[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






 MEDICARE'S FUTURE: AN EXAMINATION OF THE INDEPENDENT PAYMENT ADVISORY 
                                 BOARD

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, JULY 12, 2011

                               __________

                           Serial No. 112-12

                               __________

           Printed for the use of the Committee on the Budget









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                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey            CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri               LLOYD DOGGETT, Texas
TOM COLE, Oklahoma                   EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California           JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah                 BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana          MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma             TIM RYAN, Ohio
DIANE BLACK, Tennessee               DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin            GWEN MOORE, Wisconsin
BILL FLORES, Texas                   KATHY CASTOR, Florida
MICK MULVANEY, South Carolina        HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas                PAUL TONKO, New York
TODD C. YOUNG, Indiana               KAREN BASS, California
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director














                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, July 12, 2011....................     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     3
    Hon. Chris Van Hollen, ranking minority member, House 
      Committee on the Budget....................................     4
        Prepared statement of....................................     6
        Additional submission: Excerpt from Medicare Payment 
          Advisory Commission report to Congress, March 2011.....    81
    Hon. Kathleen Sebelius, Secretary, U.S. Department of Health 
      and Human Services.........................................     7
        Prepared statement of....................................    10
        Response to questions submitted for the record...........    78
    Douglas Holtz-Eakin, president, American Action Forum........    38
        Prepared statement of....................................    39
    Grace-Marie Turner, president, Galen Institute...............    44
        Prepared statement of....................................    45
    Judith Feder, Ph.D., professor and former dean, Georgetown 
      Public Policy Institute, and Urban Institute Fellow........    52
        Prepared statement of....................................    54
    Hon. Tim Huelskamp, a Representative in Congress from the 
      State of Kansas, questions submitted for the record........    78

 
                MEDICARE'S FUTURE: AN EXAMINATION OF THE
                   INDEPENDENT PAYMENT ADVISORY BOARD

                              ----------                              


                         TUESDAY, JULY 12, 2011

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:05 a.m. in room 
210, Cannon House Office Building, Hon. Paul Ryan [chairman of 
the committee] presiding.
    Present: Representatives Ryan, Akin, Price, McClintock, 
Chaffetz, Stutzman, Lankford, Black, Ribble, Flores, Mulvaney, 
Huelskamp, Young, Amash, Guinta, Woodall, Van Hollen, Schwartz, 
Blumenauer, McCollum, Yarmuth, Pascrell, Wasserman Schultz, 
Moore, Castor, Tonko, and Bass.
    Chairman Ryan. The committee will come to order. We will 
begin our hearing. Madam Secretary, I know how excited you are 
to be here today. Thank you for coming.
    I will begin with some brief opening remarks, then I will 
turn it over to Mr. Van Hollen, and then we will get started.
    First of all, I want to thank you, Madam Secretary, and our 
other panel of witnesses for coming to today's hearing on the 
future of Medicare. For years, politicians in both parties have 
not been honest with the American people about Medicare. The 
facts are clear. Health care costs are skyrocketing, growing at 
8 percent a year. Medicare spending is on pace to double over 
the next decade, exhausting its remaining funds. Ten thousand 
baby boomers are retiring every day as fewer workers are left 
paying into the program. Life expectancy was at 70 when 
Medicare was created. Today it is 79. Nonpartisan experts, 
including the Congressional Budget Office and Medicare's own 
trustees, repeatedly warn of the looming insolvency of this 
critical program. These aren't Democratic facts, these aren't 
Republican facts. These are facts.
    Rather than advancing solutions to address these facts, too 
many politicians from both parties in the past, in Washington, 
have offered nothing but empty promises and false attacks. We 
deserve better. Our seniors deserve better. Due in large part 
of this committee efforts, I believe that the debate is 
shifting to better reflect Medicare's inescapable math. 
President Obama was exactly right when he stated yesterday, 
``If you look at the numbers, Medicare in particular will run 
out of money and we will not be able to sustain that program, 
no matter how much taxes go up. It is not an option for us to 
just sit by and do nothing.'' I couldn't have said it better 
myself.
    Senator Joe Lieberman, who has worked in a bipartisan 
manner to offer ideas of his own, put it well when he recently 
said, ``We can only save Medicare if we change it.''
    The purpose of this hearing is to examine the changes to 
Medicare made by the President's health care law. Specifically, 
we wish to seek to better understand the Independent Payment 
Advisory Board's role in achieving the hundreds of billions of 
dollars of savings called for by the President. While I imagine 
we will hear about the many different expansions of government 
buried in this 2,700-page law, today's hearing is simply 
focused on page 1,000, section 3,403.
    The Independent Payment Advisory Board, or IPAB, as we call 
it, is a new executive branch agency created by the President's 
new health care law. The law empowers this Board of 15 
unelected officials with the authority to reduce Medicare 
spending. Unless overturned by a supermajority in Congress, the 
recommended cuts dictated by this Board will become law.
    Bipartisan concerns have been raised with several aspects 
of this Board. While the proponents claim that the 
beneficiaries will be held harmless by the Board's decisions, 
how can IPAB impose sharp cuts to providers without an adverse 
impact on their patients? Given their unprecedented new power 
over Medicare, to whom are these 15 bureaucrats accountable?
    There are bipartisan concerns on this question. Democrats, 
including some members of this committee, have raised concerns 
with Congress turning its responsibilities over to this Board. 
Seniors are also seeking clarity on the President's recent 
efforts to expand this Board's power over Medicare. In an April 
speech, the President called for IPAB to enforce further 
restrictions in Medicare's growth rate, down to GDP plus .5 
percent. The health care law is already driving Medicare's 
reimbursement rates well below the artificially low Medicaid 
rates. According to Medicare's chief actuary, Richard Foster, 
the health care law will pay doctors less than half of what 
their services cost at the end of the decade, and down to 33 
percent in decades ahead. Foster warns that these cuts are 
driving Medicare providers out of business and resulting in 
harsh disruptions to the quality and access for seniors.
    Yet the President's framework calls upon IPAB to slash 
reimbursement rates even further than this. It remains 
incumbent upon the administration to specify how this Board 
will squeeze hundreds of billions of dollars of additional 
dollars from Medicare over the next decade, as the President 
has now proposed.
    I want to thank Secretary Sebelius, I seriously do, for 
testifying today, for coming here to address these concerns. 
There is no question that we have differences on how to address 
Medicare's unsustainable future. But I appreciate your 
commitment to clarifying this debate for policymakers and for 
the American people.
    I also want to thank our second panel of distinguished 
health care experts who will further discuss the merits of this 
approach. We look forward to testimony from former CBO 
Director, Doug Hotlz-Eakin, Grace Marie Turner of the Galen 
Institute, and Dr. Judith Feder of the Urban Institute. Thank 
you all of our witnesses for the contributions to this debate. 
And I want to thank you all for joining this conversation.
    With that, I would like to yield to the ranking member, Mr. 
Van Hollen, for any opening remarks he may have.
    [The prepared statement of Chairman Ryan follows:]

      Prepared Statement of Prepared Statement of Hon. Paul Ryan,
                   Chairman, Committee on the Budget

    Thank you to all for taking part in today's hearing on the future 
of Medicare. For years, politicians in both political parties have not 
been honest with the American people about Medicare.
    The facts are clear:
     Health care costs are skyrocketing, growing at 8% a year. 
Medicare spending is on pace to double over the next decade, exhausting 
its remaining funds.
     10,000 baby boomers are retiring every day, as fewer 
workers are left paying into the program.
     Life expectancy was at 70 when Medicare was created, and 
is at 79 today.
     Nonpartisan experts--including the Congressional Budget 
Office and Medicare's own trustees--repeatedly warn of the looming 
insolvency of this critical program.
    Rather than advancing solutions to address these facts, too many 
politicians in Washington have offered nothing but empty promises and 
false attacks. We deserve better.
    Due in large part to this committee's efforts, I believe that the 
debate is shifting to better reflect Medicare's inescapable math. 
President Obama was exactly right when he stated yesterday: ``If you 
look at the numbers, Medicare in particular will run out of money, and 
we will not be able to sustain that program no matter how much taxes go 
up. It's not an option for us to just sit by and do nothing.''
    Senator Joe Lieberman, who has worked in a bipartisan manner to 
offer ideas of his own, put it well when he recently stated: ``We can 
only save Medicare if we change it.'' The purpose of today's hearing is 
to examine the changes to Medicare made by the President's health care 
law. Specifically, we will seek to better understand the Independent 
Payment Advisory Board's role in achieving the hundreds of billions of 
dollars of savings called for by the President. While I imagine we'll 
hear about the many different expansions of government buried in the 
2,700-page law, today's hearing is focused is on page 1000, Section 
3403.
    The Independent Payment Advisory Board--or IPAB--is a new executive 
branch agency created by the President's healthcare law. The law 
empowers this board of 15 unelected officials with the authority to 
reduce Medicare spending. Unless overturned by a supermajority in 
Congress, the recommended cuts dictated by this board will become law.
    Bipartisan concerns have been raised with several aspects of this 
board. While the proponents claim that beneficiaries will be held 
harmless from the board's decisions, how can IPAB impose sharp cuts to 
providers without any adverse impact on their patients?
    Given their unprecedented new power over Medicare, to whom are 
these 15 bureaucrats accountable? There are bipartisan concerns on this 
question. Democrats, including members of this committee, have raised 
concerns with Congress turning its responsibilities over to this board.
    Seniors are also seeking clarity on the President's recent efforts 
to expand this board's power over Medicare. In an April speech, the 
President called for IPAB to enforce further restrictions in Medicare's 
growth rate--down to GDP + 0.5%. The health-care law is already driving 
Medicare's reimbursement rates well below the artificially low Medicaid 
rates. According to Medicare's Chief Actuary Richard Foster, the health 
care law will pay doctors less than half of what their services cost at 
the end of the decade, and down to 33% in the decades ahead. Foster 
warns that these cuts are driving Medicare providers out of business 
and resulting in harsh disruptions in quality and access for seniors.
    Yet the President's 'framework' calls upon IPAB to slash 
reimbursements even further. It remains incumbent upon the 
Administration to specify how this board will squeeze hundreds of 
billions of additional dollars from Medicare over the next decade, as 
the President has proposed.
    I want to thank Secretary Sebelius for testifying today to help 
address these concerns. There is no question that we have differences 
on how to address Medicare's unsustainable future, but I appreciate 
your commitment to clarifying this debate for policymakers and for the 
American people.
    I also want to thank our second panel of distinguished health care 
experts who will further discuss the merits of IPAB. We look forward to 
testimony from former CBO Director Doug Holtz-Eakin, Grace-Marie Turner 
of the Galen Institute, and Dr. Judith Feder of the Urban Institute.
    Thank you to all of our witnesses for their contributions to the 
debate, and to all for joining in today's discussion. With that, I 
yield to Ranking Member Van Hollen for his opening statement.

    Mr. Van Hollen. Well, thank you, Mr. Chairman. I want to 
join Chairman Ryan in welcoming you, Madam Secretary, to the 
panel and to the other witnesses we are going to hear from 
later. And I want to commend you on two initiatives you have 
recently undertaken to help implement the Affordable Care Act. 
One are the rules, guidelines that you recently released to 
govern the exchanges, which will open the door to millions of 
more Americans being able to get affordable health care in the 
United States of America. The other that received less 
attention is your recently announced initiative to improve the 
coordination of care for individuals who are both on Medicaid 
and Medicare, called the ``dual eligibles.'' And as you have 
pointed out, using some of the innovative approaches in the 
Affordable Care Act, we can both improve the quality of care 
and save money through some of the changes you are proposing 
there.
    Those are important parts of the Affordable Care Act that, 
together with others, will strengthen health care protections 
for the American people, including provisions that have already 
taken effect, including making sure that insurance companies 
can no longer discriminate against kids with asthma, diabetes, 
or other preexisting conditions by denying them coverage, 
including making sure that young people up to the age of 26 can 
stay on their parents' health care plans; including providing 
tax credits to hundreds of thousands of small businesses who 
can now afford to provide coverage to their patients; and 
including beginning and ultimately closing the prescription 
drug doughnut hole in Medicare that many seniors find 
themselves trapped in.
    Those are some of the important improvements that have been 
made. So I believe that the fundamental question, the 
fundamental underlying question of today's hearing is, what is 
the best way to strengthen our health care system; and 
specifically, how do we keep the promise of Medicare and meet 
the challenges of Medicare, as the chairman has said?
    One way, one approach, is to build upon the very important 
reforms that were enacted in the Affordable Care Act. The 
Medicare trustees have found that those measures will indeed 
reduce the per-capita costs for Medicare beneficiaries going 
forward, the increase in per-capita cost, that it will help 
bend the curve, and that it will, in fact, extend the solvency 
of Medicare. We need to build upon those approaches.
    As we have heard in testimony before this committee, from 
Dr. Rivlin and others, the Affordable Care Act opens all sorts 
of new avenues to try and modernize the structure of Medicare, 
which we need to do. We need to change the incentive structure 
so that it rewards the quality of care, the value of care over 
the volume of care and the quantity of care. And Mr. Chairman, 
we agree that significant changes need to be made to modernize 
the system in this way.
    The Independent Payment Advisory Board is simply one tool 
in the tool box for getting it done. It creates a back-stop or 
a fail-safe provision to ensure the continued solvency of 
Medicare if, and only if, the Congress chooses not to act, to 
take other measures to build upon the kind of changes we saw in 
the Affordable Care Act.
    And by the way, the IPAB is specifically prohibited by law 
from changing Medicare benefits. That prerogative is reserved 
to the Congress. Moreover, the latest CBO projections indicate 
that the rates of growth in spending per beneficiary are below 
the target rates of growth for fiscal years 2015 and 2021 set 
forth in the Affordable Care Act, and therefore CBO projects 
that under current law, the IPAB mechanism will not affect 
Medicare spending during the 2011 to 2021 period. So building 
on that approach is one way.
    What is the other approach? The other approach is a path 
set forward in the Republican budget plan, a plan that will end 
the Medicare guarantee and will force Medicare beneficiaries 
into the private insurance market. That plan is a double 
whammy, a double whammy for Medicare beneficiaries for the 
following reasons: First, the Congressional Budget Office has 
determined that that plan will actually drive up overall health 
care costs. It changes the allocation of the burden, but it 
drives up overall health care costs. Why? Because providing 
that care in the private market is more expensive. And, in 
fact, if you look at the history of per-capita growth rates in 
the private market compared to per-capita growth rates in 
Medicare, Medicare has actually outperformed the private 
market. And therefore you are saying to those seniors, we are 
going to toss you into the private insurance market where you 
are going to face higher premiums and costs.
    Why is it a double whammy? Because as you do that, you 
dramatically reduce the support for Medicare beneficiaries from 
the Federal Government. Dramatically. And as CBO has pointed 
out, by the year 2030, you essentially flip the burden from 
where it is today. Today the Medicare beneficiary, on average, 
picks up about 30 percent of the costs and the Medicare program 
picks up about 70 percent. By the year 2030, under the 
Republican plan, it is the reverse, because of the rising costs 
of care and the diminishing support from Medicare. Double 
whammy.
    And I want to just really wrap up with this point, because 
we have heard it said that what the Republican plan offers 
Medicare beneficiaries is really the same as what Members of 
Congress get. The reason that is simply untrue is because 
Members of Congress, by law, have a certain percentage of their 
health care premiums supported by the Federal Government, by 
the taxpayer. In fact, under what is called the Fair Share 
Formula, that ranges from 72 to 75 percent, on average, the 
share that is picked up by the Federal Government.
    Under the Republican planned future Medicare, we are going 
to be asking essentially Medicare beneficiaries to pick up 
themselves that cost, and the Federal Government will pick up 
only the remainder; so essentially, the flip of the deal that 
Members of Congress give themselves. That is unfair.
    We have to make choices. We have said many times on this 
committee, to govern is to choose. We have lots of members on 
our side who are not wild about every aspect of IPAB, even in 
its back-stop role. But I think we are united, and I believe 
ultimately the American people are united, that that is a 
better approach--we have to fix the kinks as we go along--than 
the idea of ending the Medicare guarantee and throwing that 
decision, not to experts who are confirmed by the United States 
Senate as a back-stop, but the people on the front line will be 
the insurance industry. Under the Republican plan, it is the 
insurance industry that fixes the benefits, frankly, actually 
in consultation with, what you guys say, ``Federal 
bureaucrats.'' And they will set the premiums and they will 
choose; not the patients, at the end of the day.
    So that is the choice. Mr. Chairman, thank you for holding 
this hearing. And I look forward to the testimony.
    Chairman Ryan. Thank you.
    [The prepared statement of Mr. Van Hollen follows:]

 Prepared Statement of Hon. Chris Van Hollen, Ranking Minority Member, 
                     House Committee on the Budget

    Thank you Mr. Chairman. I want to join Chairman Ryan in welcoming 
you, Madame Secretary, to the panel and to the other witnesses we are 
going to hear from later. And I want to commend you on two initiatives 
you've recently undertaken to help implement the Affordable Care Act. 
One is the Rules Guidelines you have recently released to govern the 
exchanges, which will open the door to millions more Americans being 
able to get affordable health care in the United States of America. The 
other, that received less attention, is your recently announced 
initiative to improve the coordination or care for individuals who are 
on both Medicaid and Medicare, called the dual eligibles.
    It was you who pointed out using some of the innovative approaches 
in the Affordable Care Act, we can both improve the quality of care and 
save money through some of the changes you are proposing there. Those 
are important parts of the Affordable Care Act that together with 
others will help strengthen health care protections for the American 
people, including provisions that have already taken effect, including 
making sure insurance companies can no longer discriminate against kids 
with asthma, diabetes, or other preexisting conditions by denying them 
coverage, including making sure that young people up to the age of 26 
can stay on their parents' health care plans, including providing tax 
credits to hundreds of thousands of small businesses who can now afford 
to provide coverage to their patients. And including beginning and 
ultimately closing the prescription drug donut hole in Medicare that 
many seniors find themselves trapped in. Those are some of the 
important improvements that have been made.
    So I believe that the fundamental question, the fundamental 
underlying question of today's hearing is What is the best way to 
strengthen our health care system, and specifically, how do we keep the 
promise of Medicare and meet the challenges of Medicare as the chairman 
has said? One approach is to build upon the very important reforms that 
were enacted in the Affordable Care Act. The Medicare trustees have 
found that those measures will indeed reduce the per capita cost for 
Medicare beneficiaries going forward, the increase in per capita cost; 
that it will help bend the curve and that it will in fact extend the 
solvency of Medicare. We need to build upon those approaches. As we 
have heard in testimony before this committee from Dr. Rivlin and 
others, the Affordable Care Act opens all sorts of new avenues to try 
and modernize the structure of Medicare, which we need to do. We need 
to change the incentive structure so that it rewards the quality of 
care, the value of care, over the volume of care and the quantity of 
care. And Mr. Chairman, we agree that significant changes need to be 
made to modernize the system in that way.
    The Independent Payment Advisory Board is simply one tool in the 
toolbox for getting it done. It creates a backstop, or a failsafe 
provision to ensure the continued solvency of Medicare if, and only if, 
the Congress chooses not to act to take other measures to build upon 
the kind of changes we saw in the Affordable Care Act. And by the way, 
the IPAB is specifically, specifically prohibited by law from changing 
Medicare benefits. That prerogative is reserved to the Congress. 
Moreover, the latest CBO projections indicate that the rates of growth 
in spending for beneficiary are below the target rates of growth for 
fiscal years 2015 and 2021 set forth in the Affordable Care Act and 
therefore CBO projects that under current law, the IPAB mechanism will 
not affect Medicare spending during the 2011 to 2021 period.
    So, building on that approach is one way. What's the other 
approach? The other approach is the path set forward in the Republican 
budget, a plan that will end the Medicare guarantee and will force 
Medicare beneficiaries into the private insurance market. That plan is 
a double whammy, a double whammy for the Medicare beneficiaries for the 
following reasons.
    First, the Congressional Budget Office has determined that that 
plan will actually drive up overall health care costs. It changes the 
allocation, the burden, but it drives up overall health care costs. 
Why? Because providing that care in the private market is more 
expensive, and in fact if you look at the history of per capita growth 
rates in the private market, compared to per capita growth rates in 
Medicare, Medicare is actually outperformed the private market. And 
therefore you're saying to those seniors, 'We're going to toss you into 
the private insurance market, where you're going to face higher 
premiums and costs.' Why is it a double whammy? Because as you do that, 
you dramatically reduce the support for Medicare beneficiaries from the 
federal government, dramatically. As CBO has pointed out, by the year 
2030, you essentially flip the burden from where it is today. Today, 
the Medicare beneficiary, on average, picks up about 30 percent of the 
cost and the Medicare program picks up about 70 percent. By the year 
2030 under the Republican plan, it's the reverse, because of the rising 
costs of care and the diminishing support from Medicare. Double whammy.
    And I want to just really wrap up with this point because we've 
heard it said that what the Republican plan offers Medicare 
beneficiaries is really the same as what members of Congress get. The 
reason that is simply untrue is because members of Congress, by law, 
have a certain percentage of their health care premiums supported by 
the federal government, by the tax payer. In fact, under what's called 
the Fair Share Formula, that ranges from 72 to 75 percent on average, 
the share that's picked up by the federal government. Under the 
Republican plan, future of Medicare, we're going to be asking 
essentially Medicare beneficiaries to pick up themselves that cost and 
the federal government will pick up only the remainder. So essentially, 
the flip of the deal that members of Congress give themselves. That's 
unfair.
    We have to make choices. We have said many times in this committee 
that to govern is to choose. We have lots of members on our side who 
are not wild about every aspect of IPAB, even in its backstop role. But 
I think we're united and I believe ultimately the American people 
united that that is a better approach, we have to fix the kinks as we 
go along, than the idea of ending the Medicare guarantee and throwing 
that decision not to experts who are confirmed by the United States 
Senate as a backstop, but the people on the frontline will be the 
insurance industry. Under the Republican plan it's the insurance 
industry that fixes the benefits, frankly actually in consultation with 
what you guys say federal bureaucrats and they will set the premiums 
and they will choose, not the patients, at the end of the day. So, that 
is the choice. Mr. Chairman, thank you for holding this hearing, and I 
look forward to the testimony.

    Chairman Ryan. Madam Secretary, the floor is yours.

           STATEMENT OF KATHLEEN SEBELIUS, SECRETARY,
          U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Secretary Sebelius. Thank you, Mr. Chairman. Chairman Ryan, 
Ranking Member Van Hollen, members of the committee, I 
appreciate you inviting me here today to discuss how the 
Affordable Care Act is strengthening Medicare for seniors today 
and tomorrow. My written testimony provides more detail, but I 
want to quickly highlight some of the steps we are taking as 
part of the health care law to fill the gaps in Medicare 
coverage, to improve care and make the program more sustainable 
for the future, while preserving its guarantees for seniors and 
for people with disabilities.
    When Medicare became law in 1965 it served as a national 
promise that seniors wouldn't go broke because of a hospital 
bill. In 2006 the Medicare program added coverage for 
prescription drugs, which makes up a growing share of 
beneficiaries' health care costs. But we know that too many 
seniors still struggle to afford their medications, and that is 
why the Affordable Care Act provided relief to 4 million 
beneficiaries who fall, year in and year out, into the Medicare 
Part D doughnut hole with, in 2010, a one-time, tax-free check 
for $250. And some of the beneficiaries who have written to me 
say they basically took that check and went right to the drug 
store to help pay a part of their bill. And this year, because 
of the Affordable Care Act, those same beneficiaries are 
getting a 50 percent discount on covered name brand drugs. By 
2020 that gap closes completely.
    We also know that many seniors were going without the 
preventive care that can help actually prevent illness before 
it occurs, lowering costs and saving lives. And in some cases, 
they were doing that because of expensive co-pays, and that 
doesn't make a lot of sense. So beginning this year, the law 
allows Medicare beneficiaries to receive recommended preventive 
services like screenings for colon and breast cancer, as well 
as an annual wellness visit, without paying a co-pay or 
deductible. It is the right thing to do and it is the smart 
thing to do because it helps us catch small health problems 
before they turn into big ones.
    The law is also helping to improve the quality and safety 
of care for people with Medicare. Now, we know that there are 
model hospitals across the country that have adopted best 
practices to dramatically increase the quality of care. In 
fact, for every common medical error, we have examples of 
health systems that have significantly reduced, even 
eliminated, them. And there is no reason why all Medicare 
beneficiaries shouldn't enjoy that same high quality of care 
wherever they receive it. And that is why the Affordable Care 
Act provides unprecedented support to help these best practices 
spread.
    In March, we launched the Partnership for Patients, an 
historic partnership with employers, unions, hospital leaders, 
physicians, nurses, pharmacists and patients' advocates to 
reduce harm and error in our Nation's hospitals. Last week we 
were able to announce that more than 2,000 hospitals across the 
country have already signed up and are taking steps to improve 
care aimed at two very important goals: reducing preventable 
readmissions and reducing hospital-acquired conditions.
    Under the law, we have also established the first of its 
kind Medicare/Medicaid Coordination Office that Congressman Van 
Hollen referred to. The office is working with States to 
improve care for beneficiaries who were enrolled in both 
Medicare and Medicaid and often receive fragmented or 
duplicative care as a result. And through the new Medicare and 
Medicaid Innovation Center created by the law, we are testing a 
wide range of additional models for increasing the quality of 
care, from strategies for helping seniors manage their chronic 
conditions, to new models in which hospitals and doctors who 
help keep their patients healthy and out of the hospital can 
share in the cost of savings they create. Together, these 
reforms are dramatically strengthening Medicare today for 
seniors and Americans with disabilities.
    But we also have the responsibility to preserve the promise 
of Medicare for future generations, and we can't do that if 
costs continue to rise unchecked. Because doing care the right 
way often costs less than doing it the wrong way, many of the 
law's reforms are aimed at improving care and reducing Medicare 
costs. For example, the Partnership for Patients alone, with 
those two pretty tangible goals, will save Medicare as much as 
$50 billion over the next 10 years by reducing errors that lead 
to unnecessary care.
    But the law doesn't stop there. It also contains important 
new tools to help stamp out waste, fraud, and abuse in 
Medicare. For fiscal year 2010, our anti-fraud efforts returned 
a record $4 billion to taxpayers, and these tools in the 
Affordable Care Act help us to build on that progress. The 
Medicare trustees estimate that these reforms in the Affordable 
Care Act have already extended the solvency of the trust fund 
until 2024. Without these reforms the trust fund would have 
been insolvent just 5 years from now.
    But when it comes to Medicare's future, we can't take any 
chances, and that is why the law also creates the Independent 
Payment Advisory Board, or IPAB, as a back-stop, a fail-safe to 
ensure Medicare remains solvent for years to come. As you know, 
the IPAB is made up of 15 health experts, including doctors, 
other health care professionals, employers, economists and 
consumer representatives. Members are recommended by Congress, 
appointed by the President, and confirmed by the Senate. And 
each year, the Board is charged with recommending improvements 
to Medicare. The recommendations must improve care and help 
control costs.
    For example, the Board can recommend additional ways for 
Medicare to reduce medical errors and crack down on waste and 
fraud. And contrary to what some have suggested, IPAB will not 
ration care or shift costs to seniors. In fact, the Board is 
specifically forbidden by law from making any recommendations 
that would ration care, reduce benefits, raise premiums, or 
raise cost-sharing or alter eligibility for Medicare. It leaves 
all final decisions in the hands of Congress.
    If Medicare spending begins to threaten the program's 
future, IPAB will make recommendations to create the necessary 
savings without shifting the cost of care to seniors and those 
with disabilities. But it is up to Congress to decide whether 
to accept the recommendations, or to come up with 
recommendations of its own to put Medicare spending on a 
stable, sustainable path. In other words, the IPAB 
recommendations are only implemented when excessive spending 
growth is not addressed and no other actions are being taken to 
bring spending in line.
    Now, the nonpartisan Congressional Budget Office and the 
independent Medicare actuary both predict that the IPAB is 
unlikely to be necessary anytime soon, thanks to the work we 
are already doing to slow down rising costs. But we can't know 
about the future. And that is why experts across the country, 
including independent economists and the Congressional Budget 
Office, believe that IPAB is a needed safeguard, and we agree. 
We believe that the best way to strengthen Medicare for today 
and tomorrow is to fill the gaps in coverage, to crack down on 
waste and fraud, to bring down the cost of improving care. And 
that is what we are working to do, given the new tools in the 
health care law.
    Over the last 16 months, our Department has focused on 
working with Congress and our partners across the country to 
implement the new law quickly and effectively. And in the 
coming months I look forward to working with all of you to 
continue those efforts and to make sure that Americans can take 
full advantage of all that the new law has to offer.
    Thank you again, Mr. Chairman. And I look forward to our 
conversation.
    Chairman Ryan. Thank you.
    [The prepared statement of Secretary Sebelius follows:]

        Prepared Statement of Hon. Kathleen Sebelius, Secretary,
              U.S. Department of Health and Human Services

    Chairman Ryan, Ranking Member Van Hollen, and Members of the 
Committee, thank you for the opportunity to discuss our Department's 
implementation of the Affordable Care Act. Millions of Americans across 
the country are already benefiting from this law, including more than 
100 million people currently enrolled in Medicare, Medicaid, and the 
Children's Health Insurance Program (CHIP).
    Over the past 16 months, we have worked closely with doctors, 
nurses, other health care providers, consumer and patient advocates, 
employers, Governors, State Insurance Commissioners, health plans, and 
interested citizens to deliver many of the law's key benefits to the 
American people, including Medicare beneficiaries. These benefits 
include improving seniors' access to affordable, life-saving 
medications; offering new preventive care benefits for Medicare 
beneficiaries; improving care coordination for beneficiaries eligible 
for both Medicare and Medicaid; and implementing new tools to fight 
fraud and return money to the Medicare Trust Funds and Treasury.
    I am proud to say that we have met deadlines, established strong 
working partnerships, and begun laying the groundwork for reforms that 
will have lasting effects in the years to come. This law means real 
improvements for the care of Medicare beneficiaries now, and a stronger 
and more fiscally sound Medicare program in the future.
    Making Medicare sustainable is not about cutting program benefits 
or shifting costs onto seniors. Sustainability for Medicare requires 
fundamental changes to the way that health care is delivered--changes 
that will lead to better health, better care, and lower costs. The 
Affordable Care Act includes new policies and authorities that will 
make critically needed delivery system reforms while preserving 
Medicare's guarantees for seniors and people with disabilities.
        improved value for seniors and people with disabilities
    Thanks to the Affordable Care Act, Medicare beneficiaries will 
enjoy better quality care, better access to care, and a more innovative 
care delivery system that will help to improve outcomes and reduce 
cost. People with Medicare have already experienced improved benefits 
that help to keep them healthy and make prescription drugs more 
affordable. The important changes called for in the Affordable Care Act 
will also produce savings for taxpayers and extend the solvency of the 
Medicare Trust Fund. Medicare's long-term outlook is improved as a 
result of the development of new systems of health care delivery that 
will improve health care outcomes and cost efficiency, and provide more 
effective tools to reduce waste and fraud. These measures will also 
help people with Medicare by slowing the growth of their monthly 
premiums, and by keeping their copayments and deductibles lower than 
they would have been under previous law.
    Here are just a few examples:
     Improving Medicare beneficiaries' access to life-saving 
medicines: As a result of new provisions in the Affordable Care Act, 
people with Medicare have already received immediate relief from the 
cost of their prescription medications. Nearly 4 million beneficiaries 
received a one-time, tax-free check for $250 after reaching the Part D 
coverage gap, or ``donut hole,'' during 2010. In 2011, this benefit has 
improved dramatically. Beneficiaries now automatically receive a 50 
percent discount on covered brand-name drugs in the coverage gap. Among 
beneficiaries who have reached the coverage gap, the average 
beneficiary has saved $545, for total savings of more than $260 million 
in the first five months this year. Further, people with Medicare Part 
D will pay a smaller share of their prescription drug costs in the 
coverage gap every year from now until 2020, when the coverage gap will 
be closed.
     Increased access to preventive care: Thanks to the 
Affordable Care Act, people with Medicare now are eligible to receive 
critical preventive care, like mammograms and colonoscopies, with no 
coinsurance or deductible. Beneficiaries also have access to a new 
annual wellness visit starting this year that provides a focus on 
preventive care. As of June 10, about 5.5 million people with Medicare 
have accessed one or more of these preventive measures. At the end of 
June, we launched a new awareness effort--Share the News, Share the 
Health--to highlight Medicare's preventive benefits and encourage more 
Medicare beneficiaries to take advantage of these potentially 
lifesaving services. Improving access to preventive care can improve 
early detection and treatment options, potentially reducing the cost of 
care and improving the health of our Medicare population in the long 
run.
     High quality Medicare Advantage benefits: This year, HHS 
has improved its oversight and management of the Medicare Advantage 
(MA) program. The results for the 2011 plan year show that these 
efforts are paying off: seniors and people living with disabilities 
have clearer plan choices that, on average, offer improved protections 
and stable benefits at lower premiums. Contrary to predictions of 
enrollment decline, 2011 MA enrollment is up six percent and average 
premiums are down six percent compared to 2010, while benefit and cost-
sharing levels remain roughly the same. Access to MA remains strong, as 
more than 99 percent of Medicare beneficiaries have a choice of MA 
plans as an alternative to traditional Medicare. As part of the 
Administration's national strategy for implementing quality improvement 
in health care, CMS is also working to create new incentives for all MA 
plans to improve the care they offer to Medicare beneficiaries. 
Beginning in 2012, CMS will implement a demonstration that builds on 
the quality bonus payments authorized in the Affordable Care Act by 
providing stronger incentives for plans to improve their performance, 
thereby accelerating quality improvements. These enhanced incentives 
will help provide a smooth transition as MA payments are gradually 
aligned more closely with costs in the Medicare fee-for-service 
program.
     Increased support for primary care: Thanks to the 
Affordable Care Act, physicians have better incentives to provide vital 
primary care services to Medicare beneficiaries. Beginning January 1, 
2011, the Affordable Care Act provides for new 10 percent bonus 
payments for primary care services furnished by a primary care 
practitioner and for major surgical procedures furnished by a general 
surgeon in a health professional shortage area. Primary care 
practitioners in family medicine, internal medicine, geriatric medicine 
or pediatric medicine, as well as general surgeons, nurse 
practitioners, clinical nurse specialists, and physician assistants are 
eligible for these new incentive payments.
     Specific focus on Hospital-Acquired Conditions (HACs): 
These conditions consist of complications, including infections, that 
patients acquire while receiving care that is supposed to help them. 
Not all HACs are preventable, but a great number can be avoided. For 
example, the Centers for Disease Control and Prevention (CDC) has 
estimated that each year, almost 100,000 Americans die and millions 
suffer from hospital-acquired infections alone. In addition to pain, 
suffering, and sometimes death, these HAC complications could add as 
much as $45 billion to hospital costs paid each year by taxpayers, 
insurers, and consumers.\1\ The Department of Health & Human Services' 
Office of the Inspector General has reported that 44 percent of adverse 
events experienced by Medicare beneficiaries in the October 2008 sample 
month were preventable, and that these complications cost the Medicare 
program an extra $119 million in that one month alone.\2\ We know of 
hospitals in this country that, through improvements in their health 
care processes, have virtually eliminated some forms of infections that 
other hospitals still think are inevitable. To create incentives for 
hospitals to prevent such infections and other adverse conditions, the 
Affordable Care Act includes a Medicare payment reduction for hospitals 
in the top quartile of all hospitals with regards to selected hospital-
acquired conditions under the inpatient prospective payment service 
system beginning in fiscal year 2015. Consistent with our commitment to 
transparency, information for consumers, and the Affordable Care Act, 
the Secretary will publically report information regarding HACs of each 
affected hospital on the Hospital Compare website. Those hospitals will 
have an opportunity to review, and submit corrections for, the 
information to be made public prior to the information being publically 
reported.
---------------------------------------------------------------------------
    \1\ The Direct Medical Costs of Healthcare-Associated Infections in 
U.S. Hospitals and the Benefits of Prevention, March 2009, http://
www.cdc.gov/ncidod/dhqp/pdf/Scott--CostPaper.pdf.
    \2\ Adverse Events in Hospitals: National Incidence Among Medicare 
Beneficiaries, November 2010, http://oig.hhs.gov/oei/reports/oei-06-09-
00090.pdf.
---------------------------------------------------------------------------
     Reducing unnecessary hospital readmissions: We know that 
about one in every five Medicare beneficiaries discharged from the 
hospital will be re-admitted within 30 days of discharge. The Medicare 
Payment Advisory Commission (MedPAC) estimates that Medicare spends $12 
billion annually on potentially preventable readmissions.\3\ Proper 
attention to care transitions, coordination, outreach, and patient 
education and support could all prevent unnecessary readmissions and 
allow at-risk patients to recover at home, where they would prefer to 
be, rather than reentering the hospital with complications. The 
Affordable Care Act provides for a payment adjustment for inpatient 
hospital services to encourage the reduction of certain readmission 
rates and also provides financial incentives for certain hospitals 
partnering with community-based organizations to improve transitional 
care processes. Per the Affordable Care Act, the readmission rate 
information for all patients in each hospital participating in the 
program will publicly available online.
---------------------------------------------------------------------------
    \3\ Medicare Payment Advisory Commission (MedPAC) Report to the 
Congress, June 2007. (2005 data).
---------------------------------------------------------------------------
                 better care: a partnership with states
    The Affordable Care Act is beginning to improve the way care is 
delivered to Medicare beneficiaries. Too often, health care takes place 
in disconnected fragments. Instead, we should make it possible for new 
levels of coordination and cooperation to take place among the people 
and the entities that provide health care, in order to smooth the 
journeys of patients and families--especially those coping with chronic 
illness--through their care over time and in different places.
    For example, coordination is critically needed in providing care to 
more than 9 million beneficiaries who are eligible for both Medicare 
and Medicaid, also known as dual eligibles. The Affordable Care Act 
established a Federal Coordinated Health Care Office, also known as the 
Medicare-Medicaid Coordination Office, to improve coordination of the 
care provided to these beneficiaries. This population is among the most 
vulnerable and chronically ill beneficiaries: though they represent 
only 15 percent of Medicaid enrollees, they account for 39 percent of 
Medicaid expenditures. Similarly, they are 16 percent of Medicare 
enrollees but account for 27 percent of Medicare expenditures. Dual 
eligibles must navigate two separate systems: Medicare for coverage of 
basic health care services, and Medicaid for coverage of long-term care 
supports and services and help with Medicare premiums and cost-sharing.
    The Medicare-Medicaid Coordination Office is working to better 
streamline care for dual eligibles by improving alignment between the 
two programs, sharing data that is critical to States' ability to 
manage care for these individuals, and supporting States' innovative 
approaches to coordinating care for dual eligibles. The office has been 
hard at work. Some of its initiatives include:
     On May 11, 2011, the Medicare-Medicaid Coordination Office 
launched the Alignment Initiative, an effort to more effectively 
integrate benefits under the Medicare and Medicaid programs. Better 
alignment of the two programs can reduce costs by improving health 
outcomes and more effectively and efficiently coordinating care.
     Also on May 11, the Office announced a new process to 
provide States access to Medicare data to support care coordination for 
individuals enrolled in both Medicare and Medicaid. The ability to 
access both sets of information on beneficiaries covered by both 
programs enables States to better analyze, understand, and coordinate a 
person's experience.
     Partnering with the Center for Medicare and Medicaid 
Innovation, the Office has awarded contracts of up to $1 million each 
to 15 States to design person-centered approaches to coordinate care 
across primary, acute, behavioral health and long-term supports and 
services for Medicare-Medicaid enrollees.\4\ The overall goal of this 
contracting opportunity is to identify delivery system and financial 
models that can be rapidly tested and, upon successful demonstration, 
replicated in other States.
---------------------------------------------------------------------------
    \4\ http://www.cms.gov/medicare-medicaid-coordination/04--
StateDemonstrationstoIntegrateCareforDualEligibleIndividuals.asp#TopOfPa
ge
---------------------------------------------------------------------------
     On July 8, 2011, HHS announced new opportunities for 
partnering with States to improve quality and costs for Medicare-
Medicaid beneficiaries. Specifically, we announced a demonstration 
program to test two new financial models designed to help States 
improve quality and share in the lower costs that result from better 
coordinating care for individuals enrolled in Medicare and Medicaid; a 
demonstration program to help States improve the quality of care for 
people in nursing homes by providing these individuals with the 
treatment they need without having to unnecessarily go to a hospital; 
and a technical resource center available to help them improve care for 
high-need high-cost beneficiaries.
                           program integrity
    As we move forward with new and exciting benefits and care models, 
we are redoubling our efforts to minimize waste, fraud, and abuse in 
Federal health care programs. This Administration has put an 
unprecedented focus on reducing fraud and improper payments, and is 
making progress towards that end. A greater focus on program integrity 
is integral to the success of Medicare reform. In 2010, our collective 
efforts returned over $4 billion in health care fraud resources to the 
Medicare Trust Fund, victim programs, and others. The Affordable Care 
Act offers additional front-end protections to keep those who commit 
fraud out of Federal health care programs, as well as new tools for 
deterring wasteful and fiscally abusive practices, promptly identifying 
and addressing fraudulent payment issues, and ensuring the integrity of 
our programs. Recently, CMS consolidated Medicare and Medicaid program 
integrity efforts into one office, the Center for Program Integrity.
    This organizational change, coupled with the new tools provided by 
the Affordable Care Act, enhances CMS's ability to improve its program 
integrity capabilities and jointly develop Medicare, Medicaid and CHIP 
anti-fraud and abuse policies. For example, many Affordable Care Act 
provisions, such as enhanced screening requirements for new providers 
and suppliers, apply across the programs. In addition, oversight 
controls such as authority for temporary enrollment moratoria and 
authority for a temporary withhold on payment of claims for new durable 
medical equipment suppliers based on risk, will allow us to better 
focus our resources on addressing the areas of greatest risk and 
highest dollar impact.
    Further, on July 1, 2011, CMS implemented a new predictive modeling 
technology developed with private industry experts to fight Medicare 
fraud. Similar to the technology used by credit card companies, 
predictive modeling will help identify fraudulent Medicare claims prior 
to payment on a nationwide basis so we can begin to take action to stop 
fraudulent claims early on. This initiative builds on the new anti-
fraud tools and resources provided by the Affordable Care Act. 
Together, these tools are helping us move beyond ``pay and chase'' 
recovery operations to an approach that prevents fraud and abuse.
    Finally, through the Health Care Fraud Prevention and Enforcement 
Action Team, or ``HEAT,'' CMS has joined forces with our law-
enforcement partners at the Department of Justice and the Department of 
Health and Human Services' Office of Inspector General to collaborate 
and streamline our efforts to prevent, identify, and prosecute health 
care fraud.
                   independent payment advisory board
    All of this work reflects this Administration's vision for 
improving the health of seniors and securing Medicare finances for the 
future. By reducing the underlying costs of the health care system and 
by improving the care our seniors receive, we can continue to serve 
today's beneficiaries while preparing for tomorrow's.
    We also know that the future of Medicare requires continued 
vigilance and careful oversight, which is why we support the creation 
of a backstop mechanism to ensure Medicare remains solvent for years to 
come. The Independent Payment Advisory Board (IPAB) builds on the 
commitment we have made to our seniors' health.
    The IPAB will consist of 15 health experts, including health care 
providers, patient advocates, employers, and experts in health 
economics. The Affordable Care Act provides for consultation between 
the President and Congressional leadership in appointing members of the 
Board, and appointments are subject to the advice and consent of the 
Senate. Their work will be objective and transparent.
    The Board's primary responsibility will be to recommend 
improvements to Medicare. Recommendations of the IPAB will focus on 
ways to improve health care while lowering the growth in Medicare 
spending. For example, the Board could recommend approaches that would 
build on and strengthen the initiatives mentioned above, from reducing 
medical errors, to strengthening prevention and improving care 
coordination, or targeting waste and fraud.
    At the same time, the law contains important limitations on what 
the Board can recommend. The statute is very clear: the IPAB cannot 
make recommendations that ration care, raise beneficiary premiums or 
cost-sharing, reduce benefits, or change eligibility for Medicare. The 
IPAB cannot eliminate benefits or decide what care Medicare 
beneficiaries can receive. Given the long list of additional 
considerations the statute imposes on the Board, we expect the Board 
will focus on ways to find efficiencies in the payment systems and 
align provider incentives to drive down costs without affecting our 
seniors' access to the care and treatment they need. The Board's 
recommendations are also just that--recommendations--unless Congress 
fails to act. Congress still has the authority to make final decisions.
    Starting in 2014, Medicare will have specific benchmarks for per 
capita spending increases. These benchmarks will initially be set at 
the average of the increases in CPI and CPI-Medical. Beginning in 2020, 
the benchmark will be set at the rate of growth of GDP per capita + 1 
percentage point. Given these benchmarks, the Medicare Actuary predicts 
that the IPAB will be needed mainly as a backstop. Through the 
Affordable Care Act and our program integrity efforts, we have already 
substantially reduced the rate of growth in projected Medicare 
spending. The Office of the Actuary predicts that per beneficiary 
spending in the Medicare program will grow at a rate below the GDP+1 
percentage point benchmark throughout the 75 year projection period. 
Indeed, the Office of the Actuary predicts that over the next decade 
per beneficiary Medicare spending will grow at about the same rate as 
GDP per capita, including an allowance to raise future physician 
payments to avoid the cuts mandated by the Sustainable Growth Rate 
formula. That would be a substantially slower rate of growth in 
expenditures per beneficiary, over a 10 year period, than has ever 
before been seen in the Medicare program. In addition, the current 
Medicare spending baseline prepared by the Congressional Budget Office 
assumes that Medicare spending growth will not exceed the benchmark 
amounts over the next 10 years. Of course, predictions are just that--
predictions--and predictions are not always certain. Health care 
spending patterns--or the rate of growth in the benchmarks--could 
change. The IPAB backstop means that if Medicare spending growth does 
exceed growth in the benchmarks, the IPAB will make specific 
recommendations, and Congress will then have the opportunity to take 
action. If Congress rejects IPAB recommendations, they will replace 
them with reforms that bring Medicare spending growth to or below the 
benchmark--achieving the same savings. The Board's recommendations will 
only go into effect if Congress accepts them, or if Congress fails to 
act. In other words, the IPAB recommendations are only implemented when 
excessive spending growth is not addressed, and other actions being 
taken are insufficient to bring spending to levels at or below the 
benchmark.
    Experts across the country, including independent economists and 
the Congressional Budget Office, believe the IPAB is a needed 
safeguard. We agree, which is why the President's deficit reduction 
framework strengthens the Board. This will ensure that we protect 
Medicare's future without resorting to radical benefit cuts or cost-
shifting to seniors and people with disabilities.
                               conclusion
    The accomplishments listed above are just some of the many benefits 
that the Affordable Care Act has provided. The Affordable Care Act has 
already had a positive impact on Medicare beneficiaries, as well as on 
the millions more who now have greater options and protections in their 
private health insurance. Our Department has worked hard to implement 
the many new programs and authorities that the Act has provided us. We 
take very seriously our responsibility to improve access, quality, and 
efficiency of care for all our Medicare beneficiaries, while protecting 
the long-term fiscal integrity of the Medicare program.

    Chairman Ryan. As I mentioned in my opening, I quoted the 
President, which I thought was pretty much head-on with his 
remarks about Medicare. The trustees, your chief actuary 
projects the trust fund goes bankrupt in 2024. CBO tells us it 
is in 9 years.
    Do you agree with the President and Medicare's chief 
actuary that the status quo as we know it, the traditional fee-
for-service system is unsustainable and will soon fail to 
deliver the promise of health and retirement security for 
seniors that we all depend on?
    Secretary Sebelius. Well, Mr. Chairman, I believe that the 
fee-for-service system has incentives in all the wrong places, 
so we are often paying for care that actually delivers very 
poor health results. And in fact, in many cases, if people are 
sicker, stay in the hospital longer, acquire more infections, 
are readmitted more frequently, that hospital makes additional 
money, as opposed to preventive aggressive home-based, patient-
centered care, which often is not only more desirable by the 
patient and doctor, but actually lowers the cost.
    So the Affordable Care Act for the first time gives 
Medicare not only the tools but the direction to actually align 
the incentives and, I think, the payment strategies.
    Chairman Ryan. Okay. So I think on the premise of that we 
would agree, which is the current system is unsustainable and 
has all the wrong incentives, which is part of the reason why 
it is driving it toward bankruptcy.
    Secretary Sebelius. I would say that the current fee-for-
service system, yes, is unsustainable.
    Chairman Ryan. So if you could bring up chart one, please.
    

    
    So here is the question we have. I have got basically three 
questions. And this is, it is basically, you know, how best to 
solve this problem. According to your chief actuary, providers 
who are reimbursed through Medicare receive about 80 percent of 
what a private plan offers. And as we all know, what inevitably 
happens is, if a provider loses money on a Medicare patient, 
then they will overcharge the private payer to make up the 
difference. And that is putting upward pressure on prices, on 
health care costs. Under the health law, the Affordable Care 
Act, this falls from 80 percent to 48 percent by 2022, and to 
33 percent by 2050.
    Hospitals suffer the same fate. This is the hospital 
reimbursement rate curve under the new health care law. A 67 
percent drop in prices relative to what private plans pay over 
the course of the window. So we are already paying them, 
providers, through Medicare, far less than they get otherwise. 
In most cases we are paying less than they actually--the cost 
of the care.
    And so basically, I have three questions. Do you agree with 
the chief actuary's findings that cutting payments to providers 
does have an effect on providers? Because here is what he says. 
He is saying that by the year 2050, 40 percent of hospitals, 
skilled nursing facilities, and home health agencies will have 
negative margins. In other words, they will go bankrupt. So 
that means they will leave the business of providing Medicare 
services to Medicare beneficiaries. Do you agree that cutting 
payments to providers has an effect on providers in such a way?
    Secretary Sebelius. Mr. Chairman, I do believe that 
certainly cutting payment has an impact. What I know is that 
Medicare cost trends are actually significantly, I would say, 
better than the private sector, growing at about 4.9 percent, 
as opposed to the private sector growth of about 7.2 percent 
over the last 10 years. And I do believe that Medicare has the 
opportunity to actually change the cost trends by improving the 
underlying costs of delivering health care, as opposed to--I 
would suggest that the House Republican plan just shifts those 
costs onto seniors and those with disabilities and does not 
address the underlying costs at all. I think improving care and 
lowering costs makes a lot more sense than just shifting costs.
    Chairman Ryan. Well, okay. So this is the hospital chart 
which shows, under the Affordable Care Act, reimbursements to 
hospitals goes down precipitously.
    Go to chart two if you can.
    

    
    That is the physician chart which shows Medicare and 
Medicaid obviously goes down precipitously under what private 
plans pay. So obviously, if we underpay them it is going to 
save more money. The question is, if we keep underpaying them 
at this pace, will they keep delivering the benefit? I mean, so 
our issue here is if there are fewer providers participating in 
Medicare, because their payments are going down so far below 
their cost--we have 10,000 baby boomers retiring every day. Do 
you not agree that if we underpay them, that they will just 
stop seeing beneficiaries?
    Secretary Sebelius. Mr. Chairman, I think that assumption 
is that nothing changes in care. Nothing changes in the care 
trajectory, that we keep paying at the same--not only rates, 
but keep paying for the same kinds of services. So if you 
assume that care delivery doesn't change at all, that we keep 
paying for good care the same as bad care, that we don't have 
any changes in underlying care, that we don't coordinate care, 
that we don't have more home-based patient-based care, that we 
keep the churning of one out of every five Medicare patients 
going in and out of the hospital, whether or not they have seen 
a health care provider or not, that trend line is probably 
accurate.
    I would suggest that what the Affordable Care Act does, and 
what we have begun to do, I think pretty successfully in these 
early days with the innovation center and the very enthusiastic 
support of a lot of health care providers across the country, 
is look at where the best practices are, where the hospital 
systems are and the provider groups who have actually delivered 
very high-quality care, well below the trend line, and capture 
that; and then reach out to others to try and accelerate that 
change, and use the enormous payment levers of the Medicare 
system to do just that, to drive best practices.
    Chairman Ryan. So we are right now looking at a law that 
will pay providers 80 cents on the dollar, then 66 cents on the 
dollar in this decade, going down to 33 cents on the dollar. So 
you are saying that we will be able to sort of mastermind how 
to pay for this care at those low rates and they will still 
provide these services? This is where I don't understand this.
    Ultimately, don't you believe that there is going to be a 
time where if you are going to so dramatically underpay for a 
service to a provider that they would provide a beneficiary, 
that they will just stop providing that service? I mean isn't 
that effectively rationing, in of and of itself? If you don't 
pay the providers anything close to what it costs to provide 
the service, won't they just stop providing the service?
    Secretary Sebelius. Well, Mr. Chairman, again, I would 
suggest that what is going to occur, and is occurring across 
the country, is a different kind of service being provided, a 
different strategy around health care services, and one that 
actually suggests that doctors and hospitals, through 
mechanisms like the Accountable Care Organization, actually 
group together around quality-care delivery and share in the 
savings that they achieve. We have heard from very enthusiastic 
participants around that strategy.
    So I think if you capture the status quo and say you just 
drive that into the future and nothing ever changes, this is 
probably an accurate chart. But I don't believe that that is 
sustainable. I also don't believe, Mr. Chairman, that just 
taking those cost trends, shifting the burden of costs onto 
seniors and those with disabilities, which the plan that has 
been passed by the House of Representatives does, addresses 
this at all. It just means that more of those costs are going 
to be paid by seniors and those with disabilities. It doesn't 
bring more doctors. It doesn't change the underlying costs. It 
doesn't deliver better care. It means that fewer and fewer 
seniors out of their own pocket are going to be able to afford 
the care they need.
    Chairman Ryan. Can you bring up chart three?
    

    
    Okay. So this chart shows you what we thought prescription 
drug law was going to cost originally. Actually, the CMS 
actuary estimated it was going to be about a $700 billion, 10-
year program. CBO, a $400 billion program. It came in 41 
percent below those cost projections, 41 percent below the CBO 
projections, which were $400 billion, versus the CMS, $700 
billion projection.
    And so I want to ask you basically this. Do you, if you had 
to do it over again, because at the time there was a debate 
between Republicans and Democrats about how to do the drug 
program. The Republican view prevailed at that time, which was 
to have Medicare certify private plans to offer drug benefits 
to seniors and each year they get to choose among competing 
plans for their benefit. And that active choice of competition, 
according to your actuary, accounts for 85 percent of the cost 
reductions or the savings from the projection. If you had to do 
it all over again, would you scrap the Part D program the way 
it is designed today and would you have gone with the original 
point of view that it should just be one program run by 
Medicare and not one of competing plans?
    Secretary Sebelius. Mr. Chairman, I don't know that I could 
answer that question. I think there were a few fatal flaws in 
Part D that I certainly would go back and change. One was the 
design of the program so that the seniors who got the most 
prescriptions fell into a coverage gap; and, secondly, it 
wasn't paid for. So one of the reasons that Medicare is 
becoming less solvent is that we have a huge unfunded liability 
in Part D.
    Chairman Ryan. But the delivery system, would you have 
stuck with multiple plans that people can choose from, or would 
you have sided with the position at the time of your party that 
we should not have that, we should just have a one-size-fits-
all, only Medicare provides the drug benefit.
    Secretary Sebelius. As I say, I think there are some fatal 
flaws that have been corrected. I do think that the drug 
program is an essential benefit that many, many seniors rely 
on. I can't tell you the cost estimates of one versus many. I 
do think Medicare still pays for drugs at a higher price than 
anyone on Earth, and as a Governor who used to run a program 
where I negotiated for drug prices, I can tell you that they 
are still overpaying for drugs.
    Chairman Ryan. Let me ask it this way. Should seniors be 
given a choice of plans to choose from to get their drug 
benefit?
    Secretary Sebelius. I think that is a great idea. And 
seniors are given a choice of Medicare programs now with 
Medicare Advantage, and many have also some fee-for-service 
plans along with traditional Medicare. What we know, though, is 
that Medicare Advantage, the private market strategy, is still 
well above the fee-for-service strategy, and no beneficial 
health results as a result.
    Chairman Ryan. Okay. I don't want to keep wasting time on 
this. But you agree with the idea that seniors ought to have 
plans from which to choose from for their benefits; is that 
correct?
    Secretary Sebelius. You tell me what we are looking at and 
what costs are--I mean it is impossible to----
    Chairman Ryan. I have been asking you about Part D the 
whole time. Should they have a choice of plans for their drug 
benefit?
    Secretary Sebelius. As opposed to what?
    Chairman Ryan. As opposed to the other idea of not having a 
choice of plans.
    Secretary Sebelius. If it is 30 percent cheaper with the 
negotiated rate, probably that doesn't make sense. It is a 
choice. I mean, having drug benefits is critical and I would 
like to get seniors the drug benefit at the best possible cost.
    Chairman Ryan. Okay. Here is the point we are trying to get 
at here. The health care law, the Affordable Care Act, ends the 
Medicare guarantee. It ends Medicare as we know it. It takes a 
half a trillion from Medicare to spend on the Affordable Care 
Act. It puts a cap on Medicare. And this is the first time we 
have actually capped an entitlement.
    Now, nobody is arguing against capping spending around 
here. The only difference is, this law empowers the IPAB with 
the unilateral power to decide how to live underneath that cap. 
And where we have an issue, you mentioned affordable care 
organizations. There isn't a Wisconsin provider that is willing 
to sign up for this. The ACOs. What our concern is, if we 
invest all of the power and the funding decisions with a Board 
of 15 people whose decisions go into law, don't even go through 
Congress, is that the best way to save this entitlement and to 
restrain spending?
    We believe there is a better way, and we believe giving 
seniors the choice, like we did with Part D, is a better way, 
because what it does at the end of the day is it shows 
providers if you want to succeed, if you want to have business, 
you have got to outcompete other providers for that 
beneficiary's business. So the nucleus of the program we are 
trying to take is the patient, the beneficiary, not the IPAB. 
And there is the big difference at the end of the day.
    We really believe, because of evidence and reality, that 
giving seniors more choices, more providers, doctors, 
hospitals, insurance companies compete against each other for 
that beneficiary's business, that works.
    More importantly, you talk about what this would do to 
future seniors. We think we should give more money to low-
income people, more money to sick people than to wealthy 
people, in the future of Medicare. And if we do it in a way 
like we are proposing, you don't have to do all of this to the 
current population. You don't have to have IPAB start their 
indiscriminate price controlling in 2013, you don't have to do 
any of that. You don't have to affect benefits of people above 
55, and we can cash flow and borrow the money to cash flow that 
generation if we reform our generation, those of us under 54. 
And the way in we which we think we ought to do that, more 
money for the poor, more money for the sick and the middle-
income and less money for the wealthy. It is an idea that used 
to have bipartisan support. It is an idea that came out of the 
Clinton 1999 Bipartisan Commission to save Medicare. It is a 
very good and legitimate debate to debate about growth rates 
and how you grow a payment and should it be GDP or GDP minus 
this or that. That is a very fair debate.
    But at the end the day, where I think we have a 
disagreement is we don't think we should invest all of the 
power and money decisions into the hands of 15 people who 
aren't even elected, versus giving seniors the ultimate 
decision in controlling how their health care is to be 
delivered. Because if we just simply give 15 people the ability 
to unilaterally underpay providers, and we see where this is 
headed, what is going to end up happening is providers are just 
going to drop Medicare. I don't know what you call that, but it 
is rationing under a different word. Because if you say to a 
provider, we are not going to pay you anything close to what it 
costs to provide that service, they are not going to provide 
that service.
    Secretary Sebelius. Well, Mr. Chairman, first of all, IPAB, 
as you know, in the statute, doesn't come into effect unless 
Congress has not taken action. So Congress is in the driver's 
seat. Day one, IPAB makes recommendations if the spending 
trends are on target.
    Chairman Ryan. What is the threshold? It is a supermajority 
vote to prevent that, though, correct?
    Secretary Sebelius. Only if Congress has not preceded IPAB. 
I am suggesting that if Congress is actually paying attention 
to the bottom line of Medicare, IPAB is irrelevant coming up 
with good strategy suggestions, and it never triggers in. That 
is step one.
    I also would suggest, Mr. Chairman, that, you know, when I 
think about Medicare, I actually start with my dad who was in 
the Congress in 1965, sat on the Energy and Commerce Committee, 
helped to write the law. He turned 90 in March. And I can tell 
you he is a happy beneficiary, relies on those services, but 
really doesn't have the capital right now. If he were paying 51 
to 70 percent of his costs, it starts at 61 to 70 percent of 
his cost, that is not flexible income that he would have 
available right now.
    Third, I think that the notion of moving Medicare from 
guaranteed benefits, which is what we have said to seniors and 
those with disabilities, you will have a benefit package that 
you can rely on into the future; when you get sick you will not 
go bankrupt. Turning that over to private insurers and to an 
unelected group of Federal employees who design the benefit 
package and determine which benefits seniors will and will not 
get, I am not sure keeps the promise that we made.
    I am all for looking at strategies to reduce costs. And I 
would suggest that we have really never done that seriously 
until the Affordable Care Act. We have never had the tools and 
particularly the tools to look at the underlying costs. Not 
just, you know, trimming off the top of providers, but really 
reengineering the delivery of health care. And most, a good 
number of health care providers who I visit across the country, 
say not only is it achievable, it is essential, and they are 
well on their way to doing just that.
    Chairman Ryan. Well, I want to be--I want to wrap it up 
because I want to get to Mr. Van Hollen and the rest. I have 
been on Ways and Means for 12 years, on the Health 
Subcommittee. I have watched us try to reengineer Medicare over 
and over and over, from Republicans to Democrats. It never ends 
up working because it is kind of a fatal conceit. We sit in 
Washington and we think we can figure out how to micromanage 17 
percent of our economy and make this all work. And all we end 
up doing is artificial price controls across the board. That 
was what the 1997 budget agreement did. And we had all these 
providers going out of business. So we put the money back. I 
don't see how this movie isn't repeating itself.
    Secretary Sebelius. Well, if Congress can't figure it out, 
private insurers are going to then figure out how to----
    Chairman Ryan. So we already have private insurers 
delivering comprehensive Medicare benefits. They have shown 
that they will do it cheaper, less than we expected. We already 
have private insurers providing Medigap, providing Medicare 
Advantage, providing Part D. Actually you contract out with 
private insurers to do part A. And so that is something we have 
already had experience with.
    What we also have experience with is if we simply underpay 
providers what their costs are, they stop providing. That we 
have experience with as well. And so I would just simply say at 
the end of the day, we have a difference of opinion on how best 
to achieve this.
    My mom is on Medicare. Your dad is on Medicare. They have 
already organized their lives around this program as it is 
currently designed. Let's leave that alone. Our point is, don't 
change for that for them. IPAB does. We are saying don't do 
that. But in order to cash flow this commitment that they have 
already organized their lives around, which we should, you have 
got to fix it for the next generation, and we just have a 
difference of opinion on how best to do that.
    And with that, I will yield to Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman and Madam 
Secretary, thank you for your testimony.
    I want to pick up on a couple of lines of questioning that 
the chairman began, especially as they relate to cost shifting, 
because that is exactly what the Affordable Care Act addresses 
in many ways. When you have tens of millions of Americans with 
no health insurance whatsoever, and they show up at the 
hospital as their primary care provider, guess who pays? Guess 
who pays? Taxpayers pay. And consumers pay through cost 
shifting.
    Now, we have heard from the chairman about the fact that 
Medicare actually gets a better deal in terms of the amount of 
payment to providers, and that is reflected in part in the fact 
that Medicare's per-capita growth rates have been less than in 
the private sector. That is because they are able to use their 
bargaining power.
    What you are seeing with the Affordable Care Act are people 
who have no health insurance, not a penny. That was cost 
shifting going on. We were all paying in a big way. And by 
creating an exchange that tens of millions of Americans can 
participate in now and get their preventative health care, it 
means they are not showing up in the hospital. So it is not 
only good for the health of those individuals and their 
families, but it is good for the pocketbooks of the rest of 
America because they were paying zero to the doctors and zero 
to the hospitals.
    Now let's talk about another piece of cost shifting, 
because, you know, obviously, if you pay the doctor zero, you 
are going to shift costs. Well, if you shift costs, if you 
shift costs the way the Republican plan does, you are not 
saving a penny to the system. You are just moving those costs 
on to seniors.
    I have right here the April 5, 2011, CBO analysis of the 
Republican budget plan. It says right here that under the 
proposal, most beneficiaries who receive premium support 
payments would pay more for their health care than if they 
participated in traditional Medicare under either of CBO's 
long-term scenarios. CBO estimated that in 2030 a typical 65-
year old would pay 68 percent of the benchmark under the 
proposal, compared with 25 percent under the extended baseline 
scenario, and 30 percent under the alternative fiscal scenario. 
I would point out again to my colleagues that that is the flip 
of what Members of Congress get in terms of support, so-called 
premium support from all points.
    Let me just if I could get through this, and I will be 
happy to answer your question. So that is the exact flip. That 
is cost shifting. Doesn't save a penny, and it actually reduces 
the amount of support.
    Now, I want, Madam Secretary, you to expand upon another 
point here which, as the chairman mentioned, we already have 
some private options, private insurance options within the 
Medicare program. It is called Medicare Advantage. It is called 
Medicare Part C. And the difference between the current system 
and what the Republican budget proposes is we allow the 
Medicare beneficiaries to choose whether they want to go into 
Part C or whether they want to stay under traditional Medicare. 
The Republican plan says no more choice. You are forced into 
the private plans. Now, the chairman mentioned what he 
described as the benefits of this compensation.
    Madam Secretary, could you tell us what the rate that the 
Medicare program was reimbursing the so-called more efficient 
Medicare Advantage plans, compared to the traditional plans 
before the Affordable Care Act?
    Secretary Sebelius. Yes. Congressman, Medicare Advantage 
plans were being paid at about 113 percent of fee-for-service. 
And what the Affordable Care Act directs is that over time, 
that additional payment, which amounts to about $3.30 per month 
per beneficiary--not the beneficiaries who have chosen the 
Medicare Advantage plan, that 25 percent--but to every 
beneficiary is paying that additional amount per month every 
year to keep Medicare Advantage at that artificially high 
level. So over time, we are directed to reduce that overpayment 
and put it more in line with Medicare fee-for-service. And we 
have begun that, and, I would suggest, still have, we 
anticipate, a very robust program. But the overpayment is 
calculated by the Congressional Budget Office to yield about 
$140 billion over the next 10 years.
    Mr. Van Hollen. Right. And again, people can choose 
currently to go down that road. They are not forced to go down 
that road as the Republican budget plan would do. But they can 
choose it. And as you pointed out, we, meaning the taxpayer and 
the Medicare program, were subsidizing those plans at 114 
percent of fee-for-service, meaning not only were taxpayers 
paying more for individuals in that plan through Medicare, but 
other Medicare beneficiaries were cross-subsidizing those 
plans; is that correct?
    Secretary Sebelius. That is correct. And over the period of 
time, also, there has been a pretty careful analysis of were 
there additional health benefits that were attributable to the 
additional expenditure. And the answer is no.
    Mr. Van Hollen. Right. Now, under Medicare Part C, under 
Medicare Advantage, there is a wide range of ability to 
experiment with co-pays and premiums and many of the tools that 
we are talking about; is that not the case?
    Secretary Sebelius. There is opportunity certainly to 
experiment and to, you know, develop different plan strategies. 
There are limitations on how much those costs can be shifted on 
to beneficiaries and particularly how much the plan design 
could be used to cherry-pick among healthier seniors or sicker 
seniors. But given those limitations, yes, there is a lot of 
opportunity for innovative care strategies by the private 
market.
    Mr. Van Hollen. Okay. Now, I just want to turn to Medicare 
Part D, the prescription drug plans, and ask you a few 
questions about that because it is the case that the 
expenditures came in under projections. If you read the 
Medicare actuaries, they point out two major factors there. One 
was that the cost of prescription drugs in the overall market 
went down because of a competition from generics. And Number 
two, fewer people actually chose to enroll in Medicare Part B 
than had originally been projected which, of course, would 
bring down the costs. But of course, one of the features of the 
prescription drug bill, Medicare Part D, when it was passed in 
2005, was to deny the Medicare program the ability to negotiate 
or bargain for drug prices.
    The other change that was made was that for people who were 
so-called ``dual eligibles,'' people who were on Medicaid and 
Medicare, previously Medicare of course had not covered 
prescription drugs, but the Medicaid individuals had been--we 
had gotten a better rebate, meaning a better deal from the 
prescription drugs companies than when those individuals also 
got prescription drugs under Medicare. Can you--that is money 
that is lost to the Medicare program; is it not?
    In other words, reduced drug prices for the Medicare 
programs represent savings that could be plowed into the 
Medicare program and extend the solvency of the program; is 
that not correct?
    Secretary Sebelius. That is correct. And I think in most 
States around the country, the negotiation of drug prices, 
formularies, and rebates are something that most Governors take 
seriously with the Medicaid program, and that is not a 
framework that the Medicare program operates under.
    Mr. Van Hollen. And if we could go to the fourth slide.
    


    
    And we are going to have the Medicare actuaries here 
tomorrow. But this is an interesting point that they made in 
their most recent report which says the average annual increase 
in Part D per-beneficiary costs are expected to be greater than 
for HI, that is Part A Medicare, or SMI, Part B, for the period 
of 2011 through 2020. So Part D which, as the chairman said, 
has this competition feature, but where the bargaining for the 
price of drugs is splintered into subgroups as opposed to being 
able to get a better deal for the whole group, like we do under 
the Veterans Administration, but what this chart shows is that 
the Part D is actually expected to grow more per beneficiary 
than Part A and B. Could you comment on that?
    Secretary Sebelius. Well, Mr. Chairman, I do think that 
trends in part are up because there are definitely some more 
expensive but very significant new drugs on the marketplace. 
And that will continue to be part of the framework. But I also 
think that there are some tools that we are still missing.
    I know in the chairman's home State of Wisconsin, there is 
a senior care program which was negotiated, put into effect by 
the Governor, and is very popular with a lot of seniors in 
Wisconsin, and still operates as a stand-alone drug plan, which 
can be a choice for those seniors. And the costs that Wisconsin 
seniors pay for senior care is significantly below what 
Wisconsin seniors can choose from in Medicare Part D. So that 
we have a real-life example in the State where there is a 
State-negotiated plan, side by side with the Part D multiple 
choice plans, and the costs are, I would say, significantly 
different.
    Mr. Van Hollen. Thank you. I am going to wrap up, Mr. 
Chairman, with a couple of slides. Just if we can go back one 
slide.




    What this shows are the projected CBO costs in 2030. And 
again recognizing the fact that the Medicare program is able to 
negotiate better prices and bring down the cost, Madam 
Secretary, do you know what the average costs for a senior was 
for health insurance in 1965 before we passed the Medicare 
program?
    Secretary Sebelius. The average cost per senior?
    Mr. Van Hollen. The average cost for health care--the 
distribution of costs born by the senior compared to the 
government or other sources.
    Secretary Sebelius. Well, it is my understanding that first 
a number of seniors, a majority of seniors, had no health 
insurance at all. And secondly, that those who had insurance or 
some kind of coverage were often paying about 65 percent of 
their own costs and that there was some payment for the 
remainder at the time.
    Mr. Van Hollen. So some had none at all, and some had to 
bear the burden that we would go back to under the Republican 
proposal. If we could go back one more slide.



    This is the 2022 numbers. Again, it is the double whammy. 
It is the fact that seniors will go into the private insurance 
market and face higher costs and get less support in 2022, even 
though immediately the benefit the Secretary talked about with 
respect to closing the prescription drug doughnut hole goes 
away.
    And then if we just go to the last slide, this is the 
Medicare actuary showing how the Affordable Care Act does then 
prosper.



    Thank you, Mr. Chairman. Thank you, Madam Secretary.
    Secretary Sebelius. Congressman, one perspective on those 
cost issues is if you assume that there are a number of seniors 
in this country who are living on their Social Security checks, 
in 2022 the average Social Security check will be a little over 
$21,000, and that beneficiary, with the start of the Republican 
Congressional plan, would be paying 59 percent of that Social 
Security check on their health care costs. That same 
beneficiary today pays about 26 percent of their Social 
Security check for health care. So it is a more than doubling 
what amount of their income would have to go to health care, 
year one.
    Chairman Ryan. I want to get to members because we are 
going to start the clock. One thing we failed miserably on a 
bipartisan basis is to learn how to manage the thermostat in 
this room. Tell your actuary who is coming tomorrow that we are 
going to work on it.
    Secretary Sebelius. I thought it was a strategy.
    Chairman Ryan. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman. And welcome, Madam 
Secretary. We appreciate you joining us today.
    Many of us, as you well know, and as a physician have 
talked about the principles of health care being accessibility 
and affordability and quality responsiveness to the system, 
innovation of the system, and choices for patients. And many of 
us believe that the new law actually harms every single one of 
these principles.
    There is also little trust between patients and folks out 
there in the Federal Government as it relates to health care. 
And for a variety of reasons, former Speaker Pelosi on this 
specific law said we have got to pass the law so we know what 
is in it. And this, the Independent Payment Advisory Board, a 
denial of care opportunity for the Federal Government, is one 
of the things that we now know that is in it. And it ought to 
be no surprise that there is little trust out there.
    I will remind you, Madam Secretary, that the original 
Medicare legislation says in it--and this is still the law of 
the land--quote: Nothing in this title shall be construed to 
authorize any Federal officer or employee to exercise any 
supervision or control over the practice of medicine or 
compensation of any officer or employee of any institution, 
agency, or person providing health care services.
    Madam Secretary, do you think that we have violated that 
portion of the previous Medicare law that is still the law of 
the land?
    Secretary Sebelius. Violated it by passing the Affordable 
Care Act? By----
    Mr. Price. No. By having the Federal Government determine 
what compensation is provided to those caring for patients.
    Secretary Sebelius. Congressman, I think that the Medicare 
from day one determined what compensation they would pay for 
services, medical services, so I guess I am not quite sure what 
we are doing. I mean, perhaps you are suggesting that from the 
outset, from 1966 it has been in violation.
    Mr. Price. That we violate the law and hence there is 
little trust on the part of patients. And this, the Independent 
Payment Advisory Board, this ``denial of care Board'' can only 
do that by denying payment to physicians. In a recent op-ed, 
you said, quote: Seniors and taxpayers will have the security 
of knowing that as skyrocketing costs jeopardize Medicare's 
future, IPAB is in place to protect Medicare now and for future 
generations. But in fact if we talk about the kind of 
recommendations that IPAB can make, are they able to reach 
different targets by raising revenue? Can the Independent 
Payment Advisory Board raise revenue?
    Secretary Sebelius. No.
    Mr. Price. Not by law. Can the Independent Payment Advisory 
Board raise beneficiary premiums?
    Secretary Sebelius. Well, the IPAB as you know is 
prohibited by law from cost shifting, from premium increases, 
from denying benefits. I think there are a number of examples 
of ways that they could have been effective at a much earlier 
time. And one of them we just discussed, which is overpayment 
for Medicare Advantage.
    Mr. Price. But, Madam Secretary, don't you agree----
    Secretary Sebelius. Which was the situation with MedPAC for 
years.
    Mr. Price. If I may, because I don't get the kind of time 
that the chair and the ranking member do. The only way that the 
Independent Payment Advisory Board are able to affect what the 
physician does for the patient is to deny payment for that 
provision of services; isn't that correct?
    Secretary Sebelius. I don't think that is at all correct, 
Congressman. I think they could look at a lot of the underlying 
rising costs and recommend payment strategies that much more 
closely align what doctors tell me they really want to do. So 
medical homes where the patient----
    Mr. Price. But they aren't able to institute any of that. 
All that they can do is deny care or deny payment to the 
physician.
    Secretary Sebelius. I don't think that is the case, 
Congressman. I fundamentally disagree. Medicare Advantage----
    Mr. Price. I would urge you, Madam Secretary, then, to 
simply read the section, just read the section.
    Secretary Sebelius. I know it.
    Mr. Price. If I may, this gets to the heart of the quality 
of health care in this country. As a physician, I can tell you 
that if I am told by the Federal Government that I will not be 
paid for a service to a physician, what happens in my 
presentation of the options to that patient as that treating 
physician is that I may be coerced by the Federal Government 
into not even presenting that option to the patient. So this is 
as pernicious as it could be in terms of the Federal Government 
getting involved in the provision of care to patients, and that 
is what violates the trust that is so important between 
patients and physicians, and it is why we on this side of the 
aisle and some on the other side of the aisle feel so strongly, 
that to have a denial of care board in place in Federal law is 
simply a violation of American principles as it relates to 
health care.
    Secretary Sebelius. Well, Congressman, I hear what you are 
saying. I would suggest that the Republican budget proposal, 
which would eliminate guaranteed benefits for which there will 
be----
    Mr. Price. Madam Secretary, you know that is not true. You 
know that is not true.
    Secretary Sebelius. Congressman, I think it is----
    Mr. Price. The point of the matter is that our proposal 
guarantees----
    Chairman Ryan. We have got to move to the next----
    Mr. Price [continuing]. The provision of care for seniors. 
It guarantees it.
    Chairman Ryan. Let us leave it at that in the interest of 
time.
    Ms. Schwartz.
    Ms. Schwartz. Thank you.
    I would like to continue this conversation somewhat. This 
is important for us to be talking about what are the really big 
contrasts here, and the big contrasts when we are talking about 
the future of Medicare is what we are working on, what passed 
last year, which is now law, which I want to have you elaborate 
on, the work of implementing the Affordable Care Act and in 
strengthening Medicare and getting the best value for our 
dollars, and I want you to talk about that; but before we get 
there, to understand the choice that is being presented, the 
contrast with the Republican plan--we used to call it the Ryan 
plan, but now that all the Republicans basically voted for it 
in the House, it is the Republican plan.
    This is what the House of Representatives majority, the 
Republicans, want to do, which is to end Medicare as we know 
it, offer seniors premium support. We call it a voucher because 
they can get to shop in the private marketplace, which, as you 
pointed out, Madam Secretary, is more expensive and does not 
have the concerns about cost because they simply can raise the 
premiums, and the more they raise the premiums, the more 
seniors will have to pay. Estimates are about $6,000 a year per 
senior, $6,000 starting, $6,000 per senior per year, going up 
to doubling that, and who knows what in the future.
    The cost shift is directly to the seniors with no 
protections for those seniors, no consumer protections, no 
guarantees on benefits, and no offering them, I think, what the 
chairman would say is options. They can choose between 
expensive plans or plans that don't have all the benefits they 
can afford. This is not what we want to see happen.
    And in contrast, however, I want to say to my Republican 
colleagues who say that there is no trust in Medicare, most 
Americans and most seniors like their Medicare, and they want 
to see it continue, and so do we. So what I think is 
particularly interesting about what your testimony in this 
hearing is the very keen focus for seniors in particular about 
strengthening the benefits and getting better value for the 
dollars that we spend in Medicare. We know we can do better in 
delivery of care, and I love some physicians. I actually care a 
lot about my husband, and my son, and my daughter-in-law and 
many of the physicians and hospitals that I know, and they are 
saying they know they can do better. They would like that 
flexibility; they would like the tools and the innovations to 
be able to do that.
    In the Affordable Care Act we emphasize primary care, we 
wanted to train more primary care physicians, we wanted to pay 
them better under Medicare and Medicaid, we wanted to give 
physicians and hospitals real flexibility in redesigning better 
coordinated care for seniors in this country in order to 
provide better care, improve their health and their outcomes, 
and to save taxpayer dollars.
    So I wanted you to give all that up, to repeal the 
Accountable Care Act as the Republicans want to and replace it 
with a voucher that seniors can use in the private marketplace 
that has had, unfortunately, not taken these kind of innovative 
actions the way they might have, but might well now do it in 
cooperation with what Medicare is doing.
    Can you just elaborate on particularly the cost savings, 
the potential in cost savings, based on the experience that we 
have already had and the good work that you are doing now in 
the innovation center with accountable care organizations, with 
patient-centered medical homes, with health innovation zones, 
with the reduction in hospital-acquired infections and reduced 
admissions? The opportunity, I understand, is really in the 
hundreds of billions of dollars in savings. What a better way 
to use that dollars to be able to reinvest and keep Medicare 
strong.
    Secretary Sebelius. Well, Congresswoman, you are absolutely 
right, and I think we have just started down the path. In 
addition to the innovations, and I will talk about those in 
just a second, I think the new tools that Congress gave us and 
directed us to use for fraud and abuse are unprecedented, and I 
think that can yield also some significant dollar savings.
    We have just started the predictive modeling computer 
effort, and I can guarantee you it is going to be very 
impressive in terms of results. But the innovation center is 
just launching some of the strategies. The Partnership for 
Patients we have talked about, which really is aimed at two 
simple goals to start with, but many more to follow. That is 
about $50 billion. That is a--according to the CBO, a 
conservative estimate if we can get more people to participate, 
lowering hospital infections and preventible readmissions, and 
that not only helps people in the Medicare system, but anybody 
who goes into the hospital. If there are fewer infections that 
people get in the hospital, it is going to help private 
employers, it will help people----
    Ms. Schwartz. The whole point is to reduce the rate of 
growth of costs across the board. We certainly will thank you.
    Chairman Ryan. We would like to get in as many people as 
possible.
    Is Mr. Chaffetz here? No, it is Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you, Madam 
Secretary, for being here today.
    I want to touch on the progress of IPAB. And the health 
care law provided $15 million in fiscal year 2012 to get IPAB 
up and running. CMS is required to begin calculating the 
savings targets in 2013. What progress have you made toward 
setting up the IPAB as a functioning agency?
    Secretary Sebelius. Congressman, that work has not started. 
I think the President is consulting with people about possible 
candidates for the IPAB Board, but there is no setting up an 
agency before there is a board appointed.
    Mr. Stutzman. Do you know, are there any qualifications to 
be sitting on the Board?
    Secretary Sebelius. Yes. The statute lays out a series of 
areas of expertise which the Board should have, very similar to 
what MedPAC Board members currently have, health care 
providers, health economists, consumer advocates, people 
experienced with health finance. I think a key difference 
between the Board qualifications for IPAB and the Board 
qualifications for MedPAC are no conflicts of interests. If 
they are to be an appointed member of the Independent Payment 
Advisory Board, it must be a full-time assignment and not be an 
active user of the system or receive payment from the system.
    Mr. Stutzman. So they will sit--it will be a full-time job; 
is that correct?
    Secretary Sebelius. That is the way the statute is.
    Mr. Stutzman. Any idea what salaries would they be paid?
    Secretary Sebelius. I think it is the same as--I know it is 
equivalent of a Federal salary. One hundred sixty thousand 
dollars? I don't know what it is--but it is a level that is a 
Federal--I don't know if it is a Federal judge or--I don't 
really know, I am sorry, Congressman. I can get you that 
answer.
    Mr. Stutzman. Okay. Could you please elaborate on the claim 
that this year's House-passed budget, the Republican plan, if 
fully implemented would make it so cancer patients would die 
sooner? Wouldn't a lower quality of care caused by cutting 
provider payments in half cause patients to die sooner?
    Secretary Sebelius. Congressman, I think I was at a hearing 
where I was asked what happens if someone runs out of money in 
a voucher in the midst of a chemotherapy program, and I said, 
frankly there aren't a lot of options. Charity care is one, 
donated care is another, or they just stop taking their cancer 
therapy and would end up----
    Mr. Stutzman. Let me ask this----
    Secretary Sebelius. That was my answer.
    Mr. Stutzman. Okay. My granddad just passed away, and I 
have seen how Medicare worked for him. The average couple 
turning 65 today pays--paid over $109,000 into Medicare over 
their lifetimes, but they will receive over $343,000 in 
benefits. As a 34-year-old, and many others who are not even 
close to the age of 65, will I get the same deal?
    Secretary Sebelius. I think it depends on what Congress 
decides to do with Medicare in the future.
    Mr. Stutzman. Could I get the same deal? At the current 
levels, if we would stick with the Democrat plan, if we would 
stick with doing nothing, could I get the same deal?
    Secretary Sebelius. Well, no one has suggested doing 
nothing, Congressman. I think that the Affordable Care Act 
actually took a major step for the first time ever in 
entitlement reform, and gave us tools at the Centers for 
Medicare and Medicaid Services to finally align payment with 
high quality, lower-cost care delivery, and we are trying to 
accelerate that pace.
    Mr. Stutzman. But what I don't understand is what the 
affordable health care plan did was addressed insurance.
    Secretary Sebelius. No, that is not true. It addresses 
insurance, but also the care delivery system. It addresses the 
underlying system in addition to insurance.
    Mr. Stutzman. So do you believe that health care costs will 
start declining? Because currently they are roughly at three 
times the rate of inflation.
    Secretary Sebelius. Well, actually they have been on a 
decline. They are right now running lower than inflation. We 
think that if, indeed, the strategies are effective where you 
focus more on preventive care and early intervention, where 
people are actually healthier as they get to be 60 and 70, you 
can dramatically improve health care costs, as well as some 
care strategies which are aimed at delivering more patient-
centered care out of hospital systems, keeping people in their 
homes longer, which is what patients tell me they want, and 
also what a lot of providers would like to do, but right now 
the alignment of the payment incentives and the care delivery 
are not there.
    Mr. Stutzman. I think that, you know, with these numbers, 
if $109,000 covers $343,000 in benefits, Americans understand 
that this is not going to be sustainable over the next----
    Secretary Sebelius. Well, I would agree, and everybody 
agrees with that.
    Mr. Stutzman [continuing]. Decade. It is going to take some 
big changes.
    Secretary Sebelius. That is right.
    Mr. Stutzman. Thank you. I will yield back.
    Chairman Ryan. Mr. Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman.
    Madam Secretary, thank you. I would like to just briefly 
touch a few things.
    As I listen to my good friend, the chairman, describe 
certain things, I wondered if we were talking about the same 
bill, because certainly you were talking about a very different 
bill than I heard him talk about.
    My understanding is that you testified--and I just picked 
up a copy of it again just in this section--that the provisions 
here do not--are not triggered by the IPAB unless and until 
Congress does not deal with escalating costs in Medicare. Is 
that correct?
    Secretary Sebelius. That is correct.
    Mr. Blumenauer. That is the bill you are talking about?
    Secretary Sebelius. That is correct.
    Mr. Blumenauer. If we fail to act, don't get a spinal 
implant, then they can make recommendations, and it says right 
here, not rationing, not shifting, but in terms of helping, in 
terms of delivery mechanisms, but those go into effect only if 
Congress--and Congress has the ability to overturn those 
provisions. Is that not correct?
    Secretary Sebelius. That is correct.
    Mr. Blumenauer. That is the bill you are reading?
    Secretary Sebelius. That is the law.
    Mr. Blumenauer. I listened to my good friend from Georgia 
talk about what appeared to me to be sort of a fantasy land 
because he was concerned that Medicare over the years has had 
some provisions about Medicare reimbursement. Now, my good 
friend, as a private physician dealing with private insurance, 
and you have been an insurance commissioner, you are 
knowledgeable about this, do physicians just willy-nilly submit 
anything they want, and insurance companies just pay every 
provision, every condition, every treatment?
    Secretary Sebelius. No. Rates are negotiated, and benefits 
are very clearly spelled out.
    Mr. Blumenauer. And do insurance companies ever push back 
and deny claims?
    Secretary Sebelius. Regularly.
    Mr. Blumenauer. They do?
    Secretary Sebelius. Yes, sir.
    Mr. Blumenauer. Okay. I just wanted to get that clear 
because I thought that was the case.
    And so what we are talking about here is just simply being 
able to have the same sort of provisions that happen in the 
private sector, except my friends on the Republican side would 
just turn this all over to insurance companies to do the 
rationing, the denial, the approval, and seniors will navigate 
on their own. That is a statement; you didn't have to answer 
that.
    I heard you take my good friend Mr. Ryan's point here that 
somehow the $373 billion cost, which represents less than what 
was projected, was somehow a grand bargain for Medicare Part D, 
and you started to point out something in terms of there were 
other ways of doing it. Could you--I don't want you to do it 
now. I don't think you should do the math in your head, but I 
think it is a very serious question. Could you have some of 
your certified smart people calculate for us what would have 
been the cost in 2030 if we just gave our senior citizens the 
same deal that the veterans get?
    Secretary Sebelius. We could do that, sir.
    Mr. Blumenauer. I suspect that it is probably quite a bit 
less----
    Secretary Sebelius. I have a lot of certified smart people.
    Mr. Blumenauer [continuing]. Than the $373 billion that my 
friend is so excited about. Would you think it might be less 
for the veterans than what was negotiated?
    Secretary Sebelius. I would think it is substantially less, 
yes, sir.
    Mr. Blumenauer. I think it would be good for us just to get 
those numbers, because, again, I am concerned that we are 
talking about a fantasy world where insurance companies don't 
make decisions denying benefits, don't ration care, don't cut 
people off; that somehow that the--because the prescription 
Medicare drug program, unfunded, just sort of launched, did 
not--was not as expensive as it first projected, that somehow 
that is a triumph of free-market economics when, in fact, we 
could produce much lower costs with systems that the government 
has, and that we have an actual experiment about the cost-
effectiveness of this approach with Medicare Advantage.
    I am old enough to remember when Medicare Advantage was 
advanced in the early--because it was going to save money. It 
was going to be 5 percent less, 95 percent on the dollar was 
the projection, and because the system was gamed or of 
inefficiencies, it has been 13 percent more expensive until 
recently, because of the changes that have been put in place to 
bring it under control, and all the while seniors are paying a 
premium. What did you say the extra cost was a month, $3?
    Secretary Sebelius. I think it is $3.30 per month per 
beneficiary, and there are about 49 million beneficiaries.
    Mr. Blumenauer. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Ryan. Mr. Ribble.
    Oh, before you start, it is my understanding that the 
Secretary has to go in 10 minutes, so we will get through this, 
and then what we will do is we will start the Members who did 
not have an opportunity yet to be at the top of the queue for 
the next panel.
    Mr. Ribble.
    Mr. Ribble. Thank you.
    Madam Secretary, thank you for being here today. I know it 
is probably not the funnest thing you do in your workday.
    Secretary Sebelius. It certainly is the warmest.
    Mr. Ribble. Yes, it is the warmest, and it is a warm 
greeting that we extend.
    Secretary Sebelius. I appreciate that.
    Mr. Ribble. Under the Affordable Health Care Act, I think I 
understood that we can't deny care; is that correct?
    Secretary Sebelius. The Independent Payment Advisory 
Board----
    Mr. Ribble. No, not the Independent Payment Advisory Board, 
but under the Affordable Care Act, the denial of coverage is 
protected by law, you cannot deny coverage; is that correct? I 
get to keep my insurance company, and I get to keep my doctor, 
and I can't be denied coverage and things like this?
    Secretary Sebelius. Well, eventually when there is, in 
2014, the health exchanges set up, you will be able to have an 
ability to come into a market without preexisting health 
conditions, yes, sir.
    Mr. Ribble. And once I am in that market, the health 
insurance cannot be denied to me if I get sick?
    Secretary Sebelius. That is correct, you can't be dropped.
    Mr. Ribble. Can't be dropped.
    Secretary Sebelius. Rescissions are against the law. 
Companies dropping a beneficiary because they made a technical 
error, because they got sick, you cannot have that.
    Mr. Ribble. And that is done through private insurance 
companies through the exchanges?
    Secretary Sebelius. That is correct.
    Mr. Ribble. Okay. So kind of like the Republican plan for 
seniors; private insurance companies, can't be denied coverage, 
and if they get sick, they get to keep it?
    Secretary Sebelius. Well, I think a huge change is that the 
cost sharing is shifted to seniors and those with disabilities 
under the Republican plan. There is no plan for underlying 
delivery system changes, there is no fraud and abuse 
protections, and I have no idea what the benefit package looks 
like. Maybe there has been a discussion, but at least I have 
not seen what the $8,000 voucher would purchase in the 
marketplace.
    Mr. Ribble. And since we can't see all that yet, it just 
seems a little bit disingenuous for my colleagues on the other 
side of the aisle and members in the administration to project 
all these salacious claims about the plan since we haven't yet 
seen it.
    Secretary Sebelius. Well, we are projecting costs, and that 
is not us, it is the Congressional Budget Office, which says 
that a senior would be paying 61 percent of his or her costs 
starting in year 1 and closer to 70 percent by year 8. That is 
the Congressional Budget Office, that is a flip of where we 
are.
    Mr. Ribble. And the CBO shows a large high cost, don't 
they?
    Secretary Sebelius. Pardon me?
    Mr. Ribble. And the CBO shows a relatively high cost.
    Secretary Sebelius. That is based on today's costs.
    Chairman Ryan. Will the gentleman yield for a moment on 
that? We asked the CBO about that. They basically said that 
they can't estimate choice and competition in effect, and so 
they didn't bother trying. So, number one, they don't--they can 
look at----
    Secretary Sebelius. They can look at Medicare Part D.
    Chairman Ryan. But they can't measure it.
    Secretary Sebelius. They can look at the cost increases in 
Medicare Part D, and they can certainly look at the cost 
increases in Medicare Advantage, so we have two real-life 
examples of cost.
    Chairman Ryan. The point is they looked at the example in 
Medicare Part D in the savings, and they did not replicate that 
in their cost estimates of this plan. They just ignored it.
    Mr. Ribble. Thank you for the clarification, Mr. Chairman.
    Madam Secretary, during the testimony today regarding IPAB, 
you said that--not only in your written testimony, but in 
comments you said that they are prohibited from cost shifting, 
premium shifting, payment denial, rationing care, raising 
premiums, reducing benefits, changing eligibility. I think you 
mentioned that they are going to be paid something for their 
work, you don't really know how much, but yet you call them a 
backstop. If they can't do any of these things, what are they 
backstopping?
    Secretary Sebelius. Well, let me give you two examples, 
Congressman, about the kinds of things that, if they had been 
enacted a lot sooner, I think we could have saved billions of 
dollars. We have just discussed Medicare Advantage, the 
overpayment which has gone on for decades, and actually the 
MedPAC group, the group of advisors has recommended looking at 
that strategy, lowering it to fee-for-service for years. That 
has never happened.
    The other thing that has recently happened, and again 
Congress started down this path as long ago as 2003, is our 
recent experience with competitive bidding for durable medical 
equipment. It started in 2003, it got a jump start in 2008, it 
was withdrawn again. This year we have implemented in one of 
the Medicare sections, we are saving 32 percent over the cost 
we were paying last year for durable medical equipment. There 
is no change in beneficiary benefits. They are getting the 
services they need, but at a third of the cost.
    I think those are two kinds of recommendations that don't 
fall into any of the prohibited categories that could yield 
billions of dollars.
    Mr. Ribble. Okay, thank you very much.
    Mr. Chairman, I am going to yield back to give my 
colleagues more time.
    Chairman Ryan. Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Secretary Sebelius, it is nice to see you again. Thank you 
for your testimony.
    I want to pursue this line of questioning about competition 
and the effects of competition, particularly as it relates to 
health care. Doesn't the ability of competition to--or the 
potential for competition to reduce costs depend on a fully 
informed, fully free negotiation on both sides?
    Secretary Sebelius. Usually that is what a market strategy 
is.
    Mr. Yarmuth. And with regard to Medicare Part D, I think 
certainly virtually everyone had the same experience that I 
did, that my constituents for a long time were extremely 
confused, and many still are confused, about what their choices 
are under the prescription drug program. Is that likely, 
assuming that we were to enact the Republican proposal, that 
this would be an enormous problem for America's seniors to 
actually be in a position to intelligently compete with the 
insurance companies' approach at marketing?
    Secretary Sebelius. Well, Congressman, what we have done, 
at least in the last 2 years, in some of the Medicare Part D 
programs, we have also done it a bit in Medicare Advantage 
programs, is try to eliminate programs that actually have very 
little differential, but just add more confusion to the 
marketplace to do just that.
    But, yes, I think it is not uncomplicated. We used to run a 
senior Medicare counseling program, and many people want to 
make the best choices. They often, though, in Part D would find 
themselves in a program, the drug regimen would change in that 
program only to find out that the drugs that they need have 
actually shifted out of the program. So that is a pretty common 
phenomena for seniors.
    Mr. Yarmuth. And so then if you add benefits for 
hospitalization, physician choice, home health care, medical 
equipment, and potentially hospice, and who knows what else, it 
makes it an extremely, even more complicated way for--
complicated procedure for a senior to go through, a senior and 
his or her family to go through.
    Secretary Sebelius. Well, I definitely think that there is 
a huge ongoing effort to educate folks about what the benefits 
are and how to take the best advantage of them.
    You know, one of the points we haven't really touched on, 
but I do want to mention, is just the additional cost of 
administration. Most insurance companies, even the most 
efficient ones, run at about 11 to 13 percent. Some are as high 
as 25 percent. Medicare has about 2 percent or less 
administrative costs. So assuming you have X amount of dollars, 
a fixed contribution, whatever that fixed contribution can buy 
in health benefits, less of it is going to go pay for health 
services in the private market than in the public market.
    Mr. Yarmuth. And granted that the Republican proposal has 
not been put into legislative language that we could actually 
look at, but if you consider the statements that have been made 
from the other side that nobody can be turned down, that nobody 
can be denied service, and nobody can be denied the choice of 
the physician under the Republican plan, do those stipulations 
make it much more difficult for insurance companies then to 
actually lower costs?
    Secretary Sebelius. Well, again, insurance companies, you 
know, to my knowledge, have a network of doctors, so they do 
accept some and deny some on a regular basis. They negotiate 
with hospitals. Some are in, some are out. They negotiate with 
drug--I mean, that is part of the strategy to put a plan 
together. And then when you buy that insurance, you are buying 
basically that network, that hospital system, that group of 
providers. It is, I think, a different system than Medicare 
currently, which says to a patient, you can choose any doctor 
you want. If you don't like this doctor, you can go to a 
different doctor. That is not the strategy around private 
insurance.
    Mr. Yarmuth. I guess what I was trying to get at, judging 
from what has been said from the other side about the 
Republican proposal, is it likely that they could have a 
significant impact on overall cost to the system if they can't 
deny care, they can't deny anyone coverage, and they can't--and 
they have to provide all the services that Medicare provides?
    Secretary Sebelius. Well, if you assume that insurance is 
about selling a product which delivers health care, pays 
providers, pays hospitals, pays doctors, you know, there are 
only a limited number of ways that you can reduce costs. You 
can reduce administrative costs; you can negotiate better 
prices with all the payers and providers, which is reducing 
costs; you can aim at better health strategies, which I think 
can be effective, get a healthier population. I think often in 
the private market currently that is done by cherry picking. We 
take healthier people and deny sicker people, so the pool is 
healthier. You make money that way. But there are a limited 
number of strategies. Or you can shift costs. And I would say 
that both the Medicare and Medicaid proposal that passed the 
House shift costs onto seniors, those with disabilities onto 
States.
    Mr. Yarmuth. Thank you.
    Chairman Ryan. Madam Secretary, I wish we had more time to 
get into all of this. I obviously have a strong difference of 
opinion of your interpretation of what we are doing, but I 
don't think you like our interpretation of what you are doing. 
This is an issue we are going to have to get into in much more 
detail. It affects nothing more than the health care security 
of our Nation's seniors. We have a strong difference of opinion 
on who ought to be in charge of their health care, them or this 
Board. I wish we had more time to get into it. The Members who 
have not yet had the opportunity to ask will be front of the 
line for the next panel. And with that, Madam Secretary, I know 
it was a hot morning. Thank you for your indulgence. I 
appreciate it and hope we can do this again.
    Secretary Sebelius. Thank you, Mr. Chairman.
    Chairman Ryan. Thank you.
    Chairman Ryan. Next we will hear from our next panel. If 
the panel can proceed to the dais, go ahead and take your seats 
so we can get started.
    Our second panel consists of former CBO Director Doug 
Holtz-Eakin, Grace-Marie Turner of the Galen Institute, and 
Judith Feder. Is it Feder?
    Dr. Feder. It is Feder.
    Chairman Ryan. Feder, thank you. It is one of the two. 
Judith Feder of the Urban Institute.
    Because we have votes, it looks like at about 1:20, we are 
going to stick to the 5-minute rule for our panelists, so if 
you could confine your opening remarks to 5 minutes, and then 
we will do the questioning, as I mentioned earlier, and if 
there are additional points the panelists want to interject, 
they can do so during the questioning.
    Let us start with you, Mr. Holtz-Eakin, and then we will 
work our way from our right to left, your left to right. Thank 
you, Mr. Holtz-Eakin.

 STATEMENTS OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION 
  FORUM; GRACE-MARIE TURNER, PRESIDENT, GALEN INSTITUTE; AND 
  JUDITH FEDER, PH.D., PROFESSOR AND FORMER DEAN, GEORGETOWN 
       PUBLIC POLICY INSTITUTE AND URBAN INSTITUTE FELLOW

                STATEMENT OF DOUGLAS HOLTZ-EAKIN

    Mr. Holtz-Eakin. Thank you, Chairman Ryan, Ranking Member 
Schwartz, members of the committee. It is always a good day to 
be back at the Budget Committee, and you have my written 
testimony. I won't belabor the points there.
    There are four simple points I think ought to be made. The 
first is that, to my eye, the IPAB is a policy error and one 
that the Congress should reverse as quickly as possible. It is 
likely to exacerbate existing reimbursement problems for 
providers in the Medicare system, and as a result impede access 
by Medicare beneficiaries. It is likely to stifle innovation. 
The incentives are such that it will target the most innovative 
and newest therapies, and the IPAB, as part of the status quo 
for Medicare, is dangerous to beneficiaries, dangerous to the 
Federal budget, and dangerous ultimately to our economy because 
it is part and parcel of a broken social safety net system 
whose spending threatens to drive debt to levels which would 
harm the U.S. ability to compete and grow.
    Let me expand on those only briefly, and then turn it over 
to questions. The structure of the IPAB is such that it is 
likely to exacerbate the reimbursement problems. The way the 
statute is written, much of Medicare spending is off limits, so 
the Board is likely to have to target something that looks like 
less than half of the total spending, and thus disproportionate 
efforts would be focused on that.
    The IPAB is given 1-year targets, says you have to get 
things under control in a year. There aren't many levers you 
can pull from a proactive quality-of-care or value proposition 
that you can do on a 1-year basis, and in the end they will 
start cutting provider reimbursements. It is something we have 
seen before with the SGR. It is something we will see again. We 
know vividly from the Medicaid program, where reimbursements 
are just a bit over half of private payers, that beneficiaries 
have a great deal of difficulty getting access. That would be 
the future of Medicare as well more broadly. We have seen, for 
example, with past episodes in cuts to the physicians under the 
Medicare program, the SGR, that fully two-thirds of practices 
have contemplated as changes in their access for Medicare 
beneficiaries whether they take new patients or not. So I think 
that is an outlook under the status quo that is dangerous for 
beneficiaries and dangerous for the American health care 
system.
    It is quite likely to stifle innovation. We know at some 
fundamental level that innovation is at the core of the ability 
of the United States to solve its pressing problems in health 
care, in energy, in education, and a variety of policy areas. 
Given that there will be a mandate to cut spending, the most 
likely targets are those new therapies, the ones that are just 
introduced in the market. They have been expensive to develop. 
They have not yet reached economies of scale. These are going 
to be the newest, most innovative approaches to things like 
Alzheimer's and the problems that face us, and the IPAB will 
have a disproportionate incentive to stifle those.
    From the perspective of someone who is developing the 
therapies, the IPAB is a tax on the return to these, you are 
not going to get a return on your investment, and worse it is a 
random tax. You don't know when it is actually going to pop up 
and grab the return to your investment. So it will have 
terrible incentives for the development of new medical science 
in the United States and, as a result, harm the future quality 
of care. And then it is part--this focus on trying to cut 
provider payments and control a broken fee-for-service Medicare 
system is part and parcel of the status quo that I think we 
simply have to change in a fundamental way.
    We know that these important social safety net programs--
Social Security, in red ink, unlikely to survive to the next 
generation; Medicare, enormous buckets of red ink, $280 billion 
a year in general revenue flowing in, not going to be--to 
survive for the seniors in the next generation; Medicaid, the 
future deserving poor will be unable to receive its services, 
and in the process they are feeding the deficit problems that 
this Congress has to grapple with and the Budget Committee is 
so well aware of--we know ultimately that is not simply a 
budgetary issue, that is an economic threat of the first order. 
Erskine Bowles, co-Chairman of the President's Fiscal Reform 
Commission, called it the most predictable crisis in history.
    So the issues that are before us today are whether we will 
take a policy approach which has led to us being on the 
precipice of a disaster, or whether we will fundamentally 
change the structure of the Medicare program and the social 
safety net. And I would encourage this committee and the 
Congress as a whole to take the latter approach and to discard 
this policy error. Thank you.
    [The prepared statement of Douglas Holtz-Eakin follows:]

         Prepared Statement of Douglas Holtz-Eakin, President,
                         American Action Forum*

    Chairman Ryan, Ranking Member Van Hollen and members of the 
committee, thank you for the privilege of appearing today. In this 
written statement, I hope to make the following points:
     The Independent Payment Advisory Board (IPAB) is a 
dramatic policy error that will fail to deliver meaningful reform to 
the Medicare program.
     The IPAB is likely to exacerbate existing reimbursement 
problems that already limit access to care for Medicare beneficiaries.
     The IPAB will tend to stifle U.S. led medical innovation 
in the medical device, pharmaceutical, biotechnology, and mobile health 
industries.
     If left unaddressed, the Medicare status quo and the IPAB 
will pose a danger to the fiscal health of the federal government, the 
U.S. economy, and Medicare beneficiaries.
    Let me discuss each in turn.
    The Independent Payment Advisory Board (IPAB) is a dramatic policy 
error that will fail to deliver meaningful reform to the Medicare 
program.
    The creation of the Independent Payment Advisory Board (IPAB) is 
possibly the most dangerous aspect of the Patient Protection and 
Affordable Care Act. It should be repealed immediately.
    This appointed panel will be tasked with cutting Medicare spending, 
but its poor design will prove ineffective in bending the cost curve, 
and instead will lead to restricted patients' access and stifled 
innovation. Four design elements stand-out as especially troublesome.
    First, the board is prohibited from recommending changes that would 
reduce payments to certain providers before 2020, especially hospitals. 
Because of directives written into the law, reductions achieved by the 
IPAB between 2013 and 2020 are likely to be limited primarily to 
Medicare Advantage (23 percent of total Medicare Expenditures), to the 
Part D prescription drug program (11 percent), and to skilled nursing 
facility services (5 percent).\1\ That means that reductions will have 
to come from segments that together represent less than half of overall 
Medicare spending.
---------------------------------------------------------------------------
    *The views expressed herein are my own and do not represent the 
position of the American Action Forum. I thank Nathan Barton, Emily 
Egan, Hanna Gregg, Carey Lafferty, Michael Ramlet, and Matt Thoman for 
their assistance.

    \1\ ``Medicare Benefit Payments, by Type of Service, 2010 and 
2020,'' Medicare Chartbook, Fourth edition, The Henry J. Kaiser Family 
Foundation, 2010, http://facts.kff.org/
chart.aspx?cb=58&sctn=169&ch=1799.
---------------------------------------------------------------------------
    Second, IPAB's cuts have to be achieved in one-year periods there 
will be an enhanced focus on reducing reimbursements at the expense of 
longer-run quality improvements or preventive programs. In this way 
IPAB could actually discourage rather than encourage a focus on quality 
improvement.
    Third, IPAB is effectively unaccountable. In practice, the law 
makes it almost impossible for Congress to reject or modify IPAB's 
decisions, even if those decisions override existing laws and 
protections that Congress passed. It's not really an advisory body, 
despite its name. The system is set up so that IPAB, rather than 
Congress and HHS acting under Congress' authority, makes the policy 
choices about Medicare.
    All of this suggests that IPAB is a potent mechanism for 
undesirable policy. The Independent Payment Advisory Board is at best a 
band-aid on out-of-control Medicare spending and at its worst a threat 
to physician autonomy and patient choice.
    Saving Medicare from ruin requires nothing short of total and 
comprehensive reform. Adding in more cuts to a broken system does not 
make it any less broken. The IPAB proposals will be short-term fixes 
and cuts. We need long-term thinking and long-term solutions. We need 
to move the focus from merely containing costs to focus on how to get 
the most value for our health care dollars.
    The IPAB is likely to exacerbate existing reimbursement problems 
that already limit access to care for Medicare beneficiaries
    If Medicare's provider reimbursements are drastically reduced the 
market will react in accord with the basic laws of economics. Providers 
will have three options: to close up shop, to refuse Medicare patients, 
or to shift the costs onto the other patients. None of these options 
help our healthcare system operate more effectively or more 
efficiently.
    Today, Medicare coverage no longer guarantees access to care. 
Increasingly seniors enrolled in the Medicare program face barriers to 
accessing primary care physicians as well as medical and surgical 
specialists. The New York Times, Bloomberg News, and Houston Chronicle 
are among many newspapers reporting that doctors are opting out of 
Medicare at an alarming rate. For example, the Mayo Clinic, praised by 
President Obama and the IPAB's architects, will stop accepting Medicare 
patients at its primary-care clinics in Arizona.
    The physician access problem stems from Medicare's below-cost 
reimbursement rates and the uncertainty surrounding the Medicare 
sustainable growth rate (SGR) formula for physician payments. IPAB 
introduces further uncertainty into physician reimbursement and is 
likely to force more physicians to begin making difficult Medicare 
practice decisions.
    Table 3 shows the impact on physician access for Medicare enrollees 
the last time a major payment reduction loomed. In response, 11.8 
percent of physicians stopped accepting new Medicare patients, 29.5 
percent reduced the number of appointments for new Medicare patients, 
15.5 percent reduced the number of appointments for current Medicare 
patients, and 1.1 percent of physicians decided to stop treating 
Medicare patients altogether.\2\
---------------------------------------------------------------------------
    \2\ Medical Group Management Association. 2010. Sustainable Growth 
Rate Study. http://www.mgma.com/WorkArea/DownloadAsset.aspx?id=39774
---------------------------------------------------------------------------
    Recognizing the increased payment uncertainty, physician practices 
have started to reshape their practice patterns. Moving forward 67.2 
percent of physician practices are considering limiting the number of 
new Medicare patients, 49.5 percent are considering the option of 
refusing new Medicare patients, 56.3 are contemplating whether to 
reduce the number of appointments for current Medicare patients, and 
27.5 percent are debating whether to cease treating all Medicare 
patients.\3\
---------------------------------------------------------------------------
    \3\ Medical Group Management Association. 2010. Sustainable Growth 
Rate Study. http://www.mgma.com/WorkArea/DownloadAsset.aspx?id=39774
---------------------------------------------------------------------------
    Medicare's status quo is fraying the nation's social safety net. 
The IPAB will only make the net fray more quickly.
    The IPAB will stifle U.S. led medical innovation in the medical 
device, pharmaceutical, biotechnology, and mobile health industries.
    By statute, IPAB cannot directly alter Medicare benefits. Instead, 
the more likely threat to patients is that the IPAB will be forced to 
limit payments for medical services. In the process, it will 
effectively determine that patients should have coverage for one 
particular treatment option but not another, or must pay much more for 
one of the treatment options.
    This is especially troubling because it may choose to 
disproportionately focus on expensive new treatments. New medicines for 
conditions like Alzheimer's or Parkinson's will likely have rapid cost 
growth, especially early after their introduction. That will make them 
targets because the IPAB is directed to focus on areas of ``excess cost 
growth.'' Worse, because about one-half of spending is off limits until 
after 2020, there will be a disproportionate and uneven application of 
IPAB's scrutiny and payment initiatives.
    U.S. medical innovation leadership is dependent on whether the 
regulatory environment nurtures growth or suppresses innovation. The 
Affordable Care Act substantially increases the cost of innovation and 
the IPAB creates a level of uncertainty that will likely drive away 
venture capital investment in start-up firms and research and 
development investments from established firms.
    If left unaddressed, the Medicare status quo and the IPAB will pose 
a danger to the fiscal health of the federal government, the U.S. 
economy, and Medicare beneficiaries.
    Medicare as we know it is financially unsustainable. The reality is 
that the combination of payroll taxes and premiums do not come close to 
covering the outlays of the program. As shown in Table 1, in 2010 
Medicare required nearly $280 billion in general revenue transfers to 
meet its cash outlays of $523 billion. As program costs escalate, the 
shortfalls will continue to grow and reach a projected cash-flow 
deficit of over $600 billion in 2020.
    These shortfalls are at the heart of past deficit and projected 
future debt accumulation. As shown in Table 2, between 1996 and 2010, 
cumulative Medicare cash-flow deficits totaled just over $2 trillion, 
or 22 percent of the federal debt in the hands of the public. Including 
the interest cost on those Medicare deficits means that the program is 
responsible for 23 percent of the total debt accumulation to date.
    Going forward, the situation is even worse. By 2020, the cumulative 
cash-flow deficits of 6.2 trillion will constitute 35 percent of the 
debt accumulation. Again, appropriately attributing the program its 
share of the interest costs raises this to 37 percent.
    Viewed in isolation, Medicare is a fiscal nightmare that must 
change course. When combined with other budgetary stresses, it 
contributes to a dangerous fiscal future for the United States.
    The federal government faces enormous budgetary difficulties, 
largely due to long-term pension, health, and other spending promises 
coupled with recent programmatic expansions. The core, long-term issue 
has been outlined in successive versions of the Congressional Budget 
Office's (CBO's) Long-Term Budget Outlook.\4\ In broad terms, over the 
next 30 years, the inexorable dynamics of current law will raise 
federal outlays from an historic norm of about 20 percent of Gross 
Domestic Product (GDP) to anywhere from 30 to 40 percent of GDP.\5\
---------------------------------------------------------------------------
    \4\ Congressional Budget Office. 2011. The Long-Term Budget 
Outlook. Pub. No. 4277. http://cbo.gov/ftpdocs/122xx/doc12212/06-21-
Long-Term--Budget--Outlook.pdf
    \5\ Congressional Budget Office. 2011. The Long-Term Budget 
Outlook. Pub. No. 4277. http://cbo.gov/ftpdocs/122xx/doc12212/06-21-
Long-Term--Budget--Outlook.pdf
---------------------------------------------------------------------------
    This depiction of the federal budgetary future and its diagnosis 
and prescription has all remained unchanged for at least a decade. 
Despite this, action (in the right direction) has yet to be seen.
    In the past several years, the outlook has worsened significantly.
    Over the next ten years, according to the Congressional Budget 
Office's (CBO's) analysis of the President's Budgetary Proposals for 
Fiscal Year 2012, the deficit will never fall below $740 billion.\6\ 
Ten years from now, in 2021, the deficit will be nearly 5 percent of 
GDP, roughly $1.15 trillion, of which over $900 billion will be devoted 
to servicing debt on previous borrowing.
    As a result of the spending binge, in 2021 public debt will have 
more than doubled from its 2008 level to 90 percent of GDP and will 
continue its upward trajectory.\7\
---------------------------------------------------------------------------
    \6\ Congressional Budget Office. 2011. An Analysis of the 
President's Budgetary Proposals for Fiscal Year 2012. Pub. No. 4258. 
http://www.cbo.gov/ftpdocs/121xx/doc12130/04-15-
AnalysisPresidentsBudget.pdf
    \7\ Congressional Budget Office. 2011. An Analysis of the 
President's Budgetary Proposals for Fiscal Year 2012. Pub. No. 4258. 
http://www.cbo.gov/ftpdocs/121xx/doc12130/04-15-
AnalysisPresidentsBudget.pdf
---------------------------------------------------------------------------
    A United States fiscal crisis is now a threatening reality. It 
wasn't always so, even though--as noted above--the Congressional Budget 
Office has long published a pessimistic Long-Term Budget Outlook. 
Despite these gloomy forecasts, nobody seemed to care. Bond markets 
were quiescent. Voters were indifferent. And politicians were 
positively in denial that the ``spend now, worry later'' era would ever 
end.
    Those days have passed. Now Greece, Portugal, Spain, Ireland, and 
even Britain are under the scrutiny of skeptical financial markets. And 
there are signs that the U.S. is next, as each of the major rating 
agencies have publicized heightened scrutiny of the United States. What 
happened?
    First, the U.S. frittered away its lead time. It was widely 
recognized that the crunch would only arrive when the baby boomers 
began to retire. Guess what? The very first official baby boomer 
already chose to retire early at age 62, and the number of retirees 
will rise as the years progress. Crunch time has arrived and nothing 
was done in the interim to solve the basic spending problem.
    Second, the events of the financial crisis and recession used up 
the federal government's cushion. In 2008, debt outstanding was only 40 
percent of GDP. Already it is over 60 percent and rising rapidly.
    Third, active steps continue to make the problem worse. The 
Affordable Care Act ``reform'' adds two new entitlement programs for 
insurance subsidies and long-term care insurance without fixing the 
existing problems in Social Security, Medicare, and Medicaid.
    Financial markets no longer can comfort themselves with the fact 
that the United States has time and flexibility to get its fiscal act 
together. Time passed, wiggle room vanished, and the only actions taken 
thus far have made matters worse.
    As noted above, in 2020 public debt will have more than doubled 
from its 2008 level to 90 percent of GDP and will continue its upward 
trajectory. Traditionally, a debt-to-GDP ratio of 90 percent or more is 
associated with the risk of a sovereign debt crisis.
    Perhaps even more troubling, much of this borrowing comes from 
international lending sources, including sovereign lenders like China 
that do not share our core values.
    For Main Street America, the ``bad news'' version of the fiscal 
crisis would occur when international lenders revolt over the outlook 
for debt and cut off U.S. access to international credit. In an eerie 
reprise of the recent financial crisis, the credit freeze would drag 
down business activity and household spending. The resulting deep 
recession would be exacerbated by the inability of the federal 
government's automatic stabilizers--unemployment insurance, lower 
taxes, etc.--to operate freely.
    Worse, the crisis would arrive without the U.S. having fixed the 
fundamental problems. Getting spending under control in a crisis will 
be much more painful than a thoughtful, pro-active approach. In a 
crisis, there will be a greater pressure to resort to damaging tax 
increases. The upshot will be a threat to the ability of the United 
States to bequeath to future generations a standard of living greater 
than experienced at the present.
    Future generations will find their freedoms diminished as well. The 
ability of the United States to project its values around the globe is 
fundamentally dependent upon its large, robust economy. Its diminished 
state will have security repercussions, as will the need to negotiate 
with less-than-friendly international lenders.
    Some will argue that it is unrealistic to anticipate a cataclysmic 
financial market upheaval for the United States. Perhaps so. But an 
alternative future that simply skirts the major crisis would likely 
entail piecemeal revenue increases and spending cuts--just enough to 
keep an explosion from occurring. Under this ``good news'' version, the 
debt would continue to edge northward--perhaps at times slowed by 
modest and ineffectual ``reforms''--and borrowing costs in the United 
States would remain elevated.
    Profitable innovation and investment will flow elsewhere in the 
global economy. As U.S. productivity growth suffers, wage growth 
stagnates, and standards of living stall. With little economic 
advancement prior to tax, and a very large tax burden from the debt, 
the next generation will inherit a standard of living inferior to that 
bequeathed to this one.
    Thank you and I look forward to answering your questions.
    
    
    

    Chairman Ryan. Thank you. Within 12 seconds. Great.
    Ms. Grace-Marie Turner.

                STATEMENT OF GRACE-MARIE TURNER

    Ms. Turner. Thank you, Mr. Chairman, Mr. Van Hollen, 
members of the committee.
    There is no question that Medicare spending must be 
constrained if we are going to have any hope of getting overall 
Federal spending under control, but clearly there is a wide 
diversity of opinion about the wisdom of using the Independent 
Payment Advisory Board as a tool. It was designed to take 
difficult decisions about Medicare payment reductions out of 
the hands of consumers and legislators and delegate them to 
this panel of 15 independent authorities, but the Constitution 
gives the power of the purse to Congress so that elected 
Representatives can be accountable to the voters in their 
decisions. The IPAB would turn this principle upside down.
    The unelected IPAB members will ultimately determine 
spending policies that will determine whether millions of 
seniors have access to the care they need. This challenges the 
very principle of representative democracy and the consent of 
the governed. The IPAB is at the center of a conflict between 
two world views. Do we entrust doctors and patients with 
decisions, or do we entrust those decisions to a government-
appointed panel of experts in Washington who will have 
authority over hundreds of billions of dollars in Medicare 
spending?
    The government approach to holding down Medicare spending 
traditionally defaults to making deeper and deeper reductions 
in payment rates to providers rather than implementing reforms 
that reward innovation. The legislation is true to form. And 
perhaps during the question and answer we can talk a little bit 
about some of the government's experiments so far in innovation 
and how those have turned out.
    Because of the directives written into the law, reductions 
achieved by IPAB between 2013 and 2020 are likely to be limited 
primarily to Medicare Advantage, and to Part D prescription 
drug program, and to skilled-nursing facility services. If the 
Board is forced to reduce overall Medicare spending by focusing 
only on these relatively smaller segments, the cuts would have 
to be very deep to achieve overall per capita spending 
reductions. Because any of these moves could have major 
repercussions on access to care, it would seem that seniors and 
taxpayers would be much better served if these changes were to 
be openly debated through the legislative process rather than 
imposed by unelected officials.
    Even before the IPAB cuts began, Medicare actuaries found 
that large reductions in Medicare payment rates already built 
into law would likely have serious implications for beneficiary 
access to care, as the chairman described in his opening 
remarks. The President would double down on these savings by 
giving the IPAB even more authority to cut payments to achieve 
his deficit-reduction goals. It is hard to justify further cuts 
in Medicare provider payments.
    I will skip a little bit.
    Clearly repeal is the best solution to begin to get us on a 
path that can move toward a 21st century health sector. Part D 
shows us the way. We have a working model that shows that when 
private companies compete, and, importantly, when seniors 
choose, that you can get costs and spending down both for 
seniors and for taxpayers. The average monthly beneficiary 
premium for Part D coverage will be $30 in 2011, far below the 
$53 a month forecasted originally. Eighty-four percent of Part 
D enrollees are satisfied with their coverage and 95 percent 
say their coverage works well.
    But looking beyond IPAB and looking beyond Part D, Chairman 
Ryan has proposed a comprehensive plan to modernize Medicare 
that builds on the Part D model. The key is premium support, 
which provides seniors with an annual subsidy to purchase a 
guaranteed Medicare health plan. When it begins in 2022, 
seniors would receive an age-adjusted allocation so they can 
pick the health plan that meets their needs, just as 11 million 
seniors already have done voluntarily through Medicare 
Advantage.
    Premium support allows for flexible subsidies that can be 
adjusted and targeted to seniors based upon their age, 
financial well-being, health status, and similar 
considerations.
    To survive, Medicare must be changed, and the question is 
whether it will be under IPAB and the rationing built into the 
President's health care law or through Chairman Ryan's plan 
that provides a path to sustainability for Medicare. It is a 
clear choice between this and the top-down approach that puts a 
small number of independent experts in charge of decisions that 
will impact tens of millions of seniors and progressively limit 
their access to care.
    Thank you, Mr. Chairman.
    [The prepared statement of Grace-Marie Turner follows:]

  Prepared Statement of Grace-Marie Turner, President, Galen Institute

    There is no question that Medicare spending must be controlled if 
we are to have any hope of getting overall federal spending under 
control. The question is who will make the decisions. There is a wide 
diversity of opinion and legitimate concern about the new Independent 
Payment Advisory Board (IPAB) and the powers given in PPACA to its 15 
unelected officials who are charged with containing Medicare spending.
    In my testimony, I provide an overview of how the IPAB will work, 
the controversy surrounding the board's powers, and an overview of some 
of the ideas being discussed as alternative solutions, including 
widening the baseline for the spending cuts, requiring an evaluation of 
the overall impact of the payment reductions, and limiting and 
redirecting IPAB's powers. I conclude that there is a better way: We 
have a working model in the Medicare Part D program, in which private 
companies offer prescription drug benefits to seniors and compete on 
benefit design and price, and which is coming in significantly below 
projected costs.
     While the IPAB has unprecedented power, allocation of the 
tools available to the board reveals a fundamental conflict in American 
health policy: It simultaneously is given broad authority over Medicare 
payment policy, but its hands are tied in what it can do to reach the 
mandatory budgetary targets.
     The president wants to double-down on IPAB's powers, 
giving the board authority to cut payments to doctors even more deeply 
than called for in the PPACA and giving it the power to ``sequester'' 
congressional appropriations.
     The Constitution gives the power of the purse to Congress 
so that elected representatives can be accountable to the voters for 
their decisions. The IPAB would turn this principle upside down. The 
IPAB is at the center of the conflict between two world views. Do we 
entrust individuals with the decisions for their own care? Or do we 
entrust those decisions to a government-appointed panel of experts in 
Washington who will have authority over hundreds of billions of dollars 
in Medicare spending?
    Thank you for the opportunity to testify today about the 
Independent Payment Advisory Board (IPAB), created by Congress as part 
of the Patient Protection and Affordable Care Act (PPACA) as a means of 
containing Medicare spending.
    There is no question that Medicare spending must be controlled if 
we are to have any hope of getting overall federal spending under 
control. The question is who will make those decisions. Do we trust 
doctors and patients with decisions about their own care, with new 
incentives to be partners in managing their health spending? Or do we 
entrust those decisions to a government-appointed panel of experts in 
Washington?
    The IPAB was designed to take difficult decisions about Medicare 
payment reductions out of the hands of consumers and legislators and 
delegate them to this panel of independent experts. The 15 experts, to 
be appointed by the president and confirmed by the Senate, will have 
the authority to make binding recommendations for cuts in Medicare 
payments if per capita spending exceeds defined targeted rates.\1\ In 
that case, the board's recommendations will be sent to Congress at the 
beginning of each year for fast-track consideration.
    PPACA gives the Congress a route to override the IPAB's 
recommendations, but it raises the bar on the legislative processes in 
a way that will make it difficult for Congress to intercede. Congress 
can override or amend the board's recommendations only with a 
supermajority vote in both houses, and it has a limited time period to 
pass legislation with alternative cuts that would meet the same 
spending targets. If Congress does not act in the required timeframe, 
the secretary of Health and Human Services is required to implement 
cuts to reach the targets.
    Clearly, the IPAB is unprecedented in the power given to unelected 
officials to direct hundreds of billions of dollars in federal 
spending. The IPAB will give unelected, unaccountable government 
appointees the power to make decisions about payment policy in Medicare 
that will ultimately determine whether millions of seniors have access 
to the care they need. This challenges the very principles of 
representative democracy and consent of the governed.
                 a powerful board whose hands are tied
    While the IPAB has unprecedented power, allocation of the tools 
available to the board reveals a fundamental conflict in American 
health policy: The board is simultaneously given broad authority over 
Medicare payment policy, but its hands are tied in what it can do to 
reach the mandatory budgetary targets.
    The board cannot make recommendations to improve how Medicare 
operates. The only real tool it has is to recommend that providers get 
paid less or to reduce payment for specific items or services. 
Basically the board will be limited to using Medicare's existing system 
of price controls and making further cuts in order to reach its 
targets.
    The government approach to holding down Medicare spending 
traditionally defaults to making deeper and deeper reductions in 
payment rates to providers for medical goods and services rather than 
implementing reforms which reward innovation and which could lead to 
more efficient, more effective, and better-coordinated care delivery. 
The legislation is true to form.
    The IPAB is barred from making changes that would modernize the 
program's outdated fee-for-service structure. It cannot alter 
eligibility, increase taxes, or make any changes that would result in 
rationing, according to the statute. The board's payment decisions, 
however, will inevitably result in de facto rationing by cutting 
payments and therefore access to certain benefits.
    The board also is prohibited from recommending changes that would 
reduce payments to certain providers before 2020, especially hospitals 
(which are subject to a different set of constraints). Because of 
directives written into the law, reductions achieved by the IPAB 
between 2013 and 2020 are likely to be limited primarily to Medicare 
Advantage (MA), to the Part D prescription drug program, and to skilled 
nursing facility services. That means that reductions will have to come 
from segments that together represent a fraction of overall Medicare 
spending. As the accompanying charts show, skilled nursing care 
represents 5% of Medicare expenditures; outpatient prescription drugs, 
11%; and Medicare Advantage, 23%--a share that shrinks to 11% by the 
year 2020, according to CBO data.\2\ If the board is forced to reduce 
overall Medicare spending by focusing only on these relatively smaller 
segments of Medicare spending, the cuts would have to be very deep to 
achieve overall per capita spending reductions.



    Limits in payments under Medicare Advantage and Part D are 
explicitly within the scope of the IPAB's authority. According to a 
Kaiser Family Foundation analysis, it would appear that the board could 
set Medicare Advantage payments at or below spending in the traditional 
Medicare fee for service (FFS) program, and build on provisions in 
PPACA that set MA payments below FFS payments in some communities. With 
respect to prescription drugs, it would appear that the IPAB could 
recommend that Part D plans receive rebates from prescription drug 
manufacturers in the same manner as state Medicaid programs. It is not 
clear whether the board could go further--for example, whether the IPAB 
could recommend lower payment amounts for prescription drugs covered 
under Medicare Part B, or whether the board could establish a new 
Medicare-operated Part D plan to compete with private drug plans.\3\ 
Because any of these moves could have major repercussions throughout 
the health sector, it would seem that seniors and taxpayers would be 
much better served if these changes were to be openly debated through 
the legislative process rather than imposed by unelected officials.
                      medicare actuaries' warning
    Even before the IPAB's cuts begin, steep Medicare provider payment 
reductions already are on track because of 1997 legislation that 
reduces payments under ``sustainable growth rate'' (SGR) formulas and 
additional payment reductions called for in PPACA. The Medicare 
actuary's office recently released its updated alternative scenario,\4\ 
reiterating its projection from last year that the ``productivity 
adjustments'' could cause approximately 40 percent of providers to 
become unprofitable by 2050. The actuaries also find that ``the large 
reductions in Medicare payments rates to physicians would likely have 
serious implications for beneficiary access to care.''
    Chief Medicare Actuary Richard S. Foster said in a supplementary 
report to the annual Medicare Trustees' report that under current law 
Medicare is on track to pay providers less than Medicaid does, and this 
would lead to ``severe problems with beneficiary access to care.'' \5\
    As a result of cuts in current law, Foster says ``Medicare prices 
would be considerably below the current relative level of Medicaid 
prices, which have already led to access problems for Medicaid 
enrollees, and far below the levels paid by private health insurance.''
    It is hard to justify further cuts in Medicare provider payments 
when Medicare's chief actuary says it will lead to ``severe problems 
with beneficiary access to care.''
    Seniors in many regions already are having difficulty finding 
physicians to see them. If the spending reductions in the law today 
were to take place, seniors could face long waits for appointments and 
treatments, and many would be forced to wait in line in over-crowded 
emergency rooms to get care, just as Medicaid patients do throughout 
the country today.
                            opposition grows
    Opposition to IPAB is taking a rare bi-partisan tone in the 
otherwise politically polarized health reform debate.
    U.S. Rep. Allyson Schwartz (D-PA) and at least six other Democrats 
in Congress have joined Republicans in supporting legislation that 
would repeal the board.\6\
    In a letter to her colleagues, Rep. Schwartz expressed concerns 
about turning so much power over to a board that will have little or no 
accountability to seniors impacted by its decisions. ``Congress is a 
representative body and must assume responsibility for legislating 
sound health care policy for Medicare beneficiaries, including those 
policies related to payment systems,'' she wrote. ``Abdicating this 
responsibility, whether to insurance companies or an unelected 
commission, would undermine our ability to represent the needs of the 
seniors and disabled in our communities.''
    The House Republican budget resolution for Fiscal Year 2012, under 
the leadership of Chairman Ryan, would eliminate the IPAB. 
Representative Phil Roe, M.D. (R-TN) introduced H.R. 452 in the 112th 
Congress, the Medicare Decisions Accountability Act of 2011, and 
Senator John Cornyn (R-TX) introduced S. 668, the Health Care 
Bureaucrats Elimination Act, both of which would repeal the board. 
Several groups, including the pharmaceutical industry, the hospital 
industry, physician groups, and others, have indicated their opposition 
to the IPAB.
    But not all are opposed.
    Maya McGuiness, head of the Committee for a Responsible Federal 
Budget, says: ``Outsourcing some of the harder policy decisions is the 
best chance we have'' to contain the growth of Medicare spending.
    Henry J. Aaron, Ph.D., of The Brookings Institution, wrote in The 
New England Journal of Medicine\7\ that: ``Among the most important 
attributes of legislative statesmanship is self-abnegation--the 
willingness of legislators to abstain from meddling in matters they are 
poorly equipped to manage,'' he writes. ``In establishing the 
Independent Payment Advisory Board (IPAB) in section 3403 of the 
Affordable Care Act (ACA), Congress may once again have shown such 
statesmanship.''
    He acknowledges that the board is limited in the tools it has to 
reduce spending and even in the sectors of the health industry where it 
can cut. Aaron and others conclude that means that for this decade, all 
of the spending cuts will have to come from ``private Medicare 
Advantage plans, Medicare's Part D prescription-drug program, or 
spending on skilled-nursing facilities, home-based health care, 
dialysis, durable medical equipment, ambulance services, and services 
of ambulatory surgical centers.''
    Rep. Pete Stark (D-CA), a strong supporter of PPACA, is a strong 
opponent of the IPAB and called the board ``an unprecedented abrogation 
of congressional authority to an unelected, unaccountable body.''
    The Arizona-based Goldwater Institute has filed suit to challenge 
the IPAB. ``No possible reading of the Constitution supports the idea 
of an unelected, standalone federal board that's untouchable by both 
Congress and the courts,'' Clint Bolick, the institute's litigation 
director, said.\8\
    Former Sens. John Breaux and Bill Frist wrote just before PPACA was 
enacted: ``[IPAB's] structure * * * raises serious constitutional and 
process questions * * * For all intents and purposes, the board would 
have the power to influence and rewrite nearly all aspects of 
Medicare.'' \9\
    Former White House Budget Director Peter Orszag said that if the 
IPAB realizes its potential to push Medicare toward paying for better 
quality care, as opposed to paying for more care, ``it could well turn 
out to be perhaps the most important component of the new 
legislation.'' \10\
                         doubling down on ipab
    The president wants to double-down on IPAB's powers, giving the 
board authority to cut payments to doctors even more deeply than called 
for in the PPACA and giving it the power to ``sequester'' congressional 
appropriations. It is far from clear where the constitutional authority 
is for a board of appointees housed in the Executive Branch to usurp 
the power of Congress by sequestering funds if Congress were to decide 
to override its rulings. There would surely be additional legal 
challenges should the president's sequestering recommendation make it 
into law.
    In his deficit-reduction speech in April of 2011, President Obama 
said he wants to give new powers to IPAB appointees, proposing they be 
directed to limit Medicare cost growth per beneficiary to GDP growth 
per capita plus 0.5 percent beginning in 2018. The IPAB's targeted cuts 
are one percent above GDP growth under PPACA beginning in that year. 
The president also proposed giving the board new powers to sequester 
congressionally authorized funds if Congress were to overrule the 
board's decisions.
    The White House says that the president's new plan will mean 
Medicare payments would be lowered by $340 billion over ten years and 
$480 billion by 2023 to achieve his deficit-reduction targets.
    Meanwhile, the president is criticizing the House Budget plan that 
would put Medicare on a sustainable path and give tomorrow's seniors a 
choice of private competing plans that would provide them with access 
to care.
                      repeal is the best solution
    As documented above, there is growing bi-partisan support for 
putting responsibility for Medicare payments back in the hands of 
Congress where it belongs.
    While there is widespread agreement that we must reduce the growth 
rate of Medicare spending, opposition to the IPAB as a vehicle to 
accomplish this crosses party lines. The strongest concerns involve the 
power given to the board's unelected officials and the detrimental 
effect that ratcheting down payments could have on innovation and in 
limiting access to physicians, medicines, and other medical 
services.\11\
    The Congressional Budget Office has estimated the IPAB would save 
$15.5 billion between 2015 and 2019.
    What is needed is a plan that will achieve the goal of moderating 
Medicare spending, but in a way that is not destructive to patient 
access to care and to quality and innovation. A number of alternate 
solutions are being discussed in the policy community to limit the 
IPAB's authority or otherwise redirect its responsibilities. A few 
examples:
                           widen the baseline
    The legislation instructs the IPAB to focus primarily on a narrow 
range of Medicare spending involving Parts C and D--Medicare Advantage 
plans and prescription drugs, as discussed earlier. It will be 
extremely difficult to reach per capita spending growth targets by 
cutting payments only in these narrow categories.
    IPAB could be given authority to consider overall Medicare 
spending, not just restrictions on pharmaceutical reimbursement and 
Medicare Advantage, in achieving its spending targets. That would mean 
including the full range of Medicare spending in the baseline 
calculations.
                          break down the silos
    The board could be required to evaluate the impact of its 
directives on overall spending, on access to care, and on innovation. 
It also should consider the impact of its decisions on the rate of 
hospitalizations, life expectancy, quality of care, and access to 
innovative treatments.
                         demonstration projects
    The IPAB could be given the authority to conduct demonstration 
projects to move away from Medicare's outdated fee-for-service system 
and show the value of an integrated, coordinated care model. The 
Florida: A Healthy State program, involving case management of high-
risk Medicaid patients, could be replicated for Medicare patients. 
Programs that facilitate adherence to treatment recommendations, 
including medications, have been shown to reduce hospitalizations and 
decrease overall health care costs, with the largest savings gained 
from the newest medicines. It is essential to consider overall health 
spending in showing the value of investments in innovative treatments 
and care management. While many have high expectations for Accountable 
Care Organizations, may more experiments and demonstrations should be 
conducted that are not so rule-driven and micro-regulated as ACOs will 
be.
                        medical liability reform
    Congress could tie IPAB to a serious effort to reform the medical 
liability system. There is considerable concern throughout the policy 
community about the huge amount of money spent on defensive medicine. 
One colleague suggested we first need a good baseline study so we know 
how much defensive medicine is costing the country--and Medicare in 
particular. If the medical liability system were reformed to reduce 
these expenditures, these savings could be applied to the savings that 
were projected from IPAB. This could lead to giving the IPAB a new 
mission: to monitor the cost of defensive medicine and to recommend 
ways to reduce unnecessary spending in Medicare.
                          limit ipab's powers
    As reported, many in Congress are very concerned about the powers 
given to IPAB and the restrictions in PPACA on Congress' own authority 
to alter the board's decisions. Legislation is needed that will give 
Congress more power over IPAB's recommendations, particularly in 
assuring that the board does not focus on cost reductions at the 
expense of patient care.
                     local quality control projects
    Health policy analyst David Kendall of the Third Way wrote in a 
recent article\12\ for DemocracyJournal.org that ``A better way to 
approach cost control is local action to improve quality.'' He strongly 
supports broader use of best practices employed by the Mayo Clinic and 
Intermountain Health. But he acknowledges, ``It is not yet clear how to 
bring such quality improvement to scale given a diverse population and 
a fragmented delivery system. But edicts from Washington to improve 
quality won't work. It has to come from local physician leadership with 
the support of the patients, insurers, employers, and taxpayers.'' He 
suggested one place to start would be for the Center for Medicare and 
Medicaid Innovation to ``organize regional collaborations among public 
and private payers to pay for the quality of care instead of the 
quantity of care.''
                        long term modernization
    There is agreement among many health policy experts that a premium 
support model for Medicare, as proposed by Chairman Ryan, by the 
National Bipartisan Commission on the Future of Medicare, and many 
others, is the best way to modernize the program and achieve cost 
savings in the future. This must continue to be part of any 
conversation to modernize Medicare.
    In any case, a serious conversation would need to begin by laying 
down some predicates for cost control. What can we do now and what do 
we need to start planning for the future? The goal needs to be to focus 
on payment and delivery system reforms rather than payment cuts that 
will lead to restricted access--the tools that current law gives to the 
IPAB.
                         part d and the future
    There is a better way. We have a working model in the popular 
Medicare Part D program, in which private companies compete to offer 
prescription drug benefits to seniors.
    Created in 2003, Part D provides a range of choices and a subsidy 
to allow seniors to select the drug plan that best suits their needs. 
The plans compete on benefit design and price.
    The 2011 CBO Medicare Part D baseline forecasts and actual recorded 
spending show costs for Part D benefit payments have declined by 46% 
for the 2004 to 2013 period compared with initial estimates of the 10-
year cost projections for those years.\13\
    And Part D's competitive model is saving seniors money as well. The 
average monthly beneficiary premium for Part D coverage will be $30 in 
2011, far below the $53 forecast originally, and an increase of only $1 
over the 2010 average premium of $29.\14\
    Recent public opinion surveys show that Medicare Part D enrollees 
are overwhelmingly satisfied with their Part D coverage. Eighty-four 
percent of Part D enrollees are satisfied with their coverage, and 95 
percent say their coverage works well. Additionally, vulnerable 
beneficiaries who are dually eligible for both Medicaid and Medicare 
exhibited the highest satisfaction.\15\
                          looking beyond ipab
    Chairman Ryan has provided a comprehensive plan that builds on the 
Part D model for Medicare. The key to Ryan's plan is premium support, 
which provides seniors with an annual subsidy to purchase a Medicare-
approved health plan. The plan, when it begins in the year 2022, would 
provide an age-adjusted payment so that seniors can pick the health 
plan to meet their needs. The older they are, the bigger the payment 
they would get. Premium support allows for flexible subsidies that can 
be adjusted and targeted to seniors based on their age, financial well-
being, health status, and similar considerations.
    Spending on Medicare and other entitlement programs must be 
contained. To survive, Medicare must be changed, and the question is 
whether it will be under IPAB and the rationing built into the 
president's health care law, or through Chairman Ryan's plan that 
enables enrollees to apply the government's contribution to guaranteed 
health coverage while bringing the power of market competition to 
reduce health costs.
    Ryan's plan takes a bottom-up approach, cultivating individual 
choice, forcing providers to compete to offer seniors the best value in 
health care, and providing a path to sustainability for Medicare. The 
president takes a top-down approach that puts a small number of 
independent experts in charge of decisions that will impact tens of 
millions of seniors and progressively limit their access to care. It is 
a clear choice.
                           shifting the focus
    The Constitution gives the power of the purse to Congress so that 
elected representatives can be accountable to the voters for their 
decisions. The IPAB would turn this principle upside down. The IPAB is 
at the center of the conflict between two world views. Do we entrust 
individuals with the decisions for their own care? Or do we entrust 
those decisions to a government-appointed panel of experts in 
Washington who will have authority over hundreds of billions of dollars 
in Medicare spending?
    There are better solutions than relying on the Independent Payment 
Advisory Board.\16\
    To find savings, Congress could instead focus its attentions on 
providing better, more efficient care to the nearly nine million 
people, representing one in five Medicare beneficiaries, who are 
eligible for services through both Medicare and Medicaid--often called 
``dual eligibles.'' \17\ They are the poorest and often the sickest 
beneficiaries, many of whom have multiple acute illnesses and long-term 
care needs.
    They consume about 25 percent of Medicare's spending and nearly 
half of Medicaid's--more than $250 billion in 2008. Yet 95 percent of 
them are stuck in an antiquated 1960's fee-for-service payment model 
and are bounced back and forth between the two programs. Many patients 
get lost in a crevice between Medicare and Medicaid where no one is 
overseeing their total care, leading to gaps, duplication, and poor 
outcomes.
    The focus should be on providing tools and solutions for these 
patients to receive better-coordinated care by contracting with care 
management plans, a strategy to save money and make these programs work 
better for vulnerable seniors. Providing them with truly integrated 
care could significantly improve their care and also help reduce health 
costs by providing timely, appropriate, managed treatment.
                               conclusion
    The more people learn about the IPAB, the more they will insist 
that it be repealed and replaced with better solutions.
    Health economist Alain Enthoven summed it up in a recent Wall 
Street Journal commentary: \18\
    The 2010 health-care reform's Independent Payment Advisory Board is 
unlikely to be effective. Appointed by the president, 15 experts with 
no financial ties to the health-care industry are supposed to dream up 
cost-cutting ideas that would go into effect unless overridden by a 
supermajority in Congress. But the reality is that most waste 
identification and cutting is local. These 15 central planners are 
unlikely to do as good a job as hundreds of doctors and managers in 
local delivery systems working with incentives to improve value for 
money for their enrolled members.
    Prof. Enthoven is correct. The IPAB is not the answer, and we must 
begin now with solutions that will work to make Medicare sustainable 
for the future.
                                endnotes
    \1\ David Newman and Christopher M. Davis, ``The Independent 
Payment Advisory Board,'' Congressional Research Service, November 30, 
2010, http://assets.opencrs.com/rpts/R41511--20101130.pdf.
    \2\ ``Medicare Benefit Payments, by Type of Service, 2010 and 
2020,'' Medicare Chartbook, Fourth edition, The Henry J. Kaiser Family 
Foundation, 2010, http://facts.kff.org/
chart.aspx?cb=58&sctn=169&ch=1799.
    \3\ Newman and Davis, ``The Independent Payment Advisory Board.''
    \4\ John D. Shatto and M. Kent Clemens, ``Projected Medicare 
Expenditures under an Illustrative Scenario with Alternative Payment 
Updates to Medicare Providers,'' Office of the Actuary, Centers for 
Medicare and Medicaid Services, U.S. Department of Health and Human 
Services, May 13, 2011, http://www.cms.gov/ReportsTrustFunds/Downloads/
2011TRAlternativeScenario.pdf.
    \5\ ``Statement of Actuarial Opinion,'' 2011 Annual Report of the 
Boards of Trustees of the Federal Hospital Insurance and Federal 
Supplementary Medical Insurance Trust Funds, The Boards of Trustees, 
Federal Hospital Insurance and Federal Supplementary Medicare Insurance 
Trust Funds, May 13, 2011, https://www.cms.gov/ReportsTrustFunds/
downloads/tr2011.pdf.
    \6\ Representative Allyson Y. Schwartz, ``IPAB Is the Wrong Path 
Toward Medicare Payment Reform,'' April 15, 2011, http://www.house.gov/
list/press/pa13--schwartz/pr--apr15--ipabletter.html.
    \7\ Henry J. Aaron, Ph.D., ``The Independent Payment Advisory 
Board--Congress's 'Good Deed,''' The New England Journal of Medicine, 
May 11, 2011, http://healthpolicyandreform.nejm.org/?p=14433.
    \8\ John Merline, ``Will Congress Kill 'Death Panel 2.0'?'' 
Investor's Business Daily, May 16, 2011, http://www.investors.com/
NewsAndAnalysis/Article.aspx?id=572358&utm--source=feedburner&utm--
medium=feed&utm--campaign=Feed%3A+PoliticRss+%28Politic+RSS%29.
    \9\ Bill Frist and John Breaux, ``Keep Medicare in Congress's 
Hands,'' Politico, March 19, 2010, http://www.politico.com/news/
stories/0310/34658.html.
    \10\ David Wessel, ``A Spending Nudge, or a Fudge?'' The Wall 
Street Journal, April 1, 2010, http://online.wsj.com/article/
SB10001424052702303338304575155970077562414.html.
    \11\ John D. Shatto and M. Kent Clemens, ``Projected Medicare 
Expenditures under an Illustrative Scenario with Alternative Payment 
Updates to Medicare Providers,'' memorandum, Office of the Actuary, 
Centers for Medicare and Medicaid Services, U.S. Department of Health 
and Human Services, August 5, 2010, https://www.cms.gov/
ReportsTrustFunds/downloads/2010TRAlternativeScenario.pdf, p. 6.
    \12\ David Kendall, ``Amend and Improve, 2016: The key to improving 
health-care reform lies outside Washington,'' DemocracyJournal.org, 
Winter 2011, http://www.democracyjournal.org/19/6790.php.
    \13\ See CBO Medicare baselines for 2005 through 2011, available at 
http://www.cbo.gov.
    \14\ CMS Press Release, ``Premiums for Medicare prescription drug 
plans to remain low in 2011,'' August 18, 2010; 2004 Medicare Trustees 
Report, p. 164.
    \15\ KRC Survey for Medicare Today, ``Seniors' Opinions About 
Medicare Rx: Fifth Year Update,'' September 2010.
    \16\ Grace-Marie Turner, James C. Capretta, Thomas P. Miller, 
Robert E. Moffit, Why ObamaCare Is Wrong for America, New York: 
Broadside Books, an imprint of HarperCollins, 2011.
    \17\ Grace-Marie Turner, ``What Medicare Services to Cut, Now: 
'Dual Eligibles,' Doubly Expensive,'' The New York Times: Room for 
Debate, June 1, 2011, http://www.nytimes.com/roomfordebate/2011/06/01/
what-medicare-services-to-cut-starting-today/reducing-the-overlap-
between-medicare-and-medicaid.
    \18\ Alain Enthoven, ``What Paul Ryan's Critics Don't Know About 
Health Economics,'' The Wall Street Journal, June 3, 2011, http://
online.wsj.com/article/
SB10001424052702303657404576357750584271340.html.

    Chairman Ryan. Dr. Feder.

                   STATEMENT OF JUDITH FEDER

    Dr. Feder. Thank you, Mr. Chairman, and Ms. Schwartz, and 
members of the committee. Glad to be with you today to discuss 
the role of IPAB, which I believe serves as a guarantor of the 
ACA, the Affordable Care Act's, investment in assuring all 
Americans quality care at lower cost.
    As you consider the role of IPAB, I call your attention to 
the fact that Medicare is an enormously successful program, 
more successful than private insurance, in pooling risk and 
controlling costs. Medicare has historically achieved slower 
spending growth than private insurance, and the ACA extends its 
relative advantage. Action taken in the Affordable Care Act 
produces an average annual growth rate of 2.8 percent per 
Medicare beneficiary for the years 2010 to 2021, 3 percentage 
points lower than national health care spending. National 
health spending is projected to grow about 2 percentage points 
faster than GDP growth per capita, and Medicare's projected 
per-beneficiary spending growth will be a full percentage point 
lower than per capita GDP.
    Growing slower than the private sector is good, but not 
good enough, since both the public and private sector are 
paying too much for too many services and failing to assure 
efficiently delivered quality care. That is why the Affordable 
Care Act goes beyond tightening fee-for-service payments to 
pursue a strategy of payment and delivery reform and creates 
the IPAB to assure effective results.
    The strategy includes payment reductions for overpriced or 
undesirable behavior and bonuses or rewards for good behavior, 
most especially through payment innovations that reward 
providers for coordinated, integrated care efficiently 
delivered. These reforms have the potential to transform both 
Medicare and, by example and in partnership, the Nation's 
health care delivery system to provide better quality care at 
lower costs.
    I have been kind of amazed to hear how little confidence 
there is in the capacity to reform the overall system and what 
these achievements of these savings cannot be assumed. That is 
why the IPAB exists, to recommend ways to achieve specified 
reductions in Medicare spending by changing the way Medicare 
pays health care providers. In essence, IPAB serves to inform 
and assure congressional action to keep Medicare spending under 
control.
    Now, we know that some have proposed eliminating, repealing 
the IPAB, but along with about 100 health policy experts who 
recently wrote congressional leaders in support of IPAB, I see 
that effort as sorely misguided. As we wrote, the IPAB enables 
Congress to mobilize the expertise of professionals to assemble 
evidence and to assure that the Medicare program acts on the 
lessons of payment and delivery innovation the Affordable Care 
Act seeks to promote.
    I would contrast the ACA's strategy to strengthen Medicare 
with the alternative strategy not only to repeal IPAB, but also 
to eliminate Medicare for future beneficiaries, replacing it 
with vouchers for the purchase of private insurance, vouchers, 
I would call to your attention, that are set taking into 
account all of the reductions in Medicare payment that we have 
heard criticized this morning. The CBO analysis shows that such 
an act will not slow health care cost growth, it would increase 
the cost of insurance and shift responsibility for paying most 
of them onto seniors.
    Given Medicare's track record relative to private insurance 
in delivering benefits and controlling costs, morphing Medicare 
into the private insurance market simply makes no sense. Rather 
than go in that direction, what we should recognize is that 
Medicare is clearly doing its part to control costs, having 
reduced spending per beneficiary considerably and well below 
that in the private sector. But it can only go so far, as you 
have noted, on its own to promote efficiencies without 
partnership with the private sector.
    Health care spending growth is not fundamentally a Medicare 
problem, it is a health care system problem. Effective payment 
and delivery reform requires an all-payer partnership to assure 
that providers actually change their behavior, that we do not 
go on as we have gone, rather than looking to favor some 
patients over others or to pit one payer against another. 
Rather than moving to abandon IPAB which supports Medicare's 
continued and improved efficiency, I urge you to modify IPAB's 
current spending target to apply not just to Medicare, but to 
private insurance, indeed all health care spending, and extend 
its authorities to trigger recommendations for all-payer 
payment reform if the target is breached. It is all payers 
promoting efficiently that the Nation very much needs.
    [The prepared statement of Judith Feder follows:]

 Prepared Statement of Judith Feder, Ph.D., Professor and Former Dean,
     Georgetown Public Policy Institute, and Urban Institute Fellow

    Chairman Ryan, Ranking Member Van Hollen and members of the 
committee, I appreciate the opportunity to appear before you today as 
you consider the role of the Independent Payment Advisory Board 
established by the Affordable Care Act (ACA). Along with its extension 
of essential health insurance coverage to tens of millions of 
Americans, the ACA reduces the federal deficit--in large part because 
of measures the law takes to responsibly slow the growth in Medicare 
and overall health spending. Establishment of the Independent Payment 
Advisory Board (IPAB) is one such measure. The IPAB serves as a 
guarantor of the ACA's investment in cost-containment.
    Having IPAB as a backstop to sustain Medicare's financing is not 
only critical to securing this vital program that makes health care 
affordable for older and many disabled Americans; but also to assure 
that Medicare leads the much-needed transformation of the nation's 
entire health care payment system--moving from reliance on mechanisms 
that reward the delivery of ever more, and ever more expensive 
services, regardless of their contribution to health, to mechanisms 
that reward high quality care, efficiently provided. In short, the IPAB 
is part of the Affordable Care Act's commitment to assuring all 
Americans quality care at lower cost.
    As you consider the role of the IPAB, I urge you to consider that:
     Medicare is an enormously successful program--more 
successful than private insurance in pooling risk and controlling 
costs.
     Medicare's per capita cost growth has historically been 
slower than per capita growth in private insurance. But, as a result of 
measures taken in the Affordable Care Act, Medicare's relative 
advantage grows dramatically in the coming decade. Its projected 2.8 
percent average annual growth rate in spending per beneficiary is 
projected to be a full percentage point below per capita growth in GDP 
and three percentage points below growth in national health 
expenditures per capita. ACA-initiated payment reforms, already under 
way, have the potential to improve quality and reduce spending growth 
even further. The IPAB provides a back-up to assure that these savings 
and efficiencies are actually achieved.
     Medicare is clearly doing its part to control health care 
cost growth. But spending growth is not, fundamentally, a Medicare 
problem; it's the problem of the entire health care system. Medicare 
can only go so far on its own in promoting efficiencies, without 
partnership with the private sector. Effective payment and delivery 
reform requires an all-payer partnership to assure that providers' 
actually change their behavior, rather than looking to favor some 
patients over others or pit one payer against another.
     What's needed, therefore, is not to abandon IPAB--and 
certainly not to morph Medicare into less effective private insurance. 
Rather, we should extend the expertise and authority IPAB focuses on 
Medicare to apply to all payers--with a system-wide spending target 
that triggers all-payer payment reform to assure Medicare beneficiaries 
and all Americans the high quality, efficiently delivered care we 
deserve. The importance of securing Medicare cannot be overstated. From 
its inception, Medicare was designed to avoid the problems that plague 
the private health insurance market. Unlike private insurers, for whom 
administration, marketing and profits may absorb 15-20 percent of 
health care premiums, Medicare spends only 3 percent on program 
administration. While private insurers compete to enroll the healthy 
and avoid the sick, Medicare pools the overwhelming majority of 
beneficiaries in a single program--avoiding discrimination based on 
pre-existing conditions and denials of coverage when people are sick. 
And, when it comes to costs, Medicare's ability to purchase care from 
hospitals, doctors and other providers on behalf of virtually all its 
beneficiaries--rather than having individual beneficiaries or even 
several insurers negotiate on their own--has historically kept its rate 
of cost growth per beneficiary below premium growth in private 
insurance.
    The Affordable Care Act promotes cost containment for the future in 
multiple ways, beginning by setting future payment rates to hold 
hospitals and other institutional health care providers accountable for 
productivity gains on a par with those achieved by every other sector 
of our economy over the past several decades. The result is an average 
annual per beneficiary growth rate of 2.8 percent for 2010 to 2021--3 
percentage points slower than per capita national health expenditures. 
A this growth rate (3.9 percent per year), national health spending 
will actually exceed average annual GDP growth per capita by close to 2 
percentage points. By contrast, Medicare's projected per beneficiary 
spending growth will be a full percentage point below growth in per 
capita GDP. With per capita cost growth slowed, for the first time in 
the program's history, enrollment growth has become a major driver of 
overall Medicare spending.
    A slower spending increase than the private sector's, however, does 
not mean that Medicare uses its dollars as efficiently and effectively 
as it can--particularly as the aging of the baby boomers and expanded 
enrollment become a significant driver of its overall costs. Public and 
private insurers alike pay too much for too many services and fail to 
assure efficiently delivered, quality care. That's why the Affordable 
Care Act goes beyond tightening fee-for-service payments to pursue a 
strategy of payment and delivery reform--and creates the IPAB to assure 
effective results. Payment reform involves a mix of strategies to 
support not just cheaper but better care:
     No rewards for `bad' behavior. The ACA authorizes the 
Secretary of Health and Human Services to review and alter 
``misvalued'' fees, such as paying more for services than they're 
worth, and to reduce payments for clearly undesirable behavior, such as 
hospital-acquired infections or conditions, inappropriate hospital 
readmissions, and, even more egregious, outright fraud.
     Bonuses for `good' behavior. Alongside what might be 
considered these ``sticks'' to change behavior, the ACA authorizes a 
set of ``carrots,'' or rewards to delivery of more effective and 
efficient care. At the most basic level, these rewards are extra 
payments to providers for doing ``good'' things--say, meeting a set of 
efficiency standards while maintaining quality care. But more 
importantly, these rewards reside in alternative payment mechanisms to 
replace today's fee-for-service payment system.
     Payment reforms. Among the new payment systems the new 
health law encourages are ``accountable care organizations'', 
collaboratives of inpatient and outpatient providers who will be 
rewarded for delivering quality care to a defined set of patients at 
lowerthan-projected costs; ``patient-centered medical homes'' to 
promote the financial and health benefits of primary care and chronic 
care management; and ``bundling'' separate fees surrounding a hospital 
episode into a single payment for services associated with a specific 
condition, such as a hip fracture, which today would include separate 
fees for diagnosis, surgery, and postoperative care.
    These reforms have the potential to transform both Medicare and, by 
example and in partnership, the nation's health care delivery system to 
provide better quality care at lower costs. But their achievement and 
implementation cannot be assumed. To assure that its savings objectives 
are actually achieved, the ACA's cost containment strategy includes a 
back-up enforcement mechanism--the Independent Payment Advisory Board 
or IPAB. The board consists of 15 members, appointed by the President 
and confirmed by the Senate, to include experts in health economics and 
insurance, as well as consumer representatives.
    The Board is empowered to undertake analysis on ways to promote 
efficiency in both Medicare and national care spending, and to make 
recommendations accordingly. But, with respect to Medicare, if spending 
is projected to exceed the annual Medicare per capita cost-growth 
target specified in the ACA, the IPAB is required to recommend ways to 
achieve specified reductions in Medicare spending by changing payments 
to health care providers, and Congress is required to fast-track 
consideration of those proposals in the legislative process. Unless 
Congress votes to reject the proposal (with 60 votes in the Senate) or 
passes an alternative proposal that achieves similar savings, the 
Secretary of Health and Human Services must implement the IPAB 
recommendations. In essence, IPAB serves to inform and assure 
congressional action to keep provider payment under control.
    Some legislators have proposed to repeal the IPAB. But along with 
about a hundred health policy experts who recently wrote congressional 
leaders in support of IPAB, I see that effort as sorely misguided. As 
we wrote, the IPAB enables Congress to mobilize the expertise of 
professionals to assemble evidence on how payment incentives affect 
care delivery and to use that evidence to suggest sensible 
improvements. As an independent, expert, evidence-driven body, we 
argued, the IPAB will support, not diminish, the Congress' capacity to 
assure that the Medicare program acts on the lessons of the payment and 
delivery innovations the Affordable Care Act seeks to promote.
    Rather than support this strategy to strengthen Medicare and, 
indeed, the overall health care system by promoting better care at 
lower costs, opponents of the Affordable Care Act have proposed not 
only to repeal IPAB but also to eliminate Medicare for future 
beneficiaries--replacing it with vouchers for the purchase of private 
insurance. As analysis of that proposal by the Congressional Budget 
Office makes crystal clear that strategy would not slow health care 
cost growth. Instead, it would increase insurance costs and shift 
responsibility for paying most of them onto seniors. The cost of 
private insurance is, to start with higher than the cost of Medicare, 
and, as noted above is growing considerably faster. A voucher set equal 
to Medicare costs in 2022, when the proposed change would begin, would 
be insufficient to buy Medicare benefits in private insurance. With 
this voucher, a typical 65 year old's out-of-pocket spending would be 
about twice what it's projected to be under traditional Medicare--an 
additional $6000 in out-of-pocket spending--in 2022. And as the gap 
between Medicare costs and private premiums continues to grow--extra 
out-of-pocket spending would rise to $11,000 in 2030. Given Medicare's 
track record relative to private insurance in delivering benefits and 
controlling costs, morphing Medicare into a private insurance market 
simply makes no sense.
    Rather than replace the IPAB, let alone Medicare, what does make 
sense is to use the IPAB to align the private sector with the public 
sector's commitment to health care payment reform and slower cost 
growth. Medicare payment changes have already brought its spending per 
capita well below both per capita growth in GDP and per capita private 
health care costs. And its emphasis on payment and delivery reform can 
achieve even more. But success in that effort depends on more than 
Medicare. Medicare can only go so far on its own to promote 
efficiencies, without partnership with the private sector. Effective 
payment and delivery reform requires an all-payer partnership to assure 
that providers actually change their behavior, rather than looking to 
favor some patients or others or pit one payer against another. Rather 
than moving to abandon IPAB, which supports Medicare's continued and 
improved efficiency, Congress should therefore modify IPAB's current 
spending target to apply not just to Medicare but to private 
insurance--all health care spending, and extend its authorities to 
trigger recommendations for all-payer payment reform if the target is 
breached.
    Health care cost growth is not, fundamentally, a Medicare problem--
though Medicare is doing its part to control it; it's a health care 
system problem--and it's the private sector that needs to become a 
full-fledged partner in Medicare's efforts. As you address concerns 
about Medicare's future and the fiscal future of the nation, I 
therefore urge you not simply to recognize IPAB's value in helping slow 
Medicare cost growth, but also to take action to extend the expertise 
and authority IPAB provides to move all payers in partnership toward 
reforms that will deliver better quality care at lower costs. Only 
payment efficiencies that apply to all payers can assure Medicare and 
all Americans the affordable, quality care we deserve.

    Chairman Ryan. Dr. Feder, I appreciate that very pure 
statement.
    Dr. Feder. Well, and I appreciate your appreciation, Mr. 
Chairman.
    Chairman Ryan. With that, we are starting with Mr. Flores.
    Mr. Flores. Thank you, Mr. Chairman. I would like to thank 
the panel for joining us today. I believe IPAB has a Federal 
flaw built into it, but before we do that, I am going to try to 
hit some questions quickly.
    Dr. Holtz-Eakin, you started your comments talking about 
the insolvency of Medicare and Medicaid. Can you give me what 
your perception of those metrics is?
    Mr. Holtz-Eakin. All right.
    Mr. Flores. If you looked at Medicare-Medicaid as a 
private-sector pension plan.
    Mr. Holtz-Eakin. We know that Part A of Medicare is running 
a cash flow deficit right now. Parts B, C, D were never set up 
to be on their own footing, so they have always counted on what 
looks to be 79 percent of general revenue. So we have something 
well over $250 billion, probably close to $280 billion, flowing 
in out of general revenue to keep the program alive. That is 
now and it is going to get worse.
    Mr. Flores. If you look at the infinite time frame.
    Mr. Holtz-Eakin. It is by March.
    Mr. Flores. My understanding is that Medicare is insolvent 
to the tune of about $60 trillion; is that about right?
    Mr. Holtz-Eakin. These are games that budgeteers play. Let 
me give you the sad fact. Medicare grows so quickly that there 
is no interest rate from which you can actually do a 
discounting exercise that will cause it to convert, so it is 
infinitely, infinitely underfunded by any sensible piece of 
arithmetic. You can only get a number----
    Mr. Flores. So more than $60 trillion?
    Mr. Holtz-Eakin. You can only get a number if you assume a 
miracle occurs somewhere in the future and health care costs 
grow more slowly.
    Mr. Flores. Right. We are going to get to that in just a 
second.
    And Medicaid is somewhere in the neighborhood of 15- to $20 
trillion, right?
    Mr. Holtz-Eakin. Yes.
    Mr. Flores. And those numbers together are five times our 
current national debt.
    Mr. Holtz-Eakin. Huge.
    Mr. Flores. Okay. One of my very first economics professors 
taught me that the laws of economics are like the laws of 
gravity. The worse you violate them, the harder the impact at 
the end, and that is essentially what we are in right now. If 
you look at what has been claimed to be the benefits of IPAB, 
it says that we can cut costs to providers, but yet not ration 
health care. So my question for Secretary Sebelius was going to 
be if we cut the budget for HHS by two-thirds, would she still 
continue to be able to provide the quality response to her 
missionary requirements? And I would assume her answer would 
have been no.
    My next question to her would have been if we were to cut 
the pay for the typical HHS employee by two-thirds, how many 
young people would want to enter that profession? And so I will 
ask whichever person on the panel wants to answer, if we cut 
the pay for doctors by two-thirds, how many young people as 
they are going into college are going to make the decision to 
go pre-med and then to follow through all the way through their 
residency program to become doctors? Anybody want to answer 
that?
    Mr. Holtz-Eakin. I don't know the number, but the 
incentives are clear, and we have seen this movie before. We 
have been through this exercise where we say to the 
beneficiaries, you can have all the medical science you want at 
low or no cost, and then it costs an enormous amount. So we go 
to the providers and say, no, no, no, stop that, either 
literally don't cover that service, or we will cut the 
reimbursement.
    Mr. Flores. The same thing is going to happen in the 
technology area. We are going to improve Medicare through 
technology.
    Mr. Holtz-Eakin. And we are going to make the same mistake, 
the same mistake.
    Dr. Feder. May I comment?
    Mr. Flores. Right. There will be less investment in the 
industry because there is less money going into the industry to 
go forward.
    One of the things that is caused--one of the claims that is 
been made by government, by Madam Secretary, was that 
Medicare's costs have grown at a rate slower than that of the 
private insurance market, and I can tell you firsthand as 
somebody who was in business for 30 years before I came here, 
the reason for that is we began to clamp down on what 
government health care plans would provide, and all of those 
costs shifted to the private sector. Does anybody disagree with 
that?
    Mr. Holtz-Eakin. No.
    Dr. Feder. Yes.
    Mr. Flores. I was there.
    Dr. Feder. So was I.
    Mr. Flores. I watched my premium increases go up every 
year. What caused that in the private sector?
    Dr. Feder. The private sector has been far less aggressive 
than Medicare in attempting to limit health care costs.
    Mr. Flores. So the government invented the HMO or the PPO?
    Dr. Feder. Actually the government did invent the HMO in 
the 1970s in the Reagan administration. They actually promoted 
that policy, and they developed from that point, that is 
correct.
    Mr. Flores. Let me correct you, though. It came from the 
private sector.
    I don't see how we are going to make this work. We are 
going to cut pay to the people that provide medical care by 
two-thirds, and we are going to expect them to stay in the 
business.
    Dr. Feder. May I comment on that?
    Mr. Flores. Sure.
    Dr. Feder. As I said in my testimony, what I think is there 
is an assumption that the Medicare system stays the same as it 
is, that there is no way to improve productivity in the system. 
The health care industry is the only sector in which we have 
not seen productivity increases, and, in fact, what the--and I 
see the chairman nodding. The capacity to achieve productivity 
increases by delivering health care more efficiently, getting 
rid of unnecessary readmissions being a primary example. It is 
out there as a strategy that we all need to pursue and is being 
pursued by the public. The public is leading. Private payers 
are doing that as well.
    Chairman Ryan. We will let that continue. I want to get to 
everybody.
    Mr. Pascrell.
    Mr. Flores. Thank you.
    Mr. Pascrell. Thank you, Mr. Chairman.
    And to add to what the good doctor just said, there were 
and are three promising models to cut costs and improve 
quality. If you don't believe in that, then you don't believe 
in the reform that was passed. One is the accountable care 
organizations. You have heard those terms, you have heard the 
discussions about that. Value-based purchasing programs. Very 
few places have done that. Where it has been done, it has been 
successful. And payment bundling, which is very, very critical, 
and a lot of places don't want to do that, do they, Doctor?
    So there are many sections. Section 3001 to section 3009 
and section 3020 to section 3028 deal very specifically with 
some things that were not scored by CBO which I believe are 
going to bring a tremendous amount of--look, when it comes down 
to it, Doctor, here is where we are at. Democrats want a 
guarantee benefit program. The other side does not. Regardless 
of how you slice it, that is what it comes down to. They are 
entitled to their opinion. I say that with deep respect.
    But I want to talk about rationing. Rationing. We have 
heard that term. It came out the first couple of weeks when we 
started to discuss health care reform. We want to ration. You 
know, that is when it led to those cryptic remarks about we 
want to push Aunt Tillie off the cliff so we don't have to pay 
attention to her anymore.
    So let us talk about rationing, Mr. Chairman. Over 50 
million people in our country are uninsured. Kaiser Foundation, 
I think, has given us some good figures on that. Twenty-five 
million are underinsured. We see that in the letters I get, 
calls I get in my congressional office. I am sure the other 
guys and gals do the same thing. People cannot afford the care 
that they deserve and need. They can't do it. Rationing. As you 
all know, two-thirds of all personal bankruptcies are due to 
health problems. Rationing.
    Just because you have insurance doesn't mean you are 
covered. We all know that, right? You could get diagnosed with 
a disease, your doctor could prescribe a comprehensive 
treatment for you, but if your insurance company says no, what 
do you do? You call your Congressman. You have little power 
against the insurance company, and that is what this is all 
about, Doctor, don't kid yourself.
    Just look at all the requests that we get. Am I correct--
let me ask you, Ms. Turner, am I correct that this kind of 
rationing exists under private plans?
    Ms. Turner. People are making choices and decisions all the 
time about limited resources, both in their financial capacity 
as well as the capacity of the market to deliver.
    Mr. Pascrell. You can make a choice if you can afford it, 
if you are given the ability to make that choice. Not everybody 
can make the choice unless there are options in front of you, 
options that you fit into, and you don't have to worry about 
the person who is offering the options saying you don't 
qualify, or you have this disease and we are not going to cover 
you. Isn't that rationing?
    Ms. Turner. We have----
    Mr. Pascrell. Isn't that rationing?
    Ms. Turner. We would not have a functioning market in our 
health sector----
    Mr. Pascrell. Mr. Chairman, is that rationing?
    Ms. Turner. People should have more choices. And the market 
would provide those choices.
    Mr. Pascrell. Thank you.
    Is that rationing, Mr. Chairman?
    Chairman Ryan. Does the gentleman want to yield his time?
    Mr. Pascrell. Sure.
    Chairman Ryan. I think let us try to get decorum. Having 
the government deny care to seniors through providers I would 
count as rationing.
    Mr. Pascrell. Okay. Would you agree with that, Ms. Turner?
    Ms. Turner. Having the government deny care to seniors 
through a payment policy would also be rationing, yes, sir.
    Mr. Pascrell. How about if insurance companies deny care 
and coverage to a young couple 40 years of age with three 
children?
    Ms. Turner. Absolutely. And we need to reform the system so 
they have more choices and own that insurance.
    Mr. Pascrell. Thank you.
    Ms. Turner. So they can make their own choices in a 
competitive marketplace.
    Mr. Pascrell. Thank you. Thank you.
    It is all choices, but if you have choices out there, real 
choices.
    I yield back, Mr. Chairman.
    Chairman Ryan. Okay. I would simply say at least you can 
fire your insurance company. If you only have the government 
providing your benefit, you can't fire your government.
    Mr. Pascrell. If you have someone else to take the place of 
that insurance company, yes.
    Chairman Ryan. That is why we are going to fix this 
problem, we are going to fix the insurance market, we are going 
to fix health care.
    Mr. Pascrell. Well, the Health Care Reform Act is going to 
do that, Mr. Chairman.
    Chairman Ryan. We respectfully disagree.
    Next we have Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    As a limited government conservative, it is sort of hard to 
even know where to start to look at the Health Care Act. I 
heard Mrs. Sebelius in her testimony just a few minutes ago 
talk about where she starts when she looks at it, and she said 
she starts with her father. That got me to thinking about where 
I start, which is I start with my--I have three sixth-graders, 
and as I listen to the list of everything that has supposedly 
happened, all these wonderful things that have happened so far. 
We have had this magical $250 check go out to all of the 
seniors right before the election. We had this 50 percent 
discount now on name-brand drugs. We have got free annual 
wellness checkups. All I could think of as she was listing 
those things was who is paying for it, because it is my kids.
    And that probably drives my inquiry here. And I think it is 
interesting that these three sixth graders, have started to 
read a little bit of Orwell. They have read Animal Farm. They 
are getting ready to read 1984. And it struck me in Secretary 
Sebelius' testimony she used some words that I think mean 
different things to different people. She talked about the 
IPAB, which you all have talked about as a back-stop or a fail-
safe. And I have no idea what that means. I think I know what 
it might mean. What I think it means is that it is a committee 
that is set up to do what the administration wants to do if 
Congress won't do it on their own. And all of her testimony, I 
think, was partially correct when it came to the IPAB. You 
heard her talk about the process, about the IPAB would make 
recommendations on the growth rates, but that the final 
decision would go to Congress. Maybe. Not exactly true.
    In fact, what she didn't say was that IPAB would make the 
recommendations, and unless Congress either approved that or 
came up with another way to save the same amount of money or 
have the same amount of impact, those recommendations would 
become law. Those recommendations would become law. In fact if 
Congress, all of Congress, got together and unanimously, 
Republicans and Democrats, said we don't want to do what this 
Board just did, that recommendation would still become law.
    She also accurately said a part of what the IPAB cannot do. 
You heard Mr. Pascrell just a few minutes ago talk about the 
fact that the IPAB is prevented from rationing. They are also 
prevented from making recommendations to lower--to reduce 
services or deny coverage or that type of thing.
    But here is what they can do. They can, as Mr. Holtz-Eakin 
suggested, they can recommend reductions in payment for 
services. In fact, it is one of their primary tools. And this 
example, while an extreme example, is entirely legal under the 
law. The IPAB could come out and say, as of next year, the 
reimbursement rate for a knee replacement is $1. And that is 
going to save X number of dollars. And unless Congress comes up 
with a different way to save that $1, then that becomes the 
law. That becomes the reimbursement rate for knee replacements. 
And in the event that happens, and doctors stop providing knee 
replacements for a dollar, then I think there would be a 
reduction of services.
    It is interesting, I think to Mr. Pascrell's point, in the 
bill, the law goes out of its way to make sure that a 
reduction, a recommendation to reduce reimbursements, to reduce 
payments, is not to be deemed rationing. So the IPAB is given 
the ability to lower those payments, even though it has the 
effect of rationing coverage.
    And I see that Mrs. Feder is disagreeing with me. I will 
tell you that we talked to CRS actually about that example and 
it turns out that it is absolutely right. So here is what we 
have got. We have got this Board that is in charge of 
innovation, and I am getting to my question, Ms. Feder, and so 
I will leave it to you. We have got this Board that is in 
charge of innovation. We have got this Board that is going to 
be in charge, or could easily be in charge, of up to 20 percent 
of our economy.
    So my question is this: Can someone please--and you get the 
first chance--give me an example of where that has ever worked 
in the history of mankind?
    Dr. Feder. I think that we rely on independent boards which 
have varied records. We rely on a Federal Reserve to manage the 
banking system. We have got some ups and downs at that one of 
late. We rely on an Interstate Commerce Commission. We rely on 
a number of commissions.
    Mr. Mulvaney. Does the Interstate Commerce Commission have 
the right to make law without Congress' approval?
    Dr. Feder. I don't think so, but I am thinking that if I go 
to you with the Fed, the Fed makes a lot of rules for the 
banking system, so let me stay there. And what I think is 
important here--and I do disagree with some of the aspects--I 
think that some of what you said was not quite accurate because 
Congress--if everybody in Congress doesn't like the 
recommendations they can reject them.
    Mr. Mulvaney. Only if they come up with another alternative 
that saves the amount of money.
    Dr. Feder. Sixty votes in the Senate can reject it. But my 
point is--could I just finish? My point is that what I believe 
that the Board does for the Congress is give you a source of 
expertise and tee-up the issues that need to be addressed. And 
I think that Secretary Sebelius gave us examples of the kind of 
things they could do, whether it is the--they could promote a 
patient safety initiative, they could promote better payments, 
more efficient payments. So I think that there is a tremendous 
good they can do in bringing expertise to the Congress.
    Chairman Ryan. Ms. Feder, you will have to leave it at 
that.
    Ms. Moore.
    Ms. Moore. Thank you so much, Mr. Chairman. I am a little 
bit interested, Mr. Holtz-Eakin, in this miracle that you were 
talking about in terms of reducing the trillions of dollars in 
liability that Medicare faces. And I do agree with you that 
there is an unfunded liability and how you might reconcile 
this. You say that you stipulate that health care costs, in 
general, not just in Medicare, must grow more slowly, which is 
something I have been harping on continuously. It is not just 
Medicare, it is the larger health care costs that must grow. 
But you say that the IPAB is dangerous, that it would stifle 
innovation. And so I guess your suggestion is that we shouldn't 
limit the cost in the growth of innovation; that that would 
be--and you know, we do need innovation. And this, the IPAB 
targets that.
    And many of us allege that, yes, this huge gap between the 
cost of innovation and all that will be borne by seniors; that 
this trillions of dollars--if you would support, for example, 
the Republican plan for Medicare--would target seniors.
    So I am asking you to respond to how you see us limiting 
the cost of health care and also maintaining innovation. I am a 
little bit more interested in the miracle.
    Mr. Holtz-Eakin. So I think fundamentally that the key 
defect of Federal health programs, Medicare and Medicaid 
particularly, the Affordable Care Act will be this way, is that 
they don't impose any budget on those programs whatsoever. They 
are open-ended draws on the taxpayer, with little incentive for 
useful adoption of innovations, efficiency, and coordination of 
care, or any of the things that everyone recognizes would 
improve the American health care system. And so I am----
    Ms. Moore. So to some extent, you are agreeing with the 
Affordable Care Act reforms in terms of----
    Mr. Holtz-Eakin. It doesn't do anything. There is no budget 
constraint put on anything here. All it does is say again, as 
we have done in the past----
    Ms. Moore. But budget restraint, you are not wanting to 
restrain innovation. So the restraint would come where?
    Mr. Holtz-Eakin. I realize there is a vigorous debate in 
both sides of this committee about the House-passed budget. But 
among the things that a premium support plan would do is it 
would cap the taxpayers' liability----
    Ms. Moore. The taxpayers but not the patient, who are 
also--they are not taxpayers anymore because they are retired.
    Mr. Holtz-Eakin. That is one. We both know that 
fundamentally to be successful, health care costs must grow 
more slowly. You must stop the overuse of----
    Ms. Moore. Okay. Thank you. I am hearing you say that these 
trillions of dollars have to be paid for by folks who are no 
longer taxpayers; they are retired.
    Mr. Holtz-Eakin. That is not what I said. For the record.
    Ms. Moore. Well, that is what it sounds like. I will ask 
Dr. Feder. We heard Secretary Sebelius, we heard the actuary--
was it the CMS actuary, Mr. Chairman--say that the Affordable 
Care Act reforms could generate savings. But he was skeptical 
that there was the political will to execute them. I am 
wondering if you think that the IPAB would be an enforcement 
mechanism that might--he stipulates that we could recognize 
savings if there were an enforcement mechanism.
    Dr. Feder. Well thank, you Congresswoman. What I indicated 
in my testimony is that I think that what the IPAB does, it 
acts as a back-stop or guarantor to make sure that the 
innovations that are in the Affordable Care Act, that we are--
many of them untested and under development, which may have 
been what the actuary was talking about, that those actually 
take place, or that the improvements in demands or 
accountability for improved productivity for providers, which 
may have been what he was referring to----
    Ms. Moore. I am going to give you a minute so that you can 
help Mr. Holtz-Eakin out, because he said that I 
mischaracterized what he was saying. You know, you guys are all 
experts in health care, and I am not. I was interested in the 
miracle of paying for these higher health care costs without 
sticking it on seniors, and so he talked about needing 
innovation, and yet and not stifling innovation, but slowing 
the growth of health care. How would you----
    Dr. Feder. Well, I am not sure what he meant, and I am sure 
Mr. Holtz-Eakin can speak for himself, as I have heard him 
before do. But what I believe is that the innovation that moves 
us away from a payment system that continues to reward forever 
more, ever more expensive services without regard to benefits 
for health needs to be replaced with an accountable system that 
rewards providers for delivering quality care, actually pays 
docs better.
    Ms. Moore. And not death panels, right?
    Dr. Feder. By no means death panels. We never have been and 
are not talking about death panels.
    Ms. Moore. Okay. I just want to use my last 6 seconds by 
saying, I want innovation. I want new technologies available to 
seniors, but I do think that there has to be some shared 
payment for the system and not to pass trillions of dollars of 
costs onto retired seniors.
    Thank you, Mr. Chairman, for your indulgence.
    Chairman Ryan. Thank you. Ms. Black.
    Mrs. Black. Thank you, Mr. Chairman. And having been a 
nurse for over 40 years and being in the health care system, I 
think there are a lot of things that we could do to reform 
health care. And we had a great chance to do that and we missed 
our chance.
    But let me go back to IPAB, because as an elected official 
and also someone who believes in the Constitution, I believe 
that this IPAB is a very, very serious breach in what Congress 
should have the authority to do. So there is unprecedented 
power here to an unelected Board. And I really believe that it 
is misnamed because it says it is an Independent Payment 
Advisory Board. But it is not just advisory. It has muscle. It 
has strength.
    And where I have the concern about this is, currently the 
law says that the Independent Payment Advisory Board will kick 
in with its recommendations looking at Medicare growth at GDP 
plus 1 percent. The President has also come out and said that 
he believes that we need to lower that even to a half percent. 
Secretary Sebelius was here just a bit ago, and she made a 
great deal of emphasis on the fact that Congress has the 
ability to be able to make these recommendations before the 
Board kicks in.
    But let me go to why I think that is a really 
misinformation piece, is that currently GDP is growing at 
somewhere between 3 to 4 percent. And I think I am right on 
that. Medicare is around 7 percent. And if we have got such a 
low threshold of saying GDP plus 1 percent, IPAB is going to 
kick in pretty quickly. And when they kick in and they give 
these so-called recommendations, they are not just 
recommendations. My understanding is that they are indeed going 
to be law, or make changes to the way we currently operate, 
unless there is a two-thirds override, which is a very, very 
high standard. And we all know how difficult it is to gets two-
thirds for anything, unless it is naming a Post Office.
    So I have a real problem with that, in addition to the 
problem with transparency and how this Board is going to 
operate behind closed doors without public opinion, public 
comment, and so on. What I would like to hear from each of the 
members of the panel here is, do you believe that there is a 
constitutional problem with having a Board making decisions 
that are going to become law without them being elected 
officials?
    Mr. Holtz-Eakin. I am not a constitutional lawyer, but I do 
think it is at odds with conventional congressional practice 
and allocation response to oversight. And I find it troubling 
from that perspective alone. I am also a bit mystified by some 
of the other discussion about it. So there has been the notion 
that somehow it is just a bunch of the smart people who will 
give ideas for payment systems reform to the Congress, and then 
you guys will take care of it. There exists such a group. It is 
called MedPac. I served on MedPac. It is where they send old 
CBO directors to die. And if it is just a matter of advice, 
this brings nothing new to the table, and thus will replicate 
the failure of MedPac.
    There is also the notion that it guarantees other successes 
in the bill. That is not true. I mean, let us stipulate for a 
moment that the Center for Innovation at CMS will actually do 
something. I am skeptical, but let's suppose it really does. 
There is nothing that it can think of that they can put into 
rulemaking, get implemented, and actually produce results in a 
year. Those are big changes in payment systems, delivery 
systems. Everyone knows those are important. They aren't going 
to happen in a year. So in fact, IPAB is structured to squash 
any unlikely success you get out of the Center for Innovation.
    So I think it is at odds with conventional practice from 
its setup. I think it is internally inconsistent throughout its 
claim to the Affordable Care Act, and that is why I think it is 
a deep policy error.
    Ms. Turner. I do think that IPAB goes further than any 
legislation, any Board in my experience. And it has not only 
the ability to have the force of law, but there is no 
administrative or judicial review. And provisions go into 
effect unless Congress reaches extremely high hurdles in 
overruling it, and then, as we have discussed earlier, having 
to achieve the same targets. And I think that that makes an 
important point, in that the CBO has already shown it is not 
going to score quality improvements as really showing 
meaningful savings, especially in the 1-year time frame that 
the IPAB has. And so its only tools really are going to be more 
cuts in payments on the existing fee-for-service system. And we 
know where that goes and we know where that leads as far as 
payment rates and access to physicians.
    So I think the miracle that Ms. Moore was talking about 
earlier is Part D. We know that the marketplace competition 
consumer power will get prices, costs, down for government 
programs and that must be the way we go.
    Chairman Ryan. Ms. Wasserman Schultz.
    Ms. Wasserman Schultz. Thank you, Mr. Chairman. I think we 
need to recap. Let's compare Medicare for seniors under the 
Affordable Care Act and Medicare for seniors under the Ryan 
Republican plan that passed as part of the Republican budgets.
    Under the Affordable Care Act, the doughnut hole is closed 
over 10 years. The actual, not magical check, Mr. Huelskamp, of 
$250 that seniors received last year paid for actual groceries, 
paid for--excuse me, Mulvaney. You are sitting behind Mr. 
Huelskamp's nameplate. Forgive me. The actual $250 check, not 
magical, pays for actual groceries, pays actual mortgage, is 
actual money. So to suggest that somehow the $250 check is 
mythical or magical or nonexistent is completely false.
    I have stood in front of numerous town hall meetings of my 
constituents, asked for a show of hands of how many seniors got 
a $250 check last year, and plenty of actual hands go up.
    The 50 percent cut in name-brand drugs, the gentleman 
wonders how it is paid for. I will remind the gentleman that 
the entire Part D prescription drug plan was never paid for by 
the Republicans and added $400 billion to the deficit over 10 
years, and $7 trillion to the deficit over 75 years.
    So when it comes to who made sure that we reduce costs in 
Medicare, who made sure that when we passed new policy that we 
ensured that it was paid for, Democrats did so, and preserved 
and protected and extended the life of Medicare, and 
Republicans jeopardized it.
    In addition, the Affordable Care Act adds preventative 
screening like mammograms and colonoscopies that used to have a 
co-pay before the Affordable Care Act passed and that now are 
free, which means that we shift the focus in Medicare from a 
sick-care system to a wellness and prevention system. And we 
ensure that seniors can stay healthy and we save health care 
costs down the road, because if they get screenings up front 
then they are less likely to get sick down the road. A wellness 
check-up, which was not something seniors were entitled to 
before the Affordable Care Act, a free annual wellness check-
up, now they are entitled to that, again, being able to 
preserve their health rather than having them access the health 
care system for the first time once they are already sick, 
which we know would increase costs.
    And so let's look at the Republican plan. The Ryan 
Republican plan to end Medicare as we know it gives a voucher 
to seniors and leaves them to the whims of the private 
insurance companies to get health insurance on their own, and 
adds $6,000, actually more than $6,000, to the bill of Medicare 
beneficiaries of seniors, all in the name of making sure that 
we can preserve tax breaks for millionaires and billionaires.
    So Dr. Feder, if I can ask you, as you know, we have had 
some discussion this morning about the IPAB and what it can and 
can't do. It is explicitly forbidden from recommending any 
changes in premiums, any changes in benefits or eligibility or 
taxes or other changes that would result in rationing. So 
through those prohibitions, the IPAB can't increase Medicare or 
beneficiary premiums or cost sharing at all. They can't decide 
to just tell someone, tell a doctor that a knee surgery is a 
dollar and that is the end of the story. So accuracy is 
important.
    Do you agree with the assessment that seniors could face 
higher out-of-pocket costs as a result of the Republican 
Medicare plan? And could you respond to my comparison of the 
two approaches to how we preserve Medicare and make sure we 
bring down costs and protect seniors?
    Dr. Feder. Thank you, Ms. Wasserman Schultz. I do agree 
with your assessment, and let me give my interpretation of how 
that occurs. As I indicated, the voucher that is in the 
Republican budget is set, taking all the reductions in payment 
growth that we have talked about into account, that--has all 
been accepted by Republicans in the House--and gives a budget, 
then, gives a dollar amount for seniors to purchase private 
insurance, which the Congressional Budget Office says is 
already more expensive than the Medicare plan for seniors, and 
will be much more expensive in 2022 when the voucher is 
expected to start.
    What that means is we are sending seniors on their own, 
will be sending seniors, myself included, on our own to shop 
for benefits without the ability of having the government 
behind us to negotiate or set prices on our behalf, determine 
that the benefits are what they ought to be. So it is simply a 
cost shift, that according to to the Congressional Budget 
Office, actually increases costs to seniors.
    Ms. Wasserman Schultz. And would you say that--it sounds to 
me like there is no debate over those facts, and those facts 
are in evidence.
    Dr. Feder. I have not seen any evidence.
    Chairman Ryan. We will have to leave it at that. Mr. 
McClintock.
    Mr. McClintock. Well, following up on the question of 
jeopardizing Medicare, Mr. Holtz-Eakin, can you tell us what 
are the projections actuarially for the bankruptcy of the 
Medicare system on its current course?
    Mr. Holtz-Eakin. The Medicare system as a whole is bankrupt 
now. I mean it simply cannot pay its bills on a cash flow or a 
projected basis. So a trust fund for Part A, one tiny little 
piece, is expected to be exhausted in a bit over a decade.
    Mr. McClintock. So continuing down the road we are on right 
now, which is basically the Democratic approach, assures the 
destruction of Medicare as we have known it or have ever known 
it.
    Mr. Holtz-Eakin. I couldn't agree more. The status quo is 
dangerous to the beneficiaries, to the budget, and to the 
economy. And we have to change direction.
    Mr. McClintock. One thing scaring a lot of the folks in my 
district now who are on Medicare is they are beginning to feel 
trapped. They are finding it harder and harder to find doctors 
who will take Medicare patients. They are having to travel 
farther and farther when they find those doctors. Do you have 
any--that is anecdotal. What is the data on that subject?
    Mr. Holtz-Eakin. Well, the latest survey data that I have 
in my written testimony suggests that two-thirds of physician 
practices are reviewing their treatment of Medicare 
beneficiaries. And some of them will be aggressive enough as to 
not take any new beneficiaries. Some are contemplating it. But 
each time we go through an episode with both the sustainable 
growth rate and now the Affordable Care Act promise to cut 
provider payments, they react in a very sensible business 
fashion. They say, we can't afford to do this. And they don't.
    Mr. McClintock. So someone has turned 65. They have to give 
up their insurance for Medicare. They are now trapped in the 
Medicare system. They are finding it harder and harder now to 
find a doctor who will treat them. What is their alternative? 
What can they do if they can't find a doctor who is willing to 
take the Medicare reimbursement rate, or have to travel an 
exorbitant distance to find that doctor?
    Mr. Holtz-Eakin. Pay out of pocket 100 percent of the cost, 
which is exactly the dilemma that Ms. Wasserman Schultz was 
highlighting.
    Mr. McClintock. Mr. Stutzman put his finger on the subject, 
I think, when he pointed to the study that an average couple 
earning about $89,000, retiring at 65, will have paid into the 
system about $110,000 and will take out an average of over 
$350,000. I don't think you have to be a Secretary of HHS or 
even a Member of Congress to know that that system is not, it 
cannot be sustained.
    It seems to me that there are two ways to address it and 
those two ways are basically laid out in the approaches of the 
parties. One of them is price controls, the other is 
competition. Would you agree with that?
    Mr. Holtz-Eakin. I do agree with that. I believe that my 
worst day as a CBO director was when a Member of the other body 
asked me what the right price for inhalation therapy was in 
Alabama. And that is everything that is wrong with the Medicare 
system, and this continues it.
    Mr. McClintock. That would also explain why we are now 
seeing a shortage of doctors. I mean we have got a lot of 
experience with price controls. They date back in written 
records as far as Hammurabi and they seem to produce very 
consistent results. They will, in every case I have ever 
studied, you know, Diocletian to Nixon, they will produce a 
shortage of whatever it is that you are controlling the price 
on. Do you know of any exceptions to that?
    Mr. Holtz-Eakin. No.
    Mr. McClintock. So we have a mechanism that we know will 
create a shortage. We are already watching it create a 
shortage. And we have now established an Independent Payment 
Advisory Board whose principal tool to hold Medicare costs down 
is to place more and more Draconian reductions into the price 
controls that are already there, meaning a more and more 
difficult time for people to find doctors, until you simply 
can't find them.
    Mr. Holtz-Eakin. As I said, that is my deep fear is that 
this will accelerate what is already broken about the Medicare 
system, and that is something we can't afford do do.
    Mr. McClintock. How would you describe the Republican 
approach to controlling these costs?
    Mr. Holtz-Eakin. The approach is I think quite sensible in 
that it gives a finite amount of resources to a problem; and 
people, when they have a finite amount of resources, use it 
efficiently. It allows the best package of insurance benefits 
at the right price to be selected by the Medicare beneficiary, 
thus rewarding value, which is how we have been successful in 
the other 87 percent of the economy.
    Mr. McClintock. So it is basic competition. Will and Ariel 
Durant, in their History of Civilization, asked the question, 
What makes Ford a good car? Chevrolet. The fact that there is 
somebody there competing to offer better services at a lower 
price.
    But just in the few seconds I have left, the hit on that 
that we keep hearing is, well, Medicare Advantage works that 
way and it costs more. Could you address that very quickly?
    Mr. Holtz-Eakin. I believe that is a very mistaken 
statement. Medicare Advantage, when it is a managed plan, is 
cheaper and offers a better value proposition. The fee-for-
service Medicare Advantage plans cost a lot because fee-for-
service is broken medicine, regardless of the label attached to 
it.
    Chairman Ryan. Thank you. Mr. Lankford.
    Mr. Lankford. I want to get a chance to follow up on----
    Chairman Ryan. I apologize, Mr. Lankford. It is Mr. Van 
Hollen. He didn't have a chance this round.
    Mr. Lankford. Glad to yield.
    Mr. Van Hollen. Thank you. Thank you, Mr. Chairman. Thank 
you. Let me thank all the witnesses.
    And I want to just very quickly on the Medicare Part C, we 
know from CBO and the facts that we had been subsidizing that 
at about 114 percent of Medicare fee-for-service. But really 
what I want to do is pursue the line of conversation that Mr. 
McClintock raised, because you, in your testimony, suggest that 
it is like really, really hard to find a doctor on Medicare. We 
just heard that anecdotal evidence suggests it is harder to 
find doctors. And I think we should all agree that rather than 
rely on anecdotal evidence, we should just look at the real 
evidence out there. And, fortunately, a nonpartisan group 
called MedPac that advises the United States Congress does 
exactly that survey.
    And let me report to you what their most recent findings 
are because I think it is very--it is informative on this 
issue. They talk about how every year they conduct a patient 
survey to overall access to care. And they look at the private 
market and the Medicare market. And I am just quoting from 
their report: Results from our 2010 survey indicate that most 
beneficiaries have reliable access to physician services, with 
most reporting few or no access problems. Most beneficiaries 
are able to access, able to schedule timely medical 
appointments and find new physicians when needed. But some 
beneficiaries experience problems, particularly when they are 
looking for a primary care physician. Medicare beneficiaries 
reported similar or better access than privately insured 
individuals aged 50 to 64. On a national level, this survey 
does not find widespread physician access problems, but certain 
market areas may be experiencing more access problems than 
others due to factors unrelated to Medicare, or even payment 
rates, such as relatively rapid population growth.
    Then if you go on, it states: The Patient Protection 
Affordable Care Act of 2010 contains several provisions to 
enhance access to primary care, including increasing Medicare 
payments for primary care services provided by primary care 
practitioners.
    Then if you look at the chart, the table they have, and I 
just want to read what they ask. This is a survey. This isn't 
anecdotal: Getting a New Physician. Among those who tried to 
get an appointment with a new primary care physician or a 
specialist in the past 12 months, how much of a problem was it 
in finding a primary care doctor/specialist who would treat 
you?
    Medicare program, the answer being no problem, no problem 
finding a primary care physician. In 2007, 70 percent said no 
problem. In 2008, 71 percent said no problem. 2010, 79 percent 
said no problem.
    Let's look at the private insurance market, age 50 to 64, 
all the things that people said would make it work. No problem 
has declined from 82 percent say no problem in 2007, to 69 
percent saying no problem. Now, 10 percent gap. In other words, 
Medicare beneficiaries, according to this nonpartisan analysis, 
have no problem.
    Specialists--and I think it is important to get the data 
out because there is anecdotal--I hear from seniors in my 
district the difficulty in access. And it doesn't mean that 
every single physician takes Medicare, just like not every 
physician is on the plan a lot of us have; I mean, depending on 
what you choose. But I can tell you, in 1965 Medicare 
beneficiaries couldn't find--people, 65 and up, couldn't find 
any physician willing to take them.
    Access to specialists, people who reported no problem with 
access to specialists, 85 percent of Medicare beneficiaries in 
2007, no problem; as of 2010, 87 percent reporting no problem 
with access to specialists. Again, higher than in the private 
market ages 50 to 64 where 82 percent report no problem with 
access to specialists.
    Mr. Chairman, I would like to submit this for the record. 
And I do think that this whole conversation requires data. And 
you know, the notion that all of a sudden--and Mr. Holtz-Eakin, 
you say in your testimony, today Medicare coverage no longer 
guarantees access to care. Well, it doesn't mean that every 
doctor, I agree, signs up to participate in Medicare. But the 
overwhelming number of doctors do. And in private plans, there 
are a whole lot of doctors who don't participate in private 
plans. And I can assure you that under the House Republican 
plan, when they are going to be providing a much smaller 
allotment, and you are going to be leaving it to Federal 
employees to establish the standard benefit plan but insurance 
companies to decide what benefits they are going to provide, 
you are going to have a real access problem.
    And I would ask Ms. Feder if she could just comment on that 
issue.
    Dr. Feder. Absolutely. I was listening. I appreciated what 
you were--you read my mind or we were on the same wave length 
because of that MedPac evidence. But you had it first. It was 
in your mind.
    The issue that I have been thinking about is what is it 
that you are thinking that these private health plans are going 
to be able to provide people in terms of access if you give 
such a limited voucher? People who can add on the extra dollars 
may--the very well-off seniors may be able to get a decent 
plan. But you are not giving them enough money to shop with. So 
anything that you even think may exist in the current Medicare 
plan is bound to exist when you have actually given seniors 
fewer dollars to pay for more expensive plans.
    Mr. Van Hollen. Thank you. Thank you, Mr. Chairman.
    Chairman Ryan. Now it is Mr. Lankford.
    Mr. Lankford. I want to be able to respond real quick to 
the statement that Ms. Wasserman Schultz made earlier. And just 
talking about, you know, there is nothing in this IPAB that is 
going to reduce costs or reduce reimbursements or that can't 
change the prices on things. And that is just not in the law.
    In a meeting about 4 weeks ago that freshman legislators of 
both parties had with Timothy Geithner to be able to talk about 
some of the President's plan for dealing with deficit reduction 
in future days, we walked through section by section of many 
issues with them. One of them was dealing specifically with 
health care, because at the time the President had not released 
a plan for how to reduce costs in Medicare and Medicaid and 
what the plan was. He had made multiple statements saying we 
need to bring costs down, and we are going to work on that. So 
we asked him the specifics of that.
    Specifically, Timothy Geithner stated the way they we were 
going to get savings over the next 10 years in Medicare and in 
Medicaid is by cutting the reimbursement rate to doctors, 
hospitals, and drug companies through IPAB. So if this is not 
in the law, someone needs to inform the Secretary of the 
Treasury that that is not how we are going to get these 
millions and billions of dollars of savings, because the 
President's spokesman is stepping out there and saying the way 
that we are going to accomplish this is by cutting 
reimbursement rates to doctors, hospitals, and drug companies 
to gain cost savings for Medicare and Medicaid.
    So it is very difficult for me to hear one person say that 
is not in the law, and then the Secretary of the Treasury say 
that is the way we are going to accomplish that.
    I also have difficulty in processing through the power that 
has been given to IPAB in saying, because there is medical 
innovation that needs to be done with how we handle the cost 
savings, we are going to give this power to this independent 
group and give them the authority to be able to accomplish 
this. This is a unique situation to say we have a very 
difficult issue; apparently Congress is having a difficult time 
cutting back the costs on this, and so we are going to empower 
this group to basically create law.
    Well, here is my question that I would have asked Secretary 
Sebelius. GAO makes reports about how to be able to save money 
in HHS. I am interested, if IPAB has the authority to be able 
to make recommendations that require a supermajority from 
Congress to change, to giving to GAO the capacity when they do 
a risk assessment on HHS and cost savings, the authority to be 
able to make cost savings suggestions about that. And I would 
like to empower the inspector general of each of these agencies 
to say when you find fraud, or when someone rises up on the 
high-risk list, which multiple agencies are on the risk list 
for GAO, I would like to just empower them the same way IPAB 
has empowered them. Give them the power of law and to say 
whatever recommendation you make about how to reform the 
Department of Energy, the EPA, the Department of the Treasury, 
whatever it may be, let's just empower the inspector generals 
and the GAO, when they make recommendations, that they have 
that same authority with IPAB. Mr. Holtz-Eakin, do you think 
that is a good idea?
    Mr. Holtz-Eakin. No.
    Mr. Lankford. Why?
    Mr. Holtz-Eakin. Ultimately, I believe that the Congress 
has the responsibility to make these policy decisions. And 
having made them, the executive branch has the responsibility 
for implementing them. Congress then has to turn around around 
and do the oversight. That is the standard of practice in the 
United States. It has by and large been quite successful, and 
it is the practice I would suggest you adhere to.
    Mr. Lankford. Okay.
    Ms. Feder, what do you think about that, if we go ahead and 
empower the inspector general and we empower GAO to go ahead 
and make recommendations, the same authority that IPAB has?
    Dr. Feder. I think it is different. And what I think that 
the IPAB does is, they are able to do, which is what I think 
Ms. Wasserman Schultz was getting at, is to look at, to assess 
what is going on in payment and make recommendations, as Doug 
said, not so differently from the way MedPac does, but with 
more authority to----
    Mr. Lankford. Not so differently than what GAO does and a 
lot of other agencies. Very similar. I mean, they look at 
reports, they go through all these, they make recommendations, 
they say this would be a great way to save money, hand it to 
the Congress to make the decision.
    Dr. Feder. I did not advocate it. I will go there. I think 
that we have an issue in terms of health care cost growth that 
requires this.
    Mr. Lankford. Quite frankly, we have an issue with agency 
growth.
    Dr. Feder. Well, I will stay where I am. I think that the 
Nation's health care cost growth, not Medicare's, but the 
Nation's health care cost growth is a matter of dire concern. 
And I think that this is a mechanism which I would argue leaves 
authority in the Congress. The Congress can reject it with 60 
votes in the Senate, or it can come up with alternative 
mechanisms in order to achieve spending restraints. And I think 
that that, at this point in time, is helpful.
    Mr. Lankford. I would have to say that I don't think that 
is a good idea to give that authority to GAO either, or to the 
inspector generals. Neither do I think it is a good idea to 
give it to IPAB, to be able to say they have some supermajority 
that they can shut down and create law based on their 
recommendations.
    And with that, I yield back.
    Chairman Ryan. Thank you. Mr. Woodall.
    Mr. Woodall. Thank you, Mr. Chairman. I appreciate that.
    Dr. Feder, I had a couple of questions for you. I 
appreciate what you closed your testimony with, that you think 
IPAB would be a wonderful thing for public and private plans 
alike. And we get so many shades of gray here it is nice to 
have some clarity.
    Tell me about what Ms. Wasserman Schultz said before she 
left the room. She said we used to have a co-pay on programs, 
and now they are free. She was describing some of the changes 
in the President's health care plan. As we talk about rising 
costs and how to get those costs under control, when you used 
to have programs that had a co-pay and now those programs are 
free, what does your experience lead you to believe? Does that 
lower cost because you are getting more people in the system, 
or increase cost because you are having more utilization?
    Dr. Feder. The question is, which services? And the co-pays 
have been eliminated, as they would be also for other people in 
the Affordable Care Act, and I think some of that has gone into 
effect as well for preventive services. And it is based on the 
premise that getting service, getting a checkup, getting 
service early, actually reduces the possibilities of more 
costly illness down the road. It is based on--in some cases it 
does do that. In some cases it doesn't. But it is based on 
evidence that is tied to the importance. The best evidence, for 
example, is prenatal care, not for the Medicare population but 
for the younger population. Immunizations. So it is preventive 
service that this focuses on.
    Mr. Woodall. Now, I look at the Federal Employee Health 
Benefit Plan. I happen to have the absolute cheapest plan that 
is on the menu. It is an Aetna health savings account. I have 
access to any physician I want to go to. I have access to any 
service that I want to utilize, and I pay absolutely nothing 
out of pocket for those. It all comes out of my medical savings 
account. And yet it is the cheapest program on the menu.
    Why is that true? Why is it that when I am in charge of my 
care, I get the cheapest plan on the menu, but when all of the 
benefits are pre defined for me, it actually turns into the 
most expensive plan on the menu.
    Dr. Feder. I think one of the issues is who is choosing the 
high-deductible plans, and so you have to look at selection and 
whether healthier people who do not expect to use services may 
be actually in those plans, because you do save on the 
premiums. And I would hope that you have been in good health. 
And I would venture to suggest that in all likelihood, so that 
the population being served is a generally healthier 
population. So I would have to look at that selection issue 
before making a comparison.
    Mr. Woodall. I am not going to quote you exactly. But as 
fast as I could write it down as you were responding to a 
question, you talked about how we get sent out into the 
marketplace under the Republican health care plan to make 
decisions without the government to set prices on our behalf.
    Dr. Feder. What I said was that we are as individuals 
negotiating with insurers, rather than having the government, 
the public program, Medicare, as an insurer. And I think that I 
would prefer to have Medicare do it for me, based on what I see 
in the marketplace.
    Mr. Woodall. Thinking about your vision of having IPAB 
control private insurers as well, I did have to go in for a 
chest CT recently, pulled up a list of providers on-line, 
shopped around for prices. There was about a threefold 
disparity between the one that was right next door to me, that 
happened to be three times more expensive, and the one that was 
about 4 miles across town that was a third of the cost. I got 
in the car, I paid the $4 a gallon to go get the one that was a 
third of the cost, because it was coming out of my medical 
savings account.
    Why does government price fixing of a price for everybody 
across the board lead to a better outcome than me seeing those 
prices and making that decision on my own?
    Dr. Feder. Actually, let me move it just a little bit to 
where the Affordable Care Act is trying to go in terms of, I 
think, having an improved position over the fee-for-service, 
because I think that there is a problem with paying fee-for-
service and having ever more and ever more expensive care. And 
I will share with you a conservation recently with a private 
insurer who would like to partner with Medicare in an 
alternative approach, a medical home approach, in which it 
would be physicians who would be rewarded for delivering care 
more efficiently and it would be they, in conversation and 
working with their patients, who would be selecting the place 
that was best and most affordable, or, excuse me, most 
efficient. That is not an issue here. It is the most efficient. 
And I think that that is a mechanism.
    And as I have said, we continue to sound--the conversation 
sounds as if we are heading down a continuation of health care 
system as we know it, when in fact the Affordable Care Act is 
moving us and leading us and working with the private sector to 
move in a different direction.
    Mr. Woodall. Well, that plan that you described sounds 
strikingly like the PACE program that Bob Dole championed in 
the late nineties where you combined Medicare and Medicaid 
together and let folks make those decisions. I thought that was 
a wonderful program. I hope we will have a chance to get back 
to exactly that kind of help.
    Dr. Feder. I appreciate your drawing on PACE because PACE 
actually turns to--serves the most vulnerable dual-eligibles, 
people on Medicare and Medicaid who need long-term care, and 
long-term care in particular is a major problem for people 
today. And I thank you for interest in that program.
    Chairman Ryan. Thank you. If you could bring up chart one, 
please.
    This shows a comparison of inpatient hospital services 
reimbursements. Right now, Medicare is paying about 66 cents on 
the dollar to providers. In the outyears it goes down to 33 
cents on the dollar. That is where we are right now under 
current law.
    Next chart please, chart two.
    Doctors. Right now, we are paying about 80 cents on the 
dollar. Therefore it is a little higher and therefore the 
access is not so bad. By 2030 it goes down to 40 cents on the 
dollar.
    The SGR, we have played with this hot potato for a long 
time, and what we learned out of this experience, the 1997 
budget agreement, which is really held up as a hallmark budget 
agreement--Republicans working with the Democratic President to 
get a budget agreement, which, by the way, cut taxes and cut 
spending--what we got out of that were price controls on 
Medicare and payment systems which are producing these results. 
And the current Affordable Care Act finishes the job in going 
in that direction.
    And what we learned out of that, at least our lesson was 
price controls don't work because, like we said, from 
Diocletian to Nixon, when you pay less for something, you get 
less of it. And so what we learned out of that was nursing 
homes are going out of business. They are just dropping 
Medicare. Home health agencies. The entire Medicare provider 
network was fraying at the edges and they are just not going to 
take--they are going out of business and stopping the provision 
of Medicare services to Medicare.
    So we did two laws since 1997, BBRA and VIPA, plowing the 
money back to keep the Medicare system from imploding on 
itself, to keep the beneficiary access going. And so it has 
been said this morning that IPAB is a back-stop, it is a fail-
safe. What it is is, it is political cover for politicians not 
to have to make the decisions to cut reimbursements to 
providers. It is like the Base Closing Commission. We didn't 
make the decision, somebody else did. And that, unfortunately, 
is where this whole thing is headed. Not just in health care, I 
would remind you, in other areas of law.
    And so here is what we know. Ten thousand baby boomers are 
retiring every single day today. And a lot less people are 
following them into the workforce. For those people who had 
kids in the fifties and sixties, they did a great job. They had 
a lot of them. But we didn't have as much since then. So we are 
having about 100 percent increase in the retirement population. 
But because this is a pay-as-you-go system, current taxpayers 
pay for current beneficiaries, we only have something like a 17 
percent increase in the tax-paying population.
    In 2000, 25 percent of Medicare was subsidized with the 
general fund. We would go out and borrow money in the credit 
markets to pay for 25 percent of Medicare. Today it is 51 
percent. It is going up. And so the problem we have is, not 
that we don't have the political will to cut costs or 
reimbursement rates--we don't--but more importantly, we know if 
we just do price controls we will just deny access. The program 
will fall in on itself.
    So the solution to this problem from our perspective is not 
to delegate all these decisions to unelected bureaucrats, 15, 
who just arbitrarily make these decisions, and if we don't like 
them we have got to have a three-fifths, we have to have a 
supermajority vote to overturn them and then replace those 
price controls with other price controls within Medicare 
somewhere else. The whole thing is designed to take 
accountability away from politicians, meaning people's elected 
representatives, and give all this power to 15 people to just 
do this unilaterally.
    But at the end of the day, our conclusion is this won't 
work because if you are paying a doctor or a hospital, you 
know, 66 to 33 cents on the dollar for the services they are 
providing Medicare beneficiaries, they are just not going to 
provide that service. And so I don't know what you call that, 
other than rationing, by some other word.
    And so what we are saying is we have seen lots of evidence 
throughout history that choice and competition works. And we 
have seen lots of evidence throughout history that price 
controls don't. And so why do we believe in choice and 
competition? Because it doesn't put 15 bureaucrats in charge. 
It puts the person in charge. They get to decide.
    More importantly, having been on the Ways and Means 
Committee, overseeing Medicare for 12 years, you don't want a 
handful of politicians, let alone a handful of bureaucrats who 
aren't even elected, to play thumbs-up or thumbs-down on what 
providers can and cannot get for providing services. You want 
the consumer, the patient, to do that.
    More to the point, what we want are the providers of 
medical services to have an incentive to please us as 
consumers--to have an incentive to root out waste, fraud and 
abuse, as they do today, and they root out a heck of a lot more 
than traditional medical fee-for-service does--to meet our 
needs.
    And since money is finite, and since we have an infinite 
funding problem with Medicare, our point is this: People who 
are already on the program, people who are about to retire, a 
promise was made to them. It is an unfunded promise. It is a 
promise that at the lowest estimate, it is $31 trillion in the 
hole, but it is a promise that was made.
    Our argument is if we get ahead of this problem now we can 
keep that promise. If we start turning the curve on our fiscal 
problems, prevent a debt crisis in this country so interest 
rates don't spike and the 51 percent financing of Medicare from 
the general fund, which is borrowed money, doesn't go up, we 
can keep that promise. And so we think we should do that. And 
we believe if we do that, by getting rid of IPAB, and therefore 
its price controls, we can keep this promise to current 
seniors.
    But in order to cash-flow that promise and keep our 
borrowing down, keep our interest rates down so we can afford 
that promise which currently is unfunded, you have got to 
change it for the next generation. And the way we should change 
it for the next generation is let's recognize that there are 
people in society with needs greater than others. If you are 
sick, you have greater needs than a healthy person. If you are 
poor, you have greater needs than a wealthy person. So let's 
put our money there; $7,800 more, to begin with, for a low-
income person, and that grows every year. If you are sick, your 
payments go up.
    It is not a voucher. Everybody likes to say ``voucher.'' 
Premium support and vouchers are two distinctly different 
things. A voucher is you get a check in the mail and then you 
go out and buy something with that check. That is not what we 
are talking about here. Just like prescription drug benefit. 
Medicare pre screens a list of plans, just like they do for 
Federal employees, and you choose your plan that is Medicare-
certified and regulated. And then Medicare subsidizes your 
plan. More if you are poor, more if you are sick, less if you 
are wealthy. Why? Because wealthy people have more money, so 
they can afford more out-of-pocket costs.
    But more importantly, these providers have to compete 
against each other for our business. And so if a woman on 
Medicare doesn't like her plan, she gets to fire that plan and 
get another one next year. More importantly, that plan knows 
it. If they don't make her happy, if they don't give her what 
they say they would at a competitive price, she will fire them 
and she will go to their competitor.
    That is why Ford is better, because of Chevrolet or because 
of Toyota. And that is the whole concept here. The problem we 
have got is we think we can do this on the cheap. We think we 
can just fix this problem if we politicians wash ourselves of 
the responsibility and let some distant bureaucrat make the 
decisions. I have seen it so many times where a constituent 
will come and complain about what the government is doing to 
them, and the elected representative says, I wish I could help 
you but I can't. It is something the bureaucrats do over at the 
executive branch. That is not what this country was designed to 
be like. It is not democracy. It is not government by consent 
of the governed, and it won't work.
    And so what we are simply saying is, we don't believe that 
this works. The other 80 percent of our economy functions on 
choice, on competition, on price. We want to inject those 
market fundamentals--transparency on price, transparency on 
quality, and an economic incentive to act on those things to 
fix this problem. And so we just have a very difference of 
opinion.
    And Mr. Holtz-Eakin, I just simply want to ask you in 
closing, if we do the SGR, like we always say we will--and we 
will, I have no doubt--we will stop doctors from getting cut 
29.4 percent this year, and then stop it again next year, 
because we are in control of it, elected representatives.
    If we do that, what will be the general fund transfer to 
Medicare in the future? Medicare is already being financed, 51 
percent of its budget, by floating bonds and borrowing money. 
If we stop those cuts--because right now Congress can, IPAB 
doesn't run that right now--what will be the general fund 
transfer with borrowed money going into the future?
    Mr. Holtz-Eakin. Well, I mean we know that just keeping 
payments level for 10 years is going to cost well over $300 
billion at this point. And you know, you are raising that 51 
percent, something that is probably going to be closer to 55, 
60 percent. I have to do the math to give you the exact answer. 
I would be happy to do that.
    Chairman Ryan. So I just want to ask Ms. Feder, Dr. Feder, 
you say that we ought to have IPAB for all of health care. Do 
you believe that we can better sort of organize or plan the 
health care system if we can put IPAB in charge of the rest of 
the payment systems for the private market as well? From age 1 
to age, you know, to the end of life?
    Dr. Feder. What concerns me, Mr. Chairman, is that it is an 
assumption that the private sector, when you do your 30 cents 
on the dollar or 60 cents on the dollar, that that dollar is 
somehow immutable as to what health care ought to cost. And 
what we have seen in MedPac documents is that where the private 
sector, along with Medicare, is actually working with providers 
to slow cost growth and are adopting policies to slow cost 
growth, there hospitals are not losing money on Medicare 
because they have become more efficient. It is where there is 
not that kind of behavior in the private sector that 
essentially the private sector costs grow. They offset whatever 
is constrained on the Medicare side, and providers continue to 
operate as they do.
    So I am glad, I think you do get me, and what I am saying 
is that we need to change the incentives for the entire health 
care system.
    Chairman Ryan. I don't think anybody really disagrees with 
that. So I think the difference here in execution is instead of 
having one experiment run by the Federal Government, where we 
are subject to the whims of their decisions by an unelected 
bureaucracy, why don't we have more than one experiment? Why 
don't we have a marketplace that is designed to compete for our 
business? But, more importantly, give people power. Give people 
power, especially on Medicare, that they can't be denied care 
when they choose their plan. Give low-income people a lot more 
money to cover all their out-of-pocket costs, and not as much 
to higher-income people.
    Ms. Turner, let me ask you the final round of this. Where 
do you think this is going to head if we stick with the current 
law? What is the world going to look like in 10 to 20 years if 
we just basically freeze the law in place as it is today, as it 
is coming into, what is it going to look like?
    Ms. Turner. Mr. McClintock was wondering what people will 
do. And I think we can look at what happens in Medicare today. 
People go to emergency rooms to get routine care because they 
can't find a private physician to see them. And I believe the 
current MedPac statistics show that the fact that the Congress 
will continue to do--has continued to do the SGR fix, has 
allowed access to continue.
    But the important thing is that this legislation assumes 
that deep cuts down to 33 percent of current private payment go 
into effect, that absolutely is going to have an impact on 
patient care and patient access to care. And the choice that 
the chairman has been talking about is really the way to move 
to a different system. It is really not can we fix this system.
    We know Congress has tried everything it can do, and now 
instead of trying to fix it, we are going to put more 
restrictions, more bureaucrats in charge of making decisions 
about payments. And that can only lead to restrictions on 
access to care, to physicians dropping out of the programs, to 
people, as we see in Medicaid, as we see in Europe, in Canada, 
in some provinces, a quarter of citizens can't find a GP, an 
access physician to see them. They wind up having to go to 
hospital emergency rooms.
    That is what I worry, is that we are going to relegate 
people to those kinds of access systems that are not the 
promise they have been given.
    Chairman Ryan. Dr. Holtz-Eakin, do you want to jump in?
    Mr. Holtz-Eakin. I just simply believe that Grace Marie is 
too optimistic. That answer presumes that there remains the 
capacity for the rest of the U.S. budget to transfer to 
Medicare and Medicaid enormous amounts of resources, and the 
only fight is over how much of that goes over, and thus how 
much turns into increased budget costs versus restricted 
access. That is not going to be true.
    We know the projections for the overall budget, and we know 
that when they hit a certain point, the underlying 80 percent 
of the economy from which the health care sector is now drawing 
all of its money is going to collapse. And so we have a problem 
that is bigger than just a genuine and serious problem with 
beneficiary access to care. We have a problem that mutates past 
that to being a fundamental threat to our economy. And so the 
choices that will be made in the future, if we don't change 
direction now, will not be the choices we make. It will be the 
bankers' decisions on how this all gets run. And that is not a 
future we should tolerate.
    Chairman Ryan. Well, thank you very much. I appreciate the 
indulgence and appreciate everybody's time. This concludes our 
hearing.
    [Questions submitted for the record from Mr. Huelskamp 
follows:]

      Questions Submitted for the Record by Hon. Tim Huelskamp, a 
          Representative in Congress From the State of Kansas

 the honorable kathleen sebelius, secretary, health and human services
    1. Has the HHS been asked to provide any estimates to the White 
House on savings that could come as a result of changes to Medicare, or 
other programs under your Department for the ongoing negotiations on 
the debt limit?
    2. The now Minority Leader Pelosi said last year that we needed to 
pass the health care bill to see what is in it. One of the things we 
found out was in it were waivers. On June 2, I sent a letter to you, 
along with 31 other Members of Congress, requesting information 
regarding waivers and adjustments for the Affordable Care Act. How many 
Annual Limit Waivers are currently pending and where are the companies 
located? How many State Innovation Waivers and Medical Loss Ratio 
adjustments have been approved, denied, or are still pending? What 
other types of waivers or adjustments to the Affordable Care Act have 
been approved, denied or are pending? Why has Nancy Pelosi's district 
received more waivers than any other district in the country? Can I 
ever expect to see a detailed, written response? Is this the level of 
transparency we could expect from IPAB?
    3. Because IPAB decisions are not subject to administrative review, 
does that mean that Medicare patients who may be denied care because of 
an IPAB reimbursement decision in the future have no access to the 
federal grievance process?
    4. Because IPAB decisions are not subject to judicial review, how 
could a patient denied care by an IPAB reimbursement decision bring a 
medical malpractice claim against the Board?
    5. Do you agree with OMB Director Peter Orzag who said that IPAB 
represents the ``greatest transfer of sovereignty'' from Congress to 
the Executive Branch in memory? If not, is there a Senate-confirmed 
body that has equivalent power?
    6. On a bi-partisan basis, experts agree that Medicare as we know 
it cannot continue without massive reforms or cuts. Currently, the 
administration's plan for the system is implementing IPAB on top of 
$500 billion in provider cuts. What other ideas for reform, other than 
restricting access to care by cutting provider payments does the 
President have? At what level of payment cuts does the administration 
believe enough providers will no longer accept Medicare patients to 
create Canadian style waiting lists for routine care?
    7. Assuming you are still HHS Secretary when IPAB submits its first 
draft report to you for your review, what will your priorities and 
criteria be in reviewing the report? In other words, are there specific 
cuts would you prefer or expect, and what type of cuts would you 
reject?
    8. Can you explain how we can expect IPAB to correctly assess 
reimbursement decisions for roughly 7,000 medical services provided by 
physicians and what criteria will they use in making those decisions?

   Secretary Sebelius' Response to Questions Submitted for the Record

                      the honorable todd huelskamp
    1. Has the HHS been asked to provide any estimates to the White 
House on savings that could come as a result of changes to Medicare, or 
other programs under your Department for the ongoing negotiations on 
the debt limit?

    Answer: HHS is a part of the Administration and fully supports the 
President's agenda, and in that role, provides proposals and technical 
guidance to the White House on a variety of topics.

    2. The now Minority Leader Pelosi said last year that we needed to 
pass the health care bill to see what is in it. One of the things we 
found out was in it were waivers. On June 2, I sent a letter to you, 
along with 31 other Members of Congress, requesting information 
regarding waivers and adjustments for the Affordable Care Act. How many 
Annual Limit Waivers are currently pending and where are the companies 
located? How many State Innovation Waivers and Medical Loss Ratio 
adjustments have been approved, denied, or are still pending? What 
other types of waivers or adjustments to the Affordable Care Act have 
been approved, denied or are pending? Why has Nancy Pelosi's district 
received more waivers than any other district in the country? Can I 
ever expect to see a detailed, written response? Is this the level of 
transparency we could expect from IPAB?

    Answer: A written response to your June 2 letter was sent on July 
13, 2011.
    CMS posts all approved annual limit waiver recipients and denied 
applicants on its website, at:

                 http://cciio.cms.gov/resources/files/
                 approved_applications_for_waiver.html.

    While the location of each applicant is publicly available, it is 
important to note that the city and state correspond only to the 
address stated on the application and may not reflect the location of 
the applicant's enrollees. As of the end of June 2011, a total of 1,471 
one-year waivers have been granted. The number of enrollees in plans 
with annual limits waivers is 3.2 million, representing only about 2 
percent of all Americans who have private health insurance today. 
Sixty-nine applicants were denied waivers.
    Section 2718 of the Public Health Service Act, as amended by 
section 1001 of the Affordable Care Act allows the Secretary to adjust 
the medical loss ratio (MLR) standard for a State if it is determined 
that meeting the 80% MLR standard may destabilize the individual 
insurance market. CMS has implemented a fully transparent process for 
the State MLR adjustment application. Each applicant submits materials 
to CMS and the materials are posted to the website. Public comment is 
then taken. The decision whether or not to grant an adjustment, and the 
level of that adjustment, is based on the unique circumstances of each 
state's market and the standards outlined in regulations and guidance. 
All pending adjustments, final determinations and supporting 
documentation are posted here: http://cciio.cms.gov/programs/
marketreforms/mlr/index.html. As of July 12, 2011, 12 States and one 
Territory had requested MLR adjustments and CMS had issued final 
determinations for three of those applications. CMS granted adjustments 
for the three States for which final determinations were issued.
    Finally, section 1332 of the Affordable Care Act allows States to 
apply for a State Innovation Waiver for plan years beginning on or 
after January 1, 2017. These State strategies would need to provide 
affordable insurance coverage to at least as many residents as without 
the waiver and must not increase the Federal deficit. Although these 
waivers cannot take effect prior to 2017, the Affordable Care Act 
requires the Secretary to publish regulations codifying this provision 
well in advance of its effective date. A proposed rule was published on 
March 10, 2011 with 60 day public comment. Additionally, in his Plan 
for Economic Growth and Development, the President proposed that State 
Innovation Waivers be made available starting in 2014, three years 
earlier than under current law. To date, no State has submitted a State 
Innovation Waiver request.

    3. Because IPAB decisions are not subject to administrative review, 
does that mean that Medicare patients who may be denied care because of 
an IPAB reimbursement decision in the future have no access to the 
federal grievance process?

    Answer: IPAB is expressly prohibited from making proposals that 
would ration health care, raise revenues or Medicare beneficiary 
premiums, increase beneficiary cost sharing (including deductibles, 
coinsurance, and co-payments), or otherwise restrict benefits or modify 
eligibility criteria. We do not believe the statute precludes judicial 
review of HHS's implementation of an IPAB recommendation that is 
clearly outside the authority conferred by the statute.
    This view is consistent with existing case law.1 Thus, while we 
cannot offer advice on hypothetical cases, we believe such case law 
could support a legal challenge to an implemented IPAB recommendation 
that clearly violated one or more of the statutory restrictions set 
forth above (such as a recommendation to increase beneficiary co-
payment amounts), assuming Congress were to fail to override that 
recommendation. Of course, we don't have any reason to believe that 
IPAB will issue recommendations exceeding its statutory authority, and 
Congress could exercise its authority to preempt or override an 
unlawful recommendation, making a legal challenge unnecessary.
    1 See, e.g., Hanauer v. Reich, 82 F.3d 1304, 1307 (4th Cir. 1996) 
(``[E]ven when the statutory language bars judicial review, courts have 
recognized that an implicit and narrow exception to the bar on judicial 
review exists for claims that the agency exceeded the scope of its 
delegated authority or violated a clear statutory mandate.''); Griffith 
v. Fed. Labor Relations Auth., 842 F.2d 487, 492 (D.C. Cir. 1988) 
(``Even where Congress is understood generally to have precluded 
review, the Supreme Court has found an implicit but narrow exception, 
closely paralleling the historic origins of judicial review for agency 
actions in excess of jurisdiction.'').

    4. Because IPAB decisions are not subject to judicial review, how 
could a patient denied care by an IPAB reimbursement decision bring a 
medical malpractice claim against the Board?

    Answer: As stated above, while we cannot offer advice on 
hypothetical cases, we do not believe the statute precludes judicial 
review of HHS's implementation of an IPAB recommendation that is 
clearly outside the authority conferred by the statute.

    5. Do you agree with OMB Director Peter Orzag who said that IPAB 
represents the ``greatest transfer of sovereignty'' from Congress to 
the Executive Branch in memory? If not, is there a Senate-confirmed 
body that has equivalent power?

    Answer: Based on new resources and authorities provided to the 
Department in the Affordable Care Act, the Administration is pursuing 
unprecedented efforts to protect Medicare, crack down on fraud and 
abuse, improve the quality of care seniors receive, and constrain the 
growth in unsustainable health care costs. However, the future of 
Medicare requires continued vigilance and careful oversight, which is 
why IPAB was created as a backstop mechanism to ensure Medicare remains 
solvent for years to come and the IPAB, to the extent feasible, is 
charged with including recommendations that improve health care while 
lowering the growth in Medicare spending.
    The Medicare Actuary predicts that the IPAB will serve mainly as a 
backstop as he estimates per capita growth rate in Medicare at or near 
the target growth rate. The IPAB backstop means that if Medicare 
spending growth exceeds certain benchmarks, the IPAB will make specific 
recommendations, and Congress will then have the opportunity to take 
action. If Congress rejects IPAB recommendations, it will replace them 
with reforms that achieve the same level of savings. The Board's 
recommendations will go into effect only if Congress accepts them, or 
if Congress fails to act. In other words, the IPAB recommendations are 
implemented only when excessive spending growth is not addressed, and 
other actions being taken are insufficient to decrease spending to 
certain targeted levels. Congress fully retains all of its legislative 
prerogatives to enact alternate proposals.

    6. On a bi-partisan basis, experts agree that Medicare as we know 
it cannot continue without massive reforms or cuts. Currently, the 
administration's plan for the system is implementing IPAB on top of 
$500 billion in provider cuts. What other ideas for reform, other than 
restricting access to care by cutting provider payments does the 
President have? At what level of payment cuts does the administration 
believe enough providers will no longer accept Medicare patients to 
create Canadian style waiting lists for routine care?

    Answer: Many of the President's ideas to preserve and strengthen 
Medicare were contained in the Affordable Care Act. The Affordable Care 
Act includes new policies and authorities that reduce Medicare spending 
and make important delivery system reforms, while improving Medicare 
benefits for seniors and people with disabilities. These important 
changes are projected to decrease Medicare spending, producing savings 
for the taxpayers and prolonging the life of the Medicare Hospital 
Insurance Trust Fund until 2024.
    The Centers for Medicare & Medicaid Services (CMS) has already 
implemented many of the savings provisions contained in the Affordable 
Care Act. These provisions include plans to link hospital payments to 
quality measures as part of the Hospital Value-Based Purchasing 
program. Through the Partnership for Patients initiative, CMS is 
bringing together the public and private sectors to reduce hospital-
acquired conditions and preventable hospital readmissions. Further, the 
Affordable Care Act created the Center for Medicare and Medicaid 
Innovation (the Innovation Center) to test and evaluate innovative 
payment and service delivery models. The Innovation Center is pursuing 
a number of new initiatives and demonstrations to achieve these goals, 
including Accountable Care Organizations, bundling payments to promote 
efficient and quality care, and improving primary care through the 
Comprehensive Primary Care Initiative and the Federally Qualified 
Health Center Advanced Primary Care Practice Demonstration. In 
addition, the Affordable Care Act is building a stronger Medicare 
program by providing new preventive benefits, improving access to life-
saving prescription drugs, and increasing support for primary care. CMS 
is also streamlining and building a more efficient Medicare program by 
decreasing fraud, waste, and abuse in our programs, implementing 
competitive bidding for durable medical equipment, and improving how 
Medicare pays for physicians' services.
    While the Affordable Care Act represents an historic step toward 
getting health care costs under control, there is still more that we 
can do to realize efficiencies, cut waste, and improve Federal health 
care programs. For that reason, as part of the Plan for Economic Growth 
and Development, the President proposed making changes that would 
further extend Medicare's solvency by encouraging high-quality, 
efficient health care and addressing wasteful spending. The new 
proposals would make changes to Medicare that are gradual, protect 
current and middle-class beneficiaries, and strengthen Medicare 
overall. These proposals would save about $224 billion over 10 years by 
better aligning payments with the costs of care and improving 
providers' payment incentives to provide high quality care. The 
proposals also make structural changes that include reducing Federal 
subsidies for high-income beneficiaries and creating financial 
incentives for newly eligible beneficiaries to seek high-value health 
care services to achieve an additional $24 billion in savings.

    7. Assuming you are still HHS Secretary when IPAB submits its first 
draft report to you for your review, what will your priorities and 
criteria be in reviewing the report? In other words, are there specific 
cuts would you prefer or expect, and what type of cuts would you 
reject?

    Answer: IPAB's statutory direction is clear: Make recommendations 
to Congress that, to the extent feasible, will improve care for seniors 
while lowering the growth in Medicare spending per beneficiary. IPAB is 
also directed to consider several other factors, including protecting 
access to necessary and evidence-based services, and also including: 
care provided in rural areas; the unique needs of those dually-eligible 
for Medicare and Medicaid; and the effects of its proposals on 
providers with negative margins. I expect the IPAB to consider all of 
these factors and will review the specific proposals to ensure they are 
consistent with Congressional intent.

    8. Can you explain how we can expect IPAB to correctly assess 
reimbursement decisions for roughly 7,000 medical services provided by 
physicians and what criteria will they use in making those decisions?

    Answer: As stated above, the independent physicians, other health 
professionals, and other experts that serve on IPAB will have 
discretion in recommending proposals that improve the quality of care 
for Medicare beneficiaries while slowing the rate of growth of program 
expenditures. There is no requirement that IPAB review, assess, or make 
recommendations regarding any one area of program spending, including 
medical services provided by physicians. Congress was clear in its 
direction to IPAB, and I expect they will use those criteria to guide 
their priorities and recommendations.

    [An additional submission of Mr. Van Hollen follows:]

    
    
    
    [Whereupon, at 1:01 p.m., the committee was adjourned.]