today we hold our second -- there are amount of ideas about how to fix it. we know that sustainable growth rate or sgr must be repealed, it causes uncertainty. it causes patients to fear losing their doctors. we did take a look at underlying service -- pay for service, rewards positions who do more tests and more procedures even if fell lowe services are necessary. it does not encourage patients to coordinate high quality, high value care. today we'll hear from five organizations that have

developed innovative position payment systems in the private insurance market. these organizations are changing how they pay positions to create incentives that will approve patient care. >> medicare needs solutions that will work in a range of settings. in cities, rural solo practitioners. always at work in montana. fortunately our panelists can scrap ideas that have worked in many different regions of the country and look forward to their candid, direct suggestions

from them as to how to 12067 this problem. it is critical that we speak to the most -- the chairman and i agree that we must find a better way to pay physicians in medicare. we must repeal the flawed sgr system. our physicians and patients deserve better. our current system provides little financial incentives to manage -- volume of services and

over the years, we have learned that more care does not necessarily mean better care or better outcomes. tight we have the opportunity to hear from some of the top performers in the private sector. these industry leaders are making real advancement in physician payment. today we'll hear from dr. dana

severefron. next peter towards and provider development of humana. dr. saffron, won't you begin? our customs here automatically include your statements in the record and we ask each of you to sum rise your statement and tell it like it is.

these organizations vary in size, scope, composition and geography. even in year one, akc providers slowed spending growth by 2% while improving quality. these settings through significant changes in utilization. these savings and quality -- providers are achieving savings both through the use of lower cost care stettings and through significant changes in utilization.

in 2010 alone, aqc providers saved 10 milli$10 million by re admissions, emergency room use and high-tech images. quality and outcome -- high performance health care system with a sustainable rate of spending growth. on behalf of andrew dreyfuss, president and ceo of blue cross

and blue shield -- >> mr. towards? >> mr. chairman, thank you for the opportunity to share learnings from our 25-year experience and partnering with physicians on a variety of innovative value-based models that afford efficiency and effectiveness. 320,000 physicians. by year's end, about 1.8 million of our 34ed care advantage members will get care from physicians in humana's network arrangements that include one of

our various payment models and we expect 80% of our primary care physicians will be in -- we believe delivery system transformation is spread dated on creating physician payment models that recognize the variability and physician practices and engage physicians on factors like practice resources, geography and patient panels. beginning in florida we introduced payment models and then we moved to combined arraignments shared risk for part a and full risk for part b and d. and ultimately we introduced fee for service programs in 2010 and areas where the primary model was fee for service. our rewards program was four variations for different

structures. there are opportunities to increase payments on a graduated basis. payment begins with fee for service with & wall notice and care coordination fees plus a bonus and shared savings and we provide retail data and quality information to physicians and in some cases such as rural areas, where primary care access is limited, we have added nurse practitioners to assist practices. we engaged detectively with the leading primary care societies and we again -- during the first nine months of 2011, our rewards program resulted in improved health outcomes including an over 50% increase in the number of participating physician practices meeting and exceeding

patient care measures. some of the lessons we learned include without incentives, costs run 5 to 10% higher. any proposal to modify primary care policy should be flexible to allow for practice variations. a single uniform measurement strategy is critical across all public and private programs and lastly real-time data is a critical component of any initiative. our focus will be on models that reduce fragmentation, reduce unnecessary costs and ensure the patients receive the right care at the right time, in the right setting, from the right level care practitioner. thank you again. >> mr. edwards. >> good morning, thank you for inviting me to testify today. my name is lonnie reece and i am

the chief medical officer at humana. since 2005, etna has invested more than 2 billi$2 billion to provide collaboration models, we recognize that the best single model will meet the -- we meet our provider partners at their current state of ready witness. our partnerships are designed to support all patient populations, qualified providers and insurance payers and are not limited to medicare or etna members. we believe that effective low cost technology solutions. our provider collaborations provide a model for health care

improve and reductions in the total cost of care. our medicare advantage care management models provide health information technology and nurse case managers embedded with participating provider groups. for example by collaborating with etna, nova health in portland, maine, averaged 45% couper admissions in 2011 compared to state wide unmanaged risk adjusted unmanaged populations. active health management has a large team of board certified physicians, pharmacists and registered nurses that supplies resource. he alert -- opportunities to improve health resulting in better quality and reduced medical costs and a randomized clinical trial, active health management's technology has helped to reduce average charges

by 6% compared to a control group in one year. people with chronic conditions such as diabetes and/or high blood pressure--physicians are able to effectively coordinate care and information. etna's technology lays the foundation to securitily exchange patient health information. this program accomplishes this regardless of what kind of health care record is being used. within 120 days, msg rolled out the refer -- and is adding practices to the ereferral networks. these practices are now able to replace the multiple phone calls and fax exchanges to secure

exchange -- we share the goal to transform the health care delivery system. etna has achieved policy results provided collaborations, we are making it easier to pull meaningf meaningful -- we believe that these models can be applied more broadly to apply to population health and create a more stream lined delivery system. >> >> thank you mr. chairman and other members of the committee. i am the ceo of carefirst blue cross blue shield we cover the area of northern virginia, d.c. and all of maryland. we also are the major carrier

for the fep program carrying 620,000 fep members here in the capital area. several years ago we started our own patient centered program. and the way we approached it was we asked primary care physicians in this area who were in active practice to form small, we call medical care panels, typically of eight to ten primaries as a team. this includes solo practitioners who are in rural areas, these are self-chosen teams. there are 300 such panels in this region now. there are a million carefirst members being served by these panels. what we do is a blended capation fee for service system. and i would say the most important thing we have learned is how important payment reform is.

but this model i think is disstikt in the sense that it offers the benefit of global cappiation. each panel serves about 3,000 members of ours. 3,000 members could be expected to run up $12,000 a year in health care costs with something like 450,000 service encounters. we project what that cost would be and we ask them to better that and if they can, we share the savings. we pay them during the course of the year on a fee for service basis, because we can get the data better that way, we can track the services better that way, and if at the end of the year, they have bettered the expected cost of care on a global basis, we share the savings with them. this can often provide major incentives, bonuses if you will, to these physicians. we also have extensive quality

measures during the course of the year to see to it that there isn't a gaining by under serving the population of patients in the pam. we have one year of full operating experience under this, through which nearly 3 billion dlrsz worth of claims flowed. here's what we found in the first year, that about 60% of the panels of the 300 panels, actually beat the targets and they beat it on average by 4%. that's a big number. and of the panels that didn't, they exceeded it by 4%. so there was an 8% spread. and what's happened as a consequence of that is the ones that won want to know how to do it better and the ones that didn't want to find out what they can do. over 80% of the primes in this area are in the program. so that is the way we have approached it. we are looking to get medicare

into the program through a waiver. from cms to bring medicare fee for service patients into the same design, same incentive, same structure. >> thank you very much. >> mr. cardozza. >> chairman, ranking member and members of the committee i appreciate the invitation to join you today. and thank you for holding this round table on what is a very important topic. hill physicians medical group has been -- we now serve 300,000 people through our network of 3,500 physicians, most of whom are independent and self-employed in small practices ranging from one to several physicians. we are paid prospectively through capation and through our

own compensation plan. i have submitted to the committee my comments. i will offer these brief opening thoughts. for 30 years i have been boots on the ground embedded with practicing physicians helping to organize tools and systems to build a value oriented delivery system. there's remarkable consensus in what you've heard today and in your first round table. we get what we pay for, and with fee for service, we pay for volume. as a practical matter, it would move away from fee for she was to those that are population based and enabling care access to those -- continuum of care. hill physicians has had suck says -- hill physicians has

succeeded by prospectively defining measured outcomes, measuring and achieving those outcomes and supporting our physicians in their efforts to continually improve their practice performance. medicine is delivered today in an increasingly sophisticated environment. an affordability crisis has been anticipated due to an aging population. marcus well by couldn't maker it today. there were preshts few tools in his medical bag and today he couldn't carry the tools in a wheelbarrow. but the distribution model has been in use since dr. wellby has been in his prime. we have worked for over 25,000 -- -- designed to support

our physicians. how we pay our physicians is important, but no payment strategy alone will be enough to achieve the objectives we all share to optimize affordability and quality. hill physicians has been successful because of our -- physician network for over these 25 years, the organizational frame work for these collective earths has been essential to our success and i will encourage you to consider a strategy to foster organization. i hope to share 24 our experiences will be helpful to our efforts and thank you for inviting me to join you today. >> thank you very much. this is a bit different, how we're going to conduct this. it's not really a hearing, i like to call it a round table. that is everybody just participates, informally, it's like around the kitchen table, somebody wants to say something, say it, someone says something that makes sense, you can reward that person, if it doesn't make

sense, speak up and say why it doesn't make sense. that applies to both sides of the table as senators as well as the panel. i said to my colleagues jump in if you want to. i'll just ask the first question and then we'll let her rip. i'm very sbreeintrigued with wh you're doing mr. brown and i wonder the system is with targets and gets you started out fee for service and savings are then rebated back to the participants and you set a target at the outset, as i understand it? >> yes. >> so the question -- one question i have is how do you set that target and then what lessons does that have for the target that's in sgr? because in each case, there's a

target. once set by yourselves. 6 and you said you ask for a waiver to apply your approach. your medicare payment system. i just -- it would be helpful, to me anyway, if you could tell us the degree to which you think sgr can be modified to follow some of your practices or what have you learned that could help us decide what we're going to do about sgr. >> let me start with a description of the way we do it. which is very similar to the way premiums are established. so think of it this way, you have a particular panel as i described, let's say 10 doctors, 10 primaries. the question is, how many patients do those primaries have. who are the patients that are attributed to them. who actually go to them. and then the first question we ask is, once we know that, what are the claims experiences of

those particular patients, it reflects their age, their sex, their illness or health, it reflects everything about the local aspects of health care, when health care is intrinsically low cal. when i said it would be typically the case, that 3,000 members will be in a panel of ours? they would be expected, just on historical perspective to have about $12 million a year in health care expenditures. >> that's the target. >> no, that's the base. in this case we used 2010, an unmanageded base, before the program started. we look at the illness burden that's in that panel and we take that into account and changes in that illness burden and then we take an overall 34ed kl trend factor, which we believe are the overall trends in health care in this region, we apply it to the base. and we then come out with the expected cost of care.

what we're expecting is that as panels perform and attempt to beat that number, when i said that 60% of the panels actually were 4% under that number, in this region, that number is between 7% and 7.5%. so to be 4% under it you would be at 3.5%. what we do is we track that trend over time. we do one full year of prospective trend, by the third year it's two-thirds, one-third, one-third prospective, one-third rest troe speckive. as the cost curve bends by action of the panels, we think it moderates the cost curve and what happens is the panels have harder and harder targets to beat. but by the time that occurs, they're more and more

experienced by how to beat them. the essential thing they must focus on is how to manage the chronic disease patients, that means they have the ability to identify them, set up a care plan for them, follow them through the community, watch for the breakdowns so we assign a nurse to help with each case, and not expect the primary to do it all by themselves. >> to what degree can this approach be applied to medicare? >> same exact approach could be applied to medicare. so you could say this is for our under 65 population, you could say take members, beneficiaries in this region who are in those very same practices. and establish medicare expected cost of care in a similar manner, medicare fees at medicare fee levels. in other words we establish a credit system, an expected cost of care as a credit to the panel. debits are the fees themselves. and what we would say to the

panel is, you manage the medicare patients in a similar manner to the way you managed the care first and you look particularly for the chronic disease, which is medicare is the chronic disease capital. >> what mr. burrell is doing at care first has popularity locally. so it has credibility. and one of the main features is that there is help given to the primary care provider to nurses to manage the more complicated and more costly patients which i think gives confidence that this is not an effort to deny care to people in order to reach the target, but to manage the cost of high interventions in a more cost effective way, the question i would have for you mr. burrell or anyone else on the panel, you mentioned that you oversight to make sure that quality is maintained. but there's always a fear that

the bonuses are based upon dollar amounts so therefore are we just denying people needed care rather than providing the quality, how do you assure that the necessary care in fact is given? >> we have five different ways, five different categories of quality measures that each physician in the panel is measured on and the panel as a whole, relating to access, gaps in care, appropriateness of care, and we have one category we call engagement. and this is the degree to which the physician is actually engaged in the care of a chronically diseased patient. are they too busy? do they take the call backs? do they deal with the nurse? are they engaged? you cannot get an outcome incentive award in our design unless you have overall quality scores that indicate that you are providing quality services