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OPENING STATEMENT OF SENATOR RON WYDEN Senator WYDEN. Thank you very much. I want to commend both of you. I think this is an excellent topic, and I thank you, both, for your leadership.

What I think is so striking about this is that for all practical purposes the Federal Government doesn't run health care programs. What the Federal Government does is run sick care programs, and probably nothing shows it more graphically than the topic that we are going to examine today under the leadership of my two friends and colleagues.

The Federal Government is going to spend a boatload of money for what is essentially a chronic care program. That is what Medicare has become today, and that is what Mr. Holtz-Eakin and his capable folks document, you know, once more.

What is so striking is that if you look at the two parts of Medicare, Part A of Medicare will pay an astounding sum for essentially institutional care. What Senator Smith and I see in our state is essentially the insurance carrier that runs Medicare for our state will write out a check for $40,000, $50,000, some prodigious sum of money, for a seniors hospital coverage under Part A, and then there will be very little spent on prevention under the outpatient portion of Medicare Part B.

Senator Kohl is absolutely right. There is a little bit of coverage. We got to do a better job of getting the word out about those preventive benefits under Part B. I really hope that as we work together on a bipartisan basis and have the very valuable assistance, Mr. Holtz-Eakin, that we can essentially revamp this program. Let us do a better job of targeting the resources where they are most needed, which is essentially what Senator Kohl and Senator Smith have said in terms of chronic care, and then let us do a better job of prevention so that we are not always playing catch-up ball under Part A when somebody is flat on their back in the hospital.

I want my two colleagues to know that as part of the bipartisan legislation that Orrin Hatch and I have written, the Health Care that Works for All Americans Act, which, in effect, will kick in this October when the information about health care spending goes online, and we start walking the country through the choices, that I really want to see that law follow up on the good work that you have done, Senator Kohl and Senator Smith. It is an important hearing. Thank you, both, Senators. Mr. Holtz-Eakin has worked with my office on a variety of issues, and we appreciate all his cooperation as well, and I look forward to the testimony. Senator KOHL. Thank you very much, Senator Wyden.

We are pleased to welcome our first witness, Dr. Douglas HoltzEakin, director of the Congressional Budget Office.

Dr. Holtz-Eakin was appointed to a 4-year term in 2003; previously served for 18 months as chief economist for the President's Council on Economic Advisors, where he also served as the senior staff economist in 1989 and 1990.

So we are very pleased that you are here, and we welcome your testimony.

STATEMENT OF MR. DOUGLAS HOLTZ-EAKIN, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC Mr. Holtz-EAKIN. Well, thank you, Senator Kohl. Thank you, Chairman Smith, Senator Wyden.

I am pleased that the CBO could be here to talk about our report, and this important issue. The starting point, as has already been mentioned by both the Chairman and Senator Kohl is the concentration of Medicare spending among a very few beneficiaries.

In 2001, the data in the report show that 25 percent of the beneficiaries accounted for 85 percent of Medicare spending. It is useful to note that this is not unique to Medicare. National health spending has the same character, actually a bit more concentrated. This is the kind of pattern one would expect in an insurance program, where a relatively small number of claimants in any year would account for the bulk of the spending.

But it does raise some questions and possibilities. First, of course, is, “Can we save some Medicare costs in examining this?” Is it possible that these are always the same people? I mean, we use 2001, but could it be the same people every year; and if so, is there a way to address their health so that they are either less expensive to begin with or are less expensive to Medicare in the future in some way.

The report tries to take a look at this. The second figure that we look at examines the question of whether these are, in fact, the same people put differently, is there some persistence in these expenditures from year to year?

What we do is try to track the high cost Medicare beneficiaries, those in the top 25 percent, over time. The graph that we have in front of you and is on the screens shows the high-cost folks in 1997, and then looks back a few years to what they were costing before that, and then follows them for years after 1997 up to 2001 to see what the expenditure looks like.

The dark bar represents this group, and what you can see is that it ramps up prior to 1997. They were high cost in 1997, but they were accelerating in their costs prior to that, and then ramping down past 1997. This is consistent with a pattern that you would expect—one in which there are some acute care expenses. Someone breaks a leg and has an episode of high costs, but it goes away. Another part of the mixture is chronic, ongoing expenditures for the kinds of chronic care they might require. It is also important to note a key feature of the post-97 experience, which is the large fraction of these beneficiaries who are close to death, and indeed die in the years thereafter. That pattern is consistent with about 25 percent of the spending each year that goes to those in the last

year of life.

Now, where are these costs coming from? If we go to the third figure, they are coming from the fact that, while these high-cost beneficiaries do the same things that other people do—they go to the doctor, for example they are much more likely to do other things go to the emergency room, have a hospital admission, or be in a skilled nursing facility. Regardless of which of those things they are involved in, they tend to use more services at the same time. So they have a greater propensity to have all those events than in the population as a whole.

This raises the question, could we identify these individuals and prevent in some way, either their entry into these expensive episodes or lower the utilization given that you might have an entry.

One issue we addressed in our report-and I won't go into itis sort of whether you could just look at them on the basis of their demography and say these are likely to be the high cost folks. The answer is pretty much no. Although they are a bit older, they don't stand out in any other particular way.

If you look at their health, however, a key feature is the presence of chronic conditions, particularly multiple chronic conditions, where compared to the typical population, 75 percent have one or more chronic conditions versus about 40 percent in the rest of the population. About half of them have two or more for sure.

So that does stand out. So that becomes one of a series of illustrative strategies that we used in the report to see if we could identify high-cost Medicare beneficiaries. That is the final slide, where we took three that we thought of as stylized strategies that one might undertake to pick out who is going to be expensive in the future. Take a person who has multiple chronic conditions and then see how they turn out. Look at someone who has had a hospital admission and then track them. Or look at someone who is simply very expensive in the beginning year and see if they continue to be expensive in the years thereafter.

What the slide shows is a comparison of those groups versus a random sample of Medicare beneficiaries. We look at them in initial year, 1997; identify them using one of these strategies; and then see if we could predict that they would be more costly in the years to come on the basis of that identification.

Indeed, to some extent, this appears to be the case. It is suggestive that this kind of strategy might be successful in identifying high-cost beneficiaries.

Compared to the control group, each has greater spending certainly in the base year, but also in subsequent years. For those who get admitted to the hospital or who are expensive, you see a bigger drop off. For those who have the chronic conditions, their spending drops off less. It tends to stay elevated in the years thereafter.

Now, the final question, of course, is whether this would allow the Medicare program to somehow control their costs in the future, and there it raises the hope that something like a disease management program might be successful in reducing overall costs. We can come back to this in the discussion later, but I think that the things that I would note at this point are that disease management means different things to different people. There is a variety of different elements of either education or patient monitoring and, thus, practice, or care coordination, or case management. So exactly what goes into disease management is not always the same. It is worth investigating that.

Asking whether it works is really a question of first comprehensively measuring costs over the entire future of a patient's experience and comparing that to a comparable patient without the disease management. That is a high scientific standard. None of the work that we have examined to date meets exactly that standard and at each point stepping down the standards, you have to ask whether we have got the evidence we need.

Then finally, even if this strategy works, the important issue for this committee is a tradeoff in costs. It may be the case that some sort of preventive disease management program will work for Medicare beneficiaries-in the sense that it will lower costs other than what they would have been—but it will be costly to identify the people who enter into such a program out of large population of seniors. The question is whether it is cost effective in both senses. You may spend so much finding the folks that will ultimately benefit from disease management that you overwhelm any cost saving you would get from putting them in the program.

Those are the two elements of the decision, and that is the difficult design issue that would face someone trying to put this into place in the Medicare population as a whole.

So we are pleased to be here. That is the high speed overview of the report. I will be happy to answer your questions and pursue it any way you like. Thank you.

Senator KOHL. Well, thank you. I am curious with respect to your opinion on the following thought: are there people who have some chronic conditions who use the system and we are talking about them now—and to a great extent those are the ones who the 25 percent who cost us 85 to 90 percent of Medicare, but others who are seniors who have similar conditions who just do not check in that often, use the system that much, manage to deal with these problems in a way that doesn't require them to be so involved with Medicare?

Mr. HOLTZ-EAKIN. There are certainly those who would have one of our list of seven chronic conditions. Diabetes stands out. Among the high cost beneficiaries are those with diabetes. However, if you look in the low-cost population, there are lots of folks with diabetes as well, three times as many, in fact. So it is not the case that if you are diabetic, you are automatically high cost, and it is not the case that if you have one of our chronic conditions, you alwaysyou inevitably-end up there. They are in both populations. This goes to the last point I made, which is that you have to be able to find the diabetic who will benefit from some sort of intervention to lower costs.

Senator KOHL. But is it true that there may be two similar people who are seniors who have conditions that are not entirely dissimilar?

Mr. HOLTZ-EAKIN. Oh, yes.

Senator Kohl. One will access the system an awful lot and prove costly in a dollar and sense way. The other one will access the system an awful lot less and be less costly, just because they are a different kind of individuals.

Mr. HOLTZ-EAKIN. Certainly, and we could probably go into the data that we used for this report and find people with chronic conditions and show you the averages on both sides of that observation.

Senator KOHL. All right. Thank you. Senator Smith.

The CHAIRMAN. Doug, I am interested in whether or not you all have factored in the impact of Part D, and what it might do to Part A expenditures?

Mr. HOLTZ-EAKIN. It is not the first time this has come up, which is not surprising. We certainly have tried to look very closely at the degree to which additional therapies in the form of pharmaceuticals might lower costs elsewhere. But it is hard to get that out of the data for a variety of reasons.

No. 1, the Part D really covered the costs of pharmaceuticals. People were taking the drugs they needed anyway in many cases, so you haven't really changed their therapy in any deep way. So you wouldn't expect a change in the costs. So that is sort of the major reason.

The CHAIRMAN. OK. I understood in your testimony that where there is simply private coverage and Medicare is not involved, these same populations are still using those kind of resources?

Mr. HOLTZ-EAKIN. Yes.
The CHAIRMAN. So probably not the savings we might hope for?
Mr. HOLTZ-EAKIN. No.

The CHAIRMAN. OK. Do you believe there is any benefit to comparing data from Medicare managed care plans that employ chronic disease management programs with the data you have compiled for the fee-for-service programs? Are the Mr. Holtz-Eakin. It is hard to imagine that it wouldn't be valuable to compare them as long as you were careful about the comparisons. You know the key issue is what constitutes the same kind of group going in, and given that the people who chose to go into the managed care versus the fee-for-service do so voluntarily, they are, by definition, not identical. They have chosen differently, and so you have to somehow get a handle on that before you start doing comparisons across

Senator KOHL. Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman, and I want to thank Dr. Holtz-Eakin for excellent testimony.

I am curious what CBO has in terms of numbers as it relates to spending on health care in the last 6 months of an individual's life. You know there are constantly studies, you know, thrown around on this point, and I am wondering, you know, what, if anything, CBO uses as statistical documentation on that point?

Mr. HOLTZ-EAKIN. We rely on the Medicare claims data, so it would be among those folks. For the numbers I have for this hearing, we can try to see if there is more detail in the last 6 months or for the last year. Twenty-five percent of Medicare spending is in the last year of life ballpark. So it is a fairly substantial sum.

It is, of course, one of those backward looking computations in that you don't know when the last year of life will be necessarily. But looking back, those are the facts.

Senator WYDEN. That will be an area I want to follow up with you on as well for the Citizens' Health Care Working Group because those issues, of course, were tough before the Terry Scħiavo case. They are now infinitely harder and my hope is that we can find some common ground. Senator Smith and I have introduced bipartisan legislation, the Conquering Pain Act, to try to create some options for folks, but we will be anxious to work with you on that.

I wanted to also explore with you a topic you and I have talked about. Senator Sununu and I have been concerned about the fact

the groups,

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