potential 1% penalty for failure to adopt health information technology. and again, that's going to require significant expenditures. there is a study that found an average five-year physician practice would spend $162,000 for the initial adoption of health i.t., and another $85,000 to maintain it during the first year. just one last item starting in 2015, a potential 1.5 to 2% penalty for failure to adopt a physician quality reporting system. now we assume that these things will be done, and the penalties won't attach. but all of them will require expenses by the physician community. and then starting in 2015, the so-called ipad begins. we're look at an increase in the amount of patients that are going to have to be cared for that we will have to pay for, and additional expenses in the medical community. clearly the call -- the cuts that the sgr would require are-not be implemented. i think we all agree in 2010 it would have been a 21.3% cut.

now we overrode that cut. it actually took effect in 2010. but we acted retroactively and just the fact that the cut went into effect had an immediate impact on physician access for medicare beneficiaries. and that's after all what we're worried about here. yeah, i want to make sure the physicians are paid properly. but we're worried about people whose care we have embraced as part of medicare receiving the care that we're promising. and here is what happened because of that reduction. this is from douglas and before the senate committee on aging. during the delayed sgr update, 11.8% of physicians stopped accepting new medicare patients. 29.5% reduced the number of appointments for new medicare patients. 15.5% reduced number of appointments for current medicare patients. and a little over 1% decided to stop treating medicare patients altogether. this had an impact on patients.

so even that temporary cut, which was later reversed, had an impact. which is why we have to act. not acting here is not an option. we would have over a 30% cut if we didn't act. and it gets worse every month. senator cardin introduced a bill to fully repeal sgr in 2005. at that time the cost was only $50 billion. by contrast today the two-year patch costs just under $40 billion. cbos november 2011 numbers show that even if we give doctors a 0% update, in other words we don't cut their pay for 2012 through 2014 they would still be facing a 37% cut in 2015. that's unacceptable. that's why most of us have concluded sgr has got to be repealed. there are some more statistics here. just yesterday cbo updated the numbers. the new cost for the replacement would be $316 billion.

in other words, the cost of a ten-year freeze, not even an update in any single year went up $26 billion just to reflect the change in the cbo baseline. so what should we do? it seems to me -- and let me just refer to one chart, which i'm going to distribute to people, but i don't have copies made. this is just a comparison of the last ten years. what is the average cost of living adjustment per year for civil service retirement systemr went up 2.43%. probably just about what inflation was. ten years, membe of congress salaries, i thought this would be interesting. our average per year was 1.84%. we didn't make inflation. federal salary increases went up 1.37% per year. physician patient updates,

0.23%. running over 2/10 of 1%. between 2 1/2 to 3%, a little lower in a couple of the later years. and medical inflation is of course about twice as much as regular inflation. so what do we do? clearly we have to find a way pay for i think the house provision is appropriate, a two-year update. i think it a 1% positive update that doesn't even begin to keep pace with inflation. and then if we have the inclinatiod time, i think we should tackle this overhang problem of sgr, repeal it. we don't a substitute ready this year or next year or even the year after. we just have to keep addressing this a year at a time, which is what we have been doing. to deal with the accounting problem that some of us have talked about dealing with as well. so mr. chairman, i was a little bit long there. but i suggest that at some point we have to get into a real into the weeds discussion of the

extenders. that won't be house, senate, or republican, democrat. that will be parochial. and i don't know the best way to do that. maybe have the staff prepare a bunch of options for us that we can discuss at a later meeting. i do think that there is the potential for a pretty significant consensus on the other part of the problem, which is the physician update part of the problem. thank you. >> all right, thank you for that presentation. congressman levin? >> i think mr. waxman and mr. schwartz are going to speak. i think we'll start with mr. waxman. >> once. there. it's on. >> it's on? >> thank you very much, mr. chairman. i think senator kyl just made a very persuasive case that we've got to deal with this problem. and from my point of view, we've got to deal with it in a permanent way, because we have a

flawed payment system. and we have gone for ten years with simple patches on the system. it's temporary, but it's a flaw payment formula which is disruptive to the program, providers, and the beneficiaries alike. and it gets worse every year. so we should take this opportunity to protect seniors by solving the problem permanently in the conference, not cobble together another short-term fix that only makes the long-term problem harder to address. i was quite taken by senator kyl's statement about how much it would have cost early on, and how these patches are about as much as it would have taken to fix the problem permanently. and that's -- that's what we're going to find ourselves doing if we keep digging this hole and falling right in it. i know most of our colleagues on both sides of the aisle in both

chambers share thallee likely we that we agree on these priorities, it will be in whether and how we pay for them. i never believed that it made sense for us to find offsets to pay for the artificial budget hole facing the physician payment formula. but if we must, we have ways to do it. there are plenty of corporate loopholes we should close that would raise billions. with oil prices at $100 a barrel, the special tax breaks for oil companies deserve to be at the very top of our list. we should also look at raising revenues for millionaires who pay less in taxes than their secretaries who work for them, or the waiters and waitresses who serve them meals. the american medical association, the hospitals, and others have asked us to consider using the war savings to help find a permanent solution to medicare's physician payment

formula. i believe we should also strongly consider that option. we must also sort out the issue of the other extenders issues. provisions that have never been made permanent in law, but instead are addressed every year or two. i hope we follow the senate's lead and act on all of the extenders included in the temporary bill we enacted in december. as a general rule, i would favor fixing the extenders for two years. while most of the focus has been on the medicare extenders, there are also two important medicaid provisions that must be addressed and should be extended at least for as long as the medicare extenders. transitional medical assistant, which provides health insurance for families transitioning from welfare to work must be extended. and we should do so without adding onerous reporting requirements that cause people to lose health coverage.

and like wise, the individual key y program that helps low income seniors afford their medicare programs must be extended. i know the purpose of today's meeting isn't to discuss offsets, and i believe much of this package is emergency spending and should not require offsets. however, there are certainly ways to offset provisions of this bill without harming medicare, cutting medicaid, and undermining the affordable care act. we do not need to raise premiums for millions of seniors and families, nor do we need to jeopardize the promise of medicare at affordable private health insurance coverage for american families. we must categorically reject these provisions from the house bill. if we put aside ideology, we can find ways to remain fiscally responsible without enacting harmful policies. this is a chance to deal with two issues that must be addressed.

the middle class tax cut and the unemployment insurance. this is something we need to do right away. and both of those are ideas that have a temporary period of time in which we can foresee resolving them. but when it comes to the sgr, there is just such a strong compelling case not to kick it down the road. to recognize that we can't live with this sgr. we just can't continue the way we have, putting a patch on it and then hoping somewhere along the line someone else will figure out how to deal with it. and then it costs more and more money. this is an issue we ought to tackle, complete, permanently resolve. it's the only way that we're all going to keep the promise to our seniors under medicare. and that promise is they can have access to doctors. and doctors are having a hard time staying in the medicare program when they face the

threat of these cuts. senator kyl pointed out that when we had that short period of time that we had to correct the problem retroactively, a lot of doctors just dropped out of the program. that is not keeping the promise to the medicare recipients if they can't find a doctor. we already have a real problem in medicaid. but we don't want to turned me care into medicaid where there is a problem of access to the physicians because we're not providing adequate payment. so i strongly urge that we look to resolve this issue in a permanent way, keep the promise of medicare, not ask the medicare beneficiaries to pay the price for congress's error in adopting the sg in the first place. yield back my time. >> senator cardin? >> that was good. >> really time for

the house majority. so it will be dr. price. >> thank you, mr. chairman. and i want to thank my colleagues for all of the work and comments that we've had about the tell you that this is one of the major issues that is dictating how long physicians stay in practice. i spent 20 years in the private practice of orthopedic surgery. and just to highlight one of the items that senator kyl made reference to, i had a prance in 1984. i ended my practice in 2004. when i completed my practice, there was nothing, nothing for which i was being paid more in absolute dollars, not inflation-adjusted dollars, absolute dollars in 2004 than i began in 1984. so that -- and the consequence of that is that many of my colleagues over that period of

time said this is crazy. i can't do this anymore. so i want to commend senator kyl i thought really remarkably helpful review and highlight one of the items that you mention. and that is the entire budget, medicare budget for part b is about $520 billion. the physician component of that is about 12%. about 62, $64 billion. and so we whack away and we whack away and we whack away at the folks trying to provide the care out there, thinking that we're saving big money in the system, when in fact the savings that can truly be had in the system are outside of truly the docs out there trying to care for our nation's seniors and the issue really is access. it's about access to care. as you all well know, if you ask your seniors, especially those just arriving to the age of

medicare eligibility, trying to find a physician who will take new medicare patients. and it in many, many communities it's not a third that are not taking new medicare patients. you can't find -- you can't find a physician who is taking a new medicare patient. it truly is about access. i think one of the commonalities, the common themes that ties the payroll tax issue, the payroll tax holiday issue, the unemployment benefit issue and the sustainable growth rate, the physician payment issue, that dictates and mandates are taking care of these is the uncertainty that is out there. and never is it more apparent to the patients, the citizens of this land than in the area of the sgr, the physician payment mechanism. and it's not just seniors. it's important to appreciate that this isn't just seniors. virtually all of the private insurance companies out there and the self-insured plans track

off of the medicare reimbursement rate and formula. so we clearly can't decrease to the degree that current law would stipulate a payment to physicians. and it's a broken system that needs significant overhaul. mr. chairman, i think it's important to remind folks that the house bill had a two-year fix, two-year patch to it that we felt was responsibly done. and that's the bottom line as we move into this. i think senator kyl asked four important questions. do we extend it? do we extend the sgr? and i think the answer to that clearly is yes. to how long. and i think that question is an important question to respond to. i think that there may be an opportunity to expand it, extend it for a longer period of time. maybe it is the entire budget window. i don't know. but i think that for the

physicians out there that are taking care of patient across this land, the longer that we can extend it, the better. do we repeal sgr? my goodness gracious, wouldn't that be a wonderful thing? what a terribly flawed system that we have right now. and it's important, as i think i mentioned in my opening comments last week, remember, this was quote solution. this was a washington solution for how to handle payment for physicians. but it has rarely, if ever worked. so i think repeal is absolutely in order. and then how do we move foreward? i would suggest mr. chairman that it may be appropriate for us to put in place some benchmarks for how we move forward to get to the next step. i think it's important for physicians and patients of this country to appreciate that we understand that this isn't working, that there is a construct and a way to move forward. and then as we discussed the extenders, i think it's

important to just talk honestly about them and recognize that patients have to be our focus. not members of congress, not insurance companies, not even the medicare system itself, but patients. so when you talk about therapy caps, when you talk about physician-owned hospitals, when you talk about section 508, when you talk about pathology direct billing, all those things in addition to the others, it's important to keep in mind that patients are the ones that need to be kept in mind as we move forward. i hear some common themes and i'm optimistic about that. i look forward to working with others and sharing ideas as we move forward to hopefully make it so that we can solve this, get on the plate a true repeal of sgr and a construct for moving forward in a positive way. thank you, mr. chairman. >> yes. i think we are hearing some common themes. and it's interesting we're hearing common themes from mr. price and mr. waxman. so senator baucus? >> i think senator cardin would like to be recognized.

>> thank you, mr. chairman. let me just quote from a letter i received from a doctor last night that i think really underscores the point that senator kyl made. i'm quoting. i think all of us have to recognize that real sacrifices from all of us are needed to make the solution possible i fear that some of my doctor colleagues don't realize that there will have to be some cuts. many of us take medicare patients and accept assignment of benefits. but life would be easier for all of fuss we had the certainty, knew the numbers, and were able to plan where we need to make cuts and adjustments. i think senator kyl really brought that out. down on the st wants to eliminate this cliff once and for all. and i think that is doable. senator kyl really a different issue, and we need to talk about updates. but eliminating the cliff is

something that i hope we could agree to. ow i know, mr. chairman, we are today. but i just really want to point out that if we eliminated the cliff, it would be current policy, because that's where we have been since 1999. cbo scores it because it's different than current law. that's why we have a scoring problem. but it's certainly not different than current policy. and i would just remind us that cbo has given us some offsets that we would put in the similar category that i think pair up nicely. and i know we'll hopefully have a chance to talk about how we can get that done. but and senator kyl mentioned the scoring that we got in 2005 when we first introduced this bill was about 50 billion over ten years. now as you know it's $300 billion over ten years by cbo. if we wait five more years, it's going to be about $600 billion.

so now is the time to act to eliminate the cliff issue. and then we can talk about how physicians are reimbursed within the structure similar to the other issues we have in medicare. and i think we can have a much more rational debate. i hope we can do that. i do want to comment briefly on the other health care extenders. because there are ten other health care extenders that are in play here. the house bill contained five. there were ten included in the senate, temporary extension. most i think we can probably work out. there is a few that needs a little bit more time. i just really want to mention one or two. the therapy cap. 1997 i was part of the ways and means committee at that time and opposed the therapy cap. it never was based upon health care policy. it was always there because it

was supposed to fill in a dollar amount number that we needed in the balanced budget act. it doesn't make any sense. it hurts those who need the help the most. about 15% of those in medicare that receive rehab services will fall under the cap if we do not extend it. these are our most seriously in need medicare patients for rehab services. we're talking about stroke victims. we're talking about people who have had a hip replacement. we're talking about parkinson's victims. we're talking about individuals that need rehab for more than one episode during a course of a year. and fortunately, we have almost always extended the cap from taking effect. we changed the policy in 2006 to make it subject to certain exceptions of categories. i would hope we could eliminate this. and again on predictability, i would hope we could repeal the cap altogether. but we certainly have to extend

it. but i would hope that we would not expand the cap as the house bill did to other venues of services, just taking a flawed policy and making more people suffer by it. to me that's not the answer on the therapy cap. i want to agree with congressman waxman on tma transitional medical assistance. i think it's very important that we extend that program as it encourages people to go out to the workplace. we certainly dent want to take away their health benefits. and i just want to speak for one moment as a senator from maryland. the requirements in the house bill would impose new burdens on our system. we don't have it today to report the income issues because we're one of the 13 states to fall into that category. the house bill is probably an unintended consequence. but by changing the month in eligibility on income imposes new burdens on the states. and i would hope we would not have to -- that we could work that issue out.

mr. chairman, many of the provisions there is total agreement between the house and senate. there is some that you did not include. i think that is oversight. and there are a few i think we need a little more time to work out the differences between the house and senate. but i am impressed by the consensus that appears to be building as it relates to the extension of the health care provisions. >> mr. chairman, i was just wondering if -- i'm just curious about house not including some of these health extensions, you know, like the mental health add-on, outpatient, pathology, technical component, bone mass and so forth. i'm wondering if there is a reason why those were not extended? i don't mean to put you on the spot. i'd just be curious. i am curious why they're not. >> i think generally it's

because many of these have been extended without thought from again and again and again. and we think each one of them need to be justified and stand on their own merits and so i think the data isn't there. i'm speaking generally, in a general sense to support many of them. and so i think maybe not necessarily at this particular meeting, but i think we need to dig into those further. and perhaps we can have some back and forth on that. >> on two of them, the mental health add-on was temporary until the rug could be developed. the rug has still not been developed. i'm just pointing that out. and the bone mass measurement payment, this is the first time that this is on the list. just so that we at least get those two straight. i do think those two, i hope were oversights by the house. >> a senate republican -- >> i don't know anybody might? the thing is there is such

agreement here. we can talk ourselves out of it. >> i don't think we're going to do that. >> somebody just leaned against the wall here. >> watch those leaners. they always get you in trouble. >> somebody just leaned -- well, our prospects aren't dimming. they're actually getting brighter. congressman levin? >> mrs. schwartz is going to participate. >> all right. >> well, thank you very much. and i -- i'm delighted to weigh in on what is a very, very strong agreement about what we hope to be able to do. and so i just want to make a few comments that we ought to do what we really want to do. we have an opportunity to do that. and i think it is somewhat of a unique opportunity. not just because we're agreeing, but there actually a role way forward.

i want to acknowledge senator kyl's marks and mr. price -- dr. price, excuse me, for really stepping out there and really talking about how important this is to finally fix the sgr. and the importance it is not just to the doctor community, but really to all beneficiaries. and there are a lot of seniors out there. and every day there are more of them. so we ought to fix it now. so i -- you all know this, but i want to just reiterate that we are one month away from almost a 30% cut for physicians in this country. so it's not -- it's real. and we have one month to act on it, which is enough time. the suggestion was do we have enough time to do this. i think many of us have been working on this for a very long time. i do think this is the time for us to fix this policy that is hurting taxpayers. it's making budget problems difficult to deal with. we ought to get it off the accounting problem that we all face. you've heard about this issue

for beneficiaries. i do want to acknowledge the medicare extenders. i hope we can reach agreement on those and be able to move forward. but on sgr, we have been talking many of us across the aisle, across the chambers on how to fix the sgr in a responsible way. it's -- i believe it can be done. i think there have been suggestions already put out about how to do that. maybe even a little more forceful than some in suggesting how we do it. but that won't be news to any of you. but i do think there is no reason for us to hesitate and just do it for another year or two and face even more billions of dollars down the road that we have no idea to pay for. this is -- i think senator kyl said a theoretical debt. well, let's take care of it. but i believe it can be done. i think the $300 billion seems daunting. but again, the cost of failing is even higher because that number just grows and grows and grows. so we keep burying the true cost

of this failed policy through annual overrides with scheduled cuts and false expectation that we're going to make these cuts, and we're not. and we've all agreed we're not. so we now have the means to end this perennial crisis without the deficit of putting our seniors at risk. by using the savings from the reduction in military operations in iraq and afghanistan, we can finally eliminate the $300 billion debt that has accrued in medicare for over a decade. this is really offsetting anticipated cuts with unspent expenditures. it really is a fair i think accounting issue. and we ought to take care of it. this funding mechanism as you know has gained support from members of both parties. it not only enabled us to pay down the sgr debt, but allows us a more accurate accounting for . we have a choice. all of us sitting here have a choice right now as to whether we deny and defer this problem once again, even for a year or

two, leave seniors not sure what to expect, and leave doctors again uncertain about whether they should continue to take medicare patients or not and what their updates would look like, and what their cuts would look like. it was offered for two years. i think we're in a different place right now where we actually could go further. and you've heard that from your side of the aisle as well. so we have an opportunity to pass a fully paid for permanent repeal of sgr. we all agree that the rate of growth and spending in health care is unsustainable. and we need to do more about it. but we also agree that the sgr is the wrong approach to containing costs or improving quality or increasing efficiency in health care. failure to repeal sgr i believe places and failure to replace wit meaningful payment mechanism for physicians prohibits the drive so many of us believe in, which for innovative delivery system reforms. it's a