catastrophic protection, out to which the government will pay 100 percent at no extra charge, no increase in the premium.

That is a heck of a deal. But if you would like a new system, you want to try something else, an integrated health care delivery system, you have that choice. If you want to go into it, you can go into it. It would be based on FEHBP.

The three objections people make against the FEHBP, Ms. Block, is, number one, it is not going to work in a rural area. Number two, that people are much older than you have in FEHBP. Number three, you would have to get into some type of an HMO that does not work in order to get your drugs.

First of all, what is the average age of the FEHBP people that you insure, including your retirees and your active duty workers? Ms. BLOCK. The average age of our active duty workers is 47. Senator BREAUX. No. Both combined. I will get to that.

Ms. BLOCK. The average age combined with retirees is 60.
Senator BREAUX. Sixty or sixty-one?

Ms. BLOCK. Sixty, sixty-one. Yes.

Senator BREAUX. So the average age of the people you serve in FEHBP with your retired segment and your active duty workers is about 60 to 61 years of age?

Ms. BLOCK. That is correct.

Senator BREAUX. All right. Now, on the rural question, which is very important to a significant number of members of this committee, and Senator Lincoln just expressed her concerns, I have tried to address those by saying, you pick the most rural county in America.

You probably have a Fish & Wildlife Service employee, or USDA employee, or a postal worker employee that has the FEHBP health care plan. How does that person get insurance coverage when there is no competition and that rural county has probably got one county hospital somewhere, maybe one doctor, maybe a couple of pharmacists, and that is it? How does the FEHBP guarantee that that person gets health care at an affordable price?

Ms. BLOCK. Well, there are a couple of ways. One thing, as I mentioned earlier, under the Blue Cross/Blue Shield basic option, that plan, because it is a nationwide, in-network only plan, has guaranteed access absolutely everywhere in the country to an innetwork benefit.

Senator BREAUX. All right. Suppose that hospital is the only hospital in the county.

Ms. BLOCK. Then that plan has made special arrangements to include that hospital in its network.

Senator BREAUX. That hospital, if it is the only hospital in the region, is included in their network under the FEHBP plan? Ms. BLOCK. For that particular plan.

Senator BREAUX. All right.

Ms. BLOCK. Some of the other fee-for-service plans, because they offer an out-of-network benefit, have not done that. What they do, is provide an in-network benefit where it is feasible

Senator BREAUX. To have at least one national plan that would make that that hospital, that doctor, if they are the only ones in that county, are included in the plan that is offered by the FEHBP provider?

Ms. BLOCK. That is correct.

Senator BREAUX. All right. And that is at the same premium rate, is it not?

Ms. BLOCK. Yes.

Senator BREAUX. That is a national premium rate.

Ms. BLOCK. It is a national premium, national benefit package. Senator BREAUX. All right. The third objection, is I think that they say, well, you are going to force people into HMOs to get prescription drugs. I am in FEHBP. I would imagine all of us are in FEĤBP. I have prescription drug access, as well as doctors and hospitals. I am not in an HMO. I am in a Blue Cross/Blue Shield high-option plan. So, I mean, how does it work?

They are not being forced, under FEHBP, into any type of HMO if that is their choice not to be. Is that not correct?

Ms. BLOCK. That is correct. In fact, three-quarters of our members are in the fee-for-service PPO plans, one-quarter are in HMOs, and they have that choice.

Senator BREAUX. All right. So just as a more general questionyou have answered the question about the rural areas. Every hospital in a rural area would have to be included in at least one of the networks, because you would not let the companies participate in the program if they did not, and that they would be in that program at the same national premium for everybody.

Ms. BLOCK. That is correct.

Senator BREAUX. I know the rest of you. We have visited, we have talked. I just wanted to ask Ms. Block some questions. I thank you all for your participation. Thank you.

Senator BAUCUS. Senator Santorum?

Senator SANTORUM. Senator Breaux asked all of the questions I wanted to ask. You did a fine job. Thank you.

Senator BREAUX. Thank you.

Senator BAUCUS. Ms. Block, it is my understanding that Blue Cross threatened to pull out of FEHBP recently. They threatened to pull out because they did not want to comply with certain cost accounting standards.

Apparently I do not know whether there was a resolution to all that but one can surmise that maybe they stayed in because they did not have to comply with the standards, that OPM said, all right. Now, that raises lots of questions, clearly, to the degree to which my assumptions are correct. They may not be correct.

One question is, what standards are there that are enforceable with the plans that are participating? FEHBP is so different from, say, TRICARE. TRICARE has fairly specific requirements, whereas OPM, as I understand it, administering FEHBP, basically takes on all comers, there are no winners and no losers.

That is, if you are a plan and you meet certain standards, you participate, whereas, in a TRICARE, if you do not meet certain standards, you are out of luck. So you take all comers, and there are no losers in FEHBP.

But in my little fact situation here about Blue Cross threatening to pull out raises questions as to what standards are there, if there is any way you can participate. There are certain cost accounting standards, for one. There could be other standards.

The next question that comes up, clearly, is what happens if Blue Cross pulls out? Sometimes people make good on their threats. Then what happens to FEHBP?

Ms. BLOCK. Well, for one thing, I would like to assure you that there are very high standards. Just because the cost accounting standards do not apply does not mean at all that we have no standards.

In fact, the Federal Acquisition Regulation applies. We have our own implementing regulation to the Federal Acquisition Regulation which is called the FEBAR. We have a very close relationship with our independent IG, who audits all of our plans on a regular basis and our plans have to meet all of the Federal requirements and general accounting standard requirements. All of our plans have to submit annual accounting statements which are certified.

In addition to that, they have to submit an audit by an independent auditor. We have rigorous standards in terms of reviewing their financial status, their financial reports, to make sure that their charges are appropriate, and our IG goes out and verifies that on a regular basis.

Senator BAUCUS. What happens, though, if Blue Cross pulled out? Blue Cross is, what, 50 percent of FEHBP?

Ms. BLOCK. Yes. It is a little more than 50 percent at this point. Senator BAUCUS. So if Blue Cross said, all right, we do not want to do this, what problems, if any, would that create for Federal employees and retirees?

Ms. BLOCK. I would have to say that that would probably create considerable problems. It would be foolish to imply that it would not. However, we have some other major underwriters in the program and other plans that would have to just pick it up and make the appropriate arrangements. Provided we had sufficient notice, which we actually did in the Blue Cross situation, others would just have to jump in and pick up the enrollments.

Senator BAUCUS. Mr. Bradley, I would like you to give us some ideas, applying some of GM's experience, on how we could transfer some of that to Medicare, that is, in terms of quality and incentives for quality and so forth.

Mr. BRADLEY. There are a broad range of things. But I would first want to say that Medicare has actually been quite active in the performance measurement arena with the National Quality Forum. They have been very good participants.

The National Quality Forum, which, as you may know, had its origins in the Congress to essentially establish a national basis for providing highly vetted, consistent standard, quality-based performance measures, not unlike the role of the Federal Accounting Standards Board. Medicare has been very active with that and they are about to implement, actually, a number of those.

The next step, I believe, is to start to tie a couple of things to participating in the Medicare business. One, is disclosure. It should be a condition of participating in the Medicare program. At certain levels when the data and the measures are out there, that providers, be they hospitals, health plans, doctors, nursing homes, disclose the performance that they have on quality. That would sort of be a baseline.

There are models, which we would be delighted to share with them, on actually how we score performance for our health plans on quality measures, and then how we can actually use those to be tied to a number of performance incentives.

One, is simply to enable beneficiaries, especially with health plans, to pay less for higher quality plans. But that has to be revenue neutral, meaning you pay more for less higher quality plans. So there is work being done right now as we speak trying to develop pay-for-performance mechanisms for providers that really, truly make sense.

That is being done under the auspices of some funded work from the Robert Wood Johnson Foundation, the Leapfrog Group, and so on, that we believe will start to set some models so that we can actually pay providers to do a better job. Right now, they get hurt for doing a good job.

The other thing that I think that Medicare can do, and a lot of my testimony is actually working with providers in communities with private purchasers as we try to drive quality improvement with actual direct interaction, sharing of best practices and so on. Medicare is very, very powerful. They have got a great database. In fact, by just disclosing information and using it, I think we can make a huge difference.

Senator BAUCUS. I appreciate that. Just so, what percentage, or can you quantify the quality improvements that are available under Medicare if you were to apply some of GM's techniques? Is that possible?

Mr. BRADLEY. Yes, it is possible. We have measures-and let me focus on health plans for a moment.

Senator BAUCUS. Sure. Sure.

Mr. BRADLEY. That is the starting point.

Senator BAUCUS. Right.

Mr. BRADLEY. We are working on getting it down to the hospitals and providers, and that will deal with the rural areas, and so on. Senator BAUCUS. Right.

Mr. BRADLEY. But we have actually seen, using the HEDIS measures, which is a set of quality measures, plan-specific improvement. For example, the use of a beta-blocker after heart attack, everyone knows, will reduce the probability of the second heart attack by about half.

We have actually seen-I do not have the numbers at the top of my head-in our health plans, and I use this as an example, 60 percent of their patients would have a beta blocker after heart attack to 90 or even higher.

Then you can do the math and figure out the number of lives that are saved, or the number of reduced costs that take place that result from that because you haven't hospitalized the person a second time.

Diabetes measures is another one. H6A1-C, which is a blood test. People that have those frequently, combined with eye exams and foot exams, have fewer amputations, less blindness, and less hospitalizations. NCQA has actually developed a calculator where you can actually do the math and show what the impact is. So, all that is available.

I think the real need is for Medicare to be empowered to use that information in its actual contracting and holding providers and health plans accountable.

Senator BAUCUS. Right. That is my next question. Are they now not empowered?

Mr. BRADLEY. I believe they are under demonstration projects. I think that what we need to do, is to keep encouraging the rapid implementation and broad-based dissemination of this so that the demonstrations can move quickly.

Senator BAUCUS. My gosh. If Medicare were to fully utilize all those techniques, it seems to me that health care costs would be brought down quite a bit.

Mr. BRADLEY. Yes, that is sort of the premise of my presentation. There is a book called Crossing the Quality Chasm, which was produced by the Institute of Medicine, which I think is one of the most important books every written on health care.

Senator BAUCUS. What is it?

Mr. BRADLEY. It is called Crossing the Quality Chasm.

Senator BAUCUS. I see all the panelists nodding their heads. They all know it well.

Mr. BRADLEY. I would commend it to you. The chasm is the difference between what we know today and what we can do in terms of improving care, and where we are, and how to get from A to B. You will hear the number, 30 percent of the health care dollar that we spend in this country is wasted.

Senator BAUCUS. Do you agree with that? Do you think that is about accurate?

Mr. BRADLEY. Yes. I absolutely do. We see it firsthand. Waste being defined as any service process, procedure, or things that are done or not done that should be done that does not benefit the patient at the end of the day.

So, not giving a beta blocker is waste because of the heart attack. There is a great deal of money out there, and that is a very, very important document to use as a baseline for some of our strategies. I have got a number of things we could talk about offline or separately, if you would like.

Senator BAUCUS. Sure. I would appreciate that, Mr. Bradley.

Ms. Quam, what would it take for your company to come into a State like Montana? We have got lots of beautiful scenery.

Ms. QUAM. Yes.

Senator BAUCUS. There is great skiing, great rafting, fishing.
Ms. QUAM. Thank you, Senator.

Senator BAUCUS. Is that enough? [Laughter.]

MS. QUAM. We, in fact, do provide services to 15,000 people in Montana through the fee-for-service offers that we are involved with.

Senator BAUCUS. Oh, you do? All right.

Ms. QUAM. So, we are pleased to do that.

We would be very interested in helping rural Medicare beneficiaries in Montana. I particularly believe that we could take the kinds of work that we have done in improving care to people who are chronically ill, and that those are very applicable in rural

areas.