Direct Care and Purchased Care Workload <65 (FY 2000-2002) pitals across the nation. decades. And I've seen the good it still does every day in doctors' offices and hosgood the program has done for the health of America's seniors over the past four As a doctor, I've treated thousands of Medicare patients. I've seen first-hand the to strengthening and improving the Medicare program. Mr. Chairman, thank you for holding this hearing. I appreciate your commitment longer will older Americans be denied the healing miracle of modern medicine." But When Lyndon Johnson signed the bill creating Medicare in 1965, he said, “No PREPARED STATEMENT OF HON. BILL FRIST today, older Americans are being denied exactly that. Medicare is falling short of its noble mission. The program was designed at that time when sickness was defined by acute, episodic illnesses that generally required hospitalization. But since that time, health care delivery, science, medicine, molecular biology, and genetics have been changing dramatically and we have a system that has not adapted. The Medicare program has not fully incorporated preventive care or chronic disease management. This is a serious shortcoming. Approximately 80 percent of Medicare beneficiaries have at least one chronic disease, and the 20 percent of beneficiaries with five or more chronic diseases account for nearly two thirds of Medicare spending1. Beneficiaries are not protected from unlimited out-of-pocket expenses. And we are all well aware that Medicare does not cover outpatient prescription drugs. America's seniors deserve a Medicare program that responds to their health care needs, adapts to medical advances, and prevents and manages disease rather than merely treating individual episodes. They deserve choice-the choice of plan, choice of provider, and choice of treatment. The framework for Medicare reform outlined by President Bush earlier this year would be a good starting point. It would introduce innovation and choice into the Medicare program through private plans competition, similar to the programs enjoyed by most federal workers and many private employees. But as we shape final legislation here in the Senate Committee on Finance, we need to look very closely at the experience of other public and private sector purchasers. I would like to welcome our witnesses and thank them in advance for agreeing to share some of the lessons they have learned in purchasing and providing health care for millions of Americans. We must take action this year to strengthen and improve the Medicare system. The demographic tidal wave will not subside. It will not be easy and we appreciate the experience and advice of those who know and understand the challenges in the health care system and the Medicare population. I look forward to their testimony and responses to our questions. PREPARED STATEMENT OF HON. CHARLES E. GRASSLEY Today I'm pleased to welcome four witnesses who will help us explore how competition works in health care. Making health care in general-and Medicare in particular-more competitive has been a goal of many legislators over the years from both sides of the aisle. I believe that competition in Medicare, if done right, has the potential to change the lives of patients by lowering costs, improving benefits and increasing quality. Today our witnesses-all of whom have experience purchasing health care services in a competitive environment-will tell us what it takes to do it right. Before I turn to their introductions, I want to again acknowledge the bold commitment of President Bush in putting $400 billion on the table this year to strengthen and improve Medicare. The President's principles include adding a prescription drugs and making the program stronger and better for beneficiaries. That means improved benefits and higher quality care more in sync with what's available in private insurance today, like we in the federal employees' plan have. The President's principles look to the federal employees' plan as a model for Medicare. In the federal employees' plan, all workers-even those in rural states, including the postmaster in my home town of New Hartford, Iowa-have a choice of health plans. Employees choose among competing plans for one that best suits their own needs. Why shouldn't seniors living in the same town have that same choice? Unfortunately, our attempts to bring those kinds of choices to seniors in Medicare have failed, especially in rural states like mine, where insurance companies have given Iowans a "firm no"-even after we gave them bonuses and raised their base payments. As a result, Iowa seniors have few choices but fee-for-service Medicare. The environment is anything but competitive. So I will be especially interested in the views of those here today who have made competition work for their beneficiaries, urban and rural, and how we can replicate some of those success-and avoid some of those failures-in Medicare. Our first witness is Abby Block, who serves as Senior Advisor for Employee and Family Policy at the Office of Personnel Management, or OPM. The OPM administers the Federal Employees' Health Benefit Plan, which requires plans to submit bids each year so that beneficiaries can measure a plan's value themselves. Next is Rear Admiral Thomas Carrato, who serves as Deputy Assistant Secretary of Defense for Health Administration. He oversees health plan policy and performance for 1 Berenson and Hovarth, Health Affairs, January 22, 2003 TRICARE, the health plan that serves our nation's active and retired military and their families. TRICARE also utilizes a competitive structure for making its health care purchasing decisions. Third is Bruce Bradley, who serves as Director of Health Plan Strategy and Public Policy for General Motors, which, as one of the largest private purchasers in the country, provides competitive health plan choices to its 1.2 million employees. Finally, Lois E. Quam, Chief Executive Officer of Ovations, a UnitedHealth Group Company, will address her own company's experience with competition, providing us with a plan's perspective on what works, and what doesn't, when it comes to competitive bidding. PREPARED STATEMENT OF LOIS E. QUAM INTRODUCTION Thank you Chairman Grassley, Senator Baucus and other distinguished members of the Committee for the opportunity to testify before you today. I am Lois Quam, the Chief Executive Officer of Ovations, UnitedHealth Group's business that focuses on meeting the health care needs of the over-50 population. I am pleased to speak on our experiences with providing health care services in a competitive market. Ovations, and the other companies of UnitedHealth Group, have extensive experience providing health care services to the federal government, state governments and private payers in many types of competitive environments. As the largest health and well-being company in the United States, UnitedHealth Group's operating businesses provide a diverse and comprehensive array of services to over 48 million Americans. We provide services to approximately 300 large employers, over half of the nation's 100 largest companies, and serve over one million beneficiaries of Medicaid and other government-sponsored health care programs in 14 states. UnitedHealth Group has a long-standing commitment to serving senior Americans. Our participation in the Medicare program is fundamental to our core mission-to support individuals, families, and communities to improve their health and well-being at all stages of life. We aim to facilitate broad and direct access to affordable, high quality health care. My business, Ovations, is the largest provider of health care services to seniors in America. We offer a unique perspective on Medicare because we are a major provider of services through the traditional fee for service program, health plans, and demonstrations for the frailest Medicare beneficiaries. Our commitment is therefore to Medicare and its beneficiaries-rather than a specific Medicare product offering. Ovations is dedicated to helping Americans in the second half of life address needs for preventive and acute health care services, deal with chronic conditions and respond to unique senior issues relating to overall well-being. On behalf of AARP, we operate the only national Medigap offering today. We deliver supplemental health insurance products and services to 3.7 million AARP members living in all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands. Through this program, we provide prescription drug coverage to the majority of all Medicare beneficiaries who receive drug coverage through Medigap plans. The prescription drug card we offer, also working with AARP, is the nation's largest, providing beneficiaries who remain in traditional Medicare with some of the best drug discounts available. Over two million working aged and retirees receive Medigap health coverage through our employer-sponsored programs. Through Evercare, our business that serves the unique needs of frail elderly and chronically ill patients, we provide specialized care services to nearly 25,000 frail elderly individuals and 36,000 elderly and disabled Medicaid beneficiaries on behalf of the federal government and the states of Texas, Minnesota, Arizona, and Florida. Additionally, more than 200,000 Medicare beneficiaries are enrolled in one of our Medicare+Choice plans and nearly 4,000 are enrolled in one of our Preferred Provider Organization (PPO) demonstration plans. In 2003, we have reaffirmed our commitment to Medicare through continued expansion of Evercare, participation in the PPO demonstration, continued enhancement of AARP offerings in all 50 states, and by making every effort to remain in counties that are not marked by high reimbursement. In fact, we just received approval from CMS to introduce a PPO product in Council Bluffs, Iowa, and Omaha, Nebraska. We support Medicare offerings in metropolitan, urban and rural areas and have developed culturally sensitive programs such as multi-lingual customer service and programs focused on social well-being. DESIGNING A BETTER MEDICARE We believe a better Medicare would be a less expensive Medicare. It would be less expensive because it would deliver services in a more cost effective way, allowing for an expansion of benefits, not because it would cut payment levels or reduce benefits. It would be more cost effective because it would vastly improve care to people with chronic conditions and would provide greater emphasis on keeping healthy beneficiaries healthy longer. Addressing the needs of chronically-ill beneficiaries is imperative to the success of Medicare modernization. The opportunity to improve the lives of chronically-ill beneficiaries and conserve Medicare resources is enormous. Research has widely documented the costs, lack of coordination, and poor health outcomes associated with chronic illness. • Medicare spends two out of every three dollars on people with five or more chronic illnesses. • A beneficiary with five chronic conditions has Medicare costs of about $13,700 per year, compared to $980 for a beneficiary with one chronic condition. • Medicare beneficiaries with multiple chronic conditions experience unnecessary or avoidable hospitalizations for illnesses that could have received effective outpatient treatment. • Per 1,000 beneficiaries, these hospitalizations increase from seven for people with one chronic condition to 95 for beneficiaries with five chronic conditions, and to 261 for people with 10 or more chronic conditions. • There is clear evidence of adverse outcomes from hospitalizations exposing seniors to risk factors for which they do not need to be exposed. In 1999, the Institute of Medicine released a report that contends that two million medical errors occur in hospitals every year. Research also has documented the effectiveness of various clinical and social interventions designed to treat the highest users of Medicare services. One study showed that nurse-directed education programs and follow-up interventions for patients hospitalized with congestive heart failure have reduced subsequent hospitalizations by over one-half and overall health care costs by nearly $500 per patient. In addition, the evaluation of the PACE program for frail elderly beneficiaries eligible for both Medicare and Medicaid shows that PACE program participants have fewer hospitalizations and nursing home days, short-run improvements in quality of life, satisfaction with care and functional status. A study of our own Evercare program, which provides coordinated medical care through primary care teams for institutionalized Medicare beneficiaries, shows a 50 percent decrease in hospitalizations and improved family satisfaction. These types of results could be achieved across the Medicare program. However, the government has not made major changes to Medicare to address these issues. HOW CAN COMPETITION LEAD TO A BETTER MEDICARE? Many have contended that competition would reduce Medicare costs and improve care. Competition does not automatically achieve desired goals. Our experience has shown us that three principles are vital to competition that works: 1. The competitive process focuses on results for consumers 3. It aligns the interests of the parties Results for Consumers Competition will only succeed if it is focused on delivering results to consumers. To do this, two conditions must be met. First, the unique needs of the different groups of Medicare beneficiaries need to be understood and reflected in the Medicare program. Second, consumers should have the opportunity to choose based on their own preferences rather than having the choice be made at the agency level. The first condition is imperative to achieving a better, less expensive Medicare program. In many ways, Medicare has operated in a uniform way, a one size fits all approach. Competition can help Medicare provide options that are linked to the diverse needs of beneficiaries—in particular those who have chronic illnesses. The first condition is especially important when designing competitive offerings for Medicare, because competitive designs have normally been modeled on the employer market. Medicare beneficiaries are very different from the employees of large companies. They represent vastly different age groups and therefore very different clinical needs. The average age of enrollees in employer-sponsored health plans is 37-half the median age of Medicare beneficiaries. Moreover, Medicare beneficiaries have multiple chronic illnesses and comorbidities that are not addressed by the single-focus disease management programs used by employers. Unlike the employer population, many Medicare beneficiaries cannot manage their own care due to dementia or other functional limitations. Currently, 50 percent of Medicare resources are consumed by five percent of Medicare beneficiaries. Reducing the impact of chronic illness requires a different approach than those currently provided through the Medicare program. Changing the way the chronically ill and frail elderly are served by the Medicare system not only will result in better quality of care for these beneficiaries, it also provides the best opportunity for controlling costs associated with this special population. For example, Evercare efforts have resulted in a 50 percent reduction in hospitalizations, a 97 percent satisfaction rating among families and a 20 percent reduction in the number of medications consumed by enrollees. Creating specialized approaches for treating the chronically ill also will provide a more stable environment for general health plan competition. It will allow for competition over cost and quality, not over risk selection. Without addressing the issue of the highest users of Medicare services first, no amount of competition will be effective in producing significant savings or improving outcomes in the Medicare system. Providing flexibility to establish programs that meet the varying needs of the various Medicare populations would provide dramatic results in improving the competitive environment. A consumer-results focused approach would increase choices and allow beneficiaries to select the plan that best meets their needs. It should include programs that effectively deal with the health care needs of the highest users of Medicare services, plans that focus on keeping healthy beneficiaries healthy, and strategies designed to meet the unique aspects of our diverse culture. Allowing consumers, rather than the contracting agency, to select from competing options is vital to successful competition. The agency should establish a framework and then allow for a variety of Medicare options to be offered within that framework. This model most effectively responds to the diverse needs of beneficiaries, beneficiary expectations, and offers the opportunity to develop best practices. Our experience has shown us that competition that focuses on "competitive bidding" tends to be process oriented, rather than results focused. Often, it serves to reduce competition and limit consumer choice. It tends to reflect the preferences of the contracting organization, which often are not aligned with those of consumers. Competition that places great emphasis on low cost most likely would result in a more restrictive health care option, not unlike a staff-model HMO with limited networks, rigid medical management practices (denial of care) and fewer beneficiary options. In our estimation, competitive bidding that relies on low bids or a "winner takes all" approach provides high risk for both beneficiaries and the government. Consumers look to Medicare for a degree of security and stability. This model does not provide it. A consumer driven model that provides various options from which beneficiaries may choose is more like the model used by large employers and even the federal government. We think Medicare beneficiaries and their families are in the best position to decide which plan is best for them. Improvements in services In addition to focusing on results for consumers, effective models of competition are designed in a manner that fosters improvements in services. A better Medicare encourages improvements in services. Historically, innovations in Medicare too often have faced barriers because they are different from the status quo. An effective competition model is one that encourages new and innovative ideas and includes streamlined, efficient review processes that allow the government and beneficiaries to quickly benefit from innovation and advances in technology. A structure that strives for a fair and reasonable balance between the need for regulatory oversight and the promotion of quality health care, rather than a monolithic one, would facilitate innovation and broader participation. Finally, an effective model of competition would foster the development of population-specific approaches. We participate in many effective competitive programs. Those that work best have built in ways to improve services during the contract term. As a result, they have mechanisms to allow dialogue, which can lead to a modification of terms and required conditions during the contract term. These competitive models assiduously avoid contractor micro-management or over specification of process. Instead, they rely on clearly articulated objectives and performance standards that are related to. those objectives. Aligned Interests Through our experiences, we have learned that the most effective contract relationships are those in which our incentives are closely aligned with the goals of our customer. The best contracts include clearly articulated performance standards and |