans, and I think there=s no doubt that we want to say that, then we have to define what parts of health care make up that right.

People refer to that as rationing and everybody hates that word. Perhaps we could find another word for it or maybe we could just learn not to hate that word so much, because there absolutely is no solution for Medicare that will work if we do not face that issue squarely and responsibly.

The good news is that Americans= hatred of the idea of rationing health care comes from a vast overestimation of the value of health care in our lives. We hate the idea of rationing health care because we see it as rationing life and death, and that truly would be repugnant, but vast amounts of health care are only fractional probabilities of tiny and often hypothetical gains in quality of life and health.

The irony of our hatred of rationing is that we do it already and we all know this. Doctors do it, HMO=s and insurance companies do it, pharmaceutical companies do it, plaintiffs= attorneys and juries. We all do it very badly because none of us alone is in a good position to do it well.

Our unhappiness with rationing by HMO=s is currently famous and doesn=t really require comment except to point out again that after initial cost savings the costs are now going up again and apparently unmanaged and unmanageable.

Doctors rationing decisions are biased by economic incentives and they=re put under perverse pressures. Furthermore, we=re influenced by often unrealistic expectations of patients and their family who are in turn encouraged in those expectations by the media and by direct marketing from pharmaceutical companies, and finally our decisions are made under the fear of plaintiffs= attorneys in the back of our minds.

I think it=s unrealistic and unfair to expect physicians to make, on a case-by-case basis, decisions which really should be a matter of public policy.

Politicians clearly ration health care, or we=ve already referred to the fact that seniors in Florida receive more coverage under Medicare than seniors in Minnesota. It seems that politicians are extremely tempted to hand out ever-expanding coverage as largesse to voters. Witness the mandated coverages for unproven therapies and our current national mandate of solution represented in the Patient=s Bill of Rights.

Bureaucrats certainly ration health care. A few years ago the FDA mandated P24 antigen testing on all donated blood. The result is $24 million a year added to our collective health care bill to prevent perhaps two cases of HIV.

My solution would be to take all the stakeholders, each of whom are individually in a bad position to make these resource allocation decisions, and put them all together and hopefully we would come up with a more responsible decision.

Senator BREAUX. Thank you, doctor. [Applause.]

Next I have Mary Lou Hill. Mary Lou Hill has indicated a desire to be heard. Mary Lou?

Ms. HILL. To maintain the integrity of Medicare it must remain a defined benefit program. It would continue to be strong if it keeps everyone together and everyone following the same rules. To improve Medicare for future generations it should move rapidly to cover chronic, long-term care through greater emphasis and funding for home and community-based health care services. Less emphasis on nursing home care through Medicaid funds might free up some dollars which could be shifted to Medicare.

If individuals can continue to maintain themselves in their own homes and can receive their health care through Medicare with some additional home aid, they will be healthier and happier and cost less in the long term.

In over 30 years since Medicare was enacted surely we=ve learned a few things about ourselves and about health care. For certain, we are living much longer and more health care is needed and other kinds of assistance in living, and all associated costs increase dramatically.

We have also learned that individuals much prefer to remain in their own homes, if at all possible, rather than be forced in a nursing home for lack of an affordable health care delivery system that can keep them viable in their own homes.

You already talked briefly about the Living at Home Block Nurse Program and you visited the site this morning of the Minnesota Senior Health Options, just two innovative programs in Minnesota. To the individuals, though, who have been covered by Medicare since it was enacted over 30 years ago, it has been a great success. A gifted and wealthy Nation such as the United States must begin now to improve the quality, coverage and affordability of the health care system by improving Medicare. Thank you.

Senator BREAUX. Thank you very much. We=re going to take next Mr. Douglas Fenstermaker and will be followed by Mr. John Hagman after Mr. Fenstermaker.

Mr. FENSTERMAKER. Thank you, Mr. Chairman, members of the Commission. While I represent, I=m a financial officer of one of the health care systems in the Twin Cities, I=m really here representing the private citizen. I had the opportunity to present a proposal that I had worked on called Medicare 2010 to Senator Grams, and he suggested I come today and just outline some of the highlights of it.

What I would like to propose is a step back and a different approach to a Medicare solution, because I=m one of those fellows that ends up retiring after the red line zeros out over there, and I think there=s a solution to that problem. Basically what I would like to propose is that a model, or I would ask you to consider a model that includes features that would allow Medicare beneficiaries and those eligibles for the current program by 2010 who would contribute to the program less than 20 years to be grandfathered into the existing program, that the model would propose a maximum freedom of choice for seniors. It envisions the creation of what I called IMIT=s, or individual Medicare investment trusts or accounts, with 100-percent tax credits for up to $2,500 per year investments.

An example. A $212 per month investment, $2,500, for 20 years at an average earnings rate of 8 percent would generate $125,000 by age 65, $330,000 by age 95, even with a spend-down of $917 a month, or $11,000 a year. The funds at that rate would last about 30 years. The same effect could occur with a monthly investment of $35.81, or $430 per year beginning at age 25.

Other key features in incentives would be eligible coverage would include both health care and long-term care. IMIT=s are the personal funds backing maximum freedom of choice by the senior citizens. The Federal Government becomes a certifying agent for the types of investments qualifying for IMIT=s and for provider care systems or health plans who voluntarily participate in a proposed Federal Government national system of contracting, much like the Buyers Health Care Action Group works here in Minnesota.

Beneficiaries could also participate in nonfederally certified open market choices at their option. Unspent IMIT=s, and these last two points are a couple of key features, unspent IMIT=s are transferred tax-free to a spouse upon death of the Medicare beneficiary, or unspent IMIT=s are transferred to the family members at death of the surviving spouse. They would be fully taxable as part of the estate transfer unless they are declared for health or long-term care. Otherwise the surviving family or beneficiary can use the funds for any purpose after taxation. Thank you.

Senator BREAUX. Thank you very much. Next Mr. John Hagman, president of AARP for the State.

Mr. HAGMAN. Although I was a young marine in the South Pacific in World Ward II, I should have learned then not to volunteer for anything, but I confess I did volunteer to appear here this afternoon, and I thank you for the opportunity. I=m also a volunteer State president of AARP, and I=ve held this position just since the first of the year, and in that role I yet get to speak at some of these occasions. I also try to reflect the views and opinions of many of my friends and acquaintances and relatives who are senior citizens.

I should begin by saying that I do understand that the charge of the Commission is to search out new and innovative ways to impact the Medicare expenditures. I do understand that and I appreciate it. However, I also understand and appreciate that many parts of the current Medicare Program are working well for most of us. So while some changes must be made to preserve Medicare, I hope that your search will lead you to recognize and to retain the many aspects of Medicare that are working well.

For example, I=m thinking of the way in which our out-of-pocket medical costs are kept at a manageable level. I=m thinking of my wife and I. During the past several years we=ve undergone, between the two of us, five major surgeries and a small assortment of minor medical attention, concerns about skin cancer, allergy treatments, that sort of thing. Also during these years we=ve been members of the so-called sandwich generation. We have four adult children on the one side of the sandwich and a 96-year-old mother-in-law on the other side of the sandwich, and we have found it necessary to come to their aid on many occasions, and in many of those occasions that involved money.

So finally, like many retirees, our income is limited and relatively modest, consists of Social Security, pensions and a very modest savings. Now this scenario probably sounds familiar to many of you, I know it=s familiar to many of our friends, our neighbors and our relatives, but my point in sharing this information is simply to illustrate the importance of keeping out-of-pocket medical costs for seniors at a manageable level.

The present Medicare Program makes it possible for us to do this, and many seniors like us to do this. We can fulfill our own needs and help to meet the needs of other members of our family. This is good, this is desirable, and this is because our out-of-pocket expenses have been manageable. [Applause.]

Senator BREAUX. Thank you. Next we=ll hear from Lynn Gruber, president of Minnesota Comprehensive Health Association, who will be followed by Frances Klafter.

Ms. GRUBER. Thank you, Mr. Chairman. I am president of the Minnesota Comprehensive Health Association. That is Minnesota=s risk pool for uninsurable individuals looking for individual coverage. Most of our 26,000 policyholders are non-Medicare but we do have 4,000 policyholders who purchase our Medicare Supplement policy. My main message does relate to the AAPCC about risk contracts and the inequity that has kind of been there for years to communities like Minnesota where the providers and health plans have been forging ahead on hopefully good managed care, high quality/low cost health care for many, many years, but they are actually being penalized for it.

I think the bigger system, not just risk contract payment, but fee-for-service as well is probably outdated, and my suggestion is to create a reimbursement system that=s based on best outcomes, so that you start looking at the outcome of care with the patient=s input on function. I used to work for Dr. Paul Elwood about 15 or, about 10 years ago, and we were starting to look at outcomes at that time. I would recommend that you kind of bring that back. Look at Dr. John Winberg=s work at New England Medical Community, and the models are there, and I know some health plans are using it.

The other thing that you could consider doing would be to consider regional payment approaches rather than looking at this national average. So thank you very much for taking the time to stop in Minneapolis.

Senator BREAUX. Thank you, Lynn. Frances Klafter? Oh, we have a question from Illene. Illene, you have a question?

Ms. GORDON. Yes, I do, for Lynn, please?

Senator BREAUX. For Lynn? Lynn, one more--just for Lynn just before the next lady starts. Lynn, we have a question.

Ms. GRUBER. Yes, ma=am.

Ms. GORDON. Lynn, in my State we have a lot of Medicare beneficiaries, a lot of them are poor people, very poor beneficiaries. They miss Medicaid for lack of dollars, they have maybe a dollar too much money to get Medicaid. What do you--do you have any suggestions as to what we could do for these people that fall in between the cracks?

Ms. GRUBER. So, Commissioner, these people would not be eligible for Medicare? They=re in the cracks?

Ms. GORDON. They are, they do have Medicare but they do not have any provision for prescription drugs, et cetera, or no way to pay the 20-percent difference. Do you have any suggestions? Could you talk to me about that?

Ms. GRUBER. Well, Commissioner, we do not have an answer in Minnesota for that particular group. I think that probably is a gap group that needs some attention, and you=re probably talking about some type of subsidiary program to help them, particularly pay for their prescription drugs, which seems to be such a needed piece of the picture for them. We do have a program called Minnesota Care, which is really for low-income children and single adults, but I think you have pinpointed an area that needs tremendous research because there really is nothing there. I wish Minnesota did have the answer for you. Thank you.

Ms. GORDON. Thank you.

Senator BREAUX. Now patiently waiting has been Ms. Frances Klafter. I hate to admit this but she=s 90 years young.

Ms. KLAFTER. No, I don=t need to sit down. I was tempted when called just to show you the headline from the op ed piece from yesterday=s Star Tribune. It said, >>Medicare works so don=t fix it,== but I guess I can=t just end my statement there, I=ll have to embroider it a little bit. [Laughter.]

I=m a fairly new resident of Minnesota but a very old-time Medicare beneficiary, since I will be 90 years old on my next birthday. Some years ago I regularly testified before congressional committees in Washington, DC, for various senior groups on health care issues of Medicare and other health care issues. In that capacity I testified at what I think was the first hearing on the proposal for vouchers. A friend of mine said, oh, well, I can tell you what to say. Just tell them let them eat vouchers. Well I=m glad to say they let them eat something else, because Congress did not accept the proposal at that time to adopt vouchers.

That=s what I hope the Congress in its wisdom will do now with all the schemes and proposals that come under the general heading of defined contribution. I firmly believe that this Commission should strongly recommend against such proposals as vouchers, medical savings accounts, even mandatory participation in HMO=s and so forth.

I believe that if you review the history of Medicare you will believe, as I do, that traditional Medicare is the best answer. You will see the advantage of traditional Medicare, meaning fee for service, and some people voluntarily joining nonprofit medical co-ops or more recently HMO=s. I think you will find it the efficient way to make Medicare available, there and the least expensive.

I understand that something has to be done to balance Medicare=s accounts. If you have to, recommend cutting providers= fees but not too much to scare them off. A step has already been taken in that direction in the 1997 Balanced Budget Act. And you might have to up premiums, but not so much as to scare more of the elderly people out of the market. If such increases are at the same time linked with money-saving benefits packages, such as prescription drug coverage for instance, Medicare beneficiaries would save a great deal of money, which would make it reasonable for them to pay higher premiums.

The 1997 Balanced Budget Act took small steps by adding some benefits. The reason I believe so strongly in the traditional Medicare system is that it protects all beneficiaries equally, the well today and the sick tomorrow.

According to the Kaiser Family Foundation, in any 1 year 10 percent of Medicare noninstitutionalized beneficiaries use 75 percent of Medicare dollars. This means that the sickest are at any one time using the bulk of the dollars. What such proposals as vouchers and medical savings accounts do is to separate out the wellest and deprive the system of the dollars needed to serve the sickest.

Medicare is called a medical insurance system because it=s there when we need it. That is the way I think it should continue to be. Thank you. [Applause.]

Senator BREAUX. Thank you very much, and we would like to invite you back in 10 years to testify once again.

Ruth Odegard. Ruth Odegard, a microphone right by you.

Ms. ODEGARD. Yes, I am Ruth Odegard, I=m 59 years old and retired from the education system. I worked long enough so that my school district would pay for my health insurance for the next 3 years. After that I have to make a decision whether I will be able to afford to pay for health insurance or wait until Medicare comes along. In the year 2004 I will be eligible. I need Medicare to be there when I turn 65 because it may be all I have. I need to know that Medicare will cover certain basic benefits because I may not be able to pay out of my own pocket depending upon the cost of insurance premiums. I think everyone should be able to benefit from Medicare and everyone should pay.

For some people Medicare is the only insurance that they have. And I, too, believe that we can have a sliding scale where those that have less income pay less, and those that have more pay more, including unearned income such as bank accounts and stock options. When more people come on the system and the costs go up we should spread the costs out to the widest number of people so that no one has to pay more. This should be a guarantee for all of us, no matter what our age. We should also get rid of the fraud and abuse in the Medicare system before we go to radically change the system, and it=s up to all of us to help monitor this system.

The most important thing is that we ensure Medicare remains a defined benefit program when everyone over 65 is in it so that the costs that come from people who need the care are spread over the greatest number of people.

And I also am one of those who has had to take care of my mother, and her health care prescription drugs for a month are $500 a month and this is, she=s paying for only now an assisted living plus the cost of staying in this facility, so I would like to see prescription drugs added and also dental and eyewear included, too. I thank you.

Senator BREAUX. I would like to hear from Dr. [applause]----

Thank you very much. Now Dr. Elizabeth Payne, P-A-Y-N-E. Dr. Payne.

Dr. PAYNE. My name is Dr. Elizabeth Payne, I=m an otolaryngologist who has practiced in the Twin Cities area for 23 years. I=ve been practicing the entire time. I also lost a mother 3 years ago at the age of 88 who was a schoolteacher and she lived very modestly. And when I=m talking today about the advantages of looking at a combination of medical savings accounts and Medicare, I=m looking back to her because I remember a variety of things that weren=t covered by Medicare that just an alternative choice, not a change in the dollar amount given to her for the item, but an alternative choice would have been much better in her situation. And this is true for a lot of people.

America was created by individuals who believed that people had the right to determine certain parts of their own destiny, and to force everybody into a square peg or a round hole doesn=t always work. There are ways to put this together that it can work very nicely for everybody, still be protective to the chronically ill, I think that=s a very important part, I don=t think anybody=s denying that.

But I think looking at things creatively, think outside of where we are right now, would be very useful in the future. Thank you.

Senator BREAUX. Thank you very much. [Applause.]

Now we have Jeanne Moe, M-O-E. Ms. Jeanne Moe.

Ms. MOE. My name is Jeanne Moe and I=m here today as a registered dietitian. I practiced in the field for 20 years in various settings; hospital, clinic and home care settings. I=m currently employed in home care where nurses go out to the patient=s residence who may be in need of assorted therapies, it might be IV antibiotic therapy, diabetes management, perhaps [inaudible] feedings or wound care.

Medicare does reimburse for nursing visits but Medicare does not reimburse the dietitian, and the dietitian is the specialist in medical nutrition therapy. My first case in home care was an elderly bedridden gentleman. He was nonverbal, nonambulatory. I had just come on board as the first dietitian with the agency. The fellow had been seen by nursing for 3 years for numerous bed sores, as deep as a cotton swab, it was unbelievable. Dressing changes were performed with the assistant of weekly nursing visits along with periodic cultures and a dermatologist involvement to heal the wounds.

On a cold visit out to the home with a well-meaning wife, I asked her how she fed her husband. Well he required thickened pureed foods and what was being fed to him was very high in carbohydrates. Well I followed with two home visits and phone calls to the family to instruct on a high protein, high calorie diet regimen along with the supplemental, correct dosages of vitamin C and sufficient juices to fulfill the fluid requirement. It was amazing to see that the wounds began to heal. After a number of months the wounds had healed. Nursing visits were then curtailed and there was a sharp reduction in the quantity of medical supplies required.

And I want to say that the nurses are excellent nurses but the therapy ordered can overlook nutrition. Registered dietitians are the only professionals solely trained in nutrition. We are able to manage all diet-related disease states, including diabetes, cardiovascular, cancer, renal dysfunction and a host of numerous others. A dietitian can make a difference in the quality of life and save Medicare moneys.

Senator BREAUX. Thank you very much. Mr. Jeff Bangsberg? Mr. Bangsberg.

Mr. BANGSBERG. Thank you. I appreciate the opportunity to submit my ideas to the Commission. As a lifetime citizen of Minnesota I have a physical disability due to a spinal cord injury 24 years ago. I also work part time at Aucklund Agency serving over 1,000 elderly and disabled individuals. As director of consumer affairs my duties include advocating for home care and other services for people with disabilities. I have a few suggestions I would like to give you.

No. 1, reduce dependency on Medicare by people who want to work. Today many people with severe disabilities want to work but cannot do so because they would lose much needed long-term care support services, specialized equipment and prescription drug benefits. The only way people with disabilities can access these services is through Medicaid. Many people in this situation are dually eligible for Medicare but neither Medicare nor employer-based health care pay for long-term care supports. If a work incentive policy were adopted, that individual would be able to buy into Medicaid as a wraparound to employer-based insurance and many people with disabilities would seek employment opportunities, thus reducing dependency not only on Medicare but also on Social Security and other government programs. The Work Incentives Improvement Act, Senate resolution 1858 now before Congress, is an important step in the right direction.

Two, keep Medicare as a secondary payer for retirees and/or dependents if they become disabled. [Inaudible] Medicare becomes the primary payer for these retirees and their disabled dependents. This law change has cost Medicare money that used to be picked up by health plans.

Finally do not penalize home care. The recent changes in the Balanced Budget Act of 1997 has put a tremendous burden on the well-respected home health care agencies. The new internal requirements and surety bond requirements are putting one of the most cost-effective systems in delivering health cares out of business. The home care industry cannot afford these burdensome requirements without jeopardizing care for clients and ultimately going out of business. Thank you for your time. [Applause.]

Senator BREAUX. We=ve made some changes on the surety bonds which will help some of the home health cares. We=re looking at legislation to do more stuff. Mr. Christopher Schneeman?

Mr. SCHNEEMAN. Thank you very much for having me. I=m a licensed independent health care broker working with small employers and individuals, and have also worked extensively in health care reforms here in the State of Minnesota for the past 9 years. Couple of comments and also a reminder to the group here, and that is that health care in America is still considered the world=s best and we shouldn=t forget that, and I want to suggest a couple reasons why that is.

First of all, innovation in health care has been rewarded. We are a capitalistic country and people who have new ideas have gotten a chance to be rewarded for them.

Second, quality has been defined by the marketplace. It hasn=t been defined in the past by bureaucracies.

And, third, the system has been predominantly funded and managed privately. Now that obviously has been changing as Medicare and Medicaid takes a larger share of the funding but we have a crisis at hand now and the reason is that many of us perceive that the cost of this high quality care has become too high, but we=ve got to realize that technology is expensive and that the demand for this care is at record levels.

The other thing is we=re calling into question quality as evidenced by the many managed-care media reports of late. But improving the system must build on our strengths, not the weaknesses. The role of government must continue to act as the market referee rather than the market itself.

Two things that I would like to point out. First, price controls on Medicare services have been for many years and the second is new from last year=s budget act, and that=s section 4507, which essentially restricts a person=s right to pay for their own care if it=s not going to be covered by Medicare, and that frankly is a sin against open access. If somebody wanted a hip transplant that they can=t get in America because there=s other alternatives, it turns out we=re sending them back to Canada or other countries. That=s just not right.

Mr. VLADECK. Just for the record, am I clear--we won=t take against your time--but Medicare does not cover the procedure but does not, no barrier against private payment for that none whatsoever. If Medicare doesn=t cover it, an individual physician is free to contract for that service at any price. That=s the fact of the law and nothing in section 4507----

Mr. SCHNEEMAN. With no penalty to the physician?

Mr. VLADECK. That is absolutely correct. If Medicare does not cover, there is no penalty to private contract, and anyone that says to the contrary at this stage in the debate is deliberately falsifying the facts of the issue.

Mr. SCHNEEMAN. My point is on Medicare coverage service--well I won=t belabor that point.

Mr. THOMAS. If it=s a Medicare-covered service, the physician is the one who has to make a decision as to whether they want to receive Medicare reimbursement with other beneficiaries. If they choose to find their finances from the private market, then it would be a mutual agreement between the individual and the physician, but they can=t deal with Medicare beneficiaries with Medicare payment on a Medicare-covered program and also charge individuals whatever they want. It=s an either/or situation.

Mr. VLADECK. It=s not a Medicare-covered provision, as has always been the case, it is a private market transaction between a private individual and a physician for whatever price is appropriate between the two.

Mr. SCHNEEMAN. And should he contract that, he=s out of the reimbursement for 2 years I believe. Nevertheless I see that as a violation against our real marketplace prohibiting a physician to make that contract without repercussion.

Key features of Medicare reform. Last year you opened up the managed care. It is definitely a good thing for the marketplace, it creates additional choices for our consumers and new competition. It is essential. But competitive markets do need to have informed buyers. As consumers come face to face with all these differences in plans, future programs should embrace the continued use of agents in the marketplace.

And the third point is that the discussion about Medicare at age 55 is clearly a mistake, and my point is we need not burden government when these folks are already insured in the private marketplace. Thank you very much.

Senator BREAUX. Mr. Philip McDonald will be next. Mr. McDonald?

Mr. MCDONALD. I=m Phil McDonald, area vice president for the Minnesota Senior Federation, and first of all I want to thank the Congress and the Commission for allowing an 80-year-old former marine to submit a 2-minute talk on this very important issue. I became concerned about Medicare before I was on the system back in 1974 when a good friend of mine spent most of his life=s savings caring for his wife in a nursing home during the last year of her life. To see what he went through angered me a great deal. As an example, Medicare restraints. First 20 days, 100-percent coverage, up to 100 days, 20-percent coverage, so 80 percent had to be paid by the private individual. After 100 days, nothing. And 2 percent Medicare beds because of the difficulties the nursing homes have of trying to keep up with all the paperwork. They do not want Medicare patients. There are even moratoriums being used by the nursing home industry.

We need to look at how we pay for health care in a holistic manner. While this Commission is focused on the financial aspect of the baby boomers= impact on Medicare, there are tremendous needs out there that must be addressed. These are needs that the market will simply ignore because delivering adequate long-term chronic care to people without a lot of money is not a profitable business.

You need to understand that people rely on the Medicare system because it=s efficient. They don=t want to have it cover less. What we need is for it to cover more so we don=t have to go broke paying for enormous costs out-of-pocket. Medicare needs are a chronic, catastrophic, health care benefit. By having one we can save money in the Medicaid system and save the amount that people pay out-of-pocket.

The question this Commission should ask is not how do we change Medicare to reduce costs, but it should be how do we meet people=s needs in the most efficient way. Thank you.

Senator BREAUX. Thank you. [Applause.]

Next will be Ms. Lynn Zimmerman, Z-I-M-M-E-R-M-A-N. Ms. Zimmerman?

Ms. ZIMMERMAN. I=m speaking on behalf of the Minnesota Adult Day Services Association, which is an often-overlooked system of service delivery. Many people like me share problems common to the growing cohort of the over-50 population. I=m a wife, mother, daughter, full-time employee. I have been sandwiched between growing children and aging parents, simultaneously spurring growth on one hand and providing care and solace on the other.

I survived because as a provider of center and home-based senior services I knew how to access appropriate community-based care for my parents. Many like me who are unfamiliar with the senior service conundrum may not survive. Utilization is the most cost-effective care plan, and directives to ensure access to quality care while limiting the potential for fraud and abuse must become a mandate.

Coordination of care among multiple providers of services of community-based clients is a national dilemma. One solution for this dilemma of case management is data collection, and services are already in place in day centers across the Nation. Day centers are uniquely positioned to become resources for restorative therapies and nursing services traditionally funded by Medicare but currently limited to patients on home-bound status.

In addition to the obvious cost reductions, isolation is avoided. Supervision during care, which is a frequently available and provided and added cost to the home, is always available and the goals of quality, cost-effectiveness and reduced opportunity for fraud and abuse are effectively accomplished. National standards have been established by NCOA and accreditation is coming. Medicare participation and qualifying programs would ensure the continuing viability of community-based long-term care. Adult day services are a proven cost-effective solution which should be incorporated into the Medicare system. Thank you.

Senator BREAUX. Thank you. [Applause.]

Alda Mae Brewster? She=s coming. Ms. Brewster.

Ms. BREWSTER. My name is Alda Mae Brewster from Tracy, and that=s a small town in rural Minnesota, a farming community. I=ve been a volunteer for many years, I=ve worked with programs under the Older American Act and many other programs. Presently I=m involved on a volunteer basis with the Medicare Anti-Fraud Demonstration Program with the State Rural Health Advisory Committee, and I=m a national voter educator under AARP Vote, and I=m speaking to you strictly as a consumer and being involved with the seniors in my area.

My husband and I had a small business, we were the so-called independent contractors, you bought your own benefits. My husband had a serious heart condition and this put a rider on any health insurance and any related condition. I don=t know what would have happened to us if Medicare had not been there for us upon our retirement. Among other things he had a heart operation and that, together with additional costs for both of us, could have wiped out any savings that we had.

We have people in our area literally living on Social Security checks. Can you imagine what would happen if Medicare did not remain in place guaranteeing health protection regardless of circumstances? There are enough tears shed when they go to pay for much needed prescription medications.

We really need to be assured that our health insurance protection will be there for us and the generations coming up and that the benefits won=t be slowly disappearing over time. The system does work.

I would just like to say a word that we have hundreds of people here in this audience that volunteer. Keep up the good work, it just gives you a good feeling that helps you forget about your aches and pains, keeps your brains working, keeps you active, and believe me there=s a lot of programs out there that couldn=t function without all the volunteers. Thank you for your consideration.

Senator BREAUX. Good suggestion. [Applause.]

Very well said. Mary Ellen Dow? Mrs. Dow?

Ms. DOW. Hi. As you know, my name is Mary Ellen Dow, I live in West St. Paul, that=s a first-ring suburb of St. Paul, and I have two children and four grandchildren and I work for a number of senior organizations and agencies in a volunteer capacity. This brings me face to face with a variety of people and their Medicare concerns, and I certainly appreciate the opportunity to share them with you here today.

The main concern is, and I=m repeating some of the former speakers, that Medicare stay as it is. Medicare must contain the, must maintain the basic principles that=s kept it successful since it was created in 1965. It must be a program that everyone can depend on regardless of their income or health status. We need to be sure that we have health insurance protection regardless of circumstance and have health benefits that won=t diminish over time.

Another concern is that further reduction in payments to doctors and hospitals will probably cause increased premiums for supplemental health insurance adding to our already high costs. We are living longer than previous generations. A case in point is my widowed mother who died at age 89 after having lived a very vigorous life up until age 80. At age 80 she had many medical problems, including strokes and lung cancer. If it hadn=t been for Medicare it would have quickly wiped out her financial resources and she would not have been able to get insurance for the next 9 years even if she had the resources to pay for it because of previous problems.

I=m the oldest of six children, all of whom have children and grandchildren, and we really wouldn=t have been able to pick up the costs of all of her medical expenses. But we do want to make sure that Medicare as it is now is maintained for our children and grandchildren and great grandchildren. Thank you. [Applause.]

Senator BREAUX. Thank you very much. Dr. Robert Guest or Geist? Dr. Geist?

Dr. GEIST. Thank you, Mr. Chairman. I=m Dr. Robert Geist by the way, and I=m a retired urologist from St. Paul and I represent no organization. I=ve already written you what I have to say. Let me highlight. Patients need two things from Medicare. First thing is they need protection from the large corporations under which they are getting dumped right now, and the second thing they need is a power in the marketplace in their pocket. They need the money in their pocket. Let me warn you about two things you can avoid I think.

The first thing is to micromanage clinical medicine. As a urologist I really think most males over 50 ought to have a PSA, but please don=t legislate that. But you do need to have a quick fix and please support the Bill of Rights in Congress right now. Maybe some bad things, but mostly good. The quick fix that you should avoid is to indeed dump people all into the HMO system. We have so many problems that you=ve heard. If you go to the movie theater you hear people cheer when they are vilified. It=s a terrible thing and you should avoid dumping them there.

And I=m afraid what will happen is you will put, or want to try and put all Medicare patients into the HMO system, and what you would do, instead of having a nice system of profit, for profit and nonprofit and so forth, you will say that nonprofits will be a great protection for the patients.

Well fundamentally there=s no difference between a nonprofit and profit HMO, the only difference is the nonprofit--gee, I better get to what I recommend. The nonprofit just can=t sell stock, they just distribute the profits internally.

What should we do? There=s two minor things you can do for the patient. First thing, not let doctors get any kickbacks for how much care they order. They shouldn=t be paid for not ordering care. It=s all masked in necessity but that=s bad business. And second, I better refer to my notes, I can=t remember.

Being able to go to any provider was an excellent thing that really gave people choices. It was bitterly fought. Why? Because if anybody is referred by their gatekeeper, they can go anywhere they want. If the person they are going to or the institution they go to has agreed to all the stipulations of the HMO, including the fees, it would cost them no more. What it would cost them is competition. The patient would walk if anyone viewed those gatekeeper networks as no good. But you would open up the quality competition if you had any provider.

Finally, the big fix that you can do, I do believe, is the MSA=s. There=s a lot of great things about the Canada system but I=m afraid you=re going to dump them in the HMO. Representative Dingell, I don=t know what the current Medicare regulations are for over 65. Under 65, maybe you=re referring to that, I=m not sure. Were you referring to the new regulations for the over-65 Medicare MSA?

Mr. DINGELL. I was referring to what Medicare, you mean in the earlier colloquy I had?

Mr. GEIST. Yes.

Mr. DINGELL. I was simply referring to the very requirements that the doctor, by Medicare, on behalf of the people eligible.

Mr. GEIST. I think you=re bringing up an important point, and that was if you=re going to structure a deductible with MSA=s, $10 may be a catastrophe for one person and $10,000 for another. If you go with the MSA route, please keep that in mind. That deduction has to be carefully tailored to the individual. Thank you very much.

Senator BREAUX. Thank you. Mr. Jeff Sprinkel?

Mr. THOMAS. Just to clarify a point on the MSA. The whole point is to require the catastrophic insurance policy and the rest of the money will go into a bank account to be spent for medical concerns and you wouldn=t operate under a deductible in that structure. You would pay out of the medical savings account what the costs of those services would be.

Senator BREAUX. Mr. Sprinkel?

Mr. SPRINKEL. My name is Jeff Sprinkel, I=m the administrator of a facility that is licensed in this State to provide long-term care but we do not provide it. Instead every one of our beds is used for subacute or transitional care, which I believe is a big cost savings over Medicare and HMO=s and other patients. My question is a very specific one, may not be directed exactly to improving the whole of the Medicare system, but certainly has a broader application. I applaud the implementation of the PPS system as an attempt to bring a level playing field and efficiency to Medicare. My question is why does the PPS system not provide incentives to providers for shorter lengths of stays and subacute and transitional care facilities? I=m a firm believer that where there is an opportunity everyone will benefit, both the Medicare recipient and provider, and I think a lot of what=s been talked about today is efficiency, and I believe that opportunities lead to efficiencies.

My fear is, with the PPS system, is that the deck has just been reshuffled and after a period of time everyone is going to learn how to play the game and there will be no cost savings, and that=s my fear as a taxpayer, that there wouldn=t be any cost savings to the Medicare system. So I would just like to see some sort of incentive or beneficiary offered so greater opportunities will be made available.

Senator BREAUX. Mr. Nat Wisser?

Mr. WISSER. I dropped my Viagra joke in order to save time.

Senator BREAUX. You would have at least one Viagra joke. Is it any good? [Laughter.]

Mr. WISSER. I happened to serve 30 years in the service, Army Medical Service, as an officer in the Army Medical Service. I served as a professor in the Baylor University Graduate School of Public Health, and I spent 20 years after the 30 in the provider area, retiring as vice president of Methodist Hospital, one of the best hospitals in the area. Isn=t that so people? [Laughter.]

What I would like to say, and my thoughts have changed since I=ve come here and listened to all the talk that=s gone on, that Medicare is the best thing that senior citizens have, Medicare as is and as we hope goes into the future. My concern at the moment, and I hoped to mention this but some other people do, is for the other 41 million American people that we always talk about that don=t have any insurance at all and what are we going to do about them? That number is increasing every year. If they had something like Medicare we would all be a lot happier for it.

One of the things I didn=t write about and what I thought I was going to speak about is how Medicare could save money, and so I had a couple of examples here of how they should not be doing things. As a provider I didn=t see Medicare bills. I mean that was handled by somebody else. But now I=m a user of the service and because I play a lot of tennis and a lot of golf I developed a shoulder problem and so I went to see a doctor. Next thing I know I started getting bills for Medicare, and the first bill I got, there were 10 modalities charged to the visit. Six specific therapeutic activities charged, and he indicated I should have five physical therapy sessions, so all five sessions, all lasted 45 minutes, each one had six modalities. Now whether I got them all or not I don=t know, but they were there, and I=m sure that was honest. Now they can bill things, save money and do things better than that. I wound up with nine pages of documents on that thing.

Recently I had a cataract operation and I found the same thing in that surgery. There were 12 charges for one cataract operation, one eye. Now isn=t it possible that when you do a cataract surgery, all the things that have to be done are included therein and it could be one charge for the whole thing? When you have 12 separate charges, what does that lead to? Obviously corruption.

Now last, my last statement that I would like to make is all the Minnesota citizens sitting in this room are being discriminated against. They should arise, they should do something. I=m 65 years old, and as some of you folks may know, when you=re military, you get dumped on Medicare. We weren=t promised that. People in the military were promised lifetime medical care but we were dumped into the Medicare field, and in order to get coverage I joined an HMO. I pay $2,400 a year for coverage for myself and my wife, who also is a veteran in Minnesota.

Now all you people can go down to Florida and get the same coverage and even better, and I heard from a gentleman in here from California for you know how much? Zero cost. That means total Medicare coverage without paying 1 cent. Thank you. [Applause.]

Senator BREAUX. Ms. Anne Barry, B-A-R-R-Y?

Dr. Greg Ganske?

Mr. GANSKE. My mother and father-in-law are Minnesotan and Norwegian so I will be happy to talk to you afterward about your joke, but I would just say something about medical savings accounts because, you know, you=re spending a moderate amount on your supplemental, and so when people look at the amount that they would get from the government, they frequently are forgetting about the amount that they also are paying for their supplemental.

And so, for instance, if you were able to put the amount you got from the government plus the amount that you are normally paying for your supplemental into that account, coupled with a high deductible, then you start to get some moderate amount in that account that you can then use to pay the deductible. And so there=s some balancing act that goes in.

But what most people would need then, it would be very useful, when we=re looking at the Social Security, or actually when we=re looking at the tax implication, there=s now on the Internet ways that people in different income categories could, say, plug in where they=re at for, say, a national sales tax or a flat tax or something like that, and then they can individually see where they would come out.

It would be very useful if they had some type of computer program if people with different circumstances could plug into that and then see how much they are spending for their supplemental, how much they were getting, and whether in fact they would be better off or not better off with some types of proposals. But we have to have some specific proposals before it will be able to do that. Maybe by the time we finish this Commission=s work, Mr. Chairman, we would be able to have something like that, that would give people a way, through the Internet or whatever else, for whatever proposals we look at that they could individually look and see whether that would be a good thing or a bad thing for them.

Mr. WISSER. May I just respond to that? I have studied the MSA account thing. I think it=s a farce. When we=ve talked about 75 percent of the people who are on Medicare under $2,500 a year, these people don=t have any money to put into any accounts like that. IRA accounts. We=ve seen the same thing in the IRA. Who participates? The same thing goes with the MSA, it=s a farce.

Senator BREAUX. You two can continue this later. [Applause.]

Anne Barry?

Ms. BARRY. Mr. Chairman and members of the Commission. My name is Anne Barry, I=m a Commissioner with the Minnesota Department of Health, I=m here on behalf of Governor Arne Carlson, and I would like to summarize seven points for some solutions for your consideration all on behalf of the administration. You have a written testimony as well.

First, we encourage you to use Minnesota managed competition model in your future Medicare decisions. Under our model seniors and all Minnesotans are supported with options and with choice.

Point No. 2. Providing incentives for preventive care is extremely important and those who are responsible for the most recent changes in the Medicare Program around diabetes care management are to be applauded. When we provide preventive care services we are really offered the opportunity to manage care, not just manage costs.

The third point, and I think you probably heard plenty about this point, which is establishing fair reimbursement rates for providers, not only in Minnesota but other efficient markets as well. I would only add if Minnesota is really a homogenous population or other issues, that we need to understand that.

Fourth, we would like you to ensure adequate information and consumer protections, especially as options expand. If you are interested, Minnesota has gone a long way in implementing consumer protections, and in fact Minnesota has in its statutes many of the things contained in the Federal Protection Act.

No. 5, and a very important point, please don=t shift Medicare costs through the States to the Medicaid Programs. These programs are very, very interconnected and we need to think about these programs holistically and comprehensively. The other side of this point, of course, is that States could save Medicare dollars, but it=s difficult for us to do so because we can=t show savings in our Medicaid Programs, only in the Medicare Programs.

Point No. 6, encourage and support State experimentation. A couple of Commission members actually got to take a look at the Medicare Senior Health Options Program, and it=s important for you to take a look at different models of integration and coordination so that you can provide continuity of care for the people served and to achieve overall cost savings in the end.

And finally, something that hasn=t been raised today but it=s very important, is to take a look at the issue of medical education and research costs, which have been tied to the Medicare Program, and I assume will continue to be so in the future. Minnesota has created a trust fund for medical education and research as our responsibility toward this good public policy, and we hope that the Federal Government will consider the same. Thank you.

Senator BREAUX. Thank you. And the powers that be, meaning some of our police, have told us that we need to, if we=re going to make the plane, that we=re going to have to wind this up. I want to recognize Bill Thomas, and I=ll have a concluding comment.

Mr. THOMAS. We would be remiss, first of all we want to thank all of you for the reception that we have received here, and especially the Minneapolis Convention Center for making these facilities available to us, Katie White of the National Health Policy Institute--I was thanking the Minneapolis Convention Center, the National Health Policy Institute and the congressional delegation for Minnesota, especially Jim Ramstad and Bill Gutknecht=s staff for their assistance.

I know that it was difficult for you to get here. Can you imagine how difficult it is for us to get here and to move on? We appreciate very much an attentive, responsive, knowledgeable audience, and on behalf of the Commission on my part I want to thank you all very much.

Senator BREAUX. Let me conclude by saying that we picked Minnesota as our first visit outside of Washington, DC, and I think with great justification. I think everyone on the Commission has come to Minnesota today and has learned a great deal about what you feel and how intensely you feel about these problems and concerns. I assure everyone who has not had a chance to speak will be, your cards will come back with us, and anybody else who wants to comment, contact the Commission, will be free to do so. We will value your suggestions and thank you for being just a terrific audience today.

This will conclude this first field hearing of our Commission.

[Proceedings concluded at 4:28 p.m.]

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