>> we've gotten a lot of calls on this funding opportunity, just in the week it's been out there. >> mr. cavanaugh, i understand the centers for medicaid and medicare services restrict reimbursement for telehealth based on geographic locations. how do you administer that? how do you choose which urban areas, for example, are more eligible than others for telehealth reimbursement? >> thank you for the question senator. in this statute, it gives us instruction to allow telehealth to be provided in certain geographic areas. pleased that with help from our colleagues at the office of rural health policy a few years ago, we changed our regs to expand the definition of rural areas that qualify. but the geographic restrictions really originate in the statute. the good news is through the innovation center which congress created we're able to move beyond those barriers and

test new models of telehealth without regard to the geographic barriers and some of the other statutory restrictions. we have a number of very interesting telehealth models that are being tested currently including the health link model i mentioned in my testimony. >> thank you very much. >> senator moran? >> mr. chairman, thank you very much. thank you for you and senator murray having this hearing. a very important one certainly from a senator from kansas. but really for the country. let me start with mr. morris. tell me what statistics are there that demonstrate over a period of time how many rural hospitals are closing or being -- in addition to that are threatened to close. i've seen an ap story just in the last few days indicating that 50 rural hospitals have

closed that expectations for more -- a total of 50 hospitals in the rural u.s. have closed since 2010 according to the ap. and the pace has been accelerating with more closures in the past two years than the past ten. this is according to the national rural health association. i've also seen the study from the north carolina research agency, organization indicating 47 i think is the number of hospitals that have closed. my question is do you consider those numbers accurate? and what kind of study analysis do you have about cause? what are the -- what can we pinpoint the cause for those closures? and what is your expectation for that trend in the future? >> yeah, mr. moran, thank you for that question. this is an issue we've been tracking, and those numbers align with what we've found in our and we're working with the university of north carolina.

they're one of our rural health research centers. and their work is very solid. you know i think that we're trying to get a better handle on what is driving the closures. i don't think that there is one single factor behind it. i think what is it's very community specific sort of issue. in some cases, it may be that the community has lost population and may not have the volume to support a full service hospital. but there are also a variety of other market pressures that may be having an impact on it. it's certainly something that we're going to continue to study further, and the university of north carolina center will probably lead those efforts. we'll be happy to share with you all those findings. they are looking at a study that we hope to have out next year that looks at what happens in a community after a hospital lowses. just doing some informal calling around to get a handle on this. in some communities the hospitals close and we see a situation where another provider can step in and still provide a broad range of ancillary was

services. maybe they have expanded their telehealth. maybe they expanded the clinic hours so they're not just open 9:00 to 5:00. and the community seems okay. in other cases there is a definite gap when a hospital closes, specifically around emergency services. but with the 34 hospitals that have closed since 2013, that is an uptick from the previous two years. what is interesting is the same number of hospitals have closed in urban areas, but i think as you know, when a hospital closes in a rural area it's a little different than when it closes in an urban area. so this is going to be a real priority for us from a research perspective over the next couple years. and we'll certainly work with our colleagues at cns and across the department to better understand and see what other resources can be brought to bear. >> mr. morris i'd be interested in knowing the research outcome of what happens to a community following a hospital closure, but i also would encourage for that research or -- for research to be conducted that would indicate what steps could we

have taken to have prevented the closure in the first place. i'm pretty certain in most instances the research will demonstrate significant consequences, often pretty dire to a community and to patients. i think that we ought to be more prospective is how do we avoid this? what are the precipitating causes. i agree with you it's not one thing. population and demographics is something maybe we can't control here. but certainly the regulatory environment, the cost structure is important to those hospitals. physician and other health care provider recruitment retention. and then the reimbursement rate. and on that topic, i wanted to ask you about the idea of cost-based reimbursement. what is the evidence that when we say we're reimbursing costs at 101% of costs that that has any real meaning in the real world? i mean, isn't the reality that when we say we are reimbursing more than costs, we only

reimburse -- not all costs are reimburstable. we create this impression that a hospital is getting more than what it costs them to operate. is there analysis? can you quantify really what is going on in a hospital when we tell them or when we tell the public that your hospital is getting 101% of costs when it's really reimbursable costs? >> yeah, that is a -- as you know, that's a very complicated question. you know it goes back to the historical costs of the hospital and if they converted to critical access, what those historical costs feed into, what they would be paid under the ch reimbursement status. so it does vary from state to state. but i would be happy to get back with you and also with your staff. we can connect you with some of the folks at the university of north carolina as well some of our experts to better understand it. >> in today's setting -- i would welcome that. in today's setting, can you confirm for the record that when we talk about reimbursing a hospital, their costs that they are receiving something

significantly less than actual cost of operating the hospital? >> i think in some cases that may be true. it's hard to say that nationally, because it's different depending on the historical cost structure to the hospital. you know it might be different for kansas than it is for alabama and, you know as you know hospital structures are cost it's a science on to itself. so i'm happy to get back to you on more of that. i would also just to respond to your earlier question, we are trying to do what we can to avoid closures. and i think we've done with the investments in the flex program, we're really focusing on making sure that hospitals -- ch is not required to report that quality data to medicare but we encourage them to do. so we've seen a significant increases in the numbers of chs reporting their quality. if they can do and they can benchmark their quality, they can demonstrate more value back to their community. we also led a contract last year to work with rural hospitals that are struggling in high poverty counties. so we have an example in

tallahassee, mississippi. mr. cochran's state, where we're able to send consultants in there to help them turn around their finances and improve their financial bottom line. so within the resources we have in there we're keenly aware of the precarious nature of some rural hospitals and whether it's our flex program or that contract, or even our outreach and network fund we can begin to get at it. we're doing all we can to help stabilize folks so we're not in a closure situation. >> i can tell you that very few hospitals in kansas who receive quote, cost-based reimbursement are able to survive in the absence of a tax levee to support the hospital. >> yes, sir. >> thank you, mr. chairman. >> thank you, senator moran. senator capito? >> thank you, mr. chairman. and i want to thank the panel. and i'm from the state of west virginia. so i'd like to ask a question to mr. cavanaugh on -- in your testimony, you talked about the new initiative health link now

which is pairing telemedicine and telepsychiatry. this program is currently being tried in three states. i was wondering what measurable data the pilot program is showing you, and what are the prospects of expanding this to other rural communities? as we know, there is a shortage of mental health professionals everywhere, and rural america is probably exponentially so. >> you're correct senator. before i was at the center for medicare, i was at the center for medicare and medicaid innovation. when we did the innovation awards, there were quite a few telehealth and telemedicine proposals. and i was surprised at the number that had a link to behavioral health and psychiatry, just as you mentioned. we have some early evaluations of those but they're very qualitative, meaning in case studies of how they have fared in standing up the program. we hope in the next year to have some quantitative data. i'll remind the committee, the statute set up the innovation center and said these models can be tested and they can be expanded if they meet certain

cost savings and/or quality improvement standards. so we intensively evaluate all these models. so we hope in the next year to have some more quantitative results. one of the things i would say is many of the innovation center models are being tested at very large scale. some of them are being tested at smaller scale. and this would be one that is at smaller scale. even the we get very promising data, i don't think the next step would be to go to national with it. it would be to incrementally move to more communities. we're hope to feel have data soon. we have made all our valuations public and we will certainly share wit this committee as soon as we have news. >> well, thank you. i think one of the obstacles that all of us who live in rural states that are combatting every day is the lack of high speed rural broad band access. and certainly that's got to be impacting telehealth into the rural health initiatives. are you running into this in some of your telemedicine initiatives? is this a problem that you've identified as well, or you have anything on that? >> again certainly anecdotally

as we talk to some of our wardees. what communities they think they can test these models in and which communities they wish they could test these models in. we don't feel we at medicare have the tools to help with that but we do recognize it as a barrier. and it's important, because i do think whether it's telehealth or other technology i think telemedicine technologies, i do think broad band is going to be essential to that. >> and it's a challenge. it's a challenge. you know anecdotally recently, mr. morris, in talk with our hospitals and emergency room physicians, we're talking with the anesthesiologist the other day, one of the things that is cropping up now is that lack of total number of residencies so that there are several hundreds. i've heard 500, and then maybe into a thousand graduates of medical schools who don't match and they don't get a residency. and that obviously stalls out their professional career. they've got student loans.

and all sorts of other issues. are you looking at -- i mean i think we should be looking at rural health as a way to expand the availability of ready sis to fill this gap. do you have any -- i know you talked a little bit about residencies in your opening statement. >> yeah. wet are -- we do recognize the challenge you have just laid out. and one of the things we initiated about five years ago was to put a grant together with the national rural health association to expand these rural training tracts. there were about 23 of these across the country. and that number had been fairly static over the years. and now they're about 34. so we have increased the number of rural training tracks. what is unique about the rural training tracts. although is a total cap on the number of residencies that can be supported, there is flexibility under the cap for new rural training tracks there is an opportunity to create rural residencies and to work with our partners at cms through that flexibility under the residency cap. and again, we know this is an

evidence-based model that works. and we've seen some real successes from it. >> i certainly would be very supportive of any kind of way to meet -- to solve. this could help solve more than just one problem here if we were able to expand that and use it wisely. and i'll just make a comment at the end. those of us who live in rural america are always frustrated that it's assumed by the more urban areas that it's cheaper to deliver medical services in a rural area because typically, wages are maybe a little bit lower. but you have workforce shortages. you have travel times. you have all kinds of other issues that it's frustrating for us i think to make the case. i mean, we're always having to make the case, as you know. you're in this too. and so i applaud your efforts in helping us deliver the message to all of the health care dollars need to be allocated -- it's not as easy in rural america as some in the urban areas might think it is.

thank you. >> dr. cassidy? >> hey, gentlemen. i was looking down but listening. so one of you pointed out the cause for closure is multifactoral. i accept that. i'm curious. it seems like the only business model that is actually going to work in a rural setting is is volume. you don't have the critical mass of patients partly because so many are uninsured and partly because your pay makes medicaid so poor. i say this because we just passed an sgr bill which promoted alternative payment models, the organization all rely on value purchases with the implication that volume decreases. so is one of the factors in this multifactorial problem that the business model can only survive with big volumes and the push is away from volume and more towards quality? have you run molds on this? i'm wondering if there is any

hope for these hospitals out besides an outright subsidy, be it through a tax base or be it through some federal legislation. >> i think, senator, you're putting your finger on a very important challenge that we all face as we move forward, which is, as you say, how do rural health providers not just survive but thrive into the new setup of the sgr reform bill. i think there is multiple ways this can happen. one is -- >> but let me ask before you go forward, because i have a specific question. >> sure. >> do you have studies showing the effect of say an accountable coorganization which needs a critical mass of people with a very good pair mex on a capitated basis receiving their preponderance of care at this institution? is there such a study looking as to whether or not this model will work for rural hospitals? >> so i'm not aware of any studies. we are pleased to say, though, there has been a lot of

skepticism whether acos could work in rural areas. in the shared savings program, which i'm responsible for we do have 15 -- so we have about 7.3 medicare fee for service medical beneficiaries aligned with acos. about 15% are living in rural america. >> let me ask, though. you can live in rural america but still get your health care at guysinger. so it wouldn't be that you had a local hospital. it would be that you're linked with a urban hospital or semi urban. you know, something such as that. so are these in the rural hospitals, what is the health of the rural hospitals and those settings in which you just described? those acos you just described. >> so you make a good point. i would remind you though, the beneficiaries are aligned through their use of primary care, not necessarily where they get their primary care. >> preponderance of primary care. you can live in a rural area and be in an aco that has a significant urban presence because there are acos that span

both times of communities. and there are those that are strictly in rural areas there is one called a national rural aco which is combining rural acos across the country. i think it's early for us to know what the relative success of rural versus urban acos. >> i'm sorry. and i have limited time. so i'm trying to focus. what is the health of the rural hospitals in those areas in which there is an aco which governs, which has responsibility, if you will, for the rural patient? because i'm really -- this is about hospitals. so the we have an aco which kind of aggregates the care into an urban hospital setting that would actually be starving the rural hospital. >> i don't have the data that you're requesting. we can certainly go back and see if it's something we can compile for you. >> okay. okay. continue, then. because that was kind of the point you. had another point. i'm sorry i interrupted.

so continue. >> i just want to make the broader point, senator, that we have heard from a lot of rural providers that they are excited about the prospects of getting into new payment models because they do find fee for service payments frustrating. they think they're efficient providers in many cases, probably are. we do have one large initiative out of the innovation center called transforming clinical practice. and this is where we're going to help small practices. not the hospitals necessarily, but small physician practices. give them technical assistance so they can develop the infrastructure and the knowledge to -- >> in that, i'll just go back to this. because it's -- the hub is what matters here. if the hub is a rural hospital and that could potentially help, although under value-based purchasing, you're still going to be emphasising keeping people out of the hospital. and i don't see -- you tell me. is there a business model that works for a small rural hospital that is not volume-based? i can see it working for the primary care providers.

but i don't see one working for a rural hospital. >> if you're looking for that our best hope is probably the accountable care organization with the aco being a primary player in that. and as i mentioned in my testimony, we've got two different programs to help rural hospitals. we provide them seed capital to help them form an aco and get into the shared savings program. it's very early both in the aco program and in these models that we're running. >> i'm sorry. so in that model what is the -- i'm sorry. i'm going a little bit long. can i have it? what is the minimum number of patients you would need in order for that rural aco to work? >> so the aco -- it doesn't change the minimum number in the basic program, which is 5,000 alined medicare patients. >> now that would be for primary care provider. but 5,000 patients would not support a rural hospital with a ct scan and o.r., et cetera. the minimum number required to maintain a certain x number of hospital beds? >> i'm sorry. i should have been clear.

5,000 is the minimum to get into the aco program, the shared savings program. you're asking from an actuarial standpoint do we have some sense of what aligned lives would be needed. i don't know the answer. >> i tell you, we cannot make wise decisions regarding public policy unless you have those numbers. because ultimately, they got to make money. and unless you can give us some data that this there is a business model that works on an alternative payment model, we're wasting our time. and i say that not to scold. i'm swaying have to make decision. we would ask y'all to come back with that, if i can ask the indulgence of my chair and ranking member. i yield back. thank you. >> thank you senator. anybody have a follow-up question? we maybe have time for one or two other questions if anybody has one. mr. morris in response to senator moran's question you believe there are states that reimburse the total cost of a critical access hospital's operation? >> no, sir. what i was saying is that

because -- and sean can correct me if i get any of this wrong. you know when you set the cost based reimbursement rate, it's based on historical costs. and we just see some fluctuations from state to state in what that initial base is. but it's more complicated than that. and i can get back to you with more information on it. >> i think we expect you to get back to us on that. >> okay. >> but i think the point is well made that these rural hospitals are not in the profit-making business even if they get 100% -- 101% of the allowable reimbursement. but there are states that have a formula that allows that we'll be anxious to see which states are doing that and how they figured out how to calculate everything that is spent by the hospital to operate into their cost basis. >> and to respond to mr. cassidy's question too, i would say that we do have examples of hospitals even with low volumes that have been able to make it

work. i think it really is situationally dependent. there is a base level of volume you need. i agree with that. but we've got some success stories out there where folks have been able to bring primary care and align the physicians and the hospitals in a way figure out what lines of service they can get into that makes sense for that community, arrange relationships with upstream providers that make it work. so what we would like to do is use our funding to sort of be the connecting of the dots between that identify those models, and maybe replicate them in other communities. >> all right. mr. cavanaugh? yes, go ahead. >> thank you, mr. chairman, and thank you for helping me ask my question, and i appreciate the answer. this is a home health care question. some of our hospitals more -- fewer than used to provide home health care services because they can't afford to. but the affordable care act includes a provision that requires medicare beneficiaries to have a face-to-face encounter with a physician who certifies the need for that home health care services. the implementation of this

face-to-face requirement raises lots of concerns with home health care provider, hospital-based or otherwise. and the documentation that is necessary, it sure seems to the providers as unclear. and the backlog of audits is increasing. there is a real uncertainty as to what the cms standard is for providing satisfactory face-to-face encounter. most of the appeals have been overturned in favor of the home health care provider. but my question is do you see this as a problem? does cms have a plan to respond to clear up the confusion provide certainty and reduce the backlog? >> yes, senator. i think you have put your finger on a challenge that we've been taking on head-on. the first thing is in rule making last year, we simplified -- you're correct that the affordable care act created the face-to-face standard. our initial rule making in addition required a narrative from the physician, a narrative

writing, which providers found ambiguous. so we withdrew that requirement. so we still have the face-to-face requirement, but not the requirement for a narrative description of the need. we continue to have dialogue with the home health industry to make sure they understand what we're looking for. we are exploring afters -- personally, i'm very interested in finding a way to facilitate people making the documentation. as you say, there are a lot of auditor reviews to these. some get overturned, but many are upheld. even when they're upheld it's often about the documentation and not about whether the service was needed, whether it was provided. i mean, granted there is fraud. but i'm not talking about that. i'm talking about a lot of services that were truly needed truly provided but poorly documented. and i'm trying to find fought there is anything the agency, any role we can play to facilitate that without facilitating bad behavior by a subset of the industry. >> thank you for that answer. i appreciate your attitude and approach toward attempting to solve this. and it is finding that place in which you don't punish those who

are doing the right thing. and you do punish or prevent those who do bad things. mr. chairman, thank you. >> thank you and thank you to the panel. i'm sure we'll have some questions submitted in writing as well. i appreciate your time today. and now we'll move to the second panel. and as the second panel is coming up, that panel includes tim walters the director of reimbursement at citizens memorial hospital in bolivar, missouri. and he is also a reimbursement specialist at the lake regional health system at osage beach, missouri. dr. christy henderson, chief telehealth and innovation officer at university of mississippi medical center in jackson, mississippi. ms. julie peterson the cmo of pmh medical center in prosser washington. and mr. george stover the ceo of rice county hospital district in lyon, kansas.

>> so thank you all for being here. mr. walters, if you want to start with your testimony, we'll go right down the line, then. >> thank you, chairman blanche, member murray first the chance to discuss current challenges. again, i'm tim walters. i oversee government reimbursement programs in bolivar, missouri and osage beach missouri. 50 rural hospitals have closed since january 2010. rural hospital closure means more than just the loss of access to health care for a community. as a rural hospital is frequently the largest employer in town, its closure represents an economic blow as well. my written testimony provides several examples of what is working in rural hospitals, including quality health care at a reasonable price to the medicare program and programs like the medical home program which improves the health in our communities.

i want to focus my oral comments though, on four specific challenges rural hospitals face. first, patient volumes are lower at rural hospitals and also flauk wait significantly on a day-to-day basis making it difficult to manage staffing levels. my written testimony has a graph on page three that shows the daily census at lake regional for the month of january showing significant daily fluctuations including a high census of 103 patients on january 15th and a low of 66 patients on january 25th. a significant fluctuation. second, medicalization is significantly higher at rural hospitals than urban hospitals. page 4 shows urban hospitals average only 30% utilization compared to 42.5% at rural hospitals. the challenge of such high medicalization is medicare cuts represent a higher% of our budget. and we have less commercial and managed care volume to subsidize the medicare losses. the third challenge is the cumulative impact of medicare

cuts. the graph on page 5 compares estimates using cms data of hospital costs versus payments from 2011 through 2023. the pop-top line represents the costs and bottom line payments factoring in productivity and fixed cuts under the affordable care act and the sequestration cut under the budget control act. the difference between the lines represents medicare's lost repeat burmts and it grows annually exceeding 17% by 2023. the cumulative impact of these cuts over this time period from my two hospitals is estimated to be about $120 million. beyond all of the cuts we've been facing, recovery of a contractor or rac program is draining our resources. lake regional currently has over 500 medicare claims worth about $3.5 million in medicare reimbursement.

the final challenge we face is the increasingly complex regulatory environment in which we operate. page 7 shows six different medicare perspective payment systems and six different medicare fee schedules we must manage with each of these systems changing on a regular basis, including changes to the midnight rule that ms implemented in 2013. also, we understand the reason for the change to icd-10 this fall, and we've been training extensively for the conversion. but this is one more significant change in our operations that we must implement with scarce funds available. both my hospitals were early adopters of electronic health records and have achieved stage 2 status. however, meaningful use funding nearing an end and the requirements continuing to increase this is also become an administrative burden for us to keep up with the changes that cms implements. in conclusion with 50 rural hospitals closing since january 2010 congress must act to prevent further erosion of health care in rural communities. we appreciate congressional action to protect the funding we

receive. for example hr-2 eliminates the annual threat of a significant reduction in the medicare fee schedule. it also provides a 30-month extension in the medicare low volume and medicare-dent programs and extends the home health care add-ones. for rural pps hospitals to survive, congress must continue to support these programs, in fact making them permanent. likewise rural hospitals should be exempted from a sequestration and future medicare cuts. we also need continuous support for programs like the 340-b drug discount program a lifeline for cms, which also saves money for the state and the federal government. finally, grant fund shotgun be made available for rural hospitals to assist with the transition to icd-10 and the larger conversion to future care delivery in future models. thank you for the opportunity to present this testimony today, and i look forward to answering questions you may have. >> thank you mr. wolters. dr. anderson? >> chairman cochran, chairman blunt, ranking member murray and distinguished members of the subcommittee, it's my pleasure

to join you today to discuss how telehealth is improving health care in rural communities. my name is christy henderson and i'm a nurse practitioner and serve at the university of mississippi medical center in jackson. mississippi ranks at the bottom for overall health obesity, heart disease, diabetes, and preventible hospitalizations. more than half of mississippi's three million citizens live in a rural community, and almost a quarter live at or below the federal poverty level. two-thirds of mississippi's hospitals are located in rural areas and lack sufficient resources in specialty care. but despite these facts, telehealth in our state is increasing access to health care and improving outcomes and lowering costs. the ummc center for telehealth began in 2003 with the teleemergency program connecting critical access emergency to departments to physicians at our trauma center. 12 years later telehealth allow us to provide over 35 medical

specialties to 166 sites around the state, including community hospitals and clinics, mental health facilities, schools and colleges corporations, prisons and even in the patients' homes. we connect sites in 52 of the state's 82 counties and serve an average of 8,000 patients a month. since 2003 we have been awarded over $9.7 million in federal grants to purchase devices, conduct workforce training and enable the technology that we use to serve patients daily. this early funding allowed us to test delivery systems, areas of practice, and service locations in order to craft an effective and impactful model worth replicating. without early critical support from usda, hrsa, fdc and others our network would have been very slow to deploy, taking the longest to reach those with the most need. today our system is completely

self-sustaining. a critical factor to our continued sustainability is the reimbursement parity available in mississippi. prior to 2013, insurance companies in mississippi did not reimburse for telehealth services. we argued that mississippi would ultimately save money if they did, and undertook a series of pilot projects to prove it. we were successful. in 2013 and 2014, governor bryant signed legislation mandating that health insurance companies reimburse for telehealth services at the same rate as in-person services. these policies changes were the catalyst for the rapid growth of our system. while increased reimbursement may cost more in the short-term, years of data from our state and numerous others prove that the cost savings achieved through better chronic disease management, fewer er visits, and aggressive preventative care far outweigh the expenditures. given the success we have seen in mississippi, i can only imagine the exponential impact

of offering similar federal parity for mental health. i commend cms for opening new code secs for reimbursement and hope the committee will encourage them to expand coverage for more services in more communities, be they rural or urban. without reliable connectivity we cannot serve rural patients. thanks to support from universal service funds and our telecom partners we are able to bring much needed health care to rural mississippi. it is this connectivity enabling remote patient monitoring in the home that is changing lives in ruralville, mississippi. last fall we launched a research pilot aimed at managing 200 uncontrolled diabetics through aggressive in-home monitoring and intervention. once enrolled patients are sent home with an electronic tablet that monitors glucose readings daily, provides educational information, and transmits health data to specialists monitoring them hundreds of miles away. for the first time these patients have access to a medical team dedicated to their

care ophthalmologist, endocrinologists pharmacists, nutritionist and nurses. preliminary results show that the majority of patients have already met or exceeded the goals that were set for the end of the study. with one exception none of our patients have gone to the er or been admitted to the hospital for their diabetes. the results are improved care at a reduced cost. so we look forward to working with the committee and would like you to consider these few points. the need to test reimbursement parity at the federal level, particularly for remote patient applications. the only way for us to know if the success of pilots like ours can be replicated at the federal level is to test it. now is the time for cms to pilot new reimbursement parity models for telehealth especially were in-home monitoring impact is the greatest. the continuing need for support for telehealth. while our network has become self-sustaining, it will not be complete until we reach every

mississippian. the need for federal funding remains, and efforts to coordinate opportunities across the agencies should be encouraged. the need to remove geographic barriers for reimbursement. rural or urban, telehealth is a powerful tool in improving access to care and should be inventivized. we recommend that geographic restrictions for cms reimbursement be removed. and then lastly, the need for continued support for universal service funds. a reduction in any of the usf fund willing not only impact current operations, but will significantly hinder our efforts to offer remote patient monitoring in rural communities. fund shotgun be protected. our mission is to increase access to health care and improve outcomes and reduce costs. telehealth allows that to happen. i thank the subcommittee or to the opportunity to testify today and look forward the answering your questions. thank you. >> thank you, dr. henderson. ms. peterson? >> chairman blunt ranking member murray and members of the subcommittee, thank you for the invitation to testify today.

my name is julie peterson, and i'm the administrator of pmh medical center, a critical access hospital located in prosser, washington, a community of about 6,000 people. pmh is organize nieszed as a public hospital district, and we serve about 68,000 rural residents in two counties and five small towns. the mission of rural health care providers like pmh is to ensure access to high quality, affordable care for populations that are challenged disproportionately by distance, poverty, age chronic conditions, and cultural barriers. many of our patients do not have reliable transportation, paid sick leave, and the other resources that allow them to travel to receive care outside of their communities. in short rural communities are older, sicker, have poor health status, and face significant economic challenges. it's never been easy to provide access to high quality care in

these communities, and it's more difficult today than ever before. as is the case with most rural communities and hospitals, pmh is more than just a hospital. we are the backbone of the community health system. what you may think of as traditional hospital activity makes up just slightly more than a quarter of our business today. in my written testimony i included an extensive list of the nonhospital services that we provide. everything from primary care to our 911 ems service. we are a fully integrated delivery system dedicated to meeting the health needs of our community in a coordinated way. but the current reimbursement system does not recognize that reality. reimbursement is siloed, and there are as many ways as we get paid as there are services we provide. this makes sustaining a coordinated health system for our community very difficult. for example, i need to be moving

forward to create medical homes for my residents. i need to be integrating behavioral health and medical health in my rural health clinics. but there are so many reimbursement variables that i cannot assure my board that we can sustain these programs. the current fragmented financial system destabilizes rural health. another challenge we face is that many people in our area remain uninsured. that's despite the fact that our state had a very successful medicaid expansion program. we provide coverage to 535,000 additional washingtonians through expanded medicaid and the health insurance exchange enrolled another 170,000 washingtonians. these efforts need to continue. rural communities also face greater shortages of health care professionals than their urban counterparts. as the ceo, physician

recruitment is a constant activity for me. i have an aging workforce and our doctors are still required in many cases to participate in call, which is not the case in urban areas. so they work very, very long hours, and they see far more complex cases in the clinic setting. programs like the national health service core and the nurse training initiatives enable many communities like mine to attract the providers that they need. these challenges our unique population, the fragmented population and work financial shortages make it very difficult for rural health care facilities to survive. we need flexibility. in washington, as senator murray pointed out, we've identified about ten very small critical access hospitals that might be facing eminent closure. that awareness has led the association, the department of health, the state office of rural health and others to begin seeking new delivery system models.

our goal in washington is to develop and test one of these new models within the next 12 to 18 months that is a very ambitious timeline but it is justified in view of the plight of some of these smallest facilities. one invaluable tool in this effort is the cmmi grant that provides $65 million to the state for the healthier washington initiative. we also have two rural hospital collaboratives that are funded in part through hrsa grants that are working with critical access hospitals and rural clinics to pioneer rural network development and outreach. the federal office of rural health policy and the washington office of rural health have been generous partners in these efforts. we will need continued help from these officers and from cms if we are to succeed. finally, i'd like to take a moment to brag a little bit about the leadership shown by all of our washington hospitals

in advancing quality of care and patient safety. the centerpiece of this effort was an $18 million grant that funded our hospital association's participation in the hospital engagement network. this quality and safety improvement work, this $18 million grant, has generated $235 million in health care savings through a reduced readmissions, fewer hospital acquired conditions, and healthier babies. that's just one example of how our rural hospitals are preparing for a future where measuring quality, efficiency, and service will be essential. we are ready to demonstrate our value to partner hospitals, health plans, and to our patients. rural providers are dedicated to ensuring that the people who live in rural communities have access to the highest quality of affordable medical care. i'm optimistic that we can achieve this goal. the programs that we're discussing at this hearing today

are valuable tools on that journey. thank you. >> thank you ms. peterson. mr. stover? >> mr. chairman and members of the committee thank you for the opportunity to speak to you today. my name is george stover, and i serve as the chief executive officer of hospital district number one of rice county in lyons county. lyons has a population of 3800. our community hospital, which first opened in 1959 is a 25-bed critical access hospital that employees approximately 150 individuals. rural community hospitals have a long and distinguished commitmentment of providing care for all who seek it 24/7 365. more than 36% of all kansans live in rural areas and depend on a local hospital serving their community. rural hospitals face a unique set of challenges because of the remote geographic location small size scarce workforce,

physician shortages, higher percentage of medicare and medicaid patients and a constrained financial resources that limited access to capital. these challenges alone would make it difficult for many rural hospitals to survive. however, one disturbing challenge that is becoming ever increase leg more prevalent is the added regulatory burdens that are being placed upon health care providers. more specifically i would like to briefly touch upon the challenges related to the medicare policy on direct supervision of outpatient therapeutic services and the 96-hour physician certification requirement. in 2009, the center for medicare and medicaid services issued a new policy for direct supervision of outpatient therapeutic services. that hospitals and physicians recognized as burdensome and unnecessary policy change. in essence, the new policy requires that a supervising physician be physically present and that the department at all

times when medicare beneficiaries receive outpatient therapeutic services. as a result, many hospitals have found themselves at increased risk for unwarranted actions. while the congressional action last year to delay enactment was applaud by rural hospitals like mine, the protections afforded it under the legislation expired at the end of 2014. rural hospitals are again at risk for exposure unless congress takes action. the 96-hour physician certification requirement relates to the medicare conditions of participation on the length of stay for critical access hospitals. the current medicare condition of participation requires critical access hospitals to provide acute in-patient care for a period that does not exceed on an annual average basis 96 hours per patient. in contrast, the medicare condition of payment for critical access hospitals requires a physician to certify that a beneficiary may reasonably be expected to be

discharged within 96 hours after admission to the critical access hospital. as a rural hospital administrator, the discrepancies between the conditions of participation and the conditions of payment have caused confusion and challenges. equally troubling, the president's fiscal year 2016 budget proposal calls for critical access hospitals' reimbursement to be reduced from 101 to 100% of allowable costs. this reduction, which would be on top of the 2% reduction associated with sequestration would effectively eliminate any opportunity for a positive financial margin. further, the recent consideration by congress on the trade promotion authority bill that extends sequestration cuts on medicare providers potentially exacerbates our financial challenges. toward that end, a recent analysis within our state showed that 69% of rural kansas

community hospitals had a negative medicare margin. the average rural medicare margin was a negative 9.3%. as a result of this trend and the fact that many rural hospitals serve a higher percentage of medicare beneficiaries, many rural community hospitals in kansas must seek some form of direct tax support from their local communities. in summary it is critically important that our rural communities across the nation are able to access quality health care services. therefore, steps should be taken to minimize the regulatory burdens that are placed on rural health care providers. i strongly encourage this subcommittee to support solutions that address the aforementioned issues. thank you again for the opportunity to be appear before you. and i would be happy to stand for any questions. thank you. >> thank you, mr. stover. i think i'll go last this time. so the order would be senator murray, senator cochran senator moran. senator murray? >> thank you very much mr. chairman. thank you very much to all of our panelists.

i really appreciate all of you participating today. ms. peterson, i'm really excited to hear about the delivery system reform work under way. and i'm proud that our hospitals have been recognized as national leaders in increasing the quality and safety of care. i'm particularly excited about the recent grant from the centers for medicare and medicaid innovation you mentioned in your testimony to support the healthy washington initiative efforts to improve care statewide that will reduce costs and stabilize some of our rural hospitals. what have you found to be the most significant barriers to integrating care in the first year of this effort? >> at this point and you're right, it is very exciting what is going on in the state of washington, i would go back to that fragmented reimbursement system. not only are the incentives different based on what line of service you're providing, but as my colleague mentioned about the racs and the amount of time it

takes to reimburse some of these systems, it's years out before we know what our true financial condition really is. so i would call out that fragmented reimbursement system. but we also need current early relevant data to move forward with when we talk about value-based purchasing and population health. so i would say stability in reimbursement is one of the barriers. and the other is just a true reliable database for rural residents. >> okay. and talk to us about some of the specific reforms that we can expect to be seen implemented in the first year of this. >> well, what i would expect to see is this continued movement towards value-based purchasing and defining quality. and, again, i think so washington state has done an excellent job of doing that. and led by the washington state hospital association, all of the hospitals in washington are participating in reporting their quality data.

so the rurals are right in there. i would expect that that's going to continue to happen. what i would like to see is more focus on what is relevant in rural communities. when we report in to hospital to compare, too frequently that grid of data has gaps for our rural facilities because we're not measuring those things that are occurring and really contributing towards quality outcomes and reduced costs in rural hospital. >> such as? >> you know, our hospital acquired conditions, our ability to reduce readmissions from our emergency department and our in patients. one of the grants that you mentioned, the community paramedic program is actually hosted by my hospital and it's been a tremendous success taking our ems resources out into the community to see people after they've been discharged. make sure that they're following their discharge instructions getting their prescriptions filled, and that they have made that primary care follow-up.

so those are some of the things i'd like. >> we've had chance to talk than, but it's fascinating to me that just that human touch on somebody, making sure they take their medication or follow what was told to them when they left the hospital reduces costs in the long run. >> it does. and they're in their own home where they can think through their questions. we also get a look at the home and the environment they've been discharged into make sure it's safe and appropriate. it's a great program. >> i'm really looking forward to more on that. one last question. what more can cms do to help rural communities make greater use of telemedicine? >> well, telemedicine in the context we usually talk about is a direct link between the patient and a provider in a remote location, or a patient talking to someone at an academic medical center. and our facility we also use telemedicine to support our local providers. so they can have that consult discussion with somebody at the university of washington or someone at swedish.

cms right now, and i think mr. cavanaugh answered some questions about the metropolitan statistical area restrictions that we have. that's a very antiquated assumption that if you increase telemedicine, you're going increase costs. in fact, you're going to take that very scarce workforce that we have in rural america and you're going to be able to extend it. it will be more efficient. and you'll create access in our communities. >> okay. very good. thank you very much for being here and your testimony. i appreciate it. thanks, mr. chairman. >> thank you. senator cochran? >> mr. chairman, dr. henderson, you mentioned in your testimony that the reimbursement parity issue was an important factor in the growth of services that are rendered through television and telehealth services. the diabetes pilot project you

described a real are really remarkable. and obviously i like the potential for significant cost savings if they could be expanded into communities across the country. what do you see as the programs that could be expanded? are we talking about the diabetes pilot project? is that a possibility to serve more communities? >> yes. so we can expand the diabetes program to other geographic regions, but we can also expand it to other chronic diseases. and that program in particular is a remote patient monitoring program where we're helping day to day with patients in their home manage their disease and keep them healthy. and using the resources that are in that community more efficiently. but from telehealth perspective it really is about connecting and coordinating all the care team. it's not just a physician service. it's a nursing one. it's interpreters. it's case managers. it's patient navigators. once you have this

infrastructure and connectivity, you can connect any of those resources to bring what would only be at an academic medical center to a rural community. >> thank you for your leadership. we think we benefit from these experiences that you've described for us today. and i hope we can help achieve those goals of expansion and improved access for less costs. >> yes, thank you. circumstances mr. moran? >> mr. chairman, again, thank you very much for conducting this hearing. and i appreciate our witnesses. thank you for what you do in your communities to make certain that citizens patients are well cared for. let me start with the kansan. mr. stover welcome to our nation capitol. thank you for coming from kansas to testify. i want to go back to what i was trying to raise with the previous panel about actual cost-based reimbursement. can you give us an idea of even though presumably you receive 101% of costs, what really --

what percentage of your actual costs are covered by that reimbursement? you might start by telling us what percentage of your patients are medicare and medicaid. what is your pair mix. there public or taxpayer support for your hospital? how do you make this work, even though presumably the images that you're getting 101% of your costs? >> thank you, senator moran. within hospital district number 1 in rice county our medicare volume is about 63%. medicaid volume of about 10%. we are a taxing entity. we are able to appropriate tax funds from our district which is about $900,000. what's interesting with that number in our fiscal year ending

in 2014, we ended up having to write off nearly $800,000 to medicare bad debt. so that essentially washes itself out. when it comes to the cost base, you're absolutely right. our reimbursement of 101% does not equate to our total costs of providing that health care within our facility. i would not -- knowing that number off the top of my head exactly, but i would say it's probably around the 75 to 80% margin, which covers our costs. so we have to look towards our local tax base to make up that difference. or otherwise start looking at reduction of services, which we do not want to do. >> it used to be that hospitals would tell me that that mix, that 70 some percent

medicare/medicaid, i suppose you do everything you can to cost shift that to those who have private insurance. but are those opportunities as available now as -- is it better to have a medicare patient, a private pay patient, a medicaid patient as far as revenue? how do you -- how do you compensate for less than actual reimbursement of costs? where do you make up that money other than taxes? can you do it with private pay? >> we work towards our uninsured, our private pay in their struggles. but no. it doesn't -- it doesn't come towards -- >> let me ask the question this way, mr. stover. are you pleased whenever a blue cross and blue shield patient walks in your door? does that mean this is a better deal than it was medicare or medicaid? >> we look forward to the blue cross/blue shield patient coming to our facility. >> and the problem is the percentage of those who come in

the door is a small percentage? >> a very small percentage, yes, sir. >> you mentioned uninsured and having to write off costs. and i'm not trying to portray this in any partisan or the way this issue is looked around here too often. but under the affordable care act, a theory was there would be more people insured. has that proven to be true in light of what you just said about hoping that the private insurance covered patient walks in the door? >> we have seen a small increase of those individuals that were once uninitiated. we find them to be enrolled in medicaid in our state-based mco program that we have. we have seen a small increase in the marketplace of those that once did not have insurance. but otherwise found it on the marketplace. but when you look at the overall, that is a very small

percentage of those individuals. they still find themselves uninsured. >> some hospital administrators have told me that even with additional insured that the copayments and deductibles are higher and therefore the bad debt expense has increased even with those who have insurance. it used to -- i think the way i describe this is somebody who had a $100 copayment could come up with a $100. but if it's a $5,000 copayment they can't do that. and so you end up writing off more even though there might be a slight increase in insured? >> that is correct. we're finding that even though that the copays in the past have been lower we're finding that the copays now, those individuals are now on a payment plan, and it in turn sometimes we're having to write those off. yes, sir. >> let me ask a broader

question. perhaps it's dr. henderson. i would like to have the summary of the costs associated with telemedicine and how they're paid for. as i was listening to your testimony, i jotted down three things that i think the hospital would have to pay for, the equipment.

and all too many have scoped in underwater on their mortgages and burdened with debt. some individuals and families and unwisely but too often financial institutions incurs behavior that resulted in such excessive debt. in my remarks today i will discuss some important reasons why the incentives facing financial restitution as were distorted and the steps that regulators were taking to realign those incentives. before discussing the incentives that contributed to the buildup of risk and financial institutions my would like to highlight the important contributions of

the financial sector makes to the economy and society. first and foremost, financial institutions channel societies scarce savings directive investments thereby promoting business formation and job creation. access to capitol is important for all firms but it is particularly vital for startups of young firms which often lack a sufficient string of earnings to increase employment and internally finance capital spending. research shows that more highly developed financial systems disproportionately benefit entrepreneurship. the financial sector also helps households save for retirement, purchase homes and cars and whether unexpected developments. many financial many financial innovations such as the increased availability of low-cost mutual funds have improved

opportunities for households to participate in asset markets and diversify there holdings. expanded credit access has helped households maintain living standards when suffering job loss, illness or other unexpected contingencies. in technological innovations have increased louisiana convenience with which individuals make and receive payments. the contribution of the financial sector to household risk management and business investment as well as the significant contribution of financial sector development to economic growth has been documented in many studies. financial development up to a.has disproportionately benefit the poor and served to alleviate economic inequality. despite these benefits come

as we have seen actions by financial institutions have the potential to inflict harm on society. instead of promoting financial security through prudent mortgage underwriting the financial sector priority and the -- pirated the prices facilitated a bubble in the housing market and too often encouraged households to take on mortgages they neither understood nor could afford. recent research has raised important questions about the benefits and costs of the rapid growth of the financial services industry in the united states over the past 40 years. a combination of responses to distorted incentives by players throughout the financial system created an environment conducive to a crisis. excessive leveraged placed institutions a great risk of insolvency in the event that severe albeit low probability problems materialized.

overreliance on fragile short-term funding by many institutions left the system vulnerable to runs command excessive risk-taking increase the probability that severe problems would materialize. the structure of the regulatory system itself. it did not keep up with changes in the financial sector and insufficiently attuned to systemic risks. once risk. once concerns began to develop about escalating losses at large firms insufficient liquidity and capital interacted in an adverse feedback loop. funding pressures contributed to fire sales of financial assets and losses reducing capitol levels and tighten liquidity pressures. certain factors encouraged

excessive including market perception is that some institutions were too big to fail. finance us the twos and's to engage in regulatory arbitrage moving assets undercapitalized off-balance-sheet vehicles. the the complexity of the largest banking organizations also may have been. market discipline. in addition to financial mediation outside the traditional banking sector grew rapidly in the years up to 2007 leaving gaps in the regulatory umbrella. conflicts and the incentives facing managers, shareholders and creditors may have induced banks to increase leverage. the federal reserve and other banking agencies substantially increased capitol requirements. regulatory minimums took to risk-weighted assets and are significantly higher.

capital requirements capitol requirements now focused on the highest quality capital such as common equity. in addition to risk-based standards bank holding companies and depository's face the leverage ratio requirement. also, significantly higher capitol standards both risk-weighted and leverage ratios of being applied to the most systemically important banking organizations. such surcharges are appropriate because of the substantial harm that the failure of a systemic institution would inflict on the financial system and economy. higher capitol standards provide large complex institutions with an incentive to reduce their systemic for print. we were we were also employing annual stress tests to gaze large institutions abilities to whether a very severe downturn and distress of counterparties and importantly continue lending

to households and businesses firms that do not meet these standards face restrictions on dividends and share buyback. as a result of these changes to your one common at queen, the highest quality form of capitol has more than doubled since the financial crisis ._qwerty regulations will also improve incentives in the financial system. prior to the crisis institutions incentives to rely on short-term borrowing to fund investments and rescue or less liquid instruments were distorted in two important ways. first, many investors were willing to accept a very low interest rate on short-term liabilities or financial us tuitions while on securitizations without demanding adequate

compensation for severe but unlikely risks such as a temporary loss of market liquidity. perhaps these firms expected government support or simply considered illiquidity a very remote possibility. second, institutions attempts to shift their holdings lifted concerns. the market value. they aim to strengthen liquidity. for example, the liquidity coverage ratio requires internationally active organizations to hold sufficient assets to meet their projective cash outflows. the new process, the comprehensive liquidity the

expectations for liquidity risk management and evaluate institutions practices against these benchmarks. the proposal for the next funding ratio would require better liquidity management on horizons beyond that. a proposed capitol surcharge for the largest firms would discourage overreliance on short-term wholesale funding also, the ntc has adopted changes in regulations that may help avoid future runs on prime money market funds and reforms the associated intraday exposures. the congress tasks the banking regulators with challenging and changing the perception that any

financial institution is too big to fail by ensuring that even very large banking organizations can be resolved without harming financial stability. steps are under way to achieve this objective in particular banking organizations are required to prepare living wills plans for the rapid and orderly resolution in the event of insolvency. regulators are regulators are considering requiring the bank holding companies have sufficient total loss absorbing capacity including debt to enable them to be wound down without government support. in addition, the fdic is designed a strategy that could deploy to resolve a systemically important institution in an orderly manner. the crisis also revealed that risk management at large complex financial

institutions was insufficient to handle the risks that some firms a taken. compensation systems all too frequently failed to appropriately account for longer-term risks undertaken by employees. lax controls in some cases contributed to unethical and illegal behavior by banking organizations and their employees. the federal reserve the federal reserve has made improving risk management and internal controls a top priority. for example, the comprehensive capitol analysis and review includes the stress test and mentioned also involves an evaluation to ensure that firms have the sound process in place for measuring and monitoring the risks they are taking. also supervisors from the fed and other agencies have

pressed firms to improve internal controls and to make their boards of directors more directly responsible for compensation decisions and employee conduct. as i noted, the financial crisis revealed weaknesses in our nation system for supervising and regulating the financial industry. prior to the crisis regulatory agencies focused on the safety and soundness of individual firms. as required by the legislative mandate at the time rather than the stability of the financial system as a whole. our regulatory system did not provide any supervisory watchdog with the responsibility for identifying and addressing risks associated with activities and institutions that were outside the regulatory perimeter. the rapid growth of the

shadow non-bank financial sector that significant gaps in regulation. in response .-dot frank expanded the mandated authority of the federal reserve to allow it to consider risk to financial stability in supervising financial firms under his charge. within the federal reserve we have reorganized or supervision of the most systemically important institutions to emphasize what we called a horizontal perspective which examines institutions in a group and in comparative terms of focusing on there interaction with the board of financial system. we also created a new office within the fed to identify emerging risks to financial stability in the broader financial system. both the bank and non-bank financial sector's and to develop policies to mitigate systemic risk. dodd frank created the

inter- agency financial stability oversight council chaired by the treasury secretary and the federal reserve is a member. it is charged with identifying systemically important financial institutions and systemically risky activities that are not subject to consolidated supervision and designating those institutions and activities for appropriate supervision. and it is charged with encouraging greater information sharing and policy coordination across financial regulatory agencies. well, my topic is broad and my time is short, so let me end with three thoughts. first,. first, i believe that we and other supervisory agencies have made significant progress in addressing incentive problems within the financial sector especially within the banking sector. second, policymakers including those of us at the

federal reserve cannot remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted. third, engagement with the broader public is crucial to ensuring that any future steps to move our financial system closer to where it should be. active debate and discussion of these issues at this conference and in other forms is important to improving our understanding of the challenges that remain. thank you. [applause] >> thank you very much. thank you very much for being here with us. i would like to say thank you.

thank you very much for organizing this convincing us that this was a worthy project and for setting the bar pretty high. janet you took us through a vivid walked down memory lane explaining again what the financial crisis had been and how it was addressed partly. i would like i would like to go just a little step further back, not to the roman days but back in the 18th century. a keen observer of the reality of society and is known to have said about bankers if you see a banker jump out the window follow him because there is certainly money to be made.

the window could be the subprime or something else. i will come back to voltaire in a 2nd. i fully agree with you that important progress on the regulatory reform agenda has improved the resilience of financial systems command i also welcome the continued vigilance of the fed and other institutions. yet, as we all know into many places financial stability is still not well entrenched. our recent global financial stability report issued under the leadership of the head of our ncn department finds that financial stability risks are rising rotating from banks to nonbanks from sovereign to non- sovereign from bank

solvency to market liquidity and from advanced countries to emerging countries. you know, back to voltaire i wonder whether he would have said, make sure you follow the banker. he might have said having read the financial times this morning, follow the financier. migration from the banking sector to the financial nonbanking sector. so there is so there is still work to be done to address distorted incentives in the financial system. indeed, action that precipitated the crisis were mostly not so much fraudulent as driven by short-term profit motivation this suggests that we need to build a financial system that is both more ethical and more oriented to the needs of the real economy. a financial system that serve society and not the other way around.

today when i would like to do is focus on how to induce a change in the culture of the financial sector, how to better align financial incentives with societal objectives and in doing so i think we need to look at both the regulatory environment and also the individual accountability. let me start with the laws of regulations. today more than six years on regulatory framework still faces several challenges that precipitated the crisis what have we done? a lot as janet has just explained but the job is not completed. a migration phenomenon will continue to be a work in progress. but think of the rules that are not tight enough and oversight not strong enough

which is why we need further progress on the too big to fail institutions. think of the culture of compensation based on short-term gains rather than sustainable profits which induces greater risk-taking and short-term is an. i remember back in 2010 when the fsb with good leadership in a task force tried to identify what the session system should be to avoid that short-term is a. boy that was a a heated debate, and i'm not sure we concluded an effective way. how can we address these problems? we have done at the imf in-depth work in the october 2014 gfs are. the global financial sector report on how compensation and government structures can help reduce risk-taking behavior and realign incentives in the financial system. let me highlight just two key takeaways.

first on compensation. incentives related to compensation practices need to change so that we are no longer so much tied to myopic actions and excessive risk-taking. our work showed our work showed that compensation packages can be structured to favor the long-term performance and soundness of the firm those who work for the. for example, remuneration should and has become subject to possible cancellation and clawback provisions in cases of either misconduct performance downturn and certainly in cases where the institution will require the direct support of taxpayers. another way is to give the shareholders and bondholders a stronger voice in

compensation structures of top executives. and there have been clearly positive steps in that regard. our analysis covering a sample of more than 800 banks from 72 different countries suggests that shareholders say on pay is becoming much more widespread. for example, in 2005 only 10 percent of the banks allowed shareholders to cast a nonbinding vote on management compensation. today 80 percent of banks have instituted this policy. we we have also seen some encouraging steps more recently by the acc. the proposed changes should make it easier for shareholders to determine whether executive compensation is aligned with the firm's financial performance or not. as a reformed lawyer i have to say that those principles have to be constantly revisited because experts

like me welcome the rules and make sure there is a nice way around. again, it is and will continue to be a work in a work in progress, and that should be the case. second, changes in government structures also matter. the key during the crisis was going internal control and risk management of institutions. think institutions. think of the recent example of the london whale, for instance. in many cases financial risks were either ignored or underestimated and in the particular case of systemic risks they were not well understood all. failure happened at both the management and the board level. one way to address this failure is to establish a clear distinction a clear distinction between the management on the one hand

and the board on the other hand. we have seen the banks with more dependent board members take fewer risks and other ways to ensure qualification and skills of board members and key technical professionals through rigorous fit and proper criteria. and so make and so make sure that is also a work in progress i sat on the board of ing back many years ago. the business of the bank was changing so quickly that constant training programs were actually necessary for us to understand what was going on to the beginning of the banking in those days. i could come to the rescue of voltaire, which is a bit unusual. training, training, and education. but regulation alone cannot solve the problem. whether something is right or wrong cannot be simply reduced to whether or not it is permissible under law. what what is needed is a

culture that induces bankers to do the right thing even when nobody is watching. ultimately we need more individual accountability good corporate governance is forged by the ethics of its individuals involving moving beyond corporate rule-based behavior to value -based behavior. we need a greater focus on promoting individual integrity. virtues are molded from abbott developing and nurturing good behavior over time. again education training. one clear solution is to set a strong tone at the top of the institution. as the chinese say the fish rots from the head. establishing a culture where ethical behavior is rewarded and another goal integrity is not tolerated the sanctioned you will forgive me but i believe very

strongly that more women leaders would also help. [applause] there have been many studies now many studies have shown that female leadership is more inclusive. only a little bit more risk-averse but there might not be something that ron and being occasionally risk-averse. i don't mean to be excluding anybody. but you might member a question that i too asked, what would have happened if it had not been lehman brothers but lehman sisters? [laughter] now, against this now, against this background i hope to see more worked on governance, change in risk culture. always been a strong supporter of regulators and supervisors independent supervisors as well and we

will continue to do some. but i would like to see institutions themselves take up this matter shareholders, bondholders as well. they should be a drive in the private sector for better alignment of risk incentive. this applies both to advanced and emerging economies. indeed, emerging economies can learn a lot from the valuable lessons, the pitfalls of there advanced counterparts. on this issue we released a study a few days ago the re-examines financial deepening from the viewpoint of emerging markets. a key finding is that the gains from growth and stability from financial deepening remain large for most emerging markets but there are limits on size and speed. when when financial sector development outpaces the strength of the super mature framework there is excessive risk-taking and instability.

the experience in many countries including the united states has exposed the dangers of financial systems that have grown too big too fast. our analysis on emerging markets shows that regulatory reforms can actually increase the benefits from financial development while reducing the risk. i am sure many of you have heard and some may have said excessive regulatory is going to refrain from good financial innovation as a finance minister i have heard that many times. based on the study, that fear, that change the regulatory framework or curtail credit, hamper financial development and stifle growth may very well be misplaced. on the whole the same set of principles that increases financial debt also contributes to greater stability. better regulation leads to

greater possibilities for development. here, let me step back and highlight the important distinction between financial depth and financial inclusion especially as we strive this year to deliver on important milestone, 2015 the year development. when nasa systems around the world exclude many individuals. many individuals, many firms from financial services resist the temptation of asking you to guess how many people are actually excluded 2 billion. 2 billion people worldwide remain 2 billion people do

not have a bank account. there have been improvement because it is 20 percent less over the last three years. still, 2 billion is a massive number. moreover, financial exclusion is far from being solely emerging markets. here in here in the united states surveys find that some 8 percent of us households are un- banked and some 20 percent are under banked. studies show that broader can help people manage risk and absorb financial shocks better. our own analysis finds financial inclusion is particularly important. powered and economically

allowing them to invest in education which they do more than their male counterparts so there is scope for improvement, market penetration, globally a staggering 42 percent of women lack access to basic financial services compared to 35 percent. this is even bigger if we consider the role of women in the provision of financial services. yet desirable adjectives as an objective, financial inclusion is not without risk particularly if it leads to excessive financial risk-taking. our forthcoming analysis shows that is reported by good regulation, good supervision, and independent supervision financial inclusion can actually go hand-in-hand with financial stability. so in conclusion the

financial crisis has exposed several fault line and provided many lessons. an overarching an overarching lesson is that building sustainable and inclusive growth hinges on collaborative efforts. it requires supervisors and regulators to work on managing risk and to work together. it requires building resilience in all countries realignment between corporate culture and societal objective. one final. i here and have heard many times over that it will be so much better bankers were boring again. you know what, i fundamentally disagree with that because it takes the view that for bankers to finance the real economy is boring. it is not my definition of boredom, and i don't think it should be ours. financing companies, providing credit, assessing risk properly, transforming maturity between savings and

investment is not a boring activity and it should be regarded as a high-value activity. and if the definition of boredom is working for the real economy in the definition of excitement is just making a lot of money i think we have to change a few things around. thank you very much. [applause] >> i wonder if you would tell us a little bit more about what the fund is doing all around the world to improve regulation and supervision. i no you have active programs and it will be good to hear what your involvement is. >> we operate at different levels. the global level and see each other regularly.

hosea is the representative is one of those meetings. we participate in the financial stability board. we sit on various committees that often meet in switzerland and we try to bring a perspective that is not so much the central bankers perspective or not so much the supervisors of the particular countries perspective but to move global perspective. we are also trying to bring to those meetings the views and voices of those that are not necessarily represented. emerging markets economies, low economies, low income economies. that is a critical role that we have to continue playing. then at the local level there is a lot of activity going on either when we do the annual sort of audit of the economy of our 188 members is very often expert

in banking and monetary policies and finance joined the teams. that is taking place annually but we do what we call the article for review we also do something that is highly valued by the membership, the financial sector assessment work done by a specialized team. they will come quite a while to actually go under the skin of the banking and financial sector and give a candid sort of third-party assessment of what -- where the risks are what the policy should be and it is a really good health check that is valued by the membership. i tried to disassociate what we do globally and will redo at the national level. >> would you like to take a turn? >> yeah.

now that the banking sector in a way the quality of the capital required. so quite a lot of true that have applied. feels a bit weird doesn't.

some really helpful and needed development but to fashion they go beyond the banking sector, particularly if some of those players will to call the taxpayers? >> that's a great question. the financial crisis just very clearly reveals that even outside the regular banking sector the shadow banking sector, non- finance, nine party financial sector we have risks that were very similar to the risks we have traditionally had in making. an example is that lehman and bear stearns the two firms in aig that got into

the gravest trouble during the crisis or not regulated banking organizations at all and yet the risks that they were taking were very similar to the kinds of risks that led to runs on banks in the past. the money market all of these markets developed important sources of credit for the economy but also had run like characteristics. so when troubles of their were essentially runs in these markets. in some cases, as you mentioned, the government and the money market fund case did come in and step in so it is important that we keep an eye on and appropriately regulate the shadow banking sector. i think we're making progress. the financial stability oversight council is charged

with designating some non-bank institutions as systemic and then putting them under federal reserve supervision and so far they had designated for nonfinancial companies and then also ate of what they call financial market utilities entities that are either do central clearing or play a key role in the payment and settlement system these have been designated and/or supervised and recognized to have systemic risk. we have adopted new regulations. we saw problems and securitization on the fact that in the run-up to the crisis so many securitize is to not really keep risk on their own balance sheet, did not have skin in the game. we have put we have put in place knew regulations that ought to make a significant difference. money market funds