Second, we have developed scorekeeping methods that help us measure the performance of our health care suppliers to determine if we are achieving our goals. For example, we require the use and reporting of structural and process measures, which determine if plans and providers have instituted proven methods that result in better patient outcomes. Examples include frequent blood testing, eye exams and foot exams for diabetics, use of computers to enter prescription drug orders in the hospital, and Intensive Care Unit staffing. We also survey our members to determine satisfaction rates with their encounters with their plan and providers. Finally, of course, we evaluate the costs to determine the plans and providers that most consistently produce value for our multibillion dollar investment on behalf our employees, retirees and their families. Third, and perhaps most important, we use our measures in a very competitive fashion. The scores that our plans, and indirectly the providers they contract with, receive are used as an explicit tool to improve care OR lose business. More specifically, we provide incentives for beneficiaries to move to higher quality plans as well as to drive quality improvement in the plans. We do so through offering lower premium contributions for higher quality health plans, coupled with a report card providing information about each plan. Our members vote with their feet and the best plans and providers significantly improve their market share. For example, over the past six years, enrollment in our "benchmark" or best HMOs have increased by 217 percent while enrollment in our poorest performing HMOs have declined by 63 percent. This is the result of beneficiaries moving to those organized health delivery systems that improved their performance and produced higher quality health care. Also we have dropped a number of poor performing plans. The CEOs of several of our newly designated benchmark HMOS have told us that their improvement was directly influenced by GM's benchmarking strategy. In fact, from 1998 through 2002, our plans have produced a 40 percent increase in their quality assessment scores. As a consequence of our health care management techniques, our GM employees, retirees and families are receiving better, more cost-effective care. Our plans, which largely provide very similar benefit packages, are actually competing on the basis of quality and cost-not on the basis of who can attract the healthiest beneficiary. Good plans are rewarded and plans performing less well are given incentives to improve. While we have used our purchasing leverage to drop poor performing plans, our actual goal is to use our techniques to improve the quality of all plans and providers. Mr. Chairman, I am pleased to report that a number of our plans and providers have made dramatic improvements. For example, our largest organized health delivery plan, designated a “benchmark” this year, has made dramatic improvements in its diabetes care performance measures resulting in reduced probability of hospitalization, blindness and foot amputation of its diabetic members. Notably, after reviewing our statistics on the performance of all of our plans for all the health care they provide, we have found an explicit and positive statistically significant correlation between plan performance and cost-effectiveness. GM's Management of Prescription Drug Costs. Mr. Chairman, I would be remiss if I did not share with the Committee some of the benefit design, administrative and competitive techniques we use to manage our $1.5 billion prescription drug benefit. GM has a full time doctorate level clinical pharmacist on its health care initiatives management team. Her role is to lead the management of our drug benefits, focusing on quality and appropriate use, through both GM programs and a Pharmacy Benefit Manager or PBM. To ensure we benefit as much as possible from the drug managing techniques the PBM utilizes, we provide performance awards that provide incentives for successes at assuring appropriate utilization, increasing the use of quality generic drug products, and reducing cost growth. In our efforts to improve the appropriate use of pharmaceuticals, we have drug benefit designs with multi-tier co-payments to encourage the use of the most therapeutically and cost-effective medications. We utilize prescription drug counseling/ drug utilization review (DUR) programs to help ensure our enrollees avoid excessive and inappropriate use of medications that can lead to drug interactions that can have severe health and cost consequences. We also use physician-based therapeutic interchange programs that encourage physicians to prescribe medications that are both therapeutically and cost effective. And, as I have mentioned, we continue to encourage plans to contract with hospitals that utilize computer-based prescribing tools to ensure proper medication use. The GM Quality Purchasing Experience and Implications for Federal Purchasers Mr. Chairman, there are a wide range of interventions we and our health plans use that we believe could improve Medicare's ability to purchase higher quality, more cost-effective health care. Likewise, I believe that private purchasers would generally benefit if Medicare were empowered to be a more competitive purchaser of health care. We have noted that when Medicare and FEHBP do institute positive changes that make the delivery system more efficient, all purchasers-including us-indirectly benefit as well. We are aware of many excellent Medicare demonstration projects and encourage continued and widespread implementation of those that add value by improving quality and efficiency for its beneficiaries. The quality orientation approach GM now uses is something that we believe could be applied to Medicare fee-for-service and managed care contracts as well. In recent years, CMS, and formerly HCFA, has started to effectively push for and implement quality measures. We have found our joint collaborations to be extremely fruitful. For example, Medicare is actively participating in a number of public and private sector performance measurement initiatives, most notably the National Quality Forum. They have begun to use a series of hospital quality performance measures, which combined with private sector use will have a real impact on quality improvement. Medicare has also participated in several of GM's community initiatives to improve quality. Applications of GM lessons learned for Medicare. There is no question, however, that Medicare could use its purchasing leverage even more aggressively to produce more value out of the health system. There is no reason that managed care plans participating in the Medicare program could not be subject to greater accountability for their quality performance similar to what I have previously described. Likewise, contracts with private carriers and intermediaries administering the traditional Medicare fee-for-service program could also be required to be held similarly accountable. And CMS should certainly be given even more authority to drop contracts from those plans, whether they are insurers administering the fee-for-service program or managed care plans bearing insurance risk, that are not performing. Having said this, few people know more than us that unassailable quality and cost-effectiveness measuring tools have yet to be fully developed. Moreover, the riskadjustor to fairly evaluate differential patient mix by different plans and providers will—for the foreseeable future-be subject to some level of dispute. As such, in the more politically sensitive world of Medicare, it might well be more difficult and controversial for Medicare to implement these approaches than it has been for us. It would be our hope, however, that the Congress and the Administration could cite the ever improving valued-based purchasing techniques that GM and other innovative large private purchasers are using and developing as the very rationale for moving ahead in this arena. Just as we believe that a modernized Medicare program should be empowered to promote a much greater emphasis on quality and value, we share the Congress' belief that it is long past time for the program to be updated and include a well-managed and meaningful outpatient prescription drug benefit. We believe that the management and benefit design tools we use to ensure appropriate prescription drug utilization can and should be utilized by Medicare and we would be happy to provide any assistance we can in this regard. Conclusion As I am confident you and most Members of this Committee in both parties well recognize, we simply cannot allow less than perfect quality improvement measures and sometimes politically difficult to implement purchasing improvements to be an excuse for not taking steps now to improve Medicare and all health care in this nation. If GM and our competitors took that course of action in the 1980s, American car manufacturers would not have benefited from the quality improvements we now have in our marketplace today. While many of the steps we took were similarly extremely difficult at the beginning, we simply would not be as competitive as we are today. Mr. Chairman, at GM we strongly believe the quality of care our employees, retirees and their families are receiving has improved substantially and costs are perhaps lower than they would otherwise be. However, the one indisputable fact we have learned in our experience in managing health care is that no purchaser-private or public-has a monopoly on wisdom. We all could do a better job at assuring quality, affordable health care for our enrollees. We benefit from learning from each other's successes and failures. While private purchasers can generally implement innovations more rapidly, we rarely have the type of positive impact on overall health care delivery that public purchasers do when they implement and improve on what we have done. We look forward to continuing our collaboration with you and others in the Federal government to ensure that all health care consumers and purchasers and taxpayers alike receive the value they deserve from their extraordinary financial investment in our nation's health system. I hope my comments prove helpful in your ongoing efforts to modernize and strengthen the Medicare program. I would be happy to answer any questions you may have. RESPONSES TO QUESTIONS FROM SENATOR LINCOLN Question 1: In your opinion, what are the best ways Medicare could adopt a competitive bidding model that encourages plans to compete on quality and price and not by simply cherry-picking the healthiest beneficiaries? How can Congress ensure that beneficiaries choose a plan based on both quality and price? For example, would you agree that having a standardized benefit is important for beneficiaries to make informed choices? Answer: To best answer this question, I think it is important that we describe GM's approach to ensuring that the health plans we contract out with compete on quality and price. First, where possible, our contracts are oriented towards performance rewards rather than inadvertently providing incentives for plans to avoid sick populations. Plans should not be compensated for their ability to segment healthy from sick populations. To work towards this end, we review in depth financial, cost and patient population data to determine if rates are appropriate to the population served. If we determine they are not, we negotiate and adjust subsequent contracts accordingly. In addition, we-rather than our contract plans-determine the design of our benefit packages. In practice, this means that our indemnity plans, our HMO plats, and our PPO offerings each provide the same benefit design within their insurance category. Finally, we review, manage and authorize the marketing information that is provided to each of our members to ensure that it is understandable, comparable and objective. In combination, we believe these practices work to minimize the ability plans to compete on the basis of risk selection. Risk-adjustment payment mechanisms to compensate plans that are treating disproportionately sicker patients can and should be utilized. While the state-of-theart techniques are far from perfect, we are encouraged by the work CMS is undertaking to apply these techniques in their reimbursement process. Without doubt, risk-adjustment mechanisms must be continually refined aid improved. In order to do this, however, CMS must be given more explicit authority, timetables, and resources, to achieve the most effective approach. Question 2: Some prescription drug proposals would not count employer contributions toward out-of-pocket limits. In your opinion, what would the effect of such a proposal be on employers to maintain prescription drug coverage to their retirees under a Medicare prescription drug benefit? We believe that not counting employer contribution towards out-of-pocket limits within Medicare prescription drug benefit designs would lead to an acceleration of employers dropping retiree health coverage all together. This would not only reduce benefits for vulnerable populations, but would also eliminate the opportunity for Medicare to learn and financially benefit from drug management techniques used by employer-provided plans. All parties believe it is in the best interest of the Medicare program for employers to retain their commitment to retiree health plans. Purchasers, whether they are consumers or employers, should have access to the same Medicare benefit. We strongly object to the concept that employers voluntarily providing coverage should in effect be assigned a differential benefit and a disincentive to retain current coverage. Some of the current proposals would in effect treat Medicare beneficiaries who happen to have retiree health coverage differently by reducing the value of the Medicare benefit that is available to them (and by extension their employers) even though the premium they pay for the benefit remains the same. Not surprisingly, we strongly believe that employers providing supplemental benefits to the Medicare standard package should not be subject to the so-called "true out-of-pocket" cost provision. Moreover, we believe that retirees receiving employerbased supplemental coverage should have access to a Medicare benefit package that is designed to be more easily supplemented by an employer provided "wrap around" package. These approaches would help encourage employers to continue to provide retiree health benefits. Question 3: You self-insure for the cost of your employees' health care because as a big employer you can save money that way. Yet there are members of Congress who want to see Medicare, which is one of the largest payers for health care in the country contact out to insurance companies for the cost of prescription drugs. What are you thoughts about this? As a large purchaser wouldn't it make sense for Medicare to self-insure for prescription drugs rather that contract to private insurers? It all depends on how well the program is managed. We believe that well managed, risk-adjusted integrated health care plans could be an extremely desirable option for Medicare and the beneficiaries it serves. If done well, such a plan, based on evidence-based care with a commitment to quality outcomes, could contribute not only to improvements in care and affordability for beneficiaries and Medicare but also for other patients as well, since Medicare influences so many health care practices. Regarding stand-alone plans, your question suggests there may be problems associated with relying on insurers or PBMs to manage stand-alone, risk-bearing drug benefits. Such a model could be susceptible to risk avoidance techniques that could increase costs and inappropriately segment patient populations. We believe an integrated health plan would avoid such problems as it would be much more difficult for plans to select risk if they have to provide the full range of services. And, as I mentioned previously, however, we believe that CMS should be given the authority it needs to most effectively risk adjust its payments to plans to avoid problems in this area. Rear Admiral THOMAS F. CARRATO, Deputy Assistant Secretary of Defense RADM Carrato was appointed as the Deputy Assistant Prior to this position, RADM Carrato served as the Executive Director, TMA, From 1998 to 2000, RADM Carrato served as the Chief Operating Officer of the RADM Carrato began his Public Health Service Career in 1978 at the U.S. Public Services Administration; the Office of Health Maintenance Organizations; and the RADM Carrato holds a Master of Science in Accounting from Georgetown University RADM Carrato's decorations include the Defense Distinguished Service Medal and the RESPONSE TO A QUESTION FROM SENATOR BAUCUS Question: An estimated $27 billion per year is devoted to the U.S. military health system, funding care for 8.7 million TRICARE beneficiaries. As I understand it, TRICARE contractors are not fully at risk for beneficiary spending, since most of this population's health care services are provided at the military's own 75 hospitals and 500 clinics. Can you please provide an estimate of the percentage of TRICARE health spending for which TRICARE contractors are at risk? Answer: The Department's Unified Medical Budget (UMB) request for Fiscal Year (FY) 2004 totals $28.143 billion. The requested budget is broken out as follows: Of the $12.2 billion budgeted for private sector care in FY 2004, $5.5 billion (19% of the UMB) is programmed for application to the at-risk portion of TRICARE's Managed Care Support (MCS) contracts. Each MCS contractor faces risk that changes in prices, beneficiary population totals, health care service utilization, and other factors may result in contract costs exceeding the contractor's initial bid price. If this occurs, the contractor must pay for a portion of the overrun (i.e., the contractor is "at risk" for a portion of the increased costs). Defense Health Program workload data (see next page) for Fiscal Years 20002002 show that the majority of outpatient visits were to military treatment facilities, while a majority of inpatient admissions were to private sector facilities. |