[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]




 
  EXAMINING PAY-FOR-PERFORMANCE MEASURES AND OTHER TRENDS IN EMPLOYER-
                          SPONSORED HEALTHCARE

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

                                HEARING

                               before the

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              May 17, 2005

                               __________

                           Serial No. 109-17

                               __________

  Printed for the use of the Committee on Education and the Workforce



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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Howard P. ``Buck'' McKeon,           Major R. Owens, New York
    California                       Donald M. Payne, New Jersey
Michael N. Castle, Delaware          Robert E. Andrews, New Jersey
Sam Johnson, Texas                   Robert C. Scott, Virginia
Mark E. Souder, Indiana              Lynn C. Woolsey, California
Charlie Norwood, Georgia             Ruben Hinojosa, Texas
Vernon J. Ehlers, Michigan           Carolyn McCarthy, New York
Judy Biggert, Illinois               John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    Ron Kind, Wisconsin
Patrick J. Tiberi, Ohio              Dennis J. Kucinich, Ohio
Ric Keller, Florida                  David Wu, Oregon
Tom Osborne, Nebraska                Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Susan A. Davis, California
Jon C. Porter, Nevada                Betty McCollum, Minnesota
John Kline, Minnesota                Danny K. Davis, Illinois
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Bob Inglis, South Carolina           Chris Van Hollen, Maryland
Cathy McMorris, Washington           Tim Ryan, Ohio
Kenny Marchant, Texas                Timothy H. Bishop, New York
Tom Price, Georgia                   John Barrow, Georgia
Luis G. Fortuno, Puerto Rico
Bobby Jindal, Louisiana
Charles W. Boustany, Jr., Louisiana
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New 
    York

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director
                                 ------                                

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                      SAM JOHNSON, Texas, Chairman

John Kline, Minnesota, Vice          Robert E. Andrews, New Jersey
    Chairman                         Dale E. Kildee, Michigan
John A. Boehner, Ohio                Donald M. Payne, New Jersey
Howard P. ``Buck'' McKeon,           Carolyn McCarthy, New York
    California                       John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    David Wu, Oregon
Patrick J. Tiberi, Ohio              Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Betty McCollum, Minnesota
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Kenny Marchant, Texas                George Miller, California, ex 
Bobby Jindal, Louisiana                  officio
Charles W. Boustany, Jr., Loiusiana
Virginia Foxx, North Carolina


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 17, 2005.....................................     1

Statement of Members:
    Andrews, Hon. Robert E., Ranking Member, Committee on 
      Education and the Workforce................................     3
    Johnson, Hon. Sam, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the 
      Workforce..................................................     2
        Prepared statement of....................................     3

Statement of Witnesses:
    Galvin, Dr. Robert, Director of Corporate Health Care and 
      Medical Programs, General Electric, Fairfield, CT, on 
      behalf of the Human Resources Policy Association...........    21
        Prepared statement of....................................    23
    Hanson, Jeffrey R., Regional Health Care Manager, Verizon 
      Communications, President, Bridges to Excellence, Portland, 
      ME.........................................................    34
        Prepared statement of....................................    36
    Ignagni, Karen, Chief Executive Officer, America's Health 
      Insurance Plans, Washington, DC............................     5
        Prepared statement of....................................     7
    Rosenthal, Dr. Meredith B., Assistant Professor of Health 
      Economics and Policy, Harvard School of Public Health, 
      Boston, MA.................................................    27
        Prepared statement of....................................    29



  EXAMINING PAY-FOR-PERFORMANCE MEASURES AND OTHER TRENDS IN EMPLOYER-
                         SPONSORED HEALTH CARE

                              ----------                              


                         Tuesday, May 17, 2005

                     U.S. House of Representatives

               Subcommittee on Employer-Employee Relations

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 2:02 p.m., in 
room 2175, Rayburn House Office Building, Hon. Sam Johnson 
[chairman of the subcommittee] Presiding.
    Present: Representatives Johnson, Kline, Boustany, Andrews, 
Kildee, Payne, Tierney, Holt and McCollum.
    Also Present: Representative Norwood.
    Staff Present: Kevin Frank, Professional Staff Member; Ed 
Gilroy, Director of Workforce Policy; Aron Griffin, 
Professional Staff Member; Richard Hoar, Staff Assistant; Jim 
Paretti, Workforce Policy Counsel; Molly McLaughlin Salmi, 
Deputy Director of Workforce Policy; Deborah L. Emerson 
Samantar, Committee Clerk/Intern Coordinator; Kevin Smith, 
Senior Communications Advisor; Jody Calemine, Minority Counsel, 
Employer-Employee Relations; Margo Hennigan, Minority 
Legislative Assistant/Labor; and Michele Varnhagen, Minority 
Labor Counsel/Coordinator.
    Chairman Johnson. A quorum being present, the Subcommittee 
on Employer-Employee Relations of the Committee on Education 
and the Workforce will come to order. We are holding this 
hearing today to hear testimony of Examining Pay-For-
Performance Measures and Other Trends in Employer-Sponsored 
Health Care under committee Rule 12(b).
    Opening statements are limited to the chairman and ranking 
minority member of the subcommittee. Therefore, if other 
members have statements, they will be included in the hearing 
record. With that, I ask unanimous consent for the hearing 
record to remain open for 14 days to allow member statements 
and other extraneous material referenced during the hearing to 
be submitted in the official hearing record.
    Hearing no objection, so ordered.

   STATEMENT OF HON. SAM JOHNSON, CHAIRMAN, SUBCOMMITTEE ON 
  EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 
                           WORKFORCE

    Chairman Johnson. Good afternoon to you all, and thank you 
for being here.
    Employers serve as the backbone of health insurance in the 
United States, voluntarily providing health coverage to nearly 
two-thirds of Americans with health insurance under the age of 
65. Without their commitment to keep their employees healthy, 
the population of the uninsured would surely change 
dramatically.
    This afternoon's hearing will focus on ways that employers 
are moving and, in some cases, dragging the health care 
industry into the 21st century. The fact is, even with all of 
today's technology, all too often people are getting the wrong 
care at the wrong time. Most of us have heard what the 
Institute of Medicine inferred, based on available data in 
1999, that as many as 98,000 people die in hospitals each year 
because of preventable medical errors.
    I can't think of a single industry where it is standard 
business practice to pay the same rate to people who provide 
good services as to people who provide bad ones.
    Mr. Andrews. Major League Baseball.
    Chairman Johnson. He said Major League Baseball. Well, 
maybe we can all get on steroids, and we all won't have to 
worry about it.
    That is the way the government and purchasers of other 
health care do business, which does not provide much of an 
incentive to improve care. Shouldn't we reward doctors and 
hospitals for delivering high-quality results for patients, 
rather than paying them the same amount regardless of how well 
they deliver services to patients?
    Some innovative employers and insurers decided to do just 
that, to become better purchasers of their health care and to 
seek out the providers that had figured out how to increase 
quality while keeping costs at a minimum. Our witnesses today 
will tell us about a few of the programs that came out of that 
decision to become smarter shoppers. It is worth mentioning 
that this move toward better purchasing comes at a crucial time 
in the development of consumer-driven health insurance 
products.
    Since we put the spotlight on quality, we found out that 
hospitals that spend more money aren't necessarily those that 
are the highest quality. In fact, more money is a pretty good 
indication of a lack of efficiency. Our consumers need to know 
information like that in order to get the most out of their 
ability to choose.
    The best thing about pay for performance, though, is not 
that it saves money, it saves lives.
    Medicare is one example of the success of improved 
quality--improvement. Mark McClellan, the man responsible for 
making sure Medicare and Medicaid are working properly--and 
that is not an enviable job--recently announced that all of the 
270 hospitals participating in their pay-for-performance 
demonstration program reported improved quality of care. That 
is just in the first year.
    Today we want to hear from a few of the pioneers of pay for 
performance and find out what your experience has been, 
including any predicted or unforeseen challenges that you face.
    I now yield to the distinguished ranking minority member of 
the subcommittee, Mr. Andrews, for whatever opening statement 
you wish to make.
    [The prepared statement of Chairman Johnson follows:]

   Statement of Hon. Sam Johnson, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the Workforce

    Good afternoon. Thanks for being here today.
    Employers serve as the backbone of health insurance in the united 
states, voluntarily providing health coverage to nearly two-thirds of 
Americans with health insurance under the age of 65.
    Without their commitment to keep their employees healthy, the 
population of uninsured would surely change dramatically.
    This afternoon's hearing will focus on ways that employers are 
moving--and in some cases dragging--the health care industry into the 
21st century.
    The fact is, even with all of today's technology, all too often 
people are getting the wrong care at the wrong time. Most of us have 
heard what the institute of medicine inferred based on available data 
in 1999:
    As many as 98,000 people die in hospitals each year because of 
preventable medical errors.
    I can't think of a single industry where it's a standard business 
practice to pay the same rate to people who provide good services and 
people who provide bad ones.
    But that is the way the government and other purchasers of health 
care do business--which does not provide much of an incentive to 
improve your care.
    Shouldn't we reward doctors and hospitals for delivering high 
quality results for patients, rather than paying them the same amount 
regardless of how well they deliver services to patients?
    Some innovative employers and insurers decided to do just that--to 
become better purchasers of their health care, and to seek out the 
providers that had figured out how to increase quality, while keeping 
costs at a minimum.
    Our witnesses today will tell us about a few of the programs that 
came out of that decision to become smarter shoppers.
    It is worth mentioning that this move towards better purchasing 
comes at a crucial time in the development of consumer-driven health 
insurance products.
    Since we've put the spotlight on quality, we've found out that 
hospitals that spend more money aren't necessarily the ones with the 
highest quality.
    In fact, more money is a pretty good indication of a lack of 
efficiency. Our consumers need to know information like that in order 
to get the most out of their ability to choose.
    The best thing about pay-for-performance, though, is not that it 
saves money. It saves lives.
    Medicare is one example of success of improved quality improvement.
    Mark McClellan--the man responsible for making sure medicare and 
medicaid are working properly (not an enviable job!)--recently 
announced that all of the 270 hospitals participating in their premier 
pay-for-performance demonstration program reported improved quality of 
care.
    And that's just in the first year.
    Today we want to hear from a few of the pioneers of pay-for-
performance and find out what their experience has been--including any 
predicted or unforeseen challenges that you've faced.
                                 ______
                                 

STATEMENT OF ROBERT E. ANDREWS, RANKING MEMBER, SUBCOMMITTEE ON 
  EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 
                           WORKFORCE

    Mr. Andrews. Thank you, Mr. Chairman.
    I wish to thank the witnesses for their preparation today 
and for what will no doubt be an informative and lively 
discussion and like to thank you for calling us together.
    We are in the midst of a productivity revolution in our 
economy. A handful of people are now able to do the work that 
dozens or even hundreds used to do. The advent of technology 
has made down time or dead time almost nonexistent in many 
occupations. We are able to measure quality and progress in 
ways that we could not before. I think that across the board we 
benefited from that in manufacturing, in telecommunications, 
medicine and education. So I think this hearing is timely as a 
way of understanding how this productivity revolution can be 
brought in the most effective and humane way to the healing 
arts and to the medical arts.
    One of the other things that we have learned in this 
productivity revolution is that a technology or a process can 
either be a tool or a weapon. If it is used properly, it 
empowers a better result. It benefits the entire community 
because we invest relatively fewer resources for a relatively 
better result.
    But if the tool is misused and used as a way to exploit a 
situation or to unfairly characterize a situation, it can have 
negative results for all those involved.
    I think with this concept, for which I have great sympathy, 
with respect to the issue of pay for performance and health 
care, I think the key issue is designing measurements that are 
fair and comprehensive. I think that is a uniquely apolitical 
exercise. I think it has political consequences, but the 
exercises itself should be apolitical.
    We ought to be able to draw together the best thinkers--
which I believe we have this afternoon--to help us think 
through the problem of how we can devise fair, comprehensive 
and accurate measures of quality and productivity improvement 
and then use those in such a way that they empower the provider 
of health care services, the payer for health care services 
and, most importantly, the recipient of health care services, 
the patient.
    So whether it is health club memberships that help deal 
with the obesity problem or whether it is sessions that would 
help people see the early warning signs of mental illness or 
substance abuse or whether it is regular screenings for 
malignancies, there are already examples of this productivity 
revolution already happening in America. It makes perfect sense 
for us to find a way in the marketplace to link the intelligent 
use of those methods with better outcomes and reward people for 
doing so.
    So I look forward to hearing from the witnesses this 
afternoon. I approach this enterprise in the spirit of 
understanding ways that we can fashion tools that help us bring 
this beneficent productivity revolution to healers and patients 
and payers.
    I thank you for this opportunity.
    Chairman Johnson. Thank you, Rob.
    We have got a distinguished panel of witnesses before us 
today, and I thank all of you for being here.
    We will hear from Ms. Karen Ignagni--is that correct?
    Ms. Ignagni. Close.
    Chairman Johnson.--CEO of America's Health Insurance Plans 
located right here in Washington.
    Following her will be Dr. Robert Galvin, Director of 
Corporate Health Care and Medical Programs at General Electric. 
Dr. Galvin will be testifying on behalf of the Human Resources 
Policy Association today.
    Next, Dr. Meredith Rosenthal, Assistant Professor of Health 
Economics and Policy at Harvard School of Public Health.
    Finally, from Mr. Jeffrey Hanson, President of Bridges to 
Excellence, a group of employers, physicians, health plans and 
patients, the purpose of which is to create programs that 
realign health incentives around higher quality.
    I want to thank you all for being here. If you understand 
our light system, green is go; yellow is watch out, you got a 
minute; and red, we would like for you to get it closed off if 
you can.
    Chairman Johnson. With that, Ms. Ignagni, you are welcome 
to begin.

STATEMENT OF KAREN IGNAGNI, CHIEF EXECUTIVE OFFICER, AMERICA'S 
             HEALTH INSURANCE PLANS, WASHINGTON, DC

    Ms. Ignagni. Thank you, Mr. Chairman, Mr. Andrews, members 
of the subcommittee. We appreciate the opportunity to testify 
today.
    My written testimony focuses on four areas, and I would 
like to briefly summarize them now.
    First, rising health care costs are placing a growing 
burden on employers, small and large, State governments, the 
Federal Government and consumers and making it difficult to 
address the growing problem of the uninsured.
    A significant contributor, as the committee has already 
identified, to this cost problem is the fact that we are 
devoting a greater share of resources, payroll, personal 
savings and State and Federal budgets to a system that has 
uneven quality across the country and where only 55 percent of 
treatments are in accordance with best practice. We think there 
are opportunities to give purchasers and consumers a value for 
their investment by redesigning payment mechanisms and also by 
focusing government policy on this objective.
    There is broad recognition that paying for health care 
services without measuring their effectiveness and efficiency 
has prevented the health care system from performing optimally. 
In other words, paying the same for good quality and bad 
quality has provided little incentive for the system to do 
better. This approach has rewarded over-utilization and misuse 
of service and resulted in higher payments when health care 
complications arise.
    Our written testimony outlines numerous examples of 
initiatives our members have launched, including financial 
rewards to physicians in the form of increased payments or 
nonfinancial rewards--also equally important--in the form of 
public recognition, preferential marketing or streamlining 
administrative procedure.
    Additionally, some members are offering consumers reduced 
co-payments, deductibles and premiums in exchange for using 
providers, leading to higher quality based on specific 
performance measurements.
    Lessons learned. I apologize, Mr. Chairman, for the voice. 
I have allergies. It is the time of the year. So please----
    Chairman Johnson. You need some health care----
    Ms. Ignagni. No, I have excellent health care, I assure 
you. I just need the weather to change.
    Chairman Johnson.--and treat that.
    Ms. Ignagni. We have shared with the committee key 
principles approved by the board of directors in terms of 
lessons we have learned to encourage the transition to a 
quality based system. I would like to highlight several.
    First, a critically important issue in the development of 
pay for performance is a uniform, coordinated strategy for 
measuring, aggregating and recording a provider performance. If 
we continue the proliferation of measurement systems, there 
will be no clarity or consistency in what is done. I believe 
both of you in your opening statements indicated that you are 
concerned about this.
    As a member of the Ambulatory Care Quality Alliance, AQA, 
AHIP has been working with other stakeholders, particularly the 
American College of Physicians and the Academy of Family 
Physicians. We recently reached consensus on a common set of 26 
ambulatory care performance measures as a starter set. It is a 
beginning, targeting conditions on which significant resources 
are spent, including heart disease, diabetes and depression; 
and more measures are now being adopted and will be ready in 
the future.
    AQA has also worked on the plan to combine public and 
private data. This is particularly important because it would 
provide stakeholders with a more comprehensive view of 
performance across marketplaces.
    Such an initiative would have three positive results: It 
will give the consumers more clout, because they will be 
allowed to make more informed decisions about their health care 
treatments. It will insure fairness for clinicians, because 
they would be evaluated based on their entire practice, not 
simply patients covered by a particular insurer. It will focus 
attention on health care outcomes, raising the quality bar and 
allowing physicians to be recognized for good results.
    In addition, involvement of physicians, hospitals and other 
health care professionals and the design and implementation of 
programs that reward quality is essential, in our view, to 
their feasibility and sustainability. Our members believe these 
programs need to be transparent, and they need to be 
predictable. Reporting of reliable, aggregated performance 
information will promote accountability for all stakeholders 
and facilitate informed consumer decisionmaking.
    Indeed, the importance of these principles is highlighted 
by a recent physician survey showing an overwhelming majority 
of physicians supporting pay for performance if the performance 
measures are developed by physicians in that particular medical 
specialty, if they are communicated ahead of time to physicians 
so that the rules are clear and that the performance measures 
are often based and grounded in science.
    Finally, I would like to briefly identify a number of 
additional steps our members support as part of a broad-based 
strategy for further improving quality and efficiency in the 
U.S. health care system. Let me highlight several.
    First, Mr. Chairman, as you know, Mr. Andrews, the Nation 
now spends roughly $30 billion in the most robust health care 
research apparatus in the world through the National Institutes 
of Health. We spend only $300 million in terms of our 
investment in health care effectiveness analysis through AQHR, 
through the Agency for Quality Healthcare and Research. So $30 
billion versus $3 million, this is an R&D issue that I believe 
both of you were probing. We do need to do more in terms of 
shedding a spotlight on what works under what conditions and 
when.
    Second, there is a diffusion issue. Notwithstanding that 
robust expenditure through the National Institutes of Health, 
there is very little organized and effective approaches to 
translate that quickly into practice. So physicians at the 
bedside are asking for more help in getting access to 
information that is developed through clinical trials quickly 
and effectively.
    Third, there is a need, in our view, to develop the 
framework for evaluating technology for effectiveness and 
efficiency. We are on the verge of a brave new world in 
pharmaceuticals, in devices, in bios. There is a great deal to 
celebrate, but without a mechanism to assess the usefulness of 
these procedures, again, under what conditions and at what 
time, employers and consumers will be left in the dark in terms 
of how to proceed. So we think that is an important issue that 
should be teed up as we go forward with moving a delivery 
system to a quality-based system.
    Fourth, encouraging the development of a connected health 
care system. The committee has done a great deal of work and 
probing in that regard. We think it is very important to have 
uniform standards with respect to an interconnected health care 
system so we can look across the country and, again, have 
uniformity with respect to rules, with respect to the 
transmission of data, to be sure that consumers being treated 
in one region are getting the same level and effectiveness of 
care as would be the case in another region and that doctors 
and hospitals and other clinicians in those different regions 
can confer with one another.
    Finally, overhauling the medical liability system. There 
has been a great deal of discussion in this Congress about the 
need to do that. We firmly believe in that. We are spending $30 
billion on direct liability expenses and another $100 billion 
on defensive medicine, which goes hand in hand with reducing 
defensive medicine, moving the system toward an outcome-based, 
quality-based system.
    So I hope, Mr. Chairman, this short version of our 
testimony has been helpful to the committee. Again, I apologize 
for the voice, and I appreciate your indulgence in that regard. 
Thank you.
    Chairman Johnson. Your voice sounds fine to us. Thank you, 
Ms. Ignagni.
    [The prepared statement of Ms. Ignagni follows:]

 Statement of Karen Ignagni, Chief Executive Officer, America's Health 
                    Insurance Plans, Washington, DC

I. INTRODUCTION
    Good morning, Mr. Chairman and members of the subcommittee. I am 
Karen Ignagni, President and CEO of America's Health Insurance Plans 
(AHIP), which is the national trade association representing nearly 
1,300 private sector companies providing health insurance coverage to 
more than 200 million Americans. Our members offer a broad range of 
health insurance products in the commercial marketplace and also have 
demonstrated a strong commitment to participation in public programs.
    We appreciate this opportunity to testify about initiatives that 
reward health care providers for quality performance. Our member 
companies have demonstrated strong leadership by designing and 
implementing a range of provider payment arrangements--often referred 
to as pay-for-performance programs--that are promoting high quality and 
efficiency throughout the U.S. health care system.
    Our members'' experiences clearly indicate that paying for quality 
is a promising strategy for improving overall wellness and advancing 
evidence-based medicine, which translates into better health outcomes 
and greater value for employers and consumers. To provide context for a 
discussion of these innovative programs, our testimony today will focus 
on four broad areas:
      The challenges posed by rising health care costs and 
uneven quality throughout the health care system and how redesigned 
payment mechanisms can be an integral part of improving the value that 
purchasers and consumers receive;
      The importance of pay-for-performance programs as part of 
a broad-based strategy for meeting the cost and quality challenges;
      Examples of pay-for-performance initiatives our members 
individually have chosen to implement and a core set of principles 
AHIP's Board of Directors has embraced to provide ideas for aligning 
payment incentives with quality; and
      Parallel steps that should be taken in several other 
areas--in addition to pay-for-performance programs--to further improve 
the quality and affordability of health care.

II. CHALLENGES FACING THE U.S. HEALTH CARE SYSTEM
    As we enter the 21st Century, the U.S. health care system faces a 
number of significant challenges. Rising health care costs are 
threatening to make health coverage unaffordable for more Americans, 
and are complicating efforts to meet the needs of the uninsured. One of 
the factors contributing to this cost problem is the serious concern 
that health care quality and patient safety are not optimal for many 
consumers. Moreover, traditional payment systems in some instances have 
created disincentives to control costs and improve quality.
    We believe bold, but thoughtful strategies are needed to directly 
address the root causes of these problems. Before offering our 
recommendations, we would like to review the background of these cost 
and quality issues.
            Rising Costs
    The most recent data from the Department of Health and Human 
Services (HHS) project that national health care spending increased by 
an estimated 7.5 percent in 2004. Although this is the lowest rate of 
increase since 2000, health care costs still are growing faster than 
the overall economy and, as a result, large and small employers are 
finding it more difficult to provide or maintain coverage for their 
employees.
    AHIP and our members are encouraged about what we can do in the 
private sector to reduce growth in health care spending. From 1994 
through 1999, national health expenditures were in line with overall 
economic growth, because health insurance plans implemented a variety 
of tools to constrain costs. This had a direct impact on the ability of 
employers to purchase affordable coverage for their employees. Indeed, 
the Lewin Group estimated that up to 5 million people \1\ who otherwise 
would have been uninsured were able to receive coverage as a result of 
these costs being restrained.
---------------------------------------------------------------------------
    \1\ The Lewin Group LLC, Managed Care Savings for Employers and 
Households: 1990 through 2000; 1997
---------------------------------------------------------------------------
    More recently, as the policy debate shifted away from containing 
costs, legislative proposals at both the federal and state levels 
focused on rolling back the mechanisms that were keeping health care 
affordable. This led to a new cycle of accelerating health care costs 
that has had an impact on purchasers and consumers.
    Recognizing this challenge, our members have developed a new 
generation of cost containment tools that already are having a positive 
impact and showing promise for the future. For example, the rates of 
increase in pharmaceutical expenditures have significantly declined as 
a result of our members'' implementation of programs to encourage 
greater use of generic drugs and other measures that encourage case 
management of chronic conditions. The Center for Studying Health System 
Change has reported \2\ that growth in prescription drug spending fell 
to 8.8 percent in the first half of 2004, down from almost 20 percent 
in the second half of 1999.
---------------------------------------------------------------------------
    \2\ Strunk, B., & Ginsburg, P. (December 2004). Tracking Health 
Care Costs: Spending Growth Slowdown Stalls in First Half of 2004. 
Center for Studying Health System Change. Issue Brief No. 91. 
Washington, D.C.
---------------------------------------------------------------------------
    The Center also has noted that hospital prices continue to be a 
major factor behind increased spending, accounting for almost half of 
the annual rate of increase in health care expenditures. At the same 
time, innovative drugs, devices and other therapies--while they can 
provide undeniable benefits in life expectancy and improved quality of 
life--are significant cost drivers. Without any organized way to assess 
the impact of this technology or compare the effectiveness of various 
therapies, employers and their employees are absorbing these higher 
costs without information about what works and the conditions under 
which certain therapies are effective.
    As purchasers assess the impact of these rising health care costs, 
they also are questioning whether they are receiving the best value for 
their health care investment.
            Quality Concerns
    Through its landmark reports released in 1999, To Err is Human, and 
in 2001, Crossing the Quality Chasm, the Institute of Medicine (IOM) 
focused the nation on the critical need to improve health care quality 
and patient safety, coordinate chronic care, and support evidence-based 
medicine. Variation in medical decision-making has led to disparities 
in the quality and safety of care delivered to Americans. The 1999 IOM 
report \3\ found that medical errors could result in as many as 98,000 
deaths annually, and a 2003 RAND study \4\ found that patients received 
only 55 percent of recommended care for their medical conditions.
---------------------------------------------------------------------------
    \3\ ``To Err is Human,'' Institute of Medicine, 1999
    \4\ ``The Quality of Health Care Delivered to Adults in the United 
States.,'' Elizabeth A. McGlynn, RAND, June 25, 2003
[GRAPHIC] [TIFF OMITTED] T1243.005

    A wide range of additional studies indicate that Americans 
frequently receive inappropriate care in a variety of settings and for 
many different medical procedures, tests, and treatments. Such 
inappropriate care includes the overuse, underuse or misuse of medical 
services. Studies also show that patterns of medical care vary widely 
from one location to another, even among contiguous areas and within a 
single metropolitan area--with no association between higher intensity 
care and better outcomes. For example:
      The Dartmouth Atlas of Health Care \5\ documents wide 
variation in the use of diagnostic and surgical procedures for patients 
with coronary artery disease, prostate cancer, breast cancer, diabetes, 
and back pain. For example, the rates of coronary artery bypass graft 
(CABG) surgery were found to vary from a low of 2.1 per 1,000 persons 
in the Grand Junction, Colorado hospital referral area, to a high of 
8.5 per 1,000 persons in the Joliet, Illinois region. The Atlas'' most 
recent findings \6\ reveal wide variation in hospital care and outcomes 
for chronically ill Medicare patients. For example, the length of 
hospital stays varied--depending on a patient's geographic location--by 
a ratio of 2.7 to 1 for cancer patients and by a ratio of 3.6 to 1 for 
congestive heart failure patients. Other examples of wide-ranging 
variations in care are illustrated in the visual below.
---------------------------------------------------------------------------
    \5\ Center for the Evaluative Clinical Sciences, Dartmouth Medical 
School, The Dartmouth Atlas of Health Care, ``The Quality of Medical 
Care in the United States: A Report on the Medicare Program,'' 1999
    \6\ Fisher, E., Health Affairs, October 7, 2004
    [GRAPHIC] [TIFF OMITTED] T1243.006
    
      The longstanding nature of quality problems in the U.S. 
health care system is evidenced by a 1999 article \7\ in The New 
England Journal of Medicine, which stated: ``A number of studies have 
demonstrated overuse of health care services; for example, from 8 to 86 
percent of operations--depending on the type--have been found to be 
unnecessary and have caused substantial avoidable death and 
disability.''
---------------------------------------------------------------------------
    \7\ Dr. Bodenheimer, T., The New England Journal of Medicine, Vol. 
340, No. 6, pp. 488-492, 1999
---------------------------------------------------------------------------
      The National Committee for Quality Assurance (NCQA) \8\ 
documents the state of health care quality annually, reporting in 2004 
that ``enormous ``quality gaps''' persist as ``the majority of 
Americans still receive less than optimal care'' with between 42,000 
and 79,000 avoidable deaths occurring each year. While health care 
quality is improving in some areas, the health care system remains 
``deeply polarized, delivering excellent care to some people, and 
generally poor care to many others.''
---------------------------------------------------------------------------
    \8\ NCQA, The State of Health Care Quality: 2004, 2004
---------------------------------------------------------------------------
    These research findings clearly indicate the need for innovative 
strategies to improve quality and efficiency throughout the U.S. health 
care system. Decisive action is needed to address these wide-ranging 
variations in medical decision-making, as well as the overuse, underuse 
and misuse of health care services.
            Traditional Payment Models
    Having reviewed the challenges posed by cost and quality concerns, 
we now turn to the issue of payment arrangements.
    In general, health care practitioners have not been paid based on 
the quality of care they deliver. Until recently, clinical outcomes, 
patient satisfaction, and improvements in processes typically have not 
been rewarded. Instead, reimbursement has been based on the volume and 
technical complexity of services rendered. This approach has rewarded 
the over-utilization and misuse of services, and resulted in higher 
payments when health care complications arise, creating disincentives 
to improve quality and efficiency.
    Physicians have expressed concerns about not being recognized and 
rewarded for providing high quality care. A 2004 survey \9\ of 400 
primary care and specialty physicians, conducted on behalf of AHIP by 
Ayres, McHenry & Associates, found that 86 percent of physicians are 
concerned that the current payment system does not reward practitioners 
for providing high quality medical care. Other findings of this survey 
indicate that 71 percent of physicians favor payments based in part on 
the quality of care they provide, and 62 percent believe that 
information on the quality of care provided by a physician should be 
made available to the public.
---------------------------------------------------------------------------
    \9\ ``National Survey of Physicians Regarding Pay-for-
Performance,'' Ayres, McHenry & Associates, Inc., September/October 
2004
---------------------------------------------------------------------------
III. MEETING THE COST AND QUALITY CHALLENGES BY
    REWARDING QUALITY PERFORMANCE
    Health insurance plans have long been at the forefront of 
developing innovative payment arrangements that have promoted 
population-based health care, improved care for the chronically ill, 
and emphasized systematic investment in prevention.
    Many of our members currently are offering financial awards to 
physicians in the form of increased per-member-per-month payments or 
non-financial rewards in the form of public recognition, preferential 
marketing or streamlined administrative procedures. Additionally, some 
plans are offering consumers reduced co-payments, deductibles, and/or 
premiums in exchange for using providers deemed to be of higher 
quality, based on specific performance measures. The categories of 
performance measures most commonly reported include clinical quality, 
utilization experience/efficiency, patient satisfaction, and 
information technology infrastructure.
            Common Features of Programs That Reward Quality Performance
    Based on the experiences of our member companies, we know that 
programs for rewarding quality performance have a number of common 
features:
      Reason for Implementation: To enhance and sustain 
clinical quality, facilitate excellence across provider networks, and 
improve and promote patient safety.
      Role of Clinicians: Nearly all plans indicate that 
clinicians are actively involved in key aspects of rewarding quality 
performance programs, including program development, selection of 
performance measures, and determination of how rewards are linked to 
provider performance.
      Emphasis on Specific Measures: In rewarding quality 
performance programs for physicians and medical groups, achieving 
clinical quality goals plays the most significant role in the formula 
for determining financial rewards. In programs for hospitals, 
utilization experience/efficiency and patient safety objectives tend to 
play equivalent roles.
      Consumer Incentives: Efforts are being launched to 
encourage consumers through reduced co-payments, deductibles, and/or 
premiums to use providers that are achieving quality performance.

IV. SPECIFIC INITIATIVES AND PRINCIPLES FOR REWARDING
    QUALITY PERFORMANCE
    To provide a better understanding of pay-for-performance 
initiatives in the private sector, we are providing brief examples of 
programs being implemented by our members across the country.
      Aetna has launched a network of specialist physicians who 
demonstrate effectiveness based on certain clinical measures, such as 
hospital readmission rates over a 30-day period, reduced rates of 
unexpected complications by hospitalized patients, and efficient use of 
health care resources. Consumers who choose these specialists benefit 
through lower co-payments, and providers benefit through increased 
patient volume. The Aexcel network, which is currently available in 
nine markets across the country, includes physicians in twelve medical 
specialties--cardiology, cardiothoracic surgery, gastroenterology, 
general surgery, obstetrics/gynecology, orthopedics, otolaryngology, 
neurology, neurosurgery, plastic surgery, vascular surgery, and 
urology.
      HealthPartners has implemented an Outcomes Recognition 
Program that offers annual bonuses to primary care clinics that achieve 
superior results in effectively promoting health and preventing 
disease. Since 1997, this program has awarded more than $3.95 million 
in bonuses to primary care groups that meet performance goals focusing 
on diabetes, coronary artery disease, tobacco cessation, generic 
prescribing, and consumer satisfaction.
      Highmark Blue Cross Blue Shield has adopted a Quality 
Incentive Payment System that rewards primary care physicians for 
demonstrating improvement in measures for preventive screenings, 
treatment of chronic conditions, and other quality and service issues. 
In the tenth year of the program (2003), more than $12 million in 
bonuses were paid to primary care physicians who exceeded the average 
performance measure on various indicators.
      Independent Health uses a Quality Management Incentive 
Award Program that involves a physician advisory group in developing 
performance targets for key issues such as patient satisfaction, 
emergency room utilization/access, office visits, breast and colorectal 
screening, immunizations, and treatment for diabetes and asthma. In 
addition to paying bonuses to physicians who exceed these targets, this 
program has documented significant improvements in clinical care for 
enrollees.
      PacifiCare Health Systems has developed a Quality Index'' 
profile that uses clinical, service, and data indicators to rank 
medical groups. Enrollees pay lower co-payments for office visits if 
they select physicians from a ``value network'' of higher quality, 
lower cost providers. Additionally, PacifiCare's Quality Incentive 
Program incorporates a subset of the Quality Index profile and has 
demonstrated an average improvement of 20 percent in 17 of 20 measures, 
with rewards to high performing physicians exceeding $15 million in the 
past three years.
      WellPoint's quality programs provide increased 
reimbursement to hospitals and physicians based, in part, on achieving 
improved quality measures. For example, hospitals selected for Anthem 
Blue Cross and Blue Shield's Coronary Services Centers program in 
Indiana, Kentucky, and Ohio must meet stringent clinical quality 
standards for patient care and outcomes for certain cardiac procedures. 
Anthem Blue Cross and Blue Shield of Virginia's Quality-in-Sights 
Hospital Incentive Program (QHIP) rewards hospitals for improvements in 
patient safety, patient health, and patient satisfaction. The 16 
hospitals that participated in the first year of QHIP in 2004 are 
receiving a total of $6 million for actively working to implement 
nationally recognized care and safety practices that can save lives. 
Blue Cross of California has a comprehensive physician pay-for-
performance program that paid $57 million in bonus payments to 134 
medical groups based on quality criteria in 2003. Blue Cross of 
California also has a PPO Physician Quality and Incentive Program 
(PQIP) that allows more than 4,000 physicians in six counties in the 
San Francisco area to receive financial bonuses for superior 
performance on clinical quality, service quality, and pharmacy 
measures.

            Importance of Uniform Performance Measurement, Data 
                    Aggregation and Reporting

    A critically important step in moving forward with programs that 
reward quality performance is the development of a uniform, coordinated 
strategy for measuring, aggregating and reporting clinical performance. 
Disseminating information derived from aggregated performance data--
which provides stakeholders with a more comprehensive view of 
performance across marketplaces--would yield benefits on several 
levels. Consumers would be allowed to make more informed decisions 
about their health care treatments. Physicians, hospitals and other 
health care professionals would be better able to improve the quality 
of care they provide. Purchasers would receive greater value for their 
investment in health care benefits. Health insurance plans could 
continue to develop innovative products that meet consumer and 
purchaser needs.
    AHIP has been working with the American College of Physicians 
(ACP), the American Academy of Family Physicians (AAFP), the Agency for 
Healthcare Research and Quality (AHRQ), the Centers for Medicare & 
Medicaid Services (CMS), and other stakeholders to identify what should 
be measured for ambulatory care and how, and develop an effective and 
efficient data aggregation model that would comprehensively assess 
provider performance.
    The collaborative effort now called the Ambulatory Care Quality 
Alliance (AQA) recently reached consensus on a common set of 26 
ambulatory care performance measures. These measures are grouped under 
eight separate categories: (1) prevention; (2) coronary artery disease; 
(3) heart failure; (4) diabetes; (5) asthma; (6) depression; (7) 
prenatal care; and (8) overuse or misuse of medical services. Many of 
the measures under these categories are ``bundled'' measures--i.e., 
multiple measures which if used collectively, have the potential to 
more comprehensively and accurately assess physician performance and 
provide improved outcomes for patients.
    These measures are intended to serve as a ``starter set'' that will 
provide clinicians, consumers, and purchasers with a set of quality 
indicators that can be used for quality improvement, public reporting, 
and pay-for-performance programs. This starter set will be expanded in 
a multi-phase process, resulting in a more complete set of measures 
which address a wide range of additional quality indicators addressing 
efficiency, patient experience, sub-specialties and other key areas.
    In addition to working toward a strategy for performance 
measurement, AQA is developing a uniform data aggregation strategy. The 
aggregation model developed by this alliance would include the 
following key attributes:
      trusted, third party data aggregator(s) capable of 
maintaining appropriate restrictions on privacy and confidentiality;
      an independent governing structure that would establish 
rules, policies and standards for data aggregation;
      a process that allows provider performance to be compared 
against both national and regional benchmarks;
      collection of both public and private data so that 
physician performance can be assessed as comprehensively as possible;
      standardized and uniform rules associated with 
measurement and data collection;
      transparency with respect to framework, process and 
rules;
      protection of privacy and confidentiality of data while 
ensuring necessary access to appropriate stakeholders; and
      systems or processes to share, collect, aggregate and 
report quality and efficiency performance data that are affordable and 
that minimize burdens.
    Lastly, AQA is exploring strategies for reporting reliable and 
useful quality information to consumers, providers and other 
stakeholders. The Alliance recently developed two sets of fundamental 
principles for reporting. The first set of principles, which addresses 
reporting to consumers and purchasers, aims to facilitate more informed 
decision-making about health care treatments and investment. The second 
set of principles, which addresses reporting to physicians and 
hospitals, is designed to facilitate quality improvement and informing 
providers of their performance.
    The AQA will continue to move forward in the areas of measurement, 
aggregation and reporting, and encourage various stakeholders to become 
involved in this important effort to improve health care quality and 
patient safety.

            Principles for Rewarding Quality Performance

    AHIP's members are committed to working with stakeholders across 
the health care community, particularly health care professionals who 
work on the frontlines every day, to develop a strategy that accounts 
for the quality of care delivered to patients. In November 2004, AHIP's 
Board of Directors demonstrated this commitment by approving principles 
for guiding the development and implementation of programs that advance 
a quality-based payment system. They include eight key elements:
      Programs that reward quality performance should promote 
medical practice that is based on scientific evidence and aligned with 
the six aims of the IOM for advancing quality (safe, beneficial, 
timely, patient-centered, efficient, and equitable).
      Research is urgently needed to inform clinical practice 
in priority areas currently lacking a sufficient evidence-based 
foundation.
      The involvement of physicians, hospitals and other health 
care professionals in the design and implementation of programs that 
reward quality performance is essential to their feasibility and 
sustainability.
      Collaboration with key stakeholders, including consumers, 
public and private purchasers, providers, and nationally recognized 
organizations, to develop a common set of performance measures--
process, outcome and efficiency measures--and a strategy for 
implementing those measures will drive improvement in clinically 
relevant priority areas that yield the greatest impact across the 
health care system.
      Reporting of reliable, aggregated performance information 
will promote accountability for all stakeholders and facilitate 
informed consumer decision-making.
      The establishment of an infrastructure and appropriate 
processes to aggregate--across public and private payers--performance 
information obtained through evidence-based measures will facilitate 
the reporting of meaningful quality information for physicians, 
hospitals, other health care professionals, and consumers.
      Disclosure of the methodologies used in programs that 
reward quality performance will engage physicians, hospitals, and other 
health care professionals so they can continue to improve health care 
delivery.
      Rewards, based upon reliable performance assessment, 
should be sufficient to produce a measurable impact on clinical 
practice and consumer behavior, and result in improved quality and more 
efficient use of health care resources.
    Significantly, these principles recognize the views that physicians 
have expressed on pay-for-performance. The physician survey we 
previously noted--conducted by Ayres, McHenry & Associates in 
September/October 2004--included additional findings showing that an 
overwhelming majority of physicians would support pay-for-performance 
programs if the performance measures were developed with physicians in 
that particular medical specialty (87 percent), if the performance 
measures were clearly communicated to physicians before they were used 
in payment arrangements (84 percent), and if the performance measures 
were evidence-based and grounded in science (83 percent).

V. OTHER ELEMENTS OF A QUALITY IMPROVEMENT STRATEGY
    While programs that reward quality performance can go a long way 
toward address cost and quality challenges, this is only one component 
of a broad-based strategy for transforming the health care system. 
Policymakers should at the same time encourage and pursue a variety of 
other programs and initiatives to further advance quality and 
efficiency.

            Invest in Cost Effectiveness and Translational Research

    While the federal government invests heavily in clinical research, 
it makes only modest investments in research that compares the relative 
effectiveness of existing versus new therapies that are designed to 
treat the same condition. The federal government should assign a high 
priority to this kind of research and also direct more funding to 
promote the widespread adoption of best practices and reduce the 
overuse and misuse of health care.
    A National Center for Effective Practices should be created to 
ensure that the results of cost effectiveness research are translated 
into usable information for providers and consumers. This new entity 
could identify and make publicly available the latest advances in 
evidence-based medical practices, and also shed light on procedures 
determined to be less effective.

            Develop a Framework for Evaluating Technologies for 
                    Effectiveness and Efficiency

    To address the rapid development of new procedures, devices and 
other technologies, a public-private framework should be established to 
evaluate and compare the effectiveness and efficiency of these 
technologies. Moreover, new post-marketing surveillance models should 
be developed to assess the appropriate use and long-term value of 
certain breakthrough drugs, devices and biologicals.

            Encourage the Development of an Interconnected Health Care 
                    System and Uniform Standards

    The delivery of health care in America is complex with individuals 
seeking care from a variety of physicians, hospitals, and specialists. 
The ultimate goal of modernizing the health care system is to improve 
personal health and the delivery of care by providing meaningful 
personalized information to consumers and providers in a usable form 
and in a timely manner. To achieve this aim, we need uniform, national 
standards that enable the exchange of health information by and between 
clinical electronic health record (EHR) systems and consumer-centric 
individual health records.

            Overhaul the Medical Liability System to Ensure Effective 
                    Dispute Resolution and Promote Safety and Value

    The flaws in the current medical liability system should be 
addressed with reforms that place reasonable limits on health care 
litigation. Additionally, patient safety legislation is needed to 
establish legal protections for medical error information reported by 
health care providers, and to permit the aggregation of data that can 
be used to determine the causes of medical errors and develop 
strategies for improving patient safety. Also needed is a uniform, 
national administrative process to resolve malpractice disputes between 
patients and health care providers in a fair and efficient manner, thus 
avoiding the need for litigation as often as possible.

            Modernize and Maximize the Effectiveness of the Regulatory 
                    System.

      Encourage choice with uniform rules in the small group 
market: A common set of rules would encourage competition, enhance 
consumer choice, and provide greater predictability for employers. The 
solution is not to waive all requirements for particular groups, but to 
establish an appropriate and consistent framework for all participants 
to ensure that small employers have maximum options to meet their 
needs. This means that the federal and state governments need to work 
together to encourage ``best practice'' regulation. This process has 
begun with the development of draft legislation--known as the State 
Modernization and Regulatory Transparency (SMART) Act--that would 
promote uniformity in plan processes, particularly internal and 
external review of coverage disputes, speed-to-market and market 
conduct standards.
      Encourage prompt product approval and consistency in 
regulatory processes. Steps should be taken to ensure that states adopt 
a mechanism by which health insurance plans can bring innovative 
products to the market in a timely manner. Ideally, the federal 
government should encourage states to be forthcoming regarding their 
standards for policy rate and form filing requirements and to abandon 
unwritten ``desk-drawer rules.'' This ultimately will create oversight 
mechanisms that allow companies to provide consumers with the products 
they need in a timely manner.
      Establish an independent advisory commission to evaluate 
the impact of mandates on health care costs and quality. Such a 
commission could advise policymakers on the safety and effectiveness of 
proposed and existing mandated health benefits, and assess whether 
proposed mandates result in improved care and value. The commission's 
findings also could inform public program coverage and decision-making 
to ensure that evidence-based standards are applied consistently in 
Medicare, Medicaid, and other public programs.

            Provide Funding for High-Risk Pools
    AHIP's Board of Directors approved a statement in June 2004 
indicating support for federal funding for state high-risk pools to 
cover individuals who have unusually high health care costs. This 
legislation fits within the parameters of what Congress is able to 
accomplish from a budgetary standpoint at this time. This initiative is 
one of the next steps Congress should take as part of a long-term 
strategy for strengthening our nation's health care safety net.

            Expand Tax Credits to Encourage the Purchase of Health Care 
                    Coverage
    To address the needs of working Americans who are uninsured and 
ineligible for public programs, Congress can help make health coverage 
more affordable by expanding tax credits for low-income persons. This 
approach will be particularly helpful to Americans who do not have 
access to employer-sponsored coverage and to those who decline such 
coverage because of the high cost. Moreover, tax credits could prompt 
more small businesses to offer employee health benefits. The Employee 
Benefits Research Institute (EBRI) \10\ has reported that among small 
employers that do not offer employee health benefits, 71 percent would 
be more likely to seriously consider offering health benefits if the 
government provided assistance with premiums.
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    \10\ Employee Benefit Research Institute, Small Employers and 
Health Benefits: Findings from the 2002 Small Employer Health Benefits 
Survey, January 2003
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VI. CONCLUSION
    It is increasingly clear that the U.S. health care system faces 
significant quality challenges that are further heightened by rising 
medical costs. Taken together, these factors create an urgency for 
stakeholders to work collaboratively to improve the quality, safety and 
efficiency of the health care system. Programs that recognize and 
reward quality performance should be an important part of this effort.
    We applaud the subcommittee for focusing on the value of payment 
arrangements that align reimbursement with quality performance.

     Rewarding Quality Performance: Health Insurance Plan Examples

Aetna
Hartford, Connecticut
    In January 2004, Aetna launched a network of specialist physicians 
developed based on quality and efficiency indicators. The new Aexcel SM 
network was created by identifying medical specialties associated with 
a large portion of health care spending and features specialists who 
demonstrate effectiveness against certain clinical measures such as 
hospital readmission rates over a 30-day period, and reduced rates of 
unexpected complications by hospitalized patients; volume of Aetna 
enrollees'' cases; and efficient use of health care resources. Aexcel 
SM benefits consumers through lower copayments for seeking services 
from more efficient providers, and providers benefit through increasing 
the volume of patients to their practices.
    Physicians in six medical specialties--cardiology, cardiothoracic 
surgery, gastroenterology, general surgery, obstetrics/gynecology, and 
orthopedics--who have met the established measures were designated to 
participate initially in the network option. Aetna also recently 
expanded its network to include additional six specialties (e.g., 
otolaryngology, neurology, neurosurgery, plastic surgery, vascular 
surgery, and urology). The Aexcel SM network is currently available in 
the nine markets of Atlanta, Houston, metropolitan Washington DC, Los 
Angeles, Connecticut, metropolitan New York/New Jersey, Dallas/Fort 
Worth, North Florida and Seattle/Western Washington. Additional 
geographic regions will be added over the next two years.

Blue Cross Blue Shield of Michigan and Blue Care Network
Detroit, Michigan
    Blue Cross Blue Shield of Michigan (BCBSM) and Blue Care Network 
(BCN) have designed and implemented a number of provider incentive 
initiatives and are continuing to expand and evolve these efforts.
    The BCBSM Hospital Incentive Program rewards hospitals that 
demonstrate achievement in three major categories: clinical quality, 
patient safety, and community health. Through this program, hospitals 
can earn up to an additional four percent on their inpatient payments. 
BCBSM's participating hospital agreements establish the incentive 
program; up to four percent is added to each Diagnosis Related Group 
(DRG) payment, based on each hospitalization or admission, if the 
standards are met. The actual amount a hospital earns is based on its 
individual performance. Hospital performance has improved each year the 
program has been in place. In 2004, performance in the program has 
earned participating hospitals an average incentive payment of over 
three percent, the average incentive, which is added to the DRG 
payment.
    The BCBSM Cardiac Centers of Excellence program established in 1996 
helps enrollees make informed decisions when selecting a hospital to 
meet their cardiac needs. Ten Michigan hospitals currently meet the 
quality criteria for this program. As a result of this initiative, 
BCBSM has observed lower mortality rates, fewer unplanned coronary 
artery bypass grafts, fewer heart attacks, and fewer cases of kidney 
failure requiring dialysis. These improvements are associated with 
approximately $8 million in annual savings.
    The BCBSM Physician Group Incentive Program rewards physician 
groups for their ability to: create registries for patients with 
particular medical conditions; provide performance feedback to 
individual physicians; promote consistent delivery of care according to 
evidence-based guidelines; refer to care management programs; and 
demonstrate improvement in generic drug prescribing and cost-effective 
prescribing. A pay-for-performance pool is distributed quarterly to 
selected medical groups. The share of the incentive pool for each group 
is based on the numbers of enrollees served and in meeting performance 
expectations. Ten physician groups were selected to participate in 2004 
and two more joined in 2005.
    Blue Care Network Performance Recognition Program (PRP) and Blue 
Reward'' programs reward primary care physicians and medical groups for 
surpassing quality and patient satisfaction benchmarks and for other 
focused short-term performance improvements. From 2001-2003, BCN has 
rewarded approximately 80 percent of nearly 3,000 eligible primary care 
physicians for performance improvements each year across the state of 
Michigan. The rates of breast cancer screening, cervical cancer 
screening, childhood immunization, smoking cessation, and patient 
satisfaction all increased through the PRP program. The innovative Blue 
Reward'' program (short term, focused) has also recorded early 
successes with Prilosec OTC'' and electronic referral initiatives.

CIGNA HealthCare
Hartford, Connecticut
    CIGNA HealthCare of California participates in the Integrated 
Healthcare Association's (IHA) quality incentive program. CIGNA uses 
IHA's common measurement set to evaluate performance. CIGNA then 
rewards the top 50 percent of contracted physician groups for meeting 
each of the IHA clinical and member satisfaction metrics. Fifty-percent 
of the overall pool is being rewarded to providers for meeting HEDIS/
clinical measures, such as breast cancer screening, cervical cancer 
screening, and appropriate medications for asthma; 40 percent for 
enrollee satisfaction; and ten percent for the adoption and 
implementation of health information technology. Top-performing groups 
in all components of the Rewards Program are eligible to receive a 
minimum of $1.60 per member per month. Payment is based upon the total 
annual member months of the group's population. In the first year of 
the program, the payout in California for IHA was $4 million.
    CIGNA also uses other non-financial strategies to recognize their 
network providers. Participating physicians and hospitals that have met 
certain quality criteria are recognized in its online Provider 
Excellence Recognition Directory. Physicians are recognized for being 
certified by the National Committee for Quality Assurance for providing 
high quality diabetes or heart/stroke care. Hospitals are highlighted 
for meeting the Leapfrog Group's three patient safety standards (e.g., 
Computer Physician Order Entry systems, Intensive Care Unit Physician 
Staffing, and Evidence-based Hospital Referrals).

Harvard Pilgrim Health Care
Wellesley, Massachusetts
    Harvard Pilgrim Health Care (HPHC) implements a multi-faceted 
Provider Network Quality Incentive Program that includes a Physician 
Group Honor Roll, a Quality Grant Program, and a Rewards for Excellence 
program. These activities are highlighted below.
    HPHC participating physician groups are eligible for inclusion in 
the Harvard Pilgrim Physician Group Honor Roll by exceeding performance 
levels in clinical areas, such as breast cancer screening, appropriate 
diabetes care, and childhood immunizations. On an annual basis, HPHC 
publishes the names of all Primary Care Physicians affiliated with the 
physician groups that have achieved Honor Roll or Honorable Mention in 
print and online physician directories.
    HPHC's Quality Grant Program provides support to local physician 
offices to implement quality improvement interventions that may face 
particular challenges in achieving high performance targets. These 
grants help practices to address important issues, such as geographic 
access to needed services, language or cultural barriers, and outreach 
and other services to disadvantaged populations. These practices, in 
turn, support Harvard Pilgrim Health Care's mission to improve the 
health of its members and the community at large. In 2003 and 2004, a 
total of 2.5 million dollars was granted for 34 grants.
    Another component of the Provider Network Quality Incentive Program 
is Rewards for Excellence. This initiative recognizes and rewards the 
exemplary performance of local quality efforts. HPHC has identified a 
subset of areas of focus. These areas targeted include key Health Plan 
Employer Data and Information Set (HEDIS) performance measures where 
effective clinical interventions have been identified and/or where 
current levels of performance--nationally, regionally, and within 
Harvard Pilgrim--are less than clinically optimal. Current measures 
include such measures as eye exams and kidney screening for people with 
diabetes, appropriate anti-depressant medication management, asthma 
management, and chlamydia screening. HPHC offers its providers 
financial rewards for achieving excellent levels of performance in the 
defined target areas. In 2003, Harvard Pilgrim rewarded 55 out of 66 
eligible practices.

HealthNet
Woodland Hills, California
    HealthNet is an active participant in the Integrated Health 
Association initiative, a quality incentive program in California with 
six participating health insurance plans and 215 medical groups, 
representing 45,000 physicians. A common measurement set across all 
health insurance plans is used to evaluate provider performance. The 
measurement set includes quality indicators for both preventive and 
chronic care, such as breast cancer screening, and appropriate 
medications for asthma, patient satisfaction, and the investment and 
adoption of health information technology. Each health insurance plan 
then uses its own methodology and formula to calculate the physician 
group bonus. Collectively, health insurance plans paid approximately 
$50 million to physician groups in its first year.
    HealthNet has seen the following results from this initiative: 
increasing numbers of contracted medical groups eligible for such 
rewards (70 groups in 2004 as compared to 30 groups in 2003); and HEDIS 
rate increases on average of two percent for all paying for performance 
program measures.

HealthPartners
Minneapolis, Minnesota
    HealthPartners'' Outcomes Recognition Program (ORP) offers annual 
bonuses to primary care clinics that achieve superior results in 
effectively promoting health and preventing disease. Eligible primary 
care groups are annually allocated a pool of bonus dollars that is 
awarded if a group reaches specific performance targets. Measures focus 
on important clinical issues, such as diabetes, coronary artery 
disease, tobacco cessation, generic prescribing, and consumer 
satisfaction. ORP bonus awards are an addition to the standard provider 
payment for primary care provider groups. In 2004, eligible clinics 
were able to earn financial rewards ranging from $90,000 to $290,000, 
depending on the size of their HealthPartners' enrolled populations and 
the number of measurable targets reached. In 2004, 19 of the 26 
eligible primary care groups received a total of $656,250 in ORP bonus 
awards. Since 1997, ORP bonus awards have totaled over $3.95 million.

Highmark Blue Cross Blue Shield
Pittsburgh, Pennsylvania
    Highmark Blue Cross Blue Shield's Quality Incentive Payment System 
(QIPS) rewards physicians in 20 counties in Western Pennsylvania for 
improvements in measures based, in part, on the Health Plan Employer 
Data and Information Set (HEDIS) for preventive screenings and 
treatment for chronic conditions. Additional quality and service 
performance measures include generic versus brand prescribing patterns, 
electronic submission of claims, and the use of Highmark's provider 
portal. Highmark's QIPS rewards are for Primary Care Physicians (PCPs) 
who participate in Highmark's HMO/POS product lines with panel sizes of 
at least 300 patients. These physicians are eligible for a bonus in 
addition to capitation. Scoring is based on meeting or exceeding the 
Highmark network average for each indicator.
    In the tenth year of the program (2003), primary care physicians 
were reimbursed $12.3 million for 12.6 million member months or 
approximately $0.98 per member per month. Over time, ninety-eight 
percent of the participating PCPs have met or exceeded some of the 
clinical indicators being evaluated and fifty percent of the eligible 
physicians meet the benchmarks for each quarter for all clinical 
indicators. Later this year, Highmark plans to expand this program to 
its PPO product line and to central Pennsylvania.
    Since 2001, Highmark has also worked with its hospitals within its 
network to improve quality. Individual hospitals work with Highmark in 
its QualityBlue SM program to develop projects that focus on medication 
safety, patient safety, and infection control and meet their individual 
facility needs. Baseline improvement goals are established at the onset 
of the program to evaluate the hospital performance. A portion of the 
hospital's contracted reimbursement is placed at risk based on their 
performance. The participating hospitals represent over 50% of 
Highmark's total hospital claim payments.
    Currently operating in 29 western Pennsylvania counties, 
participating hospitals in the QualityBlue SM program have achieved 
remarkable results in their indicators. Some of the achievements have 
been reducing or eliminating infections in targeted hospital units, 
preventing medication errors though implementation of technology, 
reducing readmissions for cardiac patients, and reducing or eliminating 
patient identification errors.

Independence Blue Cross (IBC)
Philadelphia, Pennsylvania
    Independence Blue Cross (IBC) offers a quality of care incentive 
payments system (QIPS) to both PCPs and hospitals. The PCP QIPS 
program, for HMO capitated primary care practices, promotes both 
quality of care, including member satisfaction, and quality of service 
goals of the Plan. The program began in 1992, and was redesigned in 
2002 to include clinical quality measures of effectiveness of care, 
such as screening rates for women's health issues, care of patients 
with diabetes, members with asthma, and selected cardiac conditions, 
and service measures of extended office hours, appropriate use of 
generic drugs, electronic connectivity, and the use of that 
connectivity for referrals and encounters. PCPs in approximately 1,350 
locations caring for about 870,000 members are eligible for quality of 
care payments; 85% received payments as high as $2.30 Per Member Per 
Month over and above their regular capitation rate.
    A hospital quality incentive payment system was designed in 2002 
that currently includes one system with six hospitals. Hospitals agree 
to base a significant part of their annual rate increase on performance 
against agreed-upon quality indicators. Indicators are based on third 
party measures broadly accepted as good barometers of quality from 
organizations such as the Pennsylvania Health Care Cost Containment 
Council, the Joint Commission on Accreditation of Healthcare 
Organizations, the Leapfrog Group, the Agency for Healthcare Research 
and Quality, and others. Since 2002, a number of hospitals in the 
system have improved on several measures.

Independent Health
            Buffalo, New York
    The goal of Independent Health's Practice Excellence program has 
been to improve enrollee health through improved access/timeliness of 
care, preventive screening, and adherence to evidence-based guidelines 
for the treatment of chronic conditions.
    A physician advisory group has helped to develop key program 
elements and has helped establish ``performance targets'' in areas such 
as patient satisfaction, emergency room utilization, access/office 
visits, breast and colorectal screening, immunizations, and treatment 
for diabetes and asthma.
    Physicians earn an award based on their level of performance: high, 
average and below average. Unique to the Independent Health model, the 
diabetes and asthma adherence to guideline components are awarded based 
upon participation and active engagement in the program only (not 
performance-based). The overall award amount is based upon an 
additional per member per month reimbursement for the level of 
performance and participation achieved. Primary care physicians can 
earn up to $2 PMPM for high-level performance in all five areas.
    Independent Health's Practice Excellence program has a continued 
record of success, with significant improvements in preventive health 
services and double-digit improvement in over twenty performance 
metrics associated with diabetes and asthma.

Oxford Health Plans
            Trumbull, Connecticut
    Oxford Health Plans created the Best Practices Program (BPP) for 
diabetes to recognize and reward quality performance among physicians. 
Oxford's BPP initiative is designed to reach those individuals who are 
not engaging in the appropriate activities (e.g., diet, exercise and 
regular visits to specialists) to manage their conditions. Oxford works 
collaboratively with providers within their network to motivate members 
to: 1) become actively engaged in the care they receive; 2) modify 
behaviors to appropriately manage their health conditions; and 3) be 
accountable for personal health outcomes.
    Currently, more than 380 high-risk members with diabetes have been 
referred to endocrinologists in Oxford's BPP initiative for diabetes. 
Of those members with confirmed visits to specialists, Oxford has seen 
an average decrease in A1C levels of about 8%. In addition, over 60% of 
members enrolled in the program improved their A1C results by the 
second physician visit.
    In the initial phase of this program, Oxford selected high-quality 
endocrinologists or endocrinology groups across seven counties in New 
York to participate. These endocrinologists have achieved or have 
agreed to apply for the Diabetes Physician Recognition Program co-
sponsored by the American Diabetes Association and the National 
Committee for Quality Assurance that measures the physician's ability 
to meet certain measures of diabetes care. A cross-functional team was 
developed to provide outreach calls to program participants to arrange 
appointments with a participating endocrinologist.

PacifiCare Health Systems
            Cypress, California
    PacifiCare Health Systems has adopted a comprehensive and 
integrated strategy to improve quality and affordability through 
Quality Index'' profiles, value networks, a quality incentive program, 
health and disease management programs, and consumer rewards. Since 
1998, PacifiCare's semi-annual Quality Index'' profile of Medical 
Groups has used clinical, service, and data indicators to rank medical 
groups. The measures are sorted into five categories: Staying Healthy 
(e.g., includes cervical and breast cancer screening, chlamydia 
screening and childhood immunizations); Appropriate Care (e.g., 
appropriate care for diabetes care and coronary artery disease); 
Patient Safety (appropriate use of antibiotics and cholesterol-lowering 
drugs); Service & Satisfaction (e.g., satisfaction with medical groups 
or primary care physicians, and Primary Care Physician communication); 
and Affordability. PacifiCare profiles the medical groups and then 
posts the results as ``report cards'' on its Web site and includes a 
summary in its provider directory to members.
    In addition, in 2003, PacifiCare began publishing an annual Quality 
Index'' of Hospitals which serves as a report card on the relative 
performance of contracted hospitals on 56 measures of risk-adjusted 
complication rates and mortality rates, patient safety measures, 
utilization and patient satisfaction related to common medical, 
surgical, obstetrical, orthopedic and pediatric conditions. The 
profiles are available on PacifiCare's public website.
    Enrollees who select physicians from PacifiCare's ``value network'' 
of higher quality, lower cost providers, also may pay $10 per visit for 
their primary care physician and $20 per visit for a specialist, 
whereas co-payments for office visits using physicians and specialists 
in the ``standard network'' may double those amounts. Furthermore, 
PacifiCare's Quality Incentive Program (pay for performance) 
incorporates a subset of the Quality Index(r) profile and has 
demonstrated an average improvement of 25 percent in 17 of 20 measures, 
with rewards exceeding $15 million in the past three years to better-
performing providers.

Regence BlueShield
            Seattle, Washington
    Regence BlueShield's Clinical Performance Recognition Program 
acknowledges primary care providers who exhibit strong performance in 
both clinical quality ``adherence to evidence-based guidelines and 
cost-efficiency ``reducing condition-specific cost variation over the 
course of patient care. To be recognized, providers receive aggregate 
quality and efficiency scores, with each area given equal weight, and 
then each clinician's percentile rank is averaged. Only clinical 
specialties with at least 20 participating physicians are eligible for 
recognition. Clinicians within the top ten percent of the composite 
metric are acknowledged for their performance. To introduce their 
program, Regence awarded $5,000 to 200 primary care physicians who met 
these performance criteria.
    In addition, Regence and The Boeing Company have implemented a 
Hospital Safety Incentive program. The program is intended to encourage 
members of Boeing's largest unions to use hospitals that meet the 
Leapfrog Group patient safety standards. Patients requiring any of six 
procedures, such as Coronary Artery Bypass Graft and Abdominal Aortic 
Aneurysm repair must use a network hospital that meets the Leapfrog 
Group's Evidence-Based Hospital Referral volume standard in order to 
receive the incentive. For all other hospital services, patients must 
use a hospital that meets the Leapfrog Group's standards for 
Computerized Physician Order Entry as well as the Intensive Care Unit 
staffing requirements. Patients seeking care from hospitals that meet 
the required standards receive 100 percent coverage after their 
deductible (compared to 95 percent if they receive care from hospitals 
that have not met these standards).

Rocky Mountain Health Plans and Mesa County Physicians IPA
            Grand Junction, Colorado
    Rocky Mountain Health Plans (RMHP) and the Mesa County Physicians 
IPA jointly developed a three-year pilot project in late 2002-early 
2003 to reward primary care physicians for performance in the 
management of chronic illnesses. The project uses a three-part strategy 
to recognize quality performance through strong outcome measures and 
support of quality improvement efforts of physicians. First, the 
project creates an opportunity for providers to share in the benefits 
of improving chronic illness outcomes through timely performance 
payments from the IPA. Second, practices can opt to access guidance and 
assistance, without charge from RMHP, in implementing a system for 
improved outcomes (``chronic care model''). Third, RMHP provides 
ongoing support for offices implementing the model through monthly 
collaborative educational lunches and a quarterly case management fee 
payment.
    A physician committee established the clinical outcome measures 
used based on peer-to-peer comparisons. Initially, all measures are 
being equally weighted. Eligibility for physician rewards is based on 
levels of participation in the program:
      If no data is submitted, physicians are not eligible for 
performance payments.
      If data is submitted on an approved flow sheet or report, 
physicians are eligible for performance payments.
      If data is submitted on an approved flow sheet or report 
and criteria has been met for a chronic care office meeting, physicians 
are eligible for performance payments and quarterly case management 
fees per diseased member.
    Within the first twelve months of the project, 100 percent of the 
primary care physicians in Mesa County who have RMHP members with 
diabetes were submitting data quarterly on nearly 1800 members. 
Approximately 50 percent of the primary care physicians are using an 
improved process for delivering care to their entire population with 
diabetes or asthma.
    Significant improvement is being seen in diabetes clinical outcomes 
in all lines of business. There is also early evidence of the 
anticipated cost saving trend in the commercial line of business. 
Documented first year savings in the commercial line of business is 
about $41,500.

WellPoint Inc.
            Indianapolis, Indiana
    WellPoint's quality programs provide increased reimbursement to 
hospitals and physicians based, in part, on achieving improved quality 
measures. Below are several examples of proven quality programs at 
WellPoint:
    Approximately 15,000 physicians in Anthem Blue Cross and Blue 
Shield networks receive a portion of their reimbursement through 
bonuses for improving care to health plan members. For example, 
hospitals selected for Anthem Blue Cross and Blue Shield's Coronary 
Services Centers program in Indiana, Kentucky, and Ohio must meet 
stringent clinical quality standards for patient care and outcomes for 
certain cardiac procedures. Examples of quality standards used for 
evaluation include: Cesarean-section rates, the percentage of patients 
who were prescribed beta-blockers after discharge, the number of 
discharged heart failure patients prescribed ACE inhibitors, and 
adoption of patient safety as a strategic goal. Since the program's 
inception in Ohio more than 10 years ago, participating hospitals in 
the state have seen a 38-percent decrease in mortality rates, and 
improved rates for beta blocker use after heart attacks.
    Anthem Blue Cross and Blue Shield of Virginia's Quality-in-Sights 
Hospital Incentive Program (QHIP) rewards hospitals for improvements in 
patient safety, patient health, and patient satisfaction. The 16 
hospitals that participated in the first year of QHIP in 2004 are 
receiving a total of $6 million for actively working to implement 
nationally recognized care and safety practices that can save lives. 
Hospitals are measured on such indicators as the adoption of JCAHO 
patient safety goals, implementation of computerized physician order 
entry systems, administration of beta blockers after heart attack, 
pneumococcal vaccination, and rates of serious complication following 
diagnostic cardiac catheterization. Hospitals can earn up to an 
additional one percent from Anthem, with the reward added to 
reimbursements going forward. In 2005, 45 Virginia hospitals are 
participating in QHIP.
    Blue Cross of California (BCC) is implementing comprehensive 
physician pay-for-performance programs. In 2003, BCC paid $57 million 
in bonus payments to 134 medical groups based on quality criteria. The 
quality indicators evaluated within the HMO program include member 
satisfaction, compliance with preventive screenings, such as 
mammograms, appropriate treatment of asthma, and smoking cessation. BCC 
is also a member of a coalition of six health insurance plans that 
awarded $50 million in bonus payments to 215 physician groups in 2004 
based on clinical benchmarks.
    In October 2002, Blue Cross of California also expanded these 
programs to include a PPO Physician Quality and Incentive Program 
(PQIP). The payment rewards are currently limited to six counties in 
the San Francisco area. Over 4,000 physicians located in six counties 
in the San Francisco area are eligible to participate in the Physician 
Recognition Program and receive a financial bonus for superior 
performance on clinical quality (e.g., breast cancer screening, 
childhood immunizations, and eye exams and Hemoglobin A1C testing for 
diabetes), service quality (e.g., enrollee complaints) and pharmacy 
measures (e.g., generic substitutions). Nearly $3 million in bonuses 
were distributed to close to 2,000 physicians in Spring, 2004 based on 
first year PQIP performance. Going forward, PPO physicians could be 
eligible for a fee schedule increase up to 14 percent above the plan's 
standard PPO fee schedules.
                                 ______
                                 
    Chairman Johnson. Dr. Galvin, you are welcome to begin.

 STATEMENT OF DR. ROBERT GALVIN, DIRECTOR OF CORPORATE HEALTH 
CARE AND MEDICAL PROGRAMS, GENERAL ELECTRIC, FAIRFIELD, CT, ON 
        BEHALF OF THE HUMAN RESOURCES POLICY ASSOCIATION

    Dr. Galvin. Good. Thank you, Chairman Johnson, Congressman 
Andrews and other distinguished members of the subcommittee. 
Thank you for asking me to testify on the challenging issue of 
employer-sponsored health benefits.
    My name is Robert Galvin, and I am the Chief Physician of 
Global Health Care for General Electric. I am appearing today 
on behalf of the H.R. Policy Association, where I am serving as 
director of Health Care Value initiatives.
    In my position at GE, I am responsible for the design and 
operation of GE health benefits. To cover over 350,000 U.S. 
employees and retirees costs the company $2 billion annually, 
growing at a rate that is three or four times faster than the 
CPI. Like most large companies, GE believes healthy employees 
and families contributes to our success as a company. We remain 
committed to helping our employees staying healthy and 
providing them access to highest-quality treatment when they 
are ill.
    However, I cannot overestimate or stress enough the level 
of concern both to GE management and to GE employees about the 
relentless increase in health costs. H.R. Policy Association, a 
group representing chief human resource officers from more than 
25 large employers, and the Business Roundtable, an 
organization representing CEOs of large employers, have 
declared that health costs are the biggest issue facing senior 
leadership. This shows how this has reached the radar of top 
leadership of American corporations.
    In 2003, the H.R. Policy Association Board of Directors 
created the health care Policy Roundtable to use the collective 
buying power of the 20 million workers employed by HRPA 
companies to leverage health care reforms within existing 
policies. Two private-sector initiatives by the Roundtable that 
are relevant to the discussion today are explored in greater 
detail in my written statement, called the National Health 
Access and the Regional Health Care Quality Reform initiatives.
    The most important trend, I think, going on among employers 
today is that, in response to both the unpopularity of managed 
care in the last decade and the new research, which Ms. Ignagni 
mentioned, showing the serious gaps in quality and the 
variation, employers have moved from a focus purely on cost to 
one based on value. What we mean by value is the highest 
quality and quality first at the best price.
    To be able to buy value, employers believed two fundamental 
changes are needed and that without these fundamental changes 
it won't be possible to move forward. First, comprehensive 
information about the performance of doctors and hospitals 
needs to be publicly available as quickly as possible. Second, 
existing financial incentives which currently drive the wrong 
behaviors need to be changed.
    Let me give you a real-world example of how our current 
system plays out for employees and patients.
    Last month I got a call from a very concerned employee 
seeking advice about whether the place that a primary care 
doctor had recommended she get treated was really the best 
place for her to go for a diagnosis of cancer.
    Despite searching every data base I could find, I was 
unable to answer this person's question. I called a colleague 
who collects this kind of data, and I asked him if he could 
help. He replied that he would like to help but that the 
doctors and hospitals that agreed to send him data only if he 
refused to reveal their individual performance. I asked if he 
were willing to help the patient and me by doing the following.
    As I mentioned possible treatment sites, would he cough 
once as I mentioned the best one and would he cough twice when 
I mentioned the second best. I quickly named the facilities and 
hearing first a single cough, then two coughs, I realized what 
he was telling me. I then had a long discussion with the 
employee and her family to help them make the decision.
    In this case, it turned out that she went to an alternative 
center from where she was going because they had much more 
experience in treating her kind of cancer. So as strange as it 
my be to hear that true story in our information rich country 
in the year 2005, it is also true and equally strange that the 
best facility and the worst facility get paid exactly the same.
    Employees also do not have incentives around their choices. 
Our data at GE shows that in every metropolitan area where we 
are, which is most of them in the country, among the hospitals 
with the highest quality costs differ by 30 percent. Yet in 
almost every benefit design that employers have created--and 
employers pay the same whether they choose the most expensive 
option or the one with the best value--a recent analysis we 
just did of GE data shows that our employers are going to the 
highest quality doctors and hospitals best judged by available 
measures only 30 percent of the time. If those employees were 
to go to the best providers all the time, GE would save at 
least $100 million annually, and our employers would get 
improved quality.
    In a recent survey, 80 percent of our employees told us 
that they would change doctors and hospitals if they had the 
data they trusted, just like the employee I mentioned a minute 
ago. A majority of doctors with whom we have spoke have told us 
that getting rewarded for quality not only seems fair but would 
help them save to have more money to invest in important 
improvements like having computer-based medical records.
    Programs like Leapfrog and Bridges to Excellence, which you 
will hear about in a couple of minutes, are examples of what 
health care can do. Our employees in Louisville, Kentucky, 
where we make refrigerators, now know that there are 40 doctors 
recognized to have superior performance in treating diabetes, 
when they had no such knowledge a couple of years ago, all due 
to this program Bridges to Excellence.
    The question now is how to increase the momentum. Since all 
significant change in health care creates controversy, it is 
important that public and private sectors work together. The 
most important steps that the Federal Government would take 
would be, one, to support the recommendations of the March, 
2005, MedPath report to immediately integrate performance-based 
payment into Medicare; and, two, to become value-based 
purchasers yourself in your own programs, by which I mean the 
program you have for Federal employees and the one that the DOD 
provides through TRICARE for employees of the Department of 
Defense.
    Partnership between private sector employers and the public 
sector would be a powerful message that I believe would not 
only begin to change our system to get better, but it will help 
us preserve an employer-based system.
    Thank you for the time.
    Chairman Johnson. Thank you, sir. We appreciate your 
testimony.
    [The prepared statement of Dr. Galvin follows:]

 Statement of Dr. Robert Galvin, Director of Corporate Health Care and 
  Medical Programs, General Electric, Fairfield, CT, on behalf of the 
                   Human Resources Policy Association

    Chairman Johnson, Congressman Andrews, and other distinguished 
members of the Subcommittee, I am Dr. Robert Galvin. I appreciate the 
opportunity to share the employer perspective on the topics of the day: 
pay-for-performance measures and other trends in employer-sponsored 
health care. This is an important issue and I applaud the Subcommittee 
for creating a forum for Members of Congress and the public to learn 
more. I am Director, Global Health, for General Electric. I also serve 
as Director, Health Care Value Initiatives for HR Policy Association's 
Health Care Policy Roundtable. In my position at GE I am responsible 
for the design, operations and financial performance of the health 
benefits GE offers its employees, family members, and retirees as well 
as for the overall health of this population. Our population totals 
about a million people with an annual expenditure exceeding two billion 
dollars.
    HR Policy Association represents the chief human resource officers 
of more than 250 large employers. The Chairman of the Association is 
William J. Conaty, Senior Vice President of Corporate Human Resources 
for GE. The number one concern among HR Policy members is the 
unsustainable increases in health care costs and deficiencies in health 
care quality that threaten the viability of our nation's health care 
system. In 2003, the HR Policy Association Board of Directors created 
the Health Care Policy Roundtable to take decisive action using the 
collective influence of America's largest private employers to address 
health care cost and quality issues that plague both private employers 
and government payers. The Roundtable is chaired by J. Randall 
MacDonald, Senior Vice President of Human Resources for IBM. Its 
strategies are premised on the recognition that companies, which employ 
more than 20 million employees worldwide, can use their collective 
buying power to leverage health care market reforms within existing 
public policies. In turn, these reforms may provide guidance to 
policymakers in addressing needed changes in U.S. health care policy.
    Two private sector initiatives being undertaken by HR Policy's 
Roundtable are relevant to the discussion today--the National Health 
Access program and the Regional Health Care Quality Reform Initiatives. 
National Health Access is a program created by a coalition of 60 
companies within the Association to create improved health insurance 
options for workers without access to employer provided coverage, and 
simultaneously drive two key market principles: transparency, meaning 
the public release of measures of performance about doctors and 
hospitals, and pay-for-performance. The program has the potential to 
affect 3 million individuals and will launch with the first round of 
employers this fall. The efforts of the Roundtable's Regional Health 
Care Quality Reform Initiatives, which are chaired by John D. Butler, 
Executive Vice President, Administration and Chief HR Officer of 
Textron, Inc., are a critical component of the Roundtable's reform 
agenda and are directly in line with the focus of today's hearing. The 
Roundtable has worked with a number of companies and organizations in 
specific regions to accelerate the measurement, reporting, and 
dissemination of health care provider quality and efficiency data. I 
will describe the early efforts of one of these initiatives in Phoenix 
in more detail later.

The Problem
    Many of us are too familiar with the problems that plague our 
health care system. Purchasers, providers, and patients of health care 
services can no longer accept the status quo. The U.S. spends 
significantly more on health care, both in terms of dollars per capita 
and as a percentage of Gross Domestic Product, than any of our trading 
partners, yet it is difficult to make the case that sufficient value is 
being derived to justify the enormous cost. At the same time it is 
large employers, the private sector, who bear a significant portion of 
the financial burden for this difference with our trading partners, and 
for that we suffer the competitive consequences. Health care purchasers 
face double digit increases each year with no sign of a decline in 
costs or more manageable inflation in the foreseeable future. As such, 
health care is crippling America competitively and draining our federal 
budget.
    Of equal concern is the fact that the huge resources we plow into 
our health care system do not provide access and high quality care for 
all. It is estimated that 45 million Americans are without health 
insurance coverage. Simply layering our existing, opaque, health care 
system across 45 million uninsured Americans is not the solution. This 
would increase overall cost without addressing the systemic flaws in 
our health care system. In addition to a coverage gap, there is a 
serious quality gap. A recent study by the RAND Corporation found that 
adults received recommended care only about 55 percent of the time. 
Clearly meaningful reform is needed. Fundamental components of the 
solution to these quality deficiencies lies in greater transparency and 
disclosure about cost and quality throughout the system, engaging 
consumers who have a stake in the financial as well as clinical 
outcome, and basing payment to doctors and hospitals on performance.

Focus of Testimony
    I am fortunate to share the panel with two individuals who are very 
knowledgeable about pay-for-performance measures. In particular, Jeff 
Hanson of Verizon is an expert on the topic and as President of Bridges 
to Excellence, he is heading a successful practical application of a 
pay-for-performance model. As a result, I will focus my testimony on 
other efforts that employers are collectively and individually 
undertaking to create incentives for doctors and hospitals to improve 
patient care and patient outcomes. Specifically, I'll describe three 
emerging trends among employers: 1) purchasing aimed at finding 
providers that provide the best clinical outcomes at the best value; 2) 
efforts to inject greater transparency about the clinical effectiveness 
and efficiency of providers into the health care system accompanied by 
a payment that rewards performance; and 3) increasing involvement of 
business leaders at the corporate executive level in health care 
purchasing. I'll also provide some examples of these trends.

Employers Are Shifting to Value Based Purchasing in Health Care
    Employers recognize that the purchase of health care is unique and 
personal for a company's workforce. There has to be a sense of trust 
between those making decisions on benefits and those for whom the use 
of the benefits is critically important. Therefore, there cannot be a 
perfect comparison between purchasing health care and selecting a 
supplier for other services. However, the basic premise of demanding 
high standards and holding suppliers (health care providers in this 
instance) accountable is transferable to health care purchasing.
    It was not too long ago that the dominant employer model for 
purchasing health care focused on finding the lowest unit cost of care. 
This short-sighted approach may have resulted in short-term savings for 
a limited time, but did nothing to improve the overall health of our 
workforce. In addition, as demonstrated by the double-digit increases 
in health care premiums that employers have faced over the last several 
years, it is clear this approach failed to lower health care inflation 
for any appreciable time. Employer purchasing of health care is no 
longer simply a matter of finding the cheapest deal. This would be a 
disservice to employees and do nothing to address deficiencies in the 
system.
    Employers are moving from purchasing based on cost to purchasing 
based on value, meaning health care that delivers optimal clinical 
outcomes in the most efficient manner. Experts have continuously 
demonstrated that there are significant differences between doctors and 
hospitals in how well and how efficiently they deliver medical care. At 
GE, our analysis shows that in every major market that we have 
employees the same level of quality is available at prices that differ 
by 30-40 percent. Our data shows that less than 35 percent of our 
hospital admissions occur at hospitals that score highest on both cost 
and efficiency. Large employers are beginning to demand more and hold 
providers and health plans accountable for delivering high quality 
care. They are sending the message that it is no longer tolerable to 
accept these deficiencies.

Transparency is the Foundation of Meaningful Efforts to Lower Costs and 
        Improve Quality
    GE, along with the members of HR Policy's Health Care Policy 
Roundtable, believe a fundamental component of the solution to quality 
deficiencies lies in greater transparency and disclosure about cost and 
quality throughout the system, and engaging consumers who have a stake 
in the financial as well as clinical outcome. True market reforms can't 
occur when purchasers and consumers have no idea what the true cost of 
certain health care services and products are. Employers and employees 
must be exposed to the real net cost of the product or service. At a 
minimum, health care purchasers and consumers want to lift the veil to 
find out who the best health care suppliers are--including hospitals 
and physicians--for specific procedures. This information can then be 
used to provide incentives to consumers to use high performing 
providers and the best treatment alternatives and to pay providers 
differentially based on their performance.
    A major positive advance over the past decade has been the 
development of metrics that can measure quality at the level of doctors 
and hospitals. While it is true that these measures are still being 
perfected, most private sector employers and employer organizations 
like the Health Care Policy Roundtable, as well as many physicians, 
believe that they are accurate enough for public release. Recent 
efforts to develop a standardized set of these measures have been 
successful, including the Ambulatory Quality Alliance, a collection of 
professional trade organizations which recently agreed on a starter set 
of measures acceptable to organized medicine and health insurance 
companies, and the HR Policy Association which developed a more 
complete core set of measures. Although there is little scientific data 
to cite, it is common sense in the business world that what is measured 
is managed, and that making public the performance of doctors and 
hospitals will spur improvement.
    Injecting greater transparency into the system is even more 
important as more employers and employees shift to designs that give 
consumers more control over their health care decisions. Health savings 
accounts and high deductible health plans are based on the premise that 
patients as consumers will be more sensitive to costs when using these 
products, and therefore more engaged in demanding value for their 
health care. At GE, when we ask our employees, over 80 percent say they 
want the kind of information that can be provided through available 
metrics and will use it to make decisions about who to see and where to 
go for treatment. Without transparency, consumers are denied the 
ability to make informed choices about the care they receive. Needed 
reform must have the support of both government and private payers. The 
business community is pleased that some government leaders, such as 
Mark McClellan who heads the Centers for Medicare and Medicaid 
Services, are embracing these concepts.

Health Care Has Gained the Attention of Corporate Executives
    The experiences of the Roundtable's various Regional Health Care 
Quality Initiatives is an eye-opener as to what it takes to address 
some of the problems of our health care system. The effort has evolved 
to recognize that deficiencies will not be addressed unless the payers 
force a solution, which can only be done if they work together and 
exercise their leverage to achieve improvements. Health care has been 
the number one concern of chief human resource officers for the past 
several years and is likely to remain a priority concern for several 
years to come. However, until now, the prevailing model has been for 
senior executives to delegate involvement in collaborative efforts to 
those at a lower level within the company. Those individuals are 
critical to the success of such efforts. They are skilled and 
knowledgeable about the specifics of benefit design and employee 
communications. However, without the involvement of key strategic 
decision-makers, there are limits to what they can accomplish.
    The kind of collaboration and long range planning that is needed is 
unlikely to occur if left exclusively to corporate benefit managers 
whose primary focus is meeting the company's benefits needs in the year 
at hand and putting something workable in place for the following year. 
They often lack the decision-making authority to institute strategic 
change at their companies. It is essential, therefore, that chief human 
resource officers and other senior executives become much more involved 
in setting benchmarks for the purchase and delivery of health care on a 
broad collaborative basis, ensuring that those standards are followed, 
evaluating and ensuring the proper execution of market reform 
strategies, and creating a climate of accountability to focus all 
players on the objectives of lowering costs and improving the quality 
of care purchased for employees. The ultimate solutions for fixing the 
health care system will involve setting a vision for the purchasing 
community, reaching consensus on objectives, and executing a 
collaborative strategy. This can only be achieved by the direct 
involvement of those at the highest levels among purchasers. Just as 
the overall direction of the company is set by those at its highest 
level, the company's role in the future direction of health care must 
also be shaped at that level as well. The ultimate goal is to drive the 
health care system toward the ``Six Sigma'' standards that GE and many 
employers have embraced within their own organizations.
    Though the Roundtable's Regional Health Care Quality Reform 
Initiatives has focused its efforts at the regional level, where an 
immediate impact is most feasible, coalition members understand that it 
is important to not lose sight of the importance of maintaining a 
national perspective as well. The reality is that, while change is 
often a great deal more achievable at the local level, the broad 
structure of our health care system--currently an employment-based 
model--will still likely be a national paradigm, enormously influenced 
by how federal dollars are collected and spent. For this reason, 
members of the Roundtable believe it is equally important that senior 
human resource executives play a role at that level as well. These 
senior executives plan for their involvement not to be simply reactive, 
but to entail the shaping of a vision of the ideal future role of 
employers in the health care system with the formulation and promotion 
of federal policies that achieve that ideal.

Examples of Existing and Emerging Successes in Health Care Purchasing
    Individual company and collaborative efforts that incorporate the 
three trends described above are emerging. Some hold the promise of 
producing needed reform, and others that have already demonstrated 
considerable success. At GE, while we have not found a ``silver 
bullet,'' we are proud of our progress in addressing deficiencies in 
the health care system through our internal purchasing system. We have 
learned that a combination of flawless execution of purchasing basics 
plus a willingness to be innovative, using purchasing clout to address 
fundamental problems in our health care system, yields optimal results.
    The Leapfrog Group. Employers have learned that through united 
efforts they can successfully catalyze change. The progress achieved by 
private and public sector purchasers through The Leapfrog Group is an 
example. The Leapfrog Group is a coalition of more than 165 Fortune 500 
companies and other large private and public sector purchasers of 
health benefits. Its members work to trigger ``leaps'' in the safety, 
quality and affordability of healthcare by supporting informed health 
care decisions and promoting high-value health care through incentives 
and rewards. Leapfrog has identified and refined four hospital quality 
and safety practices: computer physician order entry; evidence-based 
hospital referral; intensive care unit (ICU) staffing by physicians 
experienced in critical care medicine; and quality index of measures of 
safe practices.
    Leapfrog members work to trigger ``leaps'' in the safety, quality 
and affordability of healthcare by supporting informed health care 
decisions and promoting high-value health care through incentives and 
rewards. Leapfrog's strategy is for each of its members to insist on 
transparency and pay-for-performance in its contracts with health 
plans. Leapfrog recently launched its Hospital Rewards program, which 
is essentially a private sector version of the highly successful CMS 
Premier Hospital Incentive Program. If enough purchasers include the 
Leapfrog language in their contracts and insist that plans participate 
in the Hospital Rewards Program, health plans will then change their 
contracts with doctors and hospitals, insisting on data release and 
paying for performance.
    Phoenix Project. One of the Regional Health Care Quality Reform 
Initiatives being undertaken by the Health Care Policy Roundtable in 
Phoenix, Arizona is just getting off the ground, but holds great 
promise. Several HR Policy Association member companies with a 
significant number of employees and/or retirees in the Phoenix region, 
such as GE, IBM, and Honeywell, have teamed up with health plans and 
health care improvement organizations to enhance the depth of 
information about provider quality and efficiency available to 
employers and consumers. Major partners in the endeavor include CIGNA, 
The Leapfrog Group and Bridges to Excellence. CIGNA's decision to 
publicly release information on a core set of performance measures, 
moving away from a proprietary model for measuring quality, is a 
groundbreaking approach that will advance transparency greatly. 
Recently, St. Luke's Health Care Initiatives, an Arizona-based 
nonprofit dedicated to improving community health, and other national 
health carriers in the region have expressed interest in joining the 
effort.
    Working together, the organizations will broaden access to 
standardized quality and efficiency measurements and to make that 
information publicly available to patients and purchasers. Phoenix 
partners have agreed to take the project on two paths. First, they will 
pursue a short-term goal of promoting pay-for-performance through 
existing programs such as Bridges to Excellence and The Leapfrog Group. 
At the same time, the stakeholders involved will work toward a more 
ambitious longer-term goal of aggregating data across health plans and 
employers on provider efficiency and quality, and making that 
information publicly available.
    All comers are welcomed to this initiative, including additional 
health plans, regional coalitions and employers of all sizes. The more 
companies and organizations that are on board, the better our chances 
are for success. The Phoenix project creates a powerful and 
comprehensive approach to regional quality reform for care that can be 
emulated in other markets across the country. Though the Phoenix 
project will begin as a local endeavor, it can serve as a model for the 
sharing of data and information among employers, consumers and other 
health plans.

Conclusion
    Consistent and dedicated efforts by employers can achieve 
significant improvements to our health care system despite the 
formidable challenges that we face. GE and the Health Care Policy 
Roundtable are examples of the business community's dedication to 
ensure that our nation's workforce receives the highest quality health 
care, and that health care purchasers and consumers have access to 
important quality information about doctors and hospitals upon which to 
make important decisions. Only then can purchasers begin to pay 
providers differentially based on the quality of care delivered. We are 
encouraged that the federal government, particularly through 
innovations in quality improvement and an examination of moving toward 
pay-for-performance in the Medicare program, is taking a lead on these 
important issues. We welcome efforts to partner with the government to 
move our nation's health care in the right direction.
                                 ______
                                 
    Chairman Johnson. Dr. Rosenthal, you have got quite a 
varied experience. Please begin.

STATEMENT OF DR. MEREDITH B. ROSENTHAL, ASSISTANT PROFESSOR OF 
 HEALTH ECONOMICS AND POLICY, HARVARD SCHOOL OF PUBLIC HEALTH, 
                           BOSTON, MA

    Ms. Rosenthal. Thank you.
    Thank you, Chairman Johnson, Congressman Andrews, members 
of the subcommittee. Thank you for inviting me here to discuss 
pay for performance and health care.
    The most recent estimates suggest that there are more than 
100 new pay-for-performance programs in the U.S. health care 
sector. Variously, these programs reward physicians, medical 
groups and hospitals for health care quality goals. Typically, 
providers are evaluated and rewarded based on a set of quality 
measures which usually capture problems of underuse.
    For example, physicians may be rewarded based on providing 
cholesterol screening to their patients with coronary artery 
disease. Hospitals are also sometimes rewarded based on 
outcomes measures, including complication rates and in-hospital 
mortality rates.
    Pay for performance has significant positive potential in 
the health care sector, where reimbursement has traditionally 
been based only on the utilization of services and patients are 
often not in any position to distinguish high-quality providers 
from low-quality providers. Financial incentives for quality 
are new, however, and payers face a number of challenges in 
implementing these programs.
    My review will highlight three key issues for policy. 
First, there is insufficient evidence to inform the design of 
pay-for-performance programs; second, there is a need for 
coordination across payers; and, third in its current form pay 
for performance is not positioned to deliver relief from the 
spending trend facing health benefit purchasers.
    Let me describe briefly each point.
    First, despite concurring enthusiasm for pay for 
performance, there is remarkably little evidence in the 
literature for purchasers of health plans to reference when 
they set out their pay-for-performance programs. Moreover, an 
existing analysis of pay-for-performance programs indicates 
that there are opportunities to improve the cost-effectiveness 
of these programs and to increase the likely gains in quality 
for all consumers.
    For example, with few exceptions, pay-for-performance 
programs reward the best performers, either by reference to a 
fixed benchmark or by comparison to one another by ranking 
providers. Economic theory, however, would suggest that 
rewarding all providers for improvement would generate more 
improvement for a given fund.
    In addition, there may also be concerns that if rewards 
only go to the top providers based on, again, the level of 
performance, there will be a downward spiral among the lower 
quality providers who may be serving vulnerable populations, 
populations who already have poor access to health care. There 
is simply no evidence as to the practical importance, the 
magnitude of these potential negative consequences.
    Going forward, purchasers in health plans need timely 
evaluations of a broad range of programs, including assessments 
of negative, unintended consequences, as well as targeted 
decision support to help them sort through research findings 
and make appropriate tradeoffs. Congress could facilitate 
progress toward this end by enhancing the capacity of the 
agency for health care research and quality, which has played a 
critical role in this area.
    My second point concerns the need for coordination among 
payers on the clinical domains and specific quality measures to 
target. As you have heard earlier, the issue is that if only a 
few of the many payers that a provider contracts with are 
paying for performance, or if they are all paying based on 
difference sets of measures, the effects will be deluded.
    Some private sector employers--two on either side of me--
have already begun aligning their efforts through coalitions 
such as the Leapfrog group Bridges to Excellence and a number 
of others, which sets standards for measurement and reporting, 
among other activities.
    CMS's leadership role in this area will also go a long way 
toward this goal as private payers have historically emulated 
the CMS in terms of their payment reforms, including the 
respective payment system. CMS could also support pay-for-
performance programs by further contributing deidentified--
sorry, provider identified, deidentified data to these pooled 
efforts to profile providers using all pair data.
    The third and final issue is that, despite the hopes of 
some benefits purchasers, the current generation of pay for 
performance is not designed to reap cost savings. This is in 
large part due to the fact that the greatest performance 
measurement has so far been on measures of underuse. Therefore, 
if we improve quality in that way, we will lead to increased 
use.
    There is some indication, however, that pay for performance 
is being reoriented toward cost efficiency metrics. Along these 
same lines, payers could greatly benefit from a public 
investment in the development of quality measures that capture 
the negative consequences of overuse.
    To summarize, there several ways in which Federal 
policymakers could enhance private sector pay-for-performance 
efforts.
    First, increase the capacity of the agency for health care 
research and quality to support evaluation and dissemination of 
research on pay for performance, including research on the 
unintended strategies of particular strategies. Second, 
encourage the CMS to continue to take a leadership role in 
quality measurement and pay for performance. Third, facilitate 
the sharing by CMS of patient-deidentified provider-identified 
data to an all-patient base data set. Fourth, through AQHR or 
CMS, support efforts to approve the measurement of cost 
efficiency and overuse.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you. We appreciate your testimony.
    [The prepared statement of Ms. Rosenthal follows:]

 Statement of Dr. Meredith B. Rosenthal, Assistant Professor of Health 
   Economics and Policy, Harvard School of Public Health, Boston, MA

    Chairman Johnson, distinguished Committee members, thank you for 
inviting me to discuss pay-for-performance in health care. In my 
remarks, I will describe recent efforts by health plans and employers 
to reward physicians and hospitals for providing high value health care 
and discuss the economic incentives inherent in the design of these 
programs. My comments derive from my research in this area over the 
past several years, which has been funded by the Agency for Healthcare 
Research and Quality, the Commonwealth Fund, and the Robert Wood 
Johnson Foundation's Health Care Financing and Organization initiative. 
The views expressed in my testimony are, of course, my own and should 
not be attributed to any of these funding agencies.
    Pay-for-performance has significant positive potential in the 
health care sector, where reimbursement has traditionally been based 
only on utilization of services and patients are often not in a 
position to discern high quality from low. In this environment, 
incentives to deliver high value health care are often absent or even 
negative (e.g., preventing a hospital admission will generally reduce 
the net revenues of a health system that includes a hospital). Pay-for-
performance is still new to health care, however, and payers face a 
number of challenges in implementing these programs.
    First, there is little guidance in the literature for purchasers 
and health plans to reference when they set out to design their pay-
for-performance programs. An analysis of the features of the first 
generation of programs indicates that there are opportunities to 
improve the cost-effectiveness of pay-for-performance and increase the 
likely gains in quality and value. To help them design more effective 
pay-for-performance programs, purchasers and health plans need timely 
evaluations of a broad range of programs and targeted decision support. 
Congress could facilitate progress towards this end by enhancing the 
capacity of the Agency for Healthcare Research and Quality (AHRQ), 
which has played a critical role in this area.
    Second, coordination among payers on the clinical domains and 
specific quality measures to target is desirable. If only a few of the 
many payers that a provider contracts with are paying-for-performance 
or if each payer focuses on a different measure set, the effects of 
pay-for-performance may be diluted. Some private sector employers have 
already begun aligning their efforts through health care quality 
improvement coalitions such as the Leapfrog Group, Bridges to 
Excellence, and others, which offer standardized programs of 
performance measurement, reporting, and reward. CMS'' leadership role 
in this area may go a long way towards this goal as private payers have 
historically emulated many of Medicare's more significant payment 
reforms, such as the Prospective Payment System. CMS could also support 
pay-for-performance efforts further by contributing de-identified data 
to an all-payer data set from which more reliable performance 
evaluation could be conducted (because of larger denominators).
    Finally, despite the hopes of some benefit purchasers, the current 
generation of pay-for-performance is not designed to reap cost savings, 
particularly since most of the quality measures it targets are measures 
of under use. In my view, it would be desirable to enlist pay-for-
performance in the service of enlightened cost control in order to 
preserve the availability of private insurance coverage. There is some 
indication that pay-for-performance is being reoriented towards cost 
savings with the incorporation of increasingly robust cost-efficiency 
metrics, which are being refined by a number of researchers. Along 
these lines, payers could also greatly benefit from a public investment 
in the development of quality measures that capture the negative 
consequences of over use.
    Pay-for-performance should be viewed as one element of the set of 
strategies that employers, health plans, and government programs are 
undertaking to improve the value of health care spending and make 
insurance coverage more affordable. Other promising tools that are 
taking hold alongside pay-for-performance include public reporting of 
quality and cost information, tiered benefit designs that give 
consumers incentives to choose higher quality and lower cost providers 
and treatments, shared risk payment models such as the one being 
evaluated under the Centers for Medicare and Medicaid Services Provider 
Group Practice demonstration, and disease management. All of these 
approaches to cost control and quality improvement are evolving and 
come with their own set of advantages and disadvantages. Because there 
is very little evidence base that can be drawn upon to inform the 
design and implementation of these efforts, it is critical that the 
natural experiments being undertaken by both public and private 
insurers be evaluated and the results disseminated effectively to key 
decision makers.

Payers Increasingly Align Financial Incentives with Quality Goals
    During the past three years, numerous employers, purchasing 
coalitions, and health plans in the U.S. have announced new efforts to 
pay providers for performance on quality and cost-efficiency measures. 
The most recent estimates suggest that there are more than 100 
individual pay-for-performance efforts underway in the U.S. health care 
sector. These programs vary along a number of dimensions including 
(among others) the type of sponsor, the size of the bonus, the formula 
for determining the bonus allocation, and the clinical areas targeted. 
I describe several examples to illustrate the diversity of approaches 
and then highlight the most prevalent program features and their 
economic and policy implications.
    In California, seven health plans are coordinating pay-for-
performance programs under the auspices of the Integrated HealthCare 
Association (IHA), a multi-stakeholder coalition. The seven plans, 
which constitute more than 60% of the commercial market for physician 
services in the state, are awarding bonuses to large, multispecialty 
physician groups based on clinical process measures such as rates of 
childhood immunizations and cholesterol screening, patient 
satisfaction, and investments made in technology and infrastructure. 
While the performance measures are common across the seven IHA health 
plans, the structure of the bonus varies. Most plans have opted to 
reward the top performers only (e.g., the top deciles or quartiles) 
using a bonus that is proportional to the number of the plan's patients 
cared for by the group.
    Similarly, Anthem's New Hampshire Blue Cross/Blue Shield plan pays 
bonuses to physicians who screen patients for breast, cervical, and 
prostate cancer and high cholesterol, help patients manage diabetes, 
and provide other recommended preventive health care. Anthem's 
performance bonus was $20 per patient for the top quartile of 
physicians and about half of that for physicians ranked between the 
50th and 75th percentile. Physicians were also eligible for an 
additional payment of $20 per patient for participating in the plan's 
disease management program.
    Another noteworthy physician reward program is Bridges to 
Excellence, a growing collaborative effort started by several large 
employers including General Electric and Verizon Communications. The 
program offers $100 per diabetic patient to physicians who become 
certified by National Committee for Quality Assurance/American Diabetes 
Association's provider recognition program. A similar program for 
cardiac care has also been launched. Finally, doctors can receive $55 
per patient for establishing clinical information systems in their 
offices that aid in regular follow up in the care of chronically ill 
patients, and implementing patient education programs. Many of the 
measures within each of the areas targeted by Bridges to Excellence are 
structural in nature (i.e., they catalogue the existence of specific 
elements of infrastructure or capacity such as an electronic medical 
record), although both process and outcome measures are also featured 
in the scorecards associated with each area of focus.
    Finally, as you may know, the Centers for Medicare and Medicaid 
Services (CMS) have been actively developing their own pay-for-
performance programs. In July 2003, CMS and Premier, Inc., a nationwide 
organization of not-for-profit hospitals, announced a demonstration 
project to provide quality bonuses for hospitals based on performance 
related to treatment in five clinical areas that are particularly 
critical for Medicare's elderly population: heart attack, heart 
failure, pneumonia, coronary artery bypass surgery, and hip and knee 
replacements. Performance measures include both process and outcome 
measures. For example, the set of measures for coronary artery bypass 
surgery includes rates of aspirin prescribed at discharge, inpatient 
mortality, and post-operative hemorrhage or hematoma. Hospitals are 
scored and ranked on the measures condition by condition and any 
hospital in the top 10% for a given condition will receive a 2% bonus 
on their Medicare payments; hospitals in the next 10% will receive a 
bonus of 1 percent. In the third and final year of the demonstration, 
the hospitals with the worst performance (those that fall below a 
predetermined threshold) will be financially penalized. Early results 
disseminated by CMS suggest that substantial improvement has occurred 
among the participating Premier hospitals in the targeted clinical 
domains.( See http://www.cms.hhs.gov/media/press/
release.asp?Counter=1441) In addition to the Premier demonstration, the 
CMS has incorporated pay-for-performance features into its Provider 
Group Practice and Health Support demonstrations. For example, in the 
Health Support program, disease management contractors have guaranteed 
savings to CMS and will also be made financially accountable for a 
variety of performance measures including patient satisfaction.

Common Themes among Pay-for-Performance Programs
    The majority of pay-for-performance arrangements target both 
measures of clinical quality and patient experience. Particularly for 
physicians, clinical quality measures are typically rates of preventive 
care and other ``process measures'' that can be easily extracted from 
administrative data. Nearly all of these process measures address 
problems of under use--they measure the rate of use of recommended care 
for specific population groups. The focus on process measures reflects 
the state of quality measurement (particularly our ability to account 
for underlying patient differences across physicians and hospitals) 
rather than priorities for quality improvement. Thus, in the current 
context, paying-for-performance almost always means rewarding 
physicians and hospitals for delivering more services, for which they 
may also be able to bill (depending upon the reimbursement system). 
Perhaps in recognition of the cost implications of correcting under use 
through pay-for-performance, as pay-for-performance programs have 
evolved payers are also increasingly providing incentives for 
performance on cost-efficiency metrics. (Baker and Carter, 2004)
    Almost without exception current pay-for-performance programs 
reward the best providers--all those either above a specific threshold 
or percentile ranking. Quality improvement is not explicitly required 
for the receipt of a bonus so that in practice the incentives to 
improve will vary with baseline performance. Particularly with an 
absolute performance threshold (e.g., an 80% childhood immunization 
rate), physicians or hospitals that already meet the standard need only 
to maintain the status quo to receive payment. Similarly, for bonuses 
that are tied to the use of information technology or other 
``structural'' measures of quality (such as having a patient registry) 
payments will go not only to those providers that improve their 
infrastructure, but also to every provider that already conforms to the 
standards. Most payers understand this very clearly and believe that it 
is important to reward providers that deliver the best quality care 
even if the rewards do not provide incentives for change.
    It is also noteworthy that among pay-for-performance programs in 
the U.S., few payers put at risk more than 5% of payments. Moreover, 
because of the small market shares of some pay-for-performance program 
sponsors, the percent of a physician's overall revenue that is at stake 
can be much less than 5 percent. From an economic standpoint, the gain 
from quality improvement must counterbalance the cost, so if the 
quality improvement goals we set for providers are costly to achieve 
the current levels of payment may be insufficient to generate the 
desired response.

What is Known About the Effectiveness of Pay-for-Performance?
    Two recent reviews document the scarcity of evidence to support the 
effectiveness of pay-for-performance in health care (Rosenthal and 
Frank In Press; Dudley et al. 2004). These reviews identify only seven 
evaluations in the health care literature that are pertinent (Amundson 
2003, Fairbrother et al. 1999; Geron 1991; Hillman et al. 1998; Hillman 
et al. 1999, Kouides et al; 1998; Roski et al. 2003), one of which 
offered no interpretable results (Geron 1991). Among the other six 
studies, three (among which were those with the strongest research 
designs) yielded null results (Hillman et al. 1998; Hillman et al. 
1999; Fairbrother et al. 1999). Two other controlled studies found 
modest improvements with pay-for-performance (Kouides et al. 1998; 
Roski et al. 2003) while the sixth study demonstrated substantial 
performance improvement but no evidence with regard to how much of this 
was due to the program rather than secular trends. (Amundson et al. 
2003) Five of these six studies involved interventions targeting only a 
single dimension of care such as childhood immunizations (Fairbrother 
et al. 1999; Geron 1991; Hillman et al. 1998; Hillman et al. 1999, 
Kouides et al; 1998; Roski et al. 2003) and most of these provided only 
small rewards. In one of the two studies with positive findings linked 
to pay-for-performance, it was found that most of the gain in 
performance was achieved through better documentation of immunizations 
provided outside the physician's practice rather than improvements in 
immunization rates per se. While improved documentation may be 
valuable, it was certainly not the main goal of the program.
    Outside of the health care sector, there are a variety of studies 
of similar incentive programs, the results of which are relevant to 
health care (Rosenthal and Frank, In Press.) Pay-for-performance 
programs have been used in schools and several recent experiments have 
documented improvements in test scores and other outcomes under these 
programs (Lavy 2002; Clotfelter and Ladd 1996; Hanushek and Jorgenson 
1996.) One of these studies, by Lavy (2002), also demonstrated that 
pay-for-performance was more cost-effective (produced a larger impact 
for the same expenditure) than direct subsidies for new programs and 
additional staff time. Pay-for-performance has also been incorporated 
into Federal contracts for job training programs. Studies examining 
these programs found that pay-for-performance had a positive impact on 
the rate of job placement and average earnings, even after accounting 
for gaming on the part of contractors.
    Empirical evidence regarding the existence of unintended 
consequences of pay-for-performance both inside and outside of health 
care is relatively well-established. Gaming has been shown to occur 
with pay-for-performance systems among return-to-work programs and 
schools, largely in the form of selecting trainees and students with 
the highest ex ante probability of success. In health care, both 
physicians and hospitals have been found to attempt to select healthier 
patients under prospective payment to maximize net revenues. Other 
possible negative effects of targeted incentives including reductions 
in quality of care in areas not targeted for financial rewards, which 
may be a particular concern in primary care because of the broad scope 
of practice, have simply not been evaluated empirically.

Key Policy Issues
    Through the lens of economic theory and empirical evidence, my 
review of current pay-for-performance programs yields three key policy 
issues. First, there is little guidance in the literature for 
purchasers and health plans to reference when they set out to design 
their pay-for-performance programs. An analysis of the features of the 
first generation of programs indicates that there are opportunities to 
improve the cost-effectiveness of pay-for-performance and increase the 
likely gains in quality of care. To help them design more effective 
pay-for-performance programs, purchasers and health plans need timely 
evaluations of a broad range of programs and targeted decision support. 
Congress could facilitate progress towards this end by enhancing the 
funding capacity of the Agency for Healthcare Research and Quality, 
which has played a critical role in this area.
    Second, coordination among payers on the clinical domains and 
specific quality measures to target is desirable. If only a few of the 
many payers that a provider contracts with are paying-for-performance 
or if each payer focuses on a different measure set, the effects of 
pay-for-performance may be diluted. Some private sector employers have 
already begun aligning their efforts through health care quality 
improvement coalitions such as the Leapfrog Group, Bridges to 
Excellence, and others, which offer standardized programs of 
performance measurement, reporting, and reward. CMS'' leadership role 
in this area may go a long way towards this goal as private payers have 
historically emulated many of Medicare's more significant payment 
reforms, such as the Prospective Payment System. CMS could also support 
pay-for-performance efforts further by contributing de-identified data 
to an all-payer data set from which more reliable performance 
evaluation could be conducted (because of larger denominators).
    Finally, despite the hopes of some benefit purchasers, the current 
generation of pay-for-performance is not designed to reap cost savings, 
particularly since most of the quality measures it targets are measures 
of under use. In my view, it would be desirable to enlist pay-for-
performance in the service of enlightened cost control in order to 
preserve the availability of private insurance coverage. There is some 
indication that pay-for-performance is being reoriented towards cost 
savings with the incorporation of increasingly robust cost-efficiency 
metrics, which are being refined by a number of researchers. Along 
these lines, payers could also greatly benefit from a public investment 
in the development of quality measures that capture the negative 
consequences of over use.
    Pay-for-performance should be viewed as one element of the set of 
strategies that employers, health plans, and government programs are 
undertaking to improve the value of health care spending and make 
insurance coverage more affordable. Other promising tools that are 
taking hold alongside pay-for-performance include public reporting of 
quality and cost information, tiered benefit designs that give 
consumers incentives to choose higher quality and lower cost providers 
and treatments, shared risk payment models such as the one being 
evaluated under the Centers for Medicare and Medicaid Services Provider 
Group Practice demonstration, and disease management. All of these 
approaches to cost control and quality improvement are evolving and 
come with their own set of advantages and disadvantages. Because there 
is very little evidence base that can be drawn upon to inform the 
design and implementation of these efforts, it is critical that the 
natural experiments being undertaken by both public and private 
insurers be evaluated and the results disseminated effectively to key 
decision makers.

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        Zhu. 2003. The impact of financial incentives and a patient 
        registry on preventive care quality: increasing provider 
        adherence to evidence-based smoking cessation practice 
        guidelines. Preventive Medicine 36 (3):291-9.
                                 ______
                                 
    Chairman Johnson. Mr. Hanson, you may begin.

 STATEMENT OF JEFFREY R. HANSON, REGIONAL HEALTH CARE MANAGER, 
   VERIZON COMMUNICATIONS, PRESIDENT, BRIDGES TO EXCELLENCE, 
                          PORTLAND, ME

    Mr. Hanson. Mr. Chairman, Congressman Andrews and members 
of the subcommittee, my name is Jeffrey Hanson; and I am the 
regional health care manager for Verizon Communications and 
President of the Bridges to Excellence initiative. I want to 
thank you for giving me the opportunity to testify on what 
private companies such as Verizon are doing in the area of pay 
for performance.
    Verizon provides health care coverage to nearly 800,000 
employees, retirees and their family members at an annual cost 
to the company of more than $3.2 billion. The quality of health 
care received by our employees, retirees and covered family 
members is of paramount importance to Verizon. One of the 
cornerstones to obtaining real transformation of our health 
care system is provider quality differentiation, quality data 
transparency and realignment of the provider payment system 
based on quality performance.
    The number of pay-for-performance programs has increased 
rapidly over the past few years, numbering now over 100 
programs across the country. Verizon participates either 
directly or indirectly in many of these programs. We are a 
founding player in two of the more prominent initiatives, 
Bridges to Excellence and the Leapfrog hospital incentives and 
rewards program. Bridges to Excellence is a physician-based 
program, and the Leapfrog program is a hospital-based pay-for-
performance program.
    These two initiatives found their genesis in two very high-
profile reports generated by the Institute of Medicine, 
Crossing the Quality Chasm and To Err is Human. These reports 
grabbed the attention of senior executives in corporations 
coast to coast. It was literally a call to action.
    Bridges to Excellence is a not-for-profit organization 
organized to create significant advances in the quality of 
health care by developing reimbursement models that encourage 
the recognition of health care providers who have implemented 
changes in their delivery of health care to achieve better 
patient outcomes.
    There are three components of this program. The Physician 
Office Link component enables physician office sites to qualify 
for bonuses based on their implementation of specific processes 
to reduce errors and increase quality. They can earn up to $50 
per year for each patient covered by a participating employer 
or health plan.
    In addition, a report card for each physician office 
describes its performance on the program measures and is made 
available to the public.
    The Diabetes Care Link portion of the program enables 
physicians to achieve 1-year or 3-year recognition for high 
performance in diabetes care. Qualifying physicians receive up 
to $80 for each diabetic patient covered by a participating 
employer or plan. In addition, the program offers tools to help 
diabetic patients get engaged in their own personal care, 
achieve better outcomes and identify local physicians that meet 
the high-performance measurements.
    Finally, the Cardiac Care Link portion of the program 
enables physicians to achieve 3-year recognition of high 
performance in cardiac care. Qualifying physicians are eligible 
to receive up to $160 for each cardiac patient covered by a 
participating employer or plan.
    Bridges to Excellence programs are currently in progress in 
four markets, Cincinnati, Louisville, Boston and Albany, New 
York. In addition, we are looking to implement Bridges to 
Excellence in several new markets in the coming months, 
including Houston, Phoenix and Omaha, to name only three.
    To date, the results of our program have been very 
encouraging. We have 282 recognized physicians in our pilot 
markets who qualify for the Diabetes Care Link program and 571 
physicians who qualify for our Physician Office Link program. 
We have distributed over $1.5 million in physician rewards to 
these physicians. Early program analysis shows that physicians 
rewarded through our diabetes care program are approximately 10 
to 15 percent more efficient than the nonrecognized diabetes 
physicians. In the Physician Office Link program, rewarded 
physicians are approximately 10 percent more efficient than 
those not recognized.
    The Leapfrog group, formed in 1998 by Verizon, along with 
other employees, was brought about to focus on hospital patient 
safety. Leapfrog now has over 160 member companies and 
organizations, both private and public. Together, we spend over 
$64 billion annually on health care and cover over 34 million 
individuals in all 50 States.
    Leapfrog is now augmenting its patient safety measurement 
function with a new initiative, the Leapfrog hospital incentive 
and rewards program. This program measures hospitals on both 
quality and efficiency and creates incentives and rewards for 
performance improvement. This program is currently being 
launched in Albany, New York, in partnership with the Bridges 
to Excellence program.
    As described above, the private sector has begun to use its 
leverage as a purchaser to provide incentives to physicians and 
hospitals to install quality improvements in their operations, 
much as we have in our daily business activities.
    The government, with its power as a purchaser for Medicare 
and to some extent Medicaid services, should work with the 
private sector on these initiatives to securitize efforts to 
reward the same quality improvement objectives.
    In an age of rapidly rising health care costs, combined 
with little or no system accountability for outcomes, there is 
a greater risk than ever for purchasers, providers and 
especially patients to find their interests at odds. This is 
unacceptable. Peoples lives are at risk. We need to work to 
solve these systemic problems.
    Verizon has recognized this and is involved. We hope you 
will join this effort. Taking steps now to encourage better 
performance and reduce inefficiencies will pave the way for a 
better system of care, one that provides better outcomes for 
patients as well as meets the goals of purchasers and 
providers.
    I want to thank you, Mr. Chairman, Mr. Andrews and members 
of the subcommittee, for the opportunity to discuss these 
important initiatives and would be pleased to answer any 
questions. Thank you.
    Chairman Johnson. Thank you.
    [The prepared statement of Mr. Hanson follows:]

 Statement of Jeffrey R. Hanson, Regional Healthcare Manager, Verizon 
     Communications, President, Bridges to Excellence, Portland, ME

    Mr. Chairman and members of the Committee, my name is Jeffrey 
Hanson, and I am the Regional Healthcare Manager for Verizon 
Communications, as well as the President of the Bridges to Excellence 
initiative. I want to thank you for giving me the opportunity to 
testify on what private companies are doing in the area of Pay-for-
Performance.
    Verizon provides health care coverage to nearly 800,000 employees, 
retirees, and their family members, at an annual cost to the company of 
more than $3.2 billion. The company subsidizes approximately 80 percent 
of the health plan costs for management employees and 99 percent for 
associates. The rising cost of care challenges a company's bottom line.
    Verizon works aggressively to preserve quality health care while 
trying to curtail costs. However health care spending is increasing at 
a rate faster than company revenues. Cost shifting from medical 
providers, health care disparities, untapped technology options and 
rising health care industry prices contribute to the problem.
    The quality of healthcare received by our employees, retirees and 
covered family members is of paramount importance to Verizon.
      Inadequate quality of care from medical providers 
requires corporations to pay twice: once for the expensive but less-
than-optimal care, and then again for decreased productivity, i.e., 
time not worked and increased costs for sick pay and disability pay.
      Inappropriate treatments force patients to suffer longer. 
In 2003, the Rand Corporation found that 45% of the time, on average, 
patients did not receive the recommended care required for their 
condition.
      Studies by the Institute of Medicine and others estimate 
the nationwide annual costs of inappropriate care is in the $300-$500 
billion range, or one third of national expenditures on health care. To 
a large degree ``the system is broken.''

[GRAPHIC] [TIFF OMITTED] T1243.001

    As one of the largest employers in the country, Verizon is 
committed to ensuring that the people we cover, and all Americans, have 
access to quality, innovative and affordable health care options. 
Therefore, Verizon has taken a leadership role to advance a proactive 
public policy agenda for health care reform. Pay-for-performance is an 
important cornerstone in our efforts to advance the quality improvement 
imperative. And it is an important part of a long-term cost reduction 
strategy for employer health benefits. Plan design and administrative 
changes produce only short-term, temporary savings. The identification 
and rewarding of higher quality, more efficient healthcare will produce 
long-term value for employers and employees alike.

[GRAPHIC] [TIFF OMITTED] T1243.002

Pay-for-Performance
    One of the cornerstones to obtaining real transformation of our 
healthcare system is provider quality differentiation, quality data 
transparency, and realignment of the provider payment system based on 
quality performance. Quality measures encompass several areas including 
process systems, clinical systems and outcomes. The number of pay-for-
performance programs has increased rapidly over the past two years, now 
numbering over 100 programs across the country. Verizon participates 
either directly or indirectly with many of these programs.
    Verizon advocates for the agenda set for by the National Health 
Information Infrastructure, including:
      Deliver high quality, safer care through rewards around 
common sets of metrics for use of interoperable Electronic Health 
Records and data standards through NHII and outcomes from their 
implementation with a view to accelerate the transformation of care 
processes and increased accountability.
      Reform reimbursement to incent appropriate use of health 
IT including care coordination, disease/care management, data sharing, 
publishing/subscribing performance accountability and quality.
      Equitable payments by all payers for the ongoing use of 
and improved outcomes from HIT.
    We are a founding player in two of the more prominent national 
initiatives, Bridges To Excellence and the Leapfrog Incentives & 
Rewards Program, both of which provide incentives to the provider 
community based on nationally recognized quality metrics. Bridges To 
Excellence is a physician-based program and the Leapfrog program is a 
hospital-based program.
    These two initiatives found their genesis in two very high-profile 
reports generated by the Institute of Medicine, To Err is Human and 
Crossing the Quality Chasm. These reports grabbed the attention of 
senior executives in corporations coast-to-coast. It was literally a 
``call-to-action.''

Bridges To Excellence
    In the 2001 report, ``Crossing the Quality Chasm'', the IOM 
identified six key attributes around which the health care system 
should be redesigned. They said the system needs to be more: Safe, 
Timely, Effective, Efficient, Equitable, and Patient-centered (STEEEP).
    Redesigning the healthcare system around these attributes will not 
be easy. In fact, it will require changes at every level, including:
      Environments such as insurers, purchasers and regulators;
      Organizations such as hospitals and medical groups;
      Micro-environments such as office practices and hospital 
units;
      Individual clinicians;
      And at the center, the patient.
    In one major recommendation, the IOM said payments for care should 
be redesigned to encourage providers to make positive changes to their 
care processes. Ideally, this shift will begin with purchasers and 
insurers, and filter down through the delivery system to help encourage 
improvements at all levels.
    In response to this challenge, a group of employers, physicians, 
health plans and patients have come together to create Bridges to 
Excellence. Bridges to Excellence is a not-for-profit organization with 
a Board composed of representatives from employers, providers and 
plans. The Corporation is not formed for pecuniary profit or financial 
gain. The Corporation is organized to create significant advances in 
the quality of health care by:
      Providing tools, information and support to consumers of 
health care services,
      Conducting research with respect to existing health care 
provider reimbursement models,
      Developing reimbursement models that encourage the 
recognition of health care providers who demonstrate that they have 
implemented comprehensive solutions in the management of patients and 
deliver safe, timely, effective, efficient, equitable and patient-
centered care which is based on adherence to quality guidelines and 
outcomes achievement.
    Guided by three principles, its purpose is to create programs that 
will realign everyone's incentives around higher quality:
      Reengineering care processes to reduce mistakes will 
require investments, for which purchasers should create incentives;
      Significant reductions in defects (misuse, underuse, 
overuse) will reduce the waste and inefficiencies in the health care 
system today;
      Increased accountability and quality improvements will be 
encouraged by the release of comparative provider performance data, 
delivered to consumers in a compelling way.
    Three programs guided by these principles are already underway: 
Physician Office Link, Diabetes Care Link and Cardiac Care Link.
    Physician Office Link enables physician office sites to qualify for 
bonuses based on their implementation of specific processes to reduce 
errors and increase quality. They can earn up to $50 per year for each 
patient covered by a participating employer or plan. In addition, a 
report card for each physician office describes its performance on the 
program measures and is made available to the public.
    Diabetes Care Link enables physicians to achieve one-year or three-
year recognition for high performance in diabetes care. Qualifying 
physicians receive up to $80 for each diabetic patient covered by a 
participating employer and plan. In addition, the program offers a 
suite of products and tools to help diabetic patients get engaged in 
their care, achieve better outcomes, and identify local physicians that 
meet the high performance measures. The cost to employers is no more 
than $175 per diabetic patient per year with savings of $350 per 
patient per year. Cardiac Care Link enables physicians to achieve 
three-year recognition for high performance in cardiac care. Qualifying 
physicians are eligible to receive up to $160 for each cardiac patient 
covered by a participating employer and plan. In addition, the program 
offers a suite of products and tools to help cardiac patients get 
engaged in their care, achieve better outcomes, and identify local 
physicians who meet the high performance measures. The cost to 
employers is no more than $200 per cardiac patient per year with 
savings up to $390 per patient per year.

[GRAPHIC] [TIFF OMITTED] T1243.003

    Bridges To Excellence programs are currently underway in four 
markets, Cincinnati, Louisville, Boston and Albany. These programs are 
all employer-driven and reward monies being paid to the physicians are 
paid by the employer participants. Recently health plans have expressed 
interest in the program and we are working with them to launch BTE in 
several new markets including, Phoenix, Houston, and Omaha, to name 
only three. In addition, BTE is coordinating efforts with CMS as they 
implement the MCMP (Medicare Care Management Project) in four markets 
around the country. We are working collectively to align our provider 
quality measures to promote all stakeholders working to transform the 
healthcare system do so using mutually-developed standards.

[GRAPHIC] [TIFF OMITTED] T1243.004

    BTE Results to Date
      282 DPRP recognized and 571 PPC recognized physicians in 
pilot markets
      Distributed over $1.5M in physician rewards
      DPRP physicians are approximately 10-15% more efficient 
that non-DPRP physicians
      PPC recognized physicians are approximately 10% more 
efficient than non-PPC recognized physicians

Leapfrog Incentive & Rewards Program
    In 1998 a group of large employers, including Verizon, came 
together to discuss how they could work together to use the way they 
purchased health care to have an influence on it's quality and 
affordability. They recognized that there was a dysfunction in the 
health care market place. Employers were spending billions of dollars 
on health care for their employees with no way of assessing its quality 
or comparing health care providers.
    Leapfrog now has over 160 member companies and organizations, both 
private and public. Together they spend over $64 billion annually on 
healthcare, covering over 34 million individuals in all 50 states.
    A 1999 report by the Institute of Medicine, To Err is Human, gave 
the Leapfrog founders an initial focus--reducing preventable medical 
mistakes. The report found that up to 98,000 Americans die every year 
from preventable medical errors made in hospitals alone. In fact, there 
are more deaths in hospitals each year from preventable medical 
mistakes than there are from vehicle accidents, breast cancer, and 
AIDS. The report actually recommended that large employers provide more 
market reinforcement for the quality and safety of health care. The 
founders realized that they could take ``leaps'' forward with their 
employees, retirees and families by rewarding hospitals that implement 
significant improvements in quality and safety.
    The Leapfrog Group and its members work to initiate breakthrough 
improvements in the safety, quality and affordability of health care 
for Americans. Research has shown that patients receive recommended 
health care only 55% of the time, and 30% of health care costs are due 
to poor care. Poor quality also means up to 98,000 deaths per year due 
to medical mistakes.
    The Leapfrog Incentive and Rewards Program:
      Inspired by the current CMS-Premier demonstration program
      Measure both effectiveness (quality) and efficiency 
(cost)
      The primary goal is to create incentives for performance 
improvement, both on quality and cost
      Purchasers and plans can make this work in their current 
environments
      Hospitals can participate with very minimal additional 
reporting
      All aspects of the program were reviewed by experts and 
vetted by stakeholders
    This program is being launched currently in Albany, NY in 
partnership with the Bridges To Excellence program, already underway in 
that market. In it another example of bringing together stakeholders 
from across the healthcare system in a concerted effort to drive 
quality reform using common sets of standards and measures.

Recommendation
    As described above, the private sector has begun to use its 
leverage as a purchaser to provide incentives to physicians and 
hospitals to install quality improvements in their operations, much as 
we have in our daily business activities. The federal government with 
its power as a purchaser for Medicare and to some extent Medicaid 
services should work with the private sector on these initiatives to 
synchronize efforts to reward the same quality improvement objectives.

Summary
    In an age of rapidly rising health care costs, combined with little 
or no system accountability, there is a greater risk than ever for 
purchasers, patients and providers to find their interests at odds. 
This can lead to intractable gridlock and the creation of few, if any, 
solutions to systemic problems.
    Taking the steps now to encourage better performance and reduce 
inefficiencies will erase this gridlock and pave the way for a better 
system of care--one that meets the goals of purchasers, providers and 
patients alike. Implementing systems to support physicians is a great 
place to start. We hope you will join us in this effort.
    I thank the Committee for the opportunity to discuss these 
important initiatives and would be pleased to answer any questions.
                                 ______
                                 
    Chairman Johnson. Let me ask you one. Just because it is 
more efficient, does that make it better?
    Mr. Hanson. It is a step to making it better. Efficiency--
--
    Chairman Johnson. What do you mean by efficiency? I mean, 
you know, does that require more nurses or better or what?
    Mr. Hanson. No, I think the statement was made well earlier 
that efficiency really is the best value, is value. It is the 
best care at the best price.
    Chairman Johnson. So if you go in for heart surgery, for 
example, if they roll you right into the operating room, they 
are more efficient, does that make it better?
    Mr. Hanson. No, that is not our definition of efficiency.
    Chairman Johnson. OK, tell me what it is.
    Mr. Hanson. No, our definition of efficient is that you 
deliver the best-quality care at the best price.
    Chairman Johnson. How do you measure that? I guess it falls 
back to CMS--and all of you are welcome to answer this 
question. How many of you think they are doing the right job 
and can we do better through them? Because, really, they are 
the ones that have contacts with all the hospitals and doctors 
in the country.
    Go ahead.
    Mr. Hanson. I think currently----
    Chairman Johnson. How many do you think are doing a good 
job? Let me ask you that question.
    Mr. Hanson. Do you think they are doing a good job?
    Chairman Johnson. No. I asked you that question. Are they?
    Mr. Hanson. I think we are all trying to do a better job, 
and that is why we are sitting here at the table.
    Chairman Johnson. Karen--you don't mind me calling you 
that?
    Ms. Ignagni. No, sir, please.
    Chairman Johnson. I think I remember that.
    Ms. Ignagni. I was going to give you an allergy example on 
your efficiency question.
    But on CMS I think they are. They have set out specific 
goals. They have met each one of the goals. They have put 
quality on the table. They have put the whole effectiveness and 
value issue on the table. So I think they deserve to be 
commended, and they are bringing stakeholders in to participate 
in a strategy, in designing a strategy to get it right.
    In terms of the answer to the efficiency point that I think 
Mr. Hanson made very well--and bringing it back to an allergy 
example, a simple concept. For me, an asthma patient, for 
example, what is not an efficient expression of health care 
utilization is for me to end up in the hospital emergency room. 
So as part of a disease management program to understand my 
medicines, to understand when I should take them and to have 
someone, my physician, looking over the shoulder to advise on 
the appropriate combination, that is a good example of 
efficiency.
    Dr. Galvin. I think CMS is doing a good job, and I think 
most people in the private sector feel that way, I think for 
many of the reasons Karen mentioned. They have reached out to 
do partnership. They are really leaders in this idea of they 
are using all in their power to be a purchaser, not just a 
regulator. That has really resounded. I think they are doing a 
fabulous job.
    Chairman Johnson. Go ahead.
    Ms. Rosenthal. I have to agree that the main thing that CMS 
has done that has been really important is improving the 
transparency of performance across their providers, which is 
pretty much all of the providers in the United States, but 
through the hospital quality alliance, other public reporting 
interventions that they have done.
    On the payment side, that is mostly in the demonstration 
stage. But there are, through the provider group, practice 
demonstrations, for example, working with trying to reorganize 
the reimbursement system to reward efficiency in the sense of--
again, getting to a certain outcome at the least cost, 
including all kinds of costs that might be in the future, for 
example, getting to the least cost through the reimbursement 
system. They are well targeting performance improvements on the 
quality of care side, including patient experience, patient 
satisfaction. So I think they are moving in the right 
direction.
    Chairman Johnson. Do you all see any resistance from 
doctors?
    Ms. Rosenthal. I suspect there will be significant 
resistance from physicians. Because, again, this is all about 
measurement and transparency. No one necessarily wants to have 
their grades posted on the Web.
    Chairman Johnson. You are getting it from patients, too, 
because they don't want to put their stuff on a computer, you 
know.
    Dr. Galvin. To the question about physicians, what I have 
learned is there is no one physician response. So I think 
organized medicine has a lot of hesitations and are really 
concerned about this.
    We have found tens of thousands and collectively more than 
that of physicians who really get it, who think that being 
measured makes them better.
    There is a great example in this Bridges to Excellence 
program. A doctor in Louisville actually treats inner city--it 
is not a doctor that treats GE patients--agreed to join the 
program. His comment was, you know, I thought I was doing a 100 
percent great job. I got my actual measures back, and it turns 
out I was only doing the right thing about 60 or 65 percent of 
the time. His attitude was, that is great. Now how do I get 
better? So I feel there is variation among doctors about this.
    Chairman Johnson. That is good, and don't try to rank us up 
here.
    Yes, ma'am.
    Ms. Ignagni. Mr. Chairman, a great example of the doctors 
coming to the table. Washington is full of examples of strange 
bedfellows. Our organization has been working for 9 months with 
the College of Physicians, the family physicians, and now the 
AMA is involved, to get a number of employers and consumers to 
try to wrestle with this idea of how do you create uniformity 
in measurement. CMS has been involved. ARC has been involved. 
It has been a great example of physicians leading the 
conversation--and with their colleagues--about what is the 
right thing to measure under what circumstances. It is a great 
example of partnerships between public and private entities.
    Chairman Johnson. Thank you.
    Mr. Andrews.
    Mr. Andrews. Thank you.
    I want to thank you for your testimony, and I wanted to ask 
Mr. Hanson about the Bridges to Excellence program. My 
understanding is you are coming up on 2 years of experience in 
Cincinnati or Louisville.
    Mr. Hanson. That is correct.
    Mr. Andrews. There are about 200,000 lives in the program?
    Mr. Hanson. Across all four markets, yes.
    Mr. Andrews. It says that 7,000 are in the diabetes 
section. Explain to me how that works. If I understand it 
correctly--or study a certain set of materials. Then if that 
physician does, then he or she is identified in the program as 
sort of a diabetes person, or get some kind of Good 
Housekeeping Seal of Approval.
    Mr. Hanson. We work collaboratively. One you are 
specifically talking about is a diabetes recognition program, 
which was collaborative with the American Diabetes Association, 
which is producing outcomes or the right kind of thing.
    Mr. Andrews. Presumably that educates that physician with 
how to deal with diabetes. They get paid for it? They get a 
certain amount per patient per year?
    Mr. Hanson. Correct.
    Mr. Andrews. I know it is early, but what kind of incidence 
are there on reduced strokes or heart attacks or bad outcomes 
for those diabetes patients?
    Mr. Hanson. The level of that data we are just getting to. 
I have a feeling, when I talked about there is more efficiency 
in the system, 10 to 15 percent, we think a lot of that is part 
of the reduction and the ER visits that you mentioned. I think 
that is a level of the data that we are just now beginning to 
analyze.
    Mr. Andrews. I would assume the way we would approach this 
study is to say, all right, among these 7,000 people, if they 
behave like their cohorts, given their age and demographic 
profile, we could expect X numbers of strokes, Y number of 
attacks, Z number of emergency room visits and other problems 
in a 2-year period. Are you then going to measure how these 
7,000 people did against those expected norms?
    Mr. Hanson. Right. We use a data base that includes people 
that are not taking part in the controlled program.
    Mr. Andrews. Is there, in fact, going to be such a 
systematic evaluation? If so, who will do it?
    Mr. Hanson. We currently work with a number of companies 
who specialize in this kind of thing to work with the right 
data and get the right data base.
    Mr. Andrews. When will they get their assessment?
    Mr. Hanson. They are in the process of doing the initial 
assessments now.
    As I say, we are 2 years into the program. We are going to 
do assessments every year. We will actually look at trending. 
You know, how do these people trend from year to year? Is the 
same amount of savings from there? Is it exponential every 
year? If we see X amounts of savings this year if we continue 
to see a certified doctor, is that savings?
    Mr. Andrews. Will those data be publicly available on the 
script of their proprietary or personal criteria? With specific 
reference to the diabetes study in the Cincinnati-Louisville 
markets, what percentage of physicians have become diabetes 
certified, to use my term? Do you know?
    Mr. Hanson. Well, I think it is probably a very low 
percentage, the reason being that physicians that get rewarded 
are those physicians or employees and family members of the 
companies that are participating in the program.
    Mr. Andrews. That is a lot, 200,000 people. I think there 
aren't many physicians that don't see the employees of those 
companies.
    Mr. Hanson. Well, but you are talking over four different 
markets.
    Mr. Andrews. Two hundred thousand out of 4 million people 
or something.
    Mr. Hanson. Yes.
    Mr. Andrews. I see. Will there be an effort to recruit more 
employers into the BTE program?
    Mr. Hanson. There is an effort. We had a couple of new 
employers join recently in the Boston program. We are already a 
year in. It is a 3-year program. My point is, in Cincinnati and 
Louisville, we are starting up on the third year. We wouldn't 
look to recruit a new employer at this point in time. We are 
looking to evaluate----
    Mr. Andrews. The question I have for any of the panel--you 
can supplement your answer in writing, because it is a longer 
issue. Do you see any embedments in the ERISA law that would 
retard progress in this field?
    Let us assume that the study that is done by BTE comes back 
the way we hope it does. It says that there are significant 
quality improvements in the outcomes, we have fewer strokes, 
fewer ER visits, fewer heart attacks, a lot of healthier people 
and that this worked--and that more companies then, more 
employers want to join a program like this, and they 
voluntarily do so for good, sound business reasons.
    I am not aware of any, but are there any problems or 
limitations in the ERISA statute that would retard against that 
progress? Or, conversely, are there changes in the ERISA 
statute you would make that you would think would enhance and 
facilitate that kind of access?
    Again, anybody could answer it, but I would be interested 
in the written comments that any of you would make on that.
    Dr. Galvin. I would be happy to take a swing at it, if you 
like.
    Mr. Andrews. Sure???????
    Dr. Galvin. Just to get back to a prior question about more 
employers joining, Mr. Hanson was right. Part of the strategy 
was also to go to health plans and to have them license. We 
actually developed the licensing for this product.
    So over the past about 8 months, we have had some leading 
health plans--United Health Care with about over 20 million 
covered lives. They have Humana with about 8 million or 10 
million covered lives. We have CareFirst in Maryland. So we 
have about 30 or 35 million covered lives under these health 
insurers who cover multiple employers who have the capacity now 
to do Bridges to Excellence. So the expansion strategy is both 
other employers individually, and I think it is a much better 
multiplier to go to health plans who have millions of covered 
lives.
    In terms of the ERISA, we didn't get a formal assessment, 
but our own counsel looked this over, and ERISA itself did not 
seem to either be an impediment or really affected positively 
or negatively, so we didn't see the ERISA statute either way.
    Mr. Andrews. That would be my assumption as well. But I 
want to be sure in the subcommittee's jurisdiction that we 
think about that issue and the terms of that statute.
    Ms. Ignagni. Mr. Andrews, we haven't looked at that 
specifically. We will now and get back to you. My sense now is 
the same as Dr. Galvin's, but I want to make sure that I am 
right about that.
    Mr. Andrews. Thank you. Thanks very much.
    Chairman Johnson. Thank you, Mr. Andrews.
    Mr. Boustany, do you care to question?
    Mr. Boustany. Thank you, Mr. Chairman. I have a few 
questions.
    Let me start by saying that pay for performance is an 
important step in health care. I am a physician, a cardiac 
surgeon. I had one of the busiest practices in Louisiana. I led 
the effort to bring in a national data base on cardiac surgery 
in all hospitals where I work.
    I took a lot of criticism from my colleagues, but we did it 
nonetheless. As a cardiac surgeon and a physician, I make 
decisions for my family on health care issues based on 
anecdote. That is a side indictment of our system.
    I am on the board of the hospital and sit on some of the 
numerous committees at the other hospitals. Again, my decisions 
are based on anecdote. I have sat down and shared my data with 
two of the largest insurers in our State and asked to see their 
data and compared notes. The quality of their data was 
deplorable. It was again an indictment of our system. We have 
got serious problems, but I think we are on the right track 
with that this.
    A few questions. One, is this a potential tool to just 
enhance profits without providing education to physician 
groups? Certainly we do need to make sure that we provide 
proper transparency. Because I am convinced in health care, if 
we are going to create competition, to bring down costs and 
enhance quality, we have got to provide information with 
transparency to the consumer, ultimately. We need to provide 
choices to the consumer, and we need accountability.
    So I want to make sure that there is going to be a proper 
dialog in all of this with physician groups, hospitals and so 
forth, so that we are all measuring the right things and going 
about this properly.
    Ms. Ignagni. I think that you have made a very important 
point about the issue of transparency, and it starts before we 
get to consumer transparency. You need to have transparency 
with respect to clinicians. They need to be involved in the 
development of the standard. They need to be not only involved 
in the development of the standard, they need to be confident 
that it is the right proxy, the right measure. Otherwise, we 
are not going to move to a quality-based system.
    This is why, in our view, it is key for physicians to lead 
this conversation, to help point us in the right direction, to 
have a consensus about uniformity of measure, so that when the 
standards are developed then the physicians have confidence in 
them. They will be very strong advocates for their colleagues 
to follow those standards, and we will quickly shrink the kind 
of variation and practice patterns that now exist across the 
country.
    We have provided some evidence of that in our testimony. 
There have been legions of articles about it.
    So we couldn't agree with you more about the importance of 
transparency. It starts with the clinicians. It starts with the 
partnership between insurer, health plan and physician to then 
move out to get the kind of measurement and trust that 
consumers can rely upon. But, most importantly, the clinicians 
can trust and feel that they are, in fact, in charge of 
creating a system that best represents their talent.
    We go out and talk to physicians. This is what we--in 
talking with the chairman and Mr. Andrews, this is what we 
found in our partnership with the key physician groups, that 
they feel very, very excited about the possibility to get this 
right and to move in a direction that finally rewards the best 
physicians and the best care, which I think is a testimony to 
the point that I think you have made very compellingly.
    Dr. Galvin. On the comments you made, I just wanted to add 
a couple of things. I think that--let us assume that we can get 
the right measures that are agreed upon by everyone. You have 
raised another point, which is, is there an education point? 
Some of the things we have heard in the Bridges to Excellence 
program were two things that weren't in our original planning.
    First, all the physicians wanted a chance to win. In other 
words, they didn't want the bar so far from where they were, or 
they didn't want to be demoralized from the beginning.
    Second, particularly individual doctors in individual 
practices asked if we could help think through some way to help 
them improve. Because let us say when this doctor I mentioned 
in Louisville got his numbers back, he was only scoring 60 or 
65 percent when he thought it was 100. What he then looked for, 
is there someone to help me figure out how I can improve? Do I 
need to change the system? What do I need to do?
    So I think those two, everyone having an opportunity to 
win, second, thinking through how to support physicians if we 
get the measures right, which I think we will, I think are 
important issues also.
    Mr. Boustany. The other issue will be dealing with the 
information technology gap that we have in health care. It is a 
real critical problem. Payers have somewhat of a gap. It is 
clearly evident on the side of the providers, both hospitals 
and physician practices. So somehow we are going to have to 
bridge that gap.
    Then the other issue would be the dynamic state of outcomes 
analysis right now. Because it is not static. With new 
technology rapidly coming upon us, new drug therapies, 
measuring outcomes and keeping up with it and coming up with 
some sanity to the whole process is going to be quite 
challenging.
    I applaud what you are doing. I know you are all experts in 
the field. I have read some of your work. I thank you for your 
testimony.
    Chairman Johnson. Mr. Kildee, do you care to question?
    Mr. Kildee. Thank you, Mr. Chairman.
    First of all, Dr. Rosenthal, my son attended the Harvard 
School of Public Health and got his Master's Degree in health 
care finance, so he advises me regularly. He knows far more 
about it than I do, however.
    Ms. Rosenthal. Excellent. Well, I would expect a graduate 
of our program to know quite a bit.
    Mr. Kildee. Certainly more than any of us here. So thank 
you for being here today.
    I have a question of Dr. Galvin. What should we do in the 
Congress or the government to improve on the coughing method of 
determining quality of performance? What--really, what type of 
legislation might help discover really and reveal to people 
where quality can be found?
    Dr. Galvin. I would answer there are two things. The first 
wouldn't be legislation. I think the first would be something 
that I mentioned in my final couple of sentences, which is you, 
as purchasers through the Federal employees and their families, 
that is 9 million covered lives; through TRICARE and the 
Department of Defense, it is another 9 million covered lives. 
Eighteen million covered lives. That is about 18 times the size 
of what GE covers.
    Yet really none of these programs have any of these 
fundamentals we are talking about. There is no insistence that 
the health insurers with whom they can track can show this 
information about doctors and hospitals. There is no 
requirement in their contracts that they start paying based on 
performance. So they are really neutral. So that is not 
statutory. It is just a practice. But that is 18 million 
covered lives in our system, is a very big deal.
    In terms of the statutory, I think the immediate 
opportunity is what is going on in physician payment. I think 
kind of the dilemma that you are facing with the SGR and what 
to do about physician payments and Medicare is an opportunity 
to do something. Because what I am told by CMS is they don't 
think they have authority, existing authority, to really move 
pay for performance or performance-based payments out of 
demonstration into the core of fee-for-service Medicare. Trying 
to integrate that pay for performance into whatever update you 
do with physicians I think is an opportunity that will take 
immediate statutory change.
    Mr. Kildee. Can we possibly anticipate civil action when 
certain medical providers are not listed among the quality 
providers?
    Dr. Galvin. I think that is an excellent question. We have 
not faced that yet. I would have to think that through. It is 
something we worry about.
    We did that with Leapfrog, where basically we listed the 
hospitals that met these safety leaps, meaning the ones that we 
thought were the most likely to do the best job. We did not 
have any civil action. But I would think it is something you 
would have to think about. If you were a provider and you were 
not listed and you lost businesses as a result of it, I would 
think that would be an issue you would have to think about.
    Mr. Kildee. It would seem to me to be a fundamental 
consideration.
    Ms. Ignagni. I think this is a very important question you 
are probing. I know that the specialty borders, as they 
reevaluate and recredential essentially specialty physicians 
and primary-care physicians, are now beginning to move in the 
direction of baseline standards with respect to quality 
performance. I think that is a very important start as well.
    So I think were there someone here from the specialty 
boards it would be to compellingly talk about the shift that is 
going on--which is a very important shift--and this is post the 
Institute of Medicine report directly aimed toward those 
improvement aims that were enumerated in that report.
    Mr. Kildee. Thank you very much.
    Mr. Chairman, thank you for assembling a such great panel. 
It has been very, very good. Thank you very much.
    Chairman Johnson. Thank you, Mr. Kildee.
    Mr. Kline, do you care to question?
    Mr. Kline. Thank you, Mr. Chairman.
    I thank all the panelists for being here, a really, really 
great panel. We often get great panels here, but this is 
perhaps extra special.
    I am a little bit intrigued by the one-cough, two-cough 
method. I thought that was a great example. We didn't determine 
if there was any head turning involved.
    It seems to me that I am looking at a couple of projects in 
my district that are moving forward very rapidly and well, I 
think, with electronic medical records. There is an opportunity 
there to prevent an awful lot of mistakes and lower costs, 
provide better care, at least in my judgment.
    When you are looking at places to go, either in the BTE or 
from your roundtable or something, if you are--if you could put 
in your list those clinics and hospitals that have such a 
system, that would be a way of sort of stepping out toward 
paying for performance, if you will, in the sense of the 
hospital and clinic and not be an individual evaluation. Is 
that something you are already in the mix?
    Dr. Galvin. I can comment that the Leapfrog group that Mr. 
Hanson mentioned, it was called that because it came up with 
three initial leaps to make quality much better. The first of 
those leaps was to have those kinds of computerized systems in 
hospitals, particularly focused on drug ordering.
    So this was--we found the most avoidable errors that were 
occurring in hospitals had to do with drugs. Either the 
physician's writing was illegible, or physicians can't remember 
100,000 facts, and so they might have prescribed a dose that 
wasn't right for the patient on that day. So that was actually 
the No. 1 that we put out.
    Now what is interesting is that, although all the urban 
hospitals in the country--we asked if they would fill it out--
only 1,000 out of the 3,000 or so non-rural hospitals agreed to 
fill it out. So one of the challenges we have is that, as long 
as it is voluntarily, and completely voluntary, it is 
difficult. Because now the 2,000 that didn't fill it out--many 
of them were in the same town where some did and some didn't--
we didn't know the quality of their value. So I think it is a 
challenge.
    Mr. Kline. Let me just follow up on that. It seems to me we 
are looking for a way--and we would ask the question a number 
of different ways up here if it is something we can do in 
legislation or policy. But if you have clinics or hospitals 
that have the electronic medical records--and we will just 
stick with that one example--it would seem to me that the 
insurers and perhaps the different programs that we are talking 
about here would reward that, right, because they are on the 
list.
    You have such an electronic medical record you are going to 
be rewarded because the patients are going to be referred 
there. That would be some incentive for them to move with even 
more alacrity to get that in place.
    So I am a little confused. Why would it be in somebody's 
interest to not be forthcoming? So they will not be rewarded?
    Dr. Galvin. I agree. I think up till now there haven't been 
rewards. I think, in the absence of that, it isn't quite as 
compelling, the Leapfrog project hospital program that Mr. 
Hanson talked about that was just launched. In fact, we have a 
workshop on Friday with 150 employers to explain it to them. 
That will be actually the first time we start our rewarding 
based on having computerized systems. Now employers need health 
plans.
    The partnership is particularly important. Because even as 
big as GE and Verizon are, we are not nearly as big as most of 
the health plans. So we will work very hard through our 
contracts and through our bidding process to try to move 
business to those health plans that also think this is a good 
idea, and we will begin to institute this.
    Mr. Hanson. Can I----
    Mr. Kline. We will try to do both in the seconds.
    Ms. Ignani.
    Ms. Ignani. Thank you, sir.
    One of the things you will see in our testimony is we have 
given the examples of where a number of our health plans are 
incorporating incentives from the conversion from paper to 
electronic, both in the physician level as well as the hospital 
level. And I think you will see more of that.
    The way we have approached it is to set--develop a 
consensus with the providers with respect to what is measured, 
what the outcomes are, and, as part of achieving those 
outcomes, then moving to an electronic-based system is often 
very desirable.
    So rather than simply reward the technology in a silo with 
no connection to the outcome or the goal, establish the goal, 
recognizing that the technology is a part of that. And we would 
be glad to submit more information for the record if that would 
be useful to the committee.
    Chairman Johnson. Thank you.
    Mr. Hanson. I would just like to echo what Karen has said, 
and that is that it isn't so much just having the technology, 
but how you use it. There is evidence out there now that even 
hospitals who have computerized physician order entry, only 25 
to 30 percent of the physicians at that hospital are using that 
technology.
    So I think, to throw out a caution, is that while it is 
admirable that people are adopting technology, the benchmark 
really is, as Ms. Ignani has said, is how do you use that 
technology, and what kind of outcomes are you getting with it, 
and what are you looking for? So it is a bigger picture than 
just going out and purchasing your technology and having it in 
place in the long run.
    Chairman Johnson. Thank you.
    Ms. Rosenthal. Can I just contribute two quick points on 
that? First, on the issue of getting hospitals to actually 
report their capabilities and their quality measures, the CMS 
had a very successful initiative that you may be aware of. They 
had a voluntary hospital reporting system, and in the second 
year you could volunteer to give up half a percent of your 
revenues. And surprise, surprise, all the hospitals reported in 
the second year. So I do think having CMS can very much take 
strong action if they asked hospitals to do CPOE----
    Mr. Galvin. Statutory.
    Ms. Rosenthal. Yes, statutory. But that is an example of 
how it could be done in any case. And the second thing is being 
on the Leapfrog Website in and of itself may not be a reward, 
because as much as we all think that consumers should be 
motivated to use this information, should choose hospitals on 
that basis, most of them don't. And even when the information 
is made available to them, to date they are a little reluctant 
to use quality information.
    We need to think of better ways to get them to understand 
the information and why it is important to them and make 
decisions on that basis.
    Mr. Kline. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. Mr. Tierney, care to question.
    Mr. Tierney. Yes, I would, Mr. Chairman, thank you. Thank 
the members of the panel for the questioning.
    In Massachusetts there have been some concern among some at 
the Mass Medical Society. They are skeptical. They say they are 
skeptical of the current methods that are employed to gather 
the physician performance data. I am sure you have this before. 
Those that don't yet have an electronic medical recordkeeping 
system think that evaluating it on claims forms isn't fair to 
them.
    Can you just discuss that a little bit if it is 
appropriate? Is it fair to them, and should we be doing that 
without the electronic recordkeeping data? How do we move more 
quickly through the electronic data?
    I know there has been a few experiments, one in my district 
up in Newbury Port, up in other places around the country, as 
well as my State. Who pays for it? What is the incentive for 
somebody who is, say, in a small practice to undergo that risk 
and the cost?
    Dr. Galvin. I know a lot of licensed physicians still in 
Massachusetts, and I trained there, so I will take the answer 
first.
    There is a lot of concern among physicians everywhere, in 
Massachusetts as well. I think there are two issues. I think 
the first is really the original kind of chicken and egg; in 
other words, I think from the purchaser of health care point of 
view, we are wondering when we will be able to start publishing 
this data. When will we give this woman I talked about actual 
information about where she should go to get her cancer 
treated? So some of it is the physicians rightfully say, wait a 
minute, be careful, the claims forms aren't perfect, we don't 
have it. We say we have been talking to you for about 30 years. 
When will the time be right?
    So I think we have moved ahead with some trepidation, 
because we don't want to alienate the physicians, but we feel 
we had to get things started.
    I do agree with you that the answer, or part of the answer, 
is to get this information technology much more established in 
offices. A couple of many issues, one is kind of the coding, 
but the other one is who pays for it.
    One of the Bridges to Excellence's modules actually has 
extra payment if you have a computer in your office, and you 
show that you have better outcomes for it. That is one way we 
have tried to build it into the rewards is to help pay for the 
technology.
    Mr. Tierney. Can I ask you something? Is that working?
    Dr. Galvin. So far it is working. I think 600 doctors have 
signed up.
    Mr. Tierney. They are willing to take the risk if they know 
down the line they will get something back?
    Dr. Galvin. Mainly in Boston, if I am right.
    Mr. Hanson. Mainly in Boston. Boston market is the biggest 
market for the program. Just to echo, too, I think the way 
Bridges to Excellence is structured is that the first year you 
will get 100 percent if you qualify to be recognized in the 
program. You are going to get 100 percent. And you may have an 
Excel spreadsheet that happens to be the disease registry for 
your office.
    Our hope is that the incentive reward that you get that 
first year, then you will capitalize on that, invest in the 
technology, because the second and third years we are going to 
be looking at how has your office improved to actually reach 
the top benchmarks. So there is some built-in, which I think is 
a critical issue--built-in improvement steps for offices to 
take.
    Mr. Tierney. I am pleased to hear that. I am just 
surprised, because the physicians that have been visiting my 
office all seem very reluctant to make the outlay themselves. 
They were looking at some of the different directions. Some of 
the smaller practitioners thought that that was just too large. 
Some told me it was a few thousand dollars. Others said it was 
10- to 15- to 20,000, depending on what the size of your 
practice was.
    Mr. Hanson. In Bridges to Excellence, actually, we cap the 
amount an individual physician can earn in rewards, and that is 
$20,000, because that seems to be about what it might take to 
capitalize, to invest and bring your office up to the 
infrastructure and process infrastructure that it would take. 
So it reimburses them for all that investment almost 100 
percent.
    Ms. Ignani. Mr. Tierney, Dr. David Brailer has launched a 
whole conversation at the Department about connectivity with 
respect to health care, and they are having very productive 
discussions, and, in our, view a very solid approach to moving 
forward.
    We hope that one of the things--that as this work comes 
through, not only will we be talking about the standards, how 
do we create uniformity with respect to the exchange, and how 
do we create uniformity across the country, but also at the 
same time how do we deal with the financing question.
    We think that there can be things done very productively in 
the reimbursement system, but with employers appropriately 
telegraphing that there is a great deal of stress, there is a 
competitiveness issue, then that is a serious issue, and it 
is--we think that that could be joined, the issue of--in the 
conversation about connectivity, could be joined with financing 
to maybe begin thinking about tax credits, in terms of R&D, 
there is a productivity enhancement here.
    And we think you can draw a direct line in the research 
between a tax credit for this kind of purchase, and it could be 
done over time, and the productivity that would result.
    And the Chairman started talking about the conversation--
you framed the conversation in terms of productivity. So we 
think that there is some opportunity here to bring all of these 
things together, not in one-stop shopping or one size fits all, 
but various components that could be looked at together.
    Mr. Tierney. They already get a tax break. That is a 
business expense. It is a business expense. They are already 
getting a sizable tax break.
    Ms. Ignani. There could be other things that have been done 
in the past in certain R&D areas that could encourage the 
purchase and do it more swiftly.
    Mr. Tierney. Do we run a risk of having a lot of people 
implement this electronic recordkeeping before you have the 
standards for connectivity, either statewide or nationwide?
    Ms. Ignani. We think the standards are absolutely 
essential. They need to be on a fast track. They need to be 
laid down so that physicians from the standpoint do not make a 
purchase that is not useful to them, No. 1----
    Mr. Tierney. Is it already too late, though?
    Ms. Ignani. No. It is not too late at all.
    And you asked the question about is the Department doing a 
good job? This is an area in which they are launching a series 
of activities to get to the question of standards, to talk 
about how they get developed and how they get developed quickly 
and uniformly. And we think that is just the right 
conversation.
    Chairman Johnson. Mr. Holt, do you care to question? I 
think your time has expired.
    Did someone have an answer that wanted to answer out there?
    Dr. Galvin. Just one other comment, if I may, and that is 
when you go back to your physicians in Massachusetts, I just 
want to make sure that if you represent what I said that--you 
know, I don't get a phone call--but I do think the standards 
are a big deal. It reminds me very much of those of us who 
remember VHS or Betamax, and if you chose wrong, it was a big 
deal. We are still in that era. So it really is an the issue, 
and Karen is right that we need to expedite that.
    And the second is Bridges to Excellence isn't enough. The 
funding in many of the creative ways she talked about from the 
Federal side also needs to be a big part of the solution, so--
--
    Chairman Johnson. Go ahead.
    Mr. Hanson. In answer to the same thing, I know the 
Commission on Systemic Interoperability which has been set up, 
and Ivan Seidenberg, CEO of Verizon, is sitting on that, is 
dealing with this very issue of connectivity, interoperability, 
funding sources. And I know that report is due out in October. 
As Ms. Ignani says, it can't come soon enough.
    There are several trains moving down the track, and right 
now we are pretty much in sync, but we are looking forward to 
that report.
    Mr. Tierney. Thank you all.
    Thank you, Mr. Chairman.
    Chairman Johnson. Mr. Holt, you are recognized.
    Mr. Holt. Thank you, Mr. Chairman, and I thank the 
witnesses. I apologize if I go over some ground that has 
already been covered here, but I guess I need to pursue a 
little bit this issue of kind of the faith in the market to 
straighten things out here.
    First of all, the rewards that would be provided for good 
performance, is this new money, or is this taken out of the 
system? And then, I guess, a fundamental question is by 
rewarding the good performers--and we could have some 
questions, and maybe there will be time for that, to talk about 
how the benchmarks are actually set to determine who is a good 
performer--don't we end up, if we carry this to its extreme, 
with a small number of good performers in the system and 
everybody else out of business? Have we found some way to 
improve the performance of the bad performers rather than just 
threatening or punishing them, you know, and the floggings will 
continue until morale improves?
    So let me throw out those two questions, and if there is 
time, I have a few others.
    Ms. Rosenthal. May I? Just to start out, as an economist I 
have to--even though I know you print money around here, I 
think there is no such thing as new money. And even, with all 
due respect to everyone, if the employers and health plans say 
that this is new money, it will eventually come out of the old 
money.
    There are no places where that is just--you know, as it is 
we are spending $1.7 trillion on health care, as you know. Do 
we need to spend more to get the right quality care?
    And so, I think fundamentally it is going to be a 
redistribution, and that does raise the question if we are 
redistributing moneys from some providers to others, is that 
desirable? And, of course, the whole point is to redistribute 
money to the best providers, so some of that must be desirable. 
But there are ways probably of doing that to improve the 
quality more across the board. Cost savings have to come out of 
somewhere. If we are not going to be driving some providers 
out, it must mean that we have to find cost savings. And I 
suggested in my remarks that they are not built into these pay-
for-performance programs yet. They could be.
    I do think there are lots of ways to try to provide 
technical assistance to poorly performing providers. And like 
Bridges to Excellence provides steps so that even providers who 
are starting at a relatively low level, they have some 
opportunity to make small improvements and get some of the 
resources to make larger improvements. And I think it is very 
important to consider that.
    Chairman Johnson. Let me add that the dollars are not being 
cut. You know, there is a steady increase out of Medicare, and 
that is where those dollars are coming from. All they are 
saying is they are going to reward the guys that do a better 
job. And docs aren't going to get out of business. They can 
improve. That is what she is talking about, I believe.
    And by looking at the docs that are doing a good job, maybe 
they can change their techniques or their performance to 
improve. And I will give you some more time. Go ahead.
    Mr. Hanson. I would just like to build on the statements 
just made, and that is that clearly one of the efforts in the 
Bridges to Excellence program is not from a punitive 
standpoint. I can't imagine that if we have 100 docs in the 
Boston market who qualify for the program, that we are going to 
be able to shift an enormous amount of capacity to those 
doctors. Our goal is to build in these step processes so that 
even doctors who think they may not qualify have some level of 
entry into the program, and at which step it becomes a step 
process.
    And I think that is going to be true with the Leapfrog 
incentives and rewards program, that although a hospital may 
not meet all the standards when they come out of the chute and 
apply initially for the program, there is some effort to reward 
those that have some minimal qualification to the program and 
show some signs that over time they have a plan to get there.
    We have to raise the benchmark for the entire system. We 
can't, as you say, have a lot of docs go out of business, and I 
don't think that is the intent of any of these pay-for-
performance programs.
    Mr. Holt. In the short time that is remaining, let me ask 
one more question then. Will doctors and hospitals avoid taking 
on high-risk patients? Will the good performers be the ones who 
have been smart enough to choose good patients?
    Dr. Galvin. I think that is a major concern. I think you 
are really kind of accurately hitting some of the big 
challenges, because no change is without these challenges. I 
think you are accurately hitting them, and either--certainly 
through surveys and anecdotal kind of experience, the idea that 
that will happen, and I think built into the system has to be 
some audit of that, or some kind of guarding against that. In 
other words, I think we would be naive and be going down the 
wrong road if we just assumed that that wouldn't happen. So I 
think the tendency will be to game it, and that would be one of 
the ways.
    And I just think we have to be smart enough to anticipate 
it. And I think it is really an audit kind of technique we are 
going to have to build in to guard against that.
    Ms. Ignani. One of the things that I think that stands out 
here in our conversation this afternoon, politics is local. But 
if health care is local, you get into trouble. And we are now 
moving from a system that has been based primarily on the way 
it has always been done to one that is moving to a more 
objective, scientific, evidence-based system. But we are not 
going to leap there overnight. And so what we have tried to do 
through our health plans is we go across the country and work 
with physicians to reorient the incentives, is to start with 
the positive.
    You asked the question, positive versus negative, and in 
deference to the very important point that Dr. Rosenthal made, 
if you incent physicians and reward them for best practices, 
according to the science, and if they are confident in the data 
that are chosen, and they have participated in that choice, 
then we are going to begin to move the system in a way that is 
productive for all.
    So, to the extent that--and that also gives us an 
opportunity to evaluate the issues that you probe quite 
correctly, how do you deal with risk adjustment? How do you 
deal with not intentionally--the unintentional consequences of 
having a particular physician who is isn't appropriately 
recognized for complications that he or she may treat?
    So as you move in a critical path fashion, systematically 
as opposed to trying to do everything overnight, that allows 
for the kind of collaboration that is necessary to make this 
tectonic shift, if you will, but at the same time will allow us 
to get the kinds of results that I think all of you expect and 
that employers, the purchasers and ultimately the consumers 
expect as well. So in our view, that is how systematically we 
are approaching it.
    Mr. Holt. Thank you, ladies and gentlemen.
    Thank you, Mr. Chairman.
    Chairman Johnson. You bet.
    Mr. Payne, you are recognized. Do you care to question?
    Mr. Payne. Yes. Thank you very much.
    I came in, I was a little bit taken aback by the 
terminology ``pay for performance.'' In New Jersey there is a 
pay to play. So I didn't know whether this was in New Jersey or 
whatnot, we New Jersey people. So that is--they get it; you all 
don't.
    But let me just say, I am sorry that I missed your 
testimony. I have been quickly looking through the material, 
but I do have a question that, when looking at pay for 
performance, and any of you respond, has anyone looked at a 
system problem? For example, in rewarding good performance, 
what I mean by that is, for example, one standard imposed on 
many hospitals is what they call the 4-hour rule, where a 
patient should receive antibiotics for pneumonia, for example, 
within 4 hours of walking into an emergency department.
    Now, oftentimes in urban areas, where emergency rooms are, 
you know, used as a physician's office because of the lack of 
accessibility to health care, oftentimes the emergency 
department is overcrowded, and therefore it actually prevents a 
patient from being seen and diagnosed by a provider for more 
than 6 hours, which is sometimes common.
    So my question is, you know, so this is the example that is 
the hospital penalized due to a more widespread health care 
system problem to access to care, and how can you kind of break 
that down?
    Ms. Rosenthal. May I? That goes somewhat to Mr. Holt's 
question as well. I do think the issue is that one size does 
not fit all, and there will be some providers, particularly 
safety net providers, who are already stretched thin, have very 
few resources, and we don't want to drag those providers into a 
worse situation by reallocating resources away from them. And I 
think that we need to be very conscientious of those problems 
as private payers thinking about developing these programs, and 
making sure that technical assistance, again, or, perhaps some 
kind of different program, is tailored for providers such as 
the one that you have described.
    I do think it is a real problem, and we don't know the 
extent to which these pay-for-performance programs are going to 
exacerbate existing strains on the system. And it is something 
that needs to be monitored.
    Mr. Payne. Thank you.
    I just have a general question. I know the whole question 
is trying to contain the escalating cost of health care, but I 
wonder is this pay for performance, do you see it actually 
being the method to control health care costs, increases or to 
limit it, or do you think that it might just slow the increase 
down? Will it provide better health care? Will it make, 
therefore, funds available for all of those shut-out people? 
That is a whole different subject. What would you like to see 
achieved, if you could, say, maybe in a couple of sentences?
    Ms. Ignani. I think, Mr. Payne, one of the most compelling 
pieces of data now in the health care arena suggests that only 
55 percent of what is done is best practice. So clearly we have 
a long way to go. And the incentive through the reimbursement 
system has been to pay pretty much the same for good practice, 
bad practice, mediocre practice. We haven't differentiated.
    With this movement toward setting goals and objectives, 
rewarding clinicians who meet those objectives, that can be a 
powerful incentive to improving the value that we are all 
getting out of the health care system.
    The conversation has been very relatively simple with 
respect to health care costs. It has been about the trajectory 
of the cost curve. That is serious enough. But when we look at 
the amount of money going into the system, and we match it with 
the data that suggests that only 55 percent of what is done is 
best practice, then it indicates there is a great deal of room 
to reorient and refocus health care resources and do a much 
better job.
    So I think as the committee has opened up this 
conversation, we appreciate very much the thoughtfulness and 
the breadth of the conversation because it really does go to 
that issue of value: Are we getting value for our health care 
investment?
    Mr. Hanson. Just to add to that, it is a complex issue. I 
don't think it is the silver bullet, but I think it is part of 
what the health care system needs to transform itself into.
    There is a whole lot of consumer behavior involved with 
mitigating the costs of health care. I see this as only one 
part. It is an important part, but it is only one part of an 
enormous, complex transformation.
    Mr. Payne. Thank you very much.
    Earlier this morning we had a hearing on education, and two 
Governors, one from Iowa and one from Massachusetts, said the 
same thing, that we have to somehow differentiate pay for poor 
teachers that get the same pay as good teachers. I think that 
is sort of what you put your finger on. So thank you very much.
    Chairman Johnson. Ms. McCollum, do you care to question.
    Ms. McCollum. Thank you, Mr. Chair.
    I am from Minnesota where we have done a few things a 
little differently. We have not-for-profits and all kinds of 
things, and now we are ranking our hospitals. And from what I 
am starting to see kind of get shifted out on that is the 
health insurance companies, when faced with some tough 
questions about is this really comparing apples to apples, is 
comparing a teaching hospital, a teaching hospital that also 
does indigent care, a hospital that handles pediatrics 
primarily, are we really--are we really ranking all this pay 
for performance accurately? And after all the names were 
published pretty much, in ranking, in the local papers, you 
started sifting through the next year or two, and there were a 
few like little whoops. So I think we need to be careful when 
moving forward with this, and I think there is a lot of things 
that have to be taken in account.
    In reading through here, one of the things is diabetic 
care. I couldn't agree more that there should be, you know, a 
standard for performance for diabetic care. But how does this 
work for a physician who maybe has multiple insurers, and one 
group of insurers is going to pay for test strips and 
everything; oh, and we will pay for your how to live with 
diabetes class, and we will make sure it is offered at a time 
that is flexible for you to take off of work, versus a doctor 
who has another patient who has bare-bones insurance that 
doesn't really cover too much of anything, to be supportive of 
that diabetic? So I am confused as to how this is going to work 
for doctors with multiple insurance.
    And then when we start looking at protocol, protocol still 
isn't really shifted out based on gender and the way drugs 
interact with women. There is even still challenges for the 
pediatrics. I believe--and I served on a the State Medical 
board for a while. I believe there are physicians and nurse 
practitioners and a whole lot of people who can do a whole lot 
better. I also believe that there is a lot of people out there 
working really hard with a lot of different systems in place.
    And so when you start putting all these things together, if 
there isn't one standard protocol for diabetes that is going to 
be nationwide, and then we start judging the physician, how 
they are doing on that, not even taking into account the 
patient responsibility on the end of it, I am wondering how do 
we really get there in a way that is just, and a way that is 
fair to the physician; to blow the whistle on someone who is 
not doing a good job, but not to penalize somebody because 
either their patient isn't cooperative, or they have 12 
different insurance plans with all different kinds of menus 
with how to handle, and I will use diabetes as the example.
    Ms. Ignani. You have asked a 20-minute question, but I am 
going to give you a succinct answer. But I would like to follow 
up, if that would be appropriate, because I don't want to give 
the short shrift.
    First, you should be, and I know you are, proud of what is 
going on in Minnesota. All of our health plans in partnership 
with the medical society and the hospital association have done 
some things that haven't been replicated in other States. So it 
is a great laboratory for best practice.
    What we have learned in Minnesota, and also other places, 
and that--and this is one of the reasons that we have placed so 
much emphasis on the question of uniformity of protocols and 
selection of measures, is that it is very important that a 
physician who may be treating a subset of the community not be 
disadvantaged because they may have the individuals who are the 
least healthy, they have the most chronic conditions, 
comorbidities, et cetera.
    So one of the things we have been working hard to do is to 
get consensus about what is measured, but also that is only 
part one; deal with the issue that you raised quite rightly, 
which is how do you put these data together so we can get a 
sense of--across all of the patients that the physician is 
treating of how they perform, as opposed to necessarily the 
patients that are just hooked to a particular insurer. That 
would give equity inherently in the system for physicians, and 
we have been working with a number of physician groups we talk 
about in our testimony, and I would like to provide more data 
on that.
    We have gone a long way on the measures, step 2. We are 
moving forward; we are moving forward rapidly. We are not 
completely there yet. But it is going to be very important not 
only to put the private sector data, but the public sector data 
so we can look together at the entire population that the 
physicians and the hospitals are treating.
    So I think you have opened up a very important series of 
compelling questions that, Mr. Chairman, I would like to 
provide more detail on, because it really deserves a more 
thoughtful answer than I think in the time we have today. But 
this is very important.
    The bottom line is I think we can feel hopeful that because 
of the way this is being rolled out, that we are doing positive 
incentives as a first step to try to elicit all of the issues, 
get them on the table, and see what needs to be done to do this 
right. It is a much more responsible way to proceed than go the 
other way.
    Ms. McCollum. Mr. Chair, I appreciate that, but--and I look 
forward to seeing what you have to say. One thing that comes 
into this argument that I don't know, I didn't see it being 
discussed in the testimony, and I didn't hear every word of the 
testimony, is you are getting to patients' right to privacy. 
And we have been struggling with that at the legislative State 
level when your medical records start becoming part of a group 
medical record, starting to become part of analysis issues, 
having your medical records, your right to privacy and who is 
looking at what.
    So that is, if we are going farther on this, Mr. Chair, I 
would suggest to tackle that in a hearing earlier on so that 
you are not confronted with it on the floor of the House, 
because it is a very sticky wicket, to use a colloquial term.
    Chairman Johnson. You had another, Doctor, did you want to 
make.
    Dr. Galvin. If I could, I wanted to just respond to your 
initial concern about kind of where was the patient in the 
process, and were they engaged. And I think that is an awfully 
important question.
    When Leapfrog and Bridges to Excellence were formed, 
employers did it because we couldn't get any health insurance 
plans to do it. But we could not get the system moving a number 
of years ago. It is good to see that a few of them are starting 
to move in that direction.
    And one of the things we learned from managed care in the 
last decade was that who got excluded were the two most 
important players in the system, which were the doctors and the 
patients. And so when we started out to create these, it was we 
are going to have them at the table, and we are going to kind 
of only develop a plan if it meets their needs.
    And just in terms of the consumer, a very interesting thing 
happened in Bridges to Excellence, which is we were moving down 
trying to figure out what a reward was, what the measures were, 
and at one point the physician said, you know what? We are not 
going to participate unless you also build in incentives for 
our patients, because I can do the best thing, I can draw my 
blood sugars, I can do everything right, and if the patient 
then goes out and goes to McDonald's or doesn't follow what I, 
you know, have prescribed, I don't want to be disadvantaged for 
that.
    And so there are pretty significant consumer incentives for 
basically living a healthy lifestyle. I just want to make it 
clear that I do think it is awfully important that consumers 
get engaged.
    Chairman Johnson. Thank you.
    In regard to your idea of sending us some more information 
based on your own opinions, we would appreciate that, and we 
would dutifully accept anything that you send to us and have it 
put in the record, and I thank you for the offer to elaborate.
    I would carry on with that idea of how do we necessarily 
protect, you know, the docs and hospitals and the privacy issue 
that she is talking about personally.
    You know, I know we have wrestled with that in other 
committees. I happen to be on the Medicare committee, too, and 
I think that with today's, he and I were talking about eye 
scan. We use that in the airports now to get through. There 
isn't any reason why you can't use something like that to 
identify patients. But her question, more to the point, was how 
do you prevent people using them for analysis publicly? Have 
you got protections figured out? Anybody think about that?
    Ms Ignani. Mr. Chairman, we have thought a great deal about 
this, and one of the ways to begin to get to--from a physician 
standpoint--and we have spent a lot of time talking about this 
this afternoon, it is very important to have not simply a 
snapshot of the patients that he or she is treating associated 
with a particular health plan, but to have their entire 
practice looked at from the standpoint of equity, to make sure 
that we are dealing with the high risk, low risk, medium risk, 
et cetera. In doing that, as you aggregate data, it is less 
important to know who I am personally. It is much more 
important to know what was done given my condition to ensure 
that certain objectives are met.
    So in statistics we talk about deidentify data. It is a 
great deal of you just--it means you don't have to have the 
patient associated with that particular analysis.
    And there has been a great deal of work done in the context 
of disease management and a number of other strategies with 
respect to care coordination that are going on that we think 
can inform this very productively. But clearly, this is new 
territory. It needs to be proceeded with caution. There needs 
to be a cautious path followed.
    But we think that there are ways to address the issues of 
equity, but at the same time protect the patients. But where 
you put the balance point is an important thing to talk about 
prospectively as opposed to in retrospect, or retrospectively.
    Chairman Johnson. Thank you. I appreciate it.
    Yes, sir.
    Dr. Galvin. I agree it is an awfully important issue, and I 
think we, again, as large employers, address it early on 
because we all have a policy that we don't want to know any 
specific information about any of our employees. So it is 
something that we delegate to our health plans to do.
    That all being said, we don't make any step in this pay for 
performance without having a council of our own employees and 
have our privacy committee at the company look at it, because I 
think these are delicate issues.
    I think, as Karen said, we are kind of plowing new ground, 
and so I think that having it built into the structure from the 
beginning with the right people at the table is our best way to 
address it moving forward.
    Chairman Johnson. Thank you.
    Mr. Andrews.
    Mr. Andrews. I again want to express my pleasure to the 
members of the panel for a very edifying, interesting testimony 
today. And I share Mr. Johnson's desire that you supplement the 
record with further thoughts. I think that is an excellent 
idea.
    Mr. Kildee and I were talking during the testimony that--
this discussion is reminiscent of a discussion that was held in 
this room and others over the last couple years over the No 
Child Left Behind Act. We started out with a concept that we 
wanted to articulate meaningful and high standards for every 
public school and every student, and we went about the business 
of trying to build measurements that would animate those goals. 
The jury is very much out on whether the standards that we--or 
the tools that we created successfully do that or not.
    One of the other issues that is reminiscent of No Child 
Left Behind is something Mr. Payne brought up, and that is 
about the need for remedial investment when an institution is 
failing to meet a standard not because it doesn't know how to 
or won't, but can't because of resource limitations. And I 
would urge in your written comments to think about this 
problem.
    I have several hospitals in my district, one in particular 
that is in an urban area, where probably 85, 86 percent of the 
revenue stream is either Medicare, Medicaid, what we call 
Uncompensated Care in New Jersey, which is a State fund for the 
uninsured. And probably this hospital is not following 
practices in certain areas that would be generated out of a 
study like this not because they are not aware of them, not 
because they are resistant to the change, because they don't 
have the resources. And we do want to be careful that, in 
identifying practices and areas that are not meeting the 
standard, that we discriminate or distinguish between 
institutions that can meet the standard but won't, and 
institutions that would meet the standard but can't because of 
resource allocation problems.
    And whether we address that through graduate medical 
education, reimbursement for teaching hospitals, whether we 
address it through some kind of supplemental Medicare payment 
or what have you, it is a very serious consideration, because 
it is true that the driving concept here is to take dollars you 
are already spending, as Dr. Rosenthal said, and allocate them 
more wisely. But in some cases, even wise reallocation of those 
dollars won't cover what needs to be done because of gunshot 
wounds, and HIV problems in huge numbers, and low-birth-weight 
babies, and kids with lead poisoning, and lots of other things 
that these kind of hospitals deal with.
    So I don't know the answer to that question, but it is a 
question that I would like you to take into account when you 
think this through.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you. He is right; all hospitals 
aren't the same. So we need to think about that.
    I want to thank you all for your valuable time and your 
testimony. You are a very good panel. And I want to thank the 
members for their participation as well.
    I would encourage you to tell your cancer patient M.D.
    Anderson is a good place.
    Dr. Galvin. That is a one-cough hospital.
    Chairman Johnson. That is it. And I think you will make 
your plane, Dr. Rosenthal.
    Thank you all for being here. If there is no further 
business, this committee stands adjourned.
    [Whereupon, at 3:43 p.m., the subcommittee was adjourned.]