July 27,2005

Baucus Hearing Statement: ''Improving Quality in Medicare: The Role of Value-Based Purchasing''

Statement of U.S. Senator Max Baucus
U.S. Senate Finance Committee Hearing
“Improving Quality in Medicare: The Role of Value-Based Purchasing”

Remarks as prepared:

Today the Finance Committee considers value-based purchasing, or pay-for-performance,
in Medicare. This idea represents a sea change in Medicare policy, a significant departure from

It is also a rather simple concept. The idea is to reward better health-care quality with
better payment. To get the most out of taxpayer dollars and improve health quality at the same

Unfortunately, value-based purchasing is a concept that has been hardly used in
Medicare, which spends over $300 billion a year. In fact, the opposite is true. Too often,
Medicare rewards poor-quality care.

Consider what the Sunday Washington Post had to say about Palm Beach Gardens
Hospital in Florida.

“In 2002, state inspectors found ‘massive post operative infections’ in the (hospital’s)
heart unit. In a four-year period, 106 heart patients at Palm Beach Gardens developed infections
after surgery. More than two dozen were readmitted with fevers, pneumonia and serious blood
infections. And how did Medicare respond? It paid Palm Beach Gardens more.”

This seems counterintuitive, but it’s true. Medicare typically pays according to what
patients receive, rather than what they need. And often what patients need and what they receive
are two very different things.

A 2003 New England Journal study showed that the typical patient in the U.S. receives
recommended care only about half the time. And we know from researchers like Dartmouth’s
Dr. Jack Wennberg that more health care is not necessarily better health care. In fact, according
to Wennberg, the amount of treatment Medicare beneficiaries receive depends more on how
many providers are in their area than on whether the treatment is appropriate.

So how do we move toward a system that rewards quality rather than volume? First, we
can learn from the private sector. Many employers, hospital systems, and insurers have taken
steps to implement payment-for-quality plans. And these steps show that paying for quality can
work. We will hear about some of these examples today.

Second, we can learn from what Medicare has already done. CMS has put forth several
quality demonstration projects, including one involving a physician group practice in Billings,
Montana. The 2003 Medicare bill mandated another experiment on pay-for-quality, this time in
the hospital sector. With 98 percent of hospitals reporting on quality measures, this experiment
showed that tying payments to quality works.

But most important, we must act. We have to move past the ideas, past the
demonstrations, and on to concrete action. We must establish a pay-for-quality system under

Last month the Chairman and I introduced a bill to enable Medicare to proceed with
value-based purchasing: the Medicare Value Purchasing Act of 2005.

Our bill starts with paying for the reporting of quality measures. It then moves to a
system of paying for quality, gradually changing Medicare into a system that rewards quality
over volume. If we do it right, we can reduce improve patient care and check unnecessary
spending. That’s a win-win.

And if we construct this system right in Medicare, there is a strong likelihood that other
payers will follow suit. Medicare tends to influence other insurance plans with the payment
systems it establishes.

I want to thank our witnesses for being here today. Many of you have been involved in
health care delivery throughout your careers, and I thank you for that service. Doctors, nurses,
and other care providers in this country work extraordinarily hard to provide the best care
possible to their patients.

I value your thoughts on how we can improve quality and value in Medicare.

Because a value-based purchasing program will not work without input from those affected –
including patients, providers, and taxpayers.

The status quo will not suffice anymore. We need a system that works. We need it soon.
And I look forward to hearing your thoughts on how to get the job done.

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