OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

OPENING STATEMENT OF RANKING MEMBER ROBERT ANDREWS, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

STATEMENT OF FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD *

STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL CORPORATION INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC *

STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC *

STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION *

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

APPENDIX B - WRITTEN STATEMENT OF FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD *

APPENDIX C - WRITTEN STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL, INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC *

APPENDIX D - WRITTEN STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC *

APPENDIX E - WRITTEN STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION *

APPENDIX F - WRITTEN STATEMENT SUBMITTED FOR THE RECORD, CAROLYN McCARTHY, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

Table of Indexes *

House of Representatives

Subcommittee on Employer-Employee Relations

Committee on Education and the Workforce

Washington, DC

The Subcommittee met, pursuant to notice, at 2:03 p.m., in Room 2175, Rayburn House Office Building, Hon. John A. Boehner, Chairman of the Subcommittee, presiding.

Present: Representatives Boehner, Talent, Ballenger, Salmon, Fletcher, DeMint, Andrews, Kildee, Payne, McCarthy, and Wu.

Staff Present: Robert Borden, Professional Staff Member; David Frank, Professional Staff Member; Rob Green, Professional Staff Member; Michel Reynard, Media Assistant; Mark Rodgers, Workforce Policy Coordinator; Deborah Samantar, Office Manager; Kevin Talley, Staff Director; David Connolly, Professional Staff Member; Chris Bowlin, Professional Staff Member; Cedric Hendricks, Minority Deputy Counsel, and Marjan Ghafourpour, Minority Staff Assistant/Labor.

Chairman Boehner. A quorum being present, the Subcommittee will come to order.

And I welcome our witnesses and our guests, and we appreciate all of you making an effort to be here today. Under rule 12 of the Committee rules, any oral opening statements are limited to the Chairman and the Ranking Member. Any Members who wish to submit statements are certainly welcome to do so, and without objection, all Member statements will be inserted in the record.

Welcome to our third in a series of Hearings we are holding to examine the different aspects of employer-sponsored health insurance in the United States. Today we will hear from a panel of witnesses who will discus employer health plan accountability and whether plan participants have adequate protections.

ERISA was designed to maximize the flexibility and plan design while ensuring that participants' rights were protected. Among the specific topics we will discuss today is whether plan participants have an adequate method for dispute resolution, and we will explore the various levels of accountability in health plans today.

ERISA health plan accountability is a major interest to and the primary jurisdiction of this Subcommittee. The media would have the public believe that accountability and other issues in managed care are failing, and failing badly. While there certainly may be room for improving the private health care system, the issues of accountability and participant protections must be fully understood. Many questions must be asked and answered before venturing into uncharted territory that could adversely affect employer-provided health coverage.

Health care should be accountable, accessible, and affordable for all Americans. If there is a way to enhance consumer confidence and trust in their health plans without adding for the 43 million Americans who don't have health insurance, I think we have the responsibility to find the solutions that can increase consumer confidence.

Today, as I said, over 140 million Americans have health coverage under private health plans sponsored by employers. ERISA was crafted in such a way as to provide employers the flexibility to design plans within certain guidelines and regulations, and to be free from individual state regulation in a multi-state operating environment. This was done to encourage private employers to voluntarily offer fringe benefits to employees at the lowest possible cost. Health law is a delicate balance between protections for plan participants and plan flexibility.

Employer-provided health benefit plans are evolving. Plans designed today are quite different than they were in the 1980's due to the different conditions in the medical market place and the changing nature of the labor pools. The strength of employer-provided health benefit plans is their ability to evolve in order to meet the needs of both employers and employees and to accommodate future market forces.

As I stated at our last Hearing, this Subcommittee, with its jurisdiction over ERISA, has the responsibility to carefully consider proposed legislation and regulatory changes to ERISA. Before we impose new binding rules on ERISA plans, we should review current standards and determine what problems, if any, need to be addressed with a federal solution. Our duty, as lawmakers, is to carefully evaluate the testimony and records before us to form a strategy that doesn't significantly increase the costs or the number of uninsured, protect patients not necessarily providers provides new affordable options for the uninsured, and provides care and not necessarily the courtroom. These four parameters should guide us in our efforts to make any improvements in the current health care system.

We are all aware that the Senate Health Committee has reported out legislation including a new external review structure. And I think we must understand how the benefits claims process works and judge the effectiveness of the current rules before we impose new federal rules on employer plans.

At the Subcommittee's first Hearing, I stated that we must all understand that amendments to ERISA involve tradeoffs between cost and access. The greater the regulation, the higher the cost of insurance, and the greater risk that employers will drop coverage for their workers. Thus, regulatory amendments must be made with care. Congress should be cautious in crafting any new requirements under ERISA. If it is deemed necessary to implement any new mechanism for ERISA plans, it should be done only after careful consideration and thought. Proposed changes to ERISA must withstand the test of time in a rapidly changing marketplace.

I know that both parties are interested in helping to make America's healthcare delivery system as efficient, effective, and all-inclusive as possible. Improving the system with legislation starts with building consensus, and building consensus starts with listening. That is what these Hearings are all about.

WRITTEN OPENING STATEMENT OF CHAIRMAN JOHN BOEHNER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE – SEE APPENDIX A

Chairman Boehner. At this time, I would like to ask the distinguished Ranking Member, Mr. Andrews from New Jersey, for his opening statement.

Mr. Andrews. Thank you, Mr. Chairman, and good afternoon, ladies and gentlemen.

I am looking forward to hearing what the witnesses have to say today, and I appreciate their very thorough preparation for this afternoon's session.

The title of the Hearing is ``Employer Health Plan Accountability: Do Plan Participants Have Adequate Protections?'' I would venture to say that most of my constituents and I think most Americans would answer that question, ``No.'' We do not. Whether that is a misperception or whether it is an accurate rendition of the state of affairs is one of the topics of this Hearing.

I would say this to you, though, that in American society, the conduct of businesses and institutions is regulated by some combination of regulation, competition, and litigation. In each of those three areas, this Committee has looked at the experience of managed care.

We had a very informative and interesting hearing on the question of association health plans which really focused on the possible use of that tool as a way of engendering more competition in the healthcare marketplace with all of its liabilities and assets.

Obviously one of the center pieces of debate is whether or not the litigation system, with its regulation, should extend through the managed care system. There are strongly held views on both sides. And despite the aggressive efforts of many courts across the country, it is still generally accepted law that ERISA plans are immune from the tort regulation of the litigation system. This leaves us with the third leg of regulatory control which is the leg of government regulatory statutes and administrative regulations.

Today, what we are going to hear about is whether or not the present regulatory structure that exists under ERISA and the voluntary system of accountability that is built on top of it by ERISA participants suffices to adequately protect consumers.

I do think it is necessary that we move from the anecdotal to the evidential. All of us, each of us, could relate stories of disgruntled consumers unhappy with what they perceive to be a lack of attention to their medical concerns.

I think that the anecdotal discussion really doesn't add much to our lawmaking function. I think the Chairman is right; the way to approach this problem is to hear from a variety of views about the assets and deficiencies of the present dispute resolution system, its costs and its benefits, and the cost in benefits of any changes to that system. Suffice it to say that although this Hearing does not start with a policy presumption, I think most Americans start with a policy presumption that there is a serious problem that exists right now in managed care where people do not get the attention to their claims and complaints that they feel they deserve, where there is an intrusion into the relationship between the provider and the patient, and where people feel that the health care for which they are paying is not necessarily being delivered in all cases and instances.

This is a critical issue that I hear about from people who deliver mail and teach school and run businesses and do all kinds of work in our community. I think the Chairman is to be commended for assembling a panel of well-qualified, well-schooled people to address these questions, and I look forward to what they have to say.

Chairman Boehner. Thank you, Mr. Andrews. Our first witness is Mr. Fred Hunt, President, Society of Professional Benefit Administrators. Mr. Hunt's testimony will include a discussion of ERISA's internal appeals process. Our next witness will be Ms. Jane Greenman, Deputy General Counsel, AlliedSignal, on behalf of the ERISA Industry Committee. Ms. Greenman will address the effectiveness of ERISA's fiduciary rules and enforcement. Our next witness will be Mr. Larry Atkins, President, Health Policy Analysts, on behalf of Corporate Health Care Coalition. Mr. Atkins will address whether employer health plan participants have adequate protections under ERISA. And our final witness will be Dr. Timothy Flaherty, on behalf of the American Medical Association. Dr. Flaherty will likely address the areas of the law that could be improved, and any additional protections that are needed.

Let me remind witnesses that, under Committee rules, statements are limited to five minutes. We are not going to strictly enforce it if you don't get carried away.

[Laughter.]

With that, Mr. Hunt, you may begin.

 

Mr. Hunt. Thank you, Mr. Chairman. I wish I had had the good statements that you and Mr. Andrews said. You could have replaced us here.

[Laughter.]

There is a description of SPBA at the start of my testimony, because I think I wanted you to understand it is a unique situation, that suffice it to say our members are hired much like you hire tax preparation from outside experts. We have no vested interest in whether a claim for $1 million is paid or not paid. It doesn't give a penny more to us, so we can be unbiased in that. Also, we are unbiased in every size and shape of employment as well as every type of funding vehicle for our clients and for our member firms. So I am coming with a big picture on that.

One of the points I would like to touch on, and I think we could probably bring a whole lot of peace to the entire Congress on this, is to clarify a couple of what I call ``vocabulary goofs.'' And I was appreciative of Mr. Andrews touching on the issue.

One is what I call ``plan vs. plan.'' ``Plan'' to an ERISA person is very strictly defined in ERISA, and it is a trust and a reimbursement funding vehicle. Also, the word ``plan'' is being used nowadays for a variety of medical menu things, usually in an HMO-like setting, where the providers are actually providing the care. That is a very, very, very important difference. Be careful not to say ``plan'' when there are really two meanings.

The second one is ``managed care,'' and, again, Mr. Andrews touched on that. One of the things I would point out is ``managed care'' is an undefined term, and it is used for all kinds of things from prescription plans that help to keep you from having crossed prescriptions to HMO-like things. It is the HMO or provider plan portion that only about 28 percent of the employee benefit plans have. So, it is a subset of managed care. And, again, I guess I would say be careful not to pass on anything for managed care because you might be applying it where it doesn't belong.

My third one would be appeals and review. This is a fluid type of thing, and fortunately every one of you is an expert on that. Every one of your offices has a caseworker who helps people on Medicare, and you know that there are all kinds of things that can take weeks and months to get through. What was the name of the person with a social security number mix up? Was there a mix-up in the bill in the doctor's office? Was there all the different kinds of things that can go wrong? So you all know first hand from your caseworker staff how that kind of thing can go on.

[Laughter.]

I highlight in my testimony four or five different kinds of problem areas that arise in doctors' offices, and in preferred provider organizations which are a doctors' discount service. These kind of things that occur before the employer or the plan ever gets a hold of the thing. There are delays and mix-ups and problems.

[Laughter.]

Now, the good news is we did a survey of our members, and we found that once you get all the right information, the system works, and 99 percent of the claims are paid within seven days. Now, of that 1 percent, do the claims and appeals work? Yes. The payer plans which are the reimbursement plans. I am separating ERISA payer plans from those that provide medical care and I hope that in any legislation or considerations you would also do the same. But for the payer plans, which is 70 percent of the market, .06 of all the claims are appealed, and 24 percent of the appeals come out positively in the first review. So it shows it is certainly not a ``kangaroo court'' or anything like that. So what that means is for 70 percent of the market in the payer plans, what we are really talking about is that .045 percent of the claims are the trouble areas in the payer plans. Now that includes and these are the ones that are actually turned down and might be turned down in the appeals process.

Now, I love one of the examples that came up in Medicare a few years ago, and that was that Medicare got a claim for a pregnancy test, and eight days in the hospital to recover, for an 80-year-old man. Now that was turned down, I am glad to tell you. And I don't think it takes a medical panel to figure out that was not a medical decision to say that he was turned down.

As I noted earlier, the appeals and review are usually an ongoing process of collecting information. So when I asked my members how many levels of appeal they had for patients, it was as much as ten of them. But I think it is everybody trying to help again like your caseworkers. They are helping at various stages.

Now ERISA itself has multiple levels of appeal. First is the requirement for a formal internal review process. There is also a built-in external review because any patient can complain to the Department of Labor to be sure that the fiduciaries acted properly. The next step is the external process of going to federal court, so you really have two external processes already existing within the thing. The Department of Labor and/or the courts can bring civil and/or criminal jail time charges, so it is a very strong incentive. It is certainly more than a slap on the wrist.

Timing. Remember that I am talking about 70 percent of Americans in payer plans where it is a reimbursement thing, so we are not talking about cases in which the medical services have been long delivered. The person went to the doctor of their choice and got the medical service of their choice. There is no one bleeding to death in the waiting room, when I talk about the delays, in a payer plan. The medical service has been provided.

We have already described the human nature problems in my testimony. Is the bill right? Was it coded right? Was it delivered right? Did the doctor give the right tax ID number that the IRS requires, et cetera, et cetera, et cetera? Those are all problems that once again your caseworkers can testify to. ERISA gives 60 days for review decisions on initial claim denials, and claim determinations must be made within 90 days.

Now, there is big talk about penalties and Congress, and I am feeling very old. I happen to have been around in 1974 when ERISA was being put together and this was a hot issue at that time. Congress wisely prevented ERISA from being a self-destruct vehicle, because Congress wanted patients to get what they were due if there was a goof. But if a plan has to pay a zillion dollars in punitive damages, that is the money of other workers. Remember, plan money is worker money. It is the co-pay that people put in from their paychecks. It is COBRA payments that people put in, so they figured the money would be better spent on what it was intended for rather than for the others.

So, as you hear other testimony, please ask yourself and ask them if they are talking about employers payer plans or are they talking about HMO-like medical care. That is the important question. I think that will help you to decide throughout this process. It may well be that provider plans do need some medical external review mechanism. However, be careful not to apply something designed for one situation to a very different situation. As I said, last year there was a bill in the Senate that would have had employers responsible for the hours of operation of any medical clinic their employees went to, the location of the thing, and the demeanor of the staff. There is no way we know where our staff is going to the doctor; that is their choice. We can't control the demeanor of the staff.

[Laughter.]

Finally, I would point out that Congress has already passed one major reform in this area with HIPAA. There was the administrative simplification portion of that. It has not taken effect yet because HHS is in the process of trying to come up with the Regulations. But you have already prescribed one solution that should solve a number of the problems. In the meantime, the Department of Labor has also come out with some pretty strong claims regulations proposals which would solve a lot. I am not sure how and no one knows how that will all evolve. But I guess what I am saying is that you have already prescribed or the government has already prescribed two medications for any problem that might be out there. And I worry about prescribing a third on top of it, before the first two medications have a time to work.

[Laughter.]

 

Thank you, Mr. Chairman.

WRITTEN STATEMENT OF FREDERICK D. HUNT, JR., PRESIDENT, SOCIETY OF PROFESSIONAL BENEFIT ADMINISTRATORS, CHEVY CHASE, MD – SEE APPENDIX B

Chairman Boehner. Thank you, Mr. Hunt. Ms. Greenman.

Ms. Greenman. Yes. Mr. Chairman, Members of the Subcommittee, I am Jane Greenman, Deputy General Counsel of Human Resources, at AlliedSignal, and I am testifying today on behalf of the ERISA Industry Committee, commonly known as ERIC.

With the Chairs permission, I have submitted a written statement for the record and will proceed to summarize it.

ERIC and its member companies believe that the existing scope of ERISA regulation is appropriate to the goals of protecting participant rights while promoting voluntary employer-sponsored health benefit programs.

ERISA reflects a regulatory structure that establishes appropriate ground rules, including strict fiduciary standards, and applies them on a uniform nationwide basis. To ensure participants and beneficiaries receive the benefits that are promised to them, ERISA requires plan administrators to act as fiduciaries that is like trustees and subjects them to the highest fiduciary standards known to the law.

ERISA requires plan administrators to disclose plan terms to participants, to administer the plan in accordance with its terms, to act solely and exclusively in the interest of participants, and to have a claims procedure that gives each and every participant and beneficiary the right to appeal any benefit claim that is denied. Administrators' decisions are subject to review under federal law in federal or state court, and the courts have broad powers to grant equitable relief, including the benefit denied, attorneys' fees, and, if appropriate, disqualification and removal of the fiduciary.

In order to encourage employers to establish and maintain plans, Congress rejected imposition of tort malpractice-type remedies such as consequential or punitive damages. Congress made a clear decision in favor of strict fiduciary rules and personal liability for the fair administration of these ERISA rules as opposed to tort-type damages in order to ensure that, in a voluntary employer-based system, participants receive the benefits that they have been promised.

It is hard to imagine, especially in today's business environment, any CEO or board of directors continuing a voluntary benefit program unrelated to a company's core business. That could lead to potentially catastrophic legal costs and damages. A plan fiduciary who reviews the claim for benefits must act solely on behalf of the claimant and other participants to resolve that claim in accordance with the terms of the plans.

And I think that it is important to remember that the terms of the plans in a voluntary system are what governs, what is covered and what is not covered. The benefits of all plan participants and beneficiaries depend upon adherence to this principle. If a fiduciary allows a plan to provide some participants with benefits that are not authorized by the plan, the plan is left with fewer dollars to pay benefits for others. And, as importantly, the fiduciary will have breached a fundamental duty to the plan's other participants, to administer the plan in a uniform and consistent fashion.

That is why ERISA requires plan fiduciaries to abide strictly by the terms of a plan document. That document reflects the design that has been determined by the sponsor employer. And fiduciaries have a duty to all participants, not just to those individual participants who submit sympathetic benefit claims. When fiduciaries decide benefit claims, plan fiduciaries must act dispassionately, consistently, and in the interest of all participants and beneficiaries. Dangling punitive or consequential damages over the heads of fiduciaries as they make their decisions can only undermine the objectivity of their consideration and lead to endless disputes and excessive litigation. Timely, effective claim and review processes are the best means to ensure that participants receive the benefits that have been promised by employer-sponsored plans.

Protracted litigation imposes potentially crushing financial burdens on employers while offering plaintiffs only cold comfort after the fact. With reasonable modifications, rules governing current ERISA claims procedures can and should be adapted to provide timely, responsive claims review processes, better appropriate to today's managed care environment, and that entails as Mr. Hunt described both pre-service determinations, as well as post-service determinations. ERISA's current claims review procedure regulation can easily be revised to ensure this timely review of claims in a manner that is consistent with a ERISA fiduciary duty to administer plans in accordance with the terms and conditions of those plans.

ERIC has submitted extensive written comments on the recently proposed claims procedure regulations that have been published by the Department of Labor and is working closely with the Department to ensure the final revised regulations are effective and workable. The current ERISA framework need not be abandoned in order to improve quality and protect consumer interests. ERIC is convinced that ERISA can be fine tuned to address such concerns without fundamental changes to the ERISA frame work. ERISA has struck the best balance between protecting consumer interests on the one hand and encouraging employers to offer coverage on the other.

Mr. Chairman, I think that you articulated many of the strengths of ERISA in looking at the balance between those protections and the need for employee coverage. ERISA provides a flexible combination of strict reporting and disclosure requirements, stringent fiduciary rules, and accessible judicial relief. The combination of reporting and disclosure, plan-sponsored duties, uniform rights and remedies has led to ERISA's tremendous success in fostering a robust private healthcare system that, in the vast majority of cases, really works remarkably well.

In conclusion, it is absolutely essential that ERISA's current fiduciary structure be preserved because it ensures that plans are administered solely in the interest of plan participants and beneficiaries while giving deference to the exercise of discretion by plan fiduciaries. Exposing plan fiduciaries' coverage decisions to liability comparable to medical malpractice or product liability will force employers to either terminate their health plans or redesign them for the sole purpose of avoiding liability, instead of for the sole purpose of providing the best high-quality, cost-effective benefits. Such plan terminations and redesigns will have a serious long-term detrimental impact on plan participants and beneficiaries.

Thank you for your attention. I would be pleased to respond to questions.

WRITTEN STATEMENT OF JANE F. GREENMAN, DEPUTY GENERAL COUNSEL, HUMAN RESOURCES, ALLIEDSIGNAL, INC., ON BEHALF OF THE ERISA INDUSTRY COMMITTEE, WASHINGTON, DC – SEE APPENDIX C

Chairman Boehner. Ms. Greenman, thank you very much. Hello, Mr. Atkins, you may begin.

Mr. Atkins. Mr. Chairman, and Members of the Subcommittee, my name is Larry Atkins. I am president of Health Policy Analysts, a Washington-based consulting firm. I am testifying today in my capacity as Coordinator of the Corporate Health Care Coalition. I appreciate the opportunity to appear today to address this question of employer health plan accountability and the adequacy of ERISA.

Accountability at all levels of the healthcare system is what employer initiatives in quality measurement and purchasing are all about today. Employers rely on health plans to identify the best providers and practices and wean the system of outdated, unnecessary, and inappropriate medical care. And they use purchasing standards, comparative measures of performance, plan accreditation, and a variety of other methods to hold the health plans accountable for performance and patient outcomes.

ERISA is an important part of the accountability picture. ERISA's requirements for information disclosure, fiduciary duties and liability, claims procedures, and judicial remedies are substantial tools for participants to use in obtaining the benefits their employer plans provide. With that in mind, ERISA's claims review requirements have not kept pace with the changes in claims determination brought on by the growth of managed care. Coverage decisions are now often made before treatment is rendered. And with comprehensive benefits, more decisions are made on the basis of medical necessity than on the basis of overt plan coverage limitations.

Employer plans and their claims administrators today process claims more rapidly than ERISA requires, and they often provide independent external medical review of significant contested medical necessity denials. Employers have found that external review is an effective way to resolve significant coverage issues involving medical treatment questions. It can instill confidence in plan enrollees that the plan will cover the most effective treatment. It ensures that medical necessity decisions remain medical using expert medical judgment and medical evidence. It is independent of the plan and its financial incentives, and it renders the decision promptly when the participant can still benefit from treatment.

An external review process in ERISA would provide a mechanism for resolving differences in medical opinion on medical necessity. Any ERISA requirement should provide uniform Federal process that is consistent from State to State and preempts State processes, and it should be the last word on treatment. If the medical judgment is sound, there should be no value in second-guessing it in state courts before juries.

Some patient rights' bills include a statutory standard for medical necessity to serve as a touchstone for external review. A statutory standard for medical necessity is a very dangerous idea. The standard these bills use is borrowed from the defense that is used in medical malpractice cases. It is ``generally accepted'' medical practice. That is the lowest common-denominator of medical practice. You can't fault a physician who is only doing what everyone else does.But external review decisions should rely on the best medical knowledge. A statutory standard is useless in external review anyway. The reviewer would still have to decide what ``generally accepted'' medical practice was. External review, itself, provides the objective standard for medical necessity by referencing the best medical evidence.

Every plan, Medicare and Medicaid included, uses medical necessity determinations to avoid paying for outdated, unnecessary, and potentially harmful care, and to readily accommodate effective, new medical treatments. The patients' rights bills would prevent plans from overruling treating physicians who followed generally accepted practice. This would put all of the employers' quality initiatives at risk.

How do you reduce the 16 percent of hysterectomies the Institute of Medicine says are unnecessary? Or the 20 percent of inappropriate pace makers? If Medicare were required to pay for what all treating physicians ordered, how would the Secretary control costs and reduce fraud?

State tort liability for coverage decisions is another very dangerous idea. Sending a patient into litigation for three years does little to get him or her the treatment that he or she needs now. The only point of punitive damages is to create a hammer to scare plans and try to force changes in behavior. But recent punitive damage awards for example, the one a few weeks ago, or earlier this year, in California, for $116 million that involved State employee plans make it clear that liability for coverage decisions sends all the wrong signals to the health plans. In these cases, juries disregarded external reviews, consensus guidelines, and clear medical evidence in punishing the plans for denying what actually was an ineffective or an inappropriate treatment. The message liability sends to the plans is to approve everything, because only blanket approval can protect the plan from the wrath of a jury.

Some of the patients' rights bills try to exempt employers from liability. This is not possible. As long as the employer remains the plan sponsor, it can be reached in a variety of ways, including through negligent selection and negligent retention theories.

Let me also comment quickly on the cost of liability. The Texas Liability Law has been held up as an example of how liability really doesn't cost very much, but I don't believe that this is true. Cases under this law have only been going forward since October, and even so, some of the real costs are now starting to appear. A physician-owned plan in Temple, Texas, for example, recently announced a 15 percent increase in its premiums to employers and then notified them that half of this increase was due to a major increase in benefit approvals that was being driven by a reluctance of their medical directors to deny or delay requested care. And in the case of the Texas bill, there is a penalty for delay of care in rendering care, and there is no definition of what a ``delay'' is. And so the medical directors are just approving these to avoid liability.

Ironically, health plan liability will lead to a reduction in the accountability of health plans to employers. Employers who choose to still sponsor benefits will reduce their selection in plan comparison efforts and curtail their activities in reviewing or overturning health plan benefit denials. Employers are committed to achieving a high level of accountability throughout the healthcare system. This accountability will come with the development of evidence-based medicine and the ability for plans to rely on evidence-based judgments as a benchmark for good care.

We urge the Committee to adopt procedures such as external review that will support this effort and to reject those such as medical necessity standards and liability that will undercut it.

Thank you, Mr. Chairman.

WRITTEN STATEMENT OF LARRY ATKINS, PRESIDENT, HEALTH POLICY ANALYSTS, INC., ON BEHALF OF THE CORPORATE HEALTH CARE COALITION, WASHINGTON, DC – SEE APPENDIX D

Chairman Boehner. Thank you, Mr. Atkins. Dr. Flaherty.

Dr. Flaherty. Mr. Chairman, and Members of the Subcommittee, my name is Dr. Tim Flaherty. I am Secretary-Treasurer of the AMA Board of Trustees and a practicing, board-certified Radiologist from Neenah, Wisconsin. I want to thank you for inviting me to testify today in this health plan accountability and internal/external appeals process.

At the outset, let me emphasize that virtually all patient protections are interrelated. Whether we are discussing external appeals or healthcare accountability, other patient rights will be affected in some way. Consider, for instance, the external appeals in ERISA preemption. Congress could pass legislation to guarantee that all patients have access to independent external review. It could also prohibit plans from arbitrarily defining ``medical necessity.'' But if plans can still avoid responsibility for making negligent medical decisions that will injure or harm patients, patients will never be adequately protected.

The AMA believes that Congress must, therefore, address all patients' rights with a single, comprehensive patient protection package. Within this package, patient protections that ensure healthcare accountability are clearly among the most important. Patients are entitled to receive the benefits which they have paid and are rightfully owed. Plans and insurers must not be able to arbitrarily deny patients those health benefits. Consequently, patients must be guaranteed access to timely, meaningful, independent, and binding external appeals process when coverage has been denied.

To protect patients' rights within a meaningful external appeals, the following three elements must be present. First, patients must have adequate access to an external appeals process. Second, the process itself must be timely and fair. And third, the reviewers must be independently and properly qualified.

For access to the appeals process to be adequate, all patients must have the right to appeal any adverse decision. And if plans or insurers require that internal grievance procedures be exhausted before the patient can access the external review, the plans or insurers must also follow expedited procedures when the patients' health requires it.

The process, itself, must also be fair and equitable. The process must prevent plans or insurers from ``slow walking'' the patients or unnecessarily delaying the appeal process. Rather, appeals must be conducted in a timely manner, as the patient condition and health permits. And very important, the review entities' decision must be binding on the plan or insurer and enforceable.

Within the review process, the issues of who determines medical necessity and how it is decided really remains critically important. Currently, some plans are focusing primarily on cost criteria to define ``medical necessity'' and then unfairly denying medical care to patients. The AMA believes that the health plans should not be allowed to continue this practice. This practice is unacceptable and becomes even more repugnant when the plans' arbitrary definition of ``medical necessity'' has to be used by the external reviewer.

The AMA believes that medical necessity decisions are ultimately medical decisions and should continue to be treated as such. Medical necessity decisions must always be made in accordance with the generally accepted standards of medical practice that a prudent physician would follow when treating a patient. Legally and medically, this is an objective standard consistently relied upon by the courts and not subject to the abuses alleged by plans and insurers.

A third essential element for a meaningful external review is properly qualified reviewers. Independent medical reviewers must be just that external to, and independent from, the health plan insurer. They should have no conflict of interest with, or be beholden to the health plan or insurers. They also should have proper professional qualifications. External reviewers should, therefore, be licensed physicians of the same specialty and be actively practicing in the same state as the practitioner whose decisions are being reviewed. A decision based on ignorance will rarely be a good decision.

Stronger internal/external appeals rights will help prevent health plans from ultimately denying medically necessary care. But sometimes an ERISA plan's initial decision to delay or deny a covered benefit causes an irreparable harm. The media reports on an alarmingly frequent basis the disturbing results of patients who suffered unnecessarily because their health plans deny services promised under the plan. This is unconscionable.

We have several studies that show ERISA reform will not significantly raise premiums, and I have included the book with these studies within them for your interest.

We do not believe that employers should be liable unless they exercise discretionary authority to deny a covered benefit. While the federal courts are beginning to find ways to hold plans accountable under ERISA, they have specifically stated that only Congress can fully restore the rights of the ERISA patients to seek a remedy for negligent medical decisions. Until Congress acts and the federal courts notice, the answer to the question, ``Do plan participants have adequate protections?'' is a resounding, ``No.''

I appreciate the opportunity to testify today. Thank you.

WRITTEN STATEMENT OF TIMOTHY T. FLAHERTY, MD, SECRETARY-

TREASURER, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION – SEE APPENDIX E

Chairman Boehner. Well, thank all of the witnesses for their testimony. And I think we will begin with Dr. Flaherty's last comment, when he posed the question, ``Do plan participants have adequate protections today?'' and the answer is a resounding ``No.''

In Dr. Flaherty's written statement, and I will quote, ``Current federal law fails to require health plans to provide comprehensive internal and external grievance procedures for review of plan descriptions relating to coverage and access disputes.''

And what I would like to do is ask Mr. Hunt and Ms. Greenman and Mr. Atkins to respond to those two comments from Dr. Flaherty. Mr. Hunt.

Mr. Hunt. Well, first of all, as I was being thrown into my statement there are already the built-in ones.

[Laughter.]

I mean just going by the legal ones would indicate that there has to be a formal internal review process. ERISA requires that so that is already there. The second I guess an external and unbiased review. I might point out that no one has addressed who is going to pay for all of these expensive qualified doctors to sit on panels all the time and not be serving patients. But the Department of Labor is there. That is the police force. That is an external review process to make sure the whole process is done right.

I might remind everybody, while we are sitting here in this room worrying about the patient I have also sat in this room and had the Committee say, ``Remember that one of the important things about ERISA is to make sure that only the proper allowed payments may be made.'' In other words, I might really want to do something for that guy across the street. I am sorry; he is not in the plan. I don't care how sad it is, that is a breech of fiduciary duty. So, employers have to balance that part, so you have the Department of Labor on both sides to make sure someone is not spending too much or too little. And then you have, of course, the court system which is a final review.

One of the other problems that has arisen, and I was at the dentist this morning so I got an hour and a half discussion on this as well and I have been doing some research and preparation for this, is that there is no one right answer. We have all been going on the assumption that there is one right answer to every medical question. And I was told by one doctor who is a member of the House, that ``Well, there are as many as 100 protocols for every situation that you have.'' So I guess the problem is that when you have 100 different people on the panel or you have 100 panels there are going to be 100 right answers. It is not that there is one single answer that is right. That is a problem that I worry about with some of the panels.

This system yes, there is an internal system. It does work very well. It is astounding how well it works. The Department of Labor is sometimes overzealous, and sometimes I wish they were more zealous, but it works.

Chairman Boehner. Ms. Greenman?

Ms. Greenman. Yes. I think it is clear that the ERISA statutory structure provides adequate protection for the rights of participants and beneficiaries. There is a claims procedure that is mandated for all plans. There is reporting and disclosure that is designed to apprise the government as well as to inform participants as to their rights. There are means within a plan structure for participants to submit a claim and to obtain a full and fair review of any claim that is denied.

What is interesting to me is that what Dr. Flaherty is suggesting in terms of the standard of external review, is a lower standard than ERISA imposes on fiduciaries. ERISA fiduciaries standard of prudence is the standard of a prudent expert. That is a much higher standard than what did he call it? Licensed physicians practicing in the same state. Now we all know that there is significant variations in levels of practices, and to say that a plan bear in mind that ERISA fiduciary prudence rules require the prudent selection and retention. It is a fiduciary obligation. A fiduciary is beholden to the plan and can be removed if he/she doesn't follow these standards for retention and selection, so that we have got a prudent expert standard in the selection and retention of bad claims administrators. And a plan such as Dr. Flaherty is suggesting is a much lower level that is not designed to assure the highest quality of care. And then there are payment issues as well.

Chairman Boehner. Mr. Atkins?

Mr. Atkins. Let me just make one quick additional comment. As you know ERISA's requirements are contained in both statute and regulation. The regulation, through the Department of Labor, is quite explicit and is in the process of being revised.

But the ERISA process both in terms of internal review and access to the courts, is very similar to what is available to Medicare beneficiaries, what is available to Medicaid beneficiaries, what is available to federal employees under the Federal Employee Health Benefit Plan. In all cases, in the appeals end of things, the federal law preempts states rights of action.

And the other thing to recognize is the major difference with Medicare is that Medicare does provide an external review process. But other than that, those are all very similar processes.

Chairman Boehner. Dr. Flaherty, I am into fairness here.

Dr. Flaherty. Thank you. I appreciate that fairness, Mr. Chairman.

Chairman Boehner. You made the comments. I asked the other three panelists to comment on your statements. Now they have commented, so I am going to give you an opportunity to rebut them.

Dr. Flaherty. Thank you, Mr. Chairman. Well, I think we have to set the orientation correctly. The ERISA standards were written in a different time, before managed care was there, and I would agree that the payment issues that are under review are there. Even though it is a 90-day period and a 60-day period, the appeal period is going to be dragged out. It is a payment issue there. The concern is the coverage issue. It is the issue. Will you get the service because of the coverage? And the time frame that we have with the ERISA statutes right now are very long, and obviously the Labor Department has addressed that with some proposed rules to shorten those time frames.

But it is the coverage area. It is the question, would you have access to the specialist? Would you be able to have the procedure done or not? Not the question, will the bill be paid? We have all gone through the bill pain.

And the Medicare situation, which I don't think is a good analogy, is the only place that we really have some supervisory areas as far as coverage is in the managed care segment. Obviously, most of the Patients Bill of Rights resources have been applied to that group of recipients right now. But the Medicare area is just a payment issue again, regarding denial of payment after service has been rendered.

Chairman Boehner. Thank you. Mr. Andrews.

.Mr. Andrews. I think you did it right the first time.

[Laughter.]

Thank you, Mr. Chairman. Ms. Greenman, I want to apply the principles that you speak about to a set of facts. On page 7 of your testimony, the first full paragraph, you point out that ``administrator's decisions are subject to review under federal law in federal or state court, and the courts have broad powers to grant equitable relief, including the benefit denied, attorneys' fees, and removal of the administrator if that is appropriate.''

Recently, in New Jersey, an elderly man about 72 years old had a hip operation. He was also diagnosed as being in the early stages of dementia. He lived with his wife of similar age and no one else in their home. The hospital social worker recommended that his discharge from the hospital be delayed until a discharge plan was prepared that included a visiting nurse and some other mental health services for him.

His insurer, an HMO, closed-panel plan refused to retard the discharge and ordered that he be discharged from the hospital. He was discharged over the objection of his physician who refused to sign the discharge documents because the physician felt that it was not in the best interest of the patient.

One the second day home, this individual was left briefly alone by his wife, who went to go to the store. While he was left alone, he wandered out the front door of the house, wandered across a highway, was struck by a car and wound up in intensive care in the hospital.

If you assume for a moment, for the sake of this question, that the decision of the plan administrator was medically incorrect, I wonder if you could tell me what remedies exist for this individual under present ERISA law?

Ms. Greenman. First, what I would like to do without begging the question is to reiterate the distinction made earlier in our testimony here today between a payer plan or an ERISA employer-sponsored plan, and an HMO or a medical provider plan. Because the situation that you are referring to is really a decision made by a closed-panel HMO. And the example that you give really has to do with a situation in which the provider plan, the HMO, controls access to medical services.

Mr. Andrews. If I could.

Ms. Greenman. That is not the situation that applies in the case of fiduciary.

Mr. Andrews. If I could just correct one thing on the record too, I misspoke. He was 62 years of age. He is not on Medicare. So what

Ms. Greenman. I don't think that.

Mr. Andrews. So what are his remedies under ERISA?

Ms. Greenman. I think his remedies are that he has a malpractice action against the hospital or against the HMO.

Mr. Andrews. The HMO refused to pay the hospital. So are you telling me the hospital should see the person for free and should not discharge him and let him stay in the hospital for free?

Ms. Greenman. Well, if we are talking about an allocation of economic risk, then I think that is a valid point to raise.

Mr. Andrews. So if you were counsel to the hospital, you would advise them not to discharge the patient and have them stay in there for nothing?

Ms. Greenman. No, but the broader question that we are looking at is, how do we allocate economic risk? Should employer-sponsored plans and, therefore, the employers who pay for them, be mandated to pay for every kind of possible treatment, including potential malpractice liability for healthcare providers? Or, is there an allocation of this risk? Employer-sponsored plans determine the level of payment, the economic risk that they are prepared to accept. They have plans designed within certain cost parameters.

Mr. Andrews. No, but…

Ms. Greenman. But, again, that situation that you posited has to be distinguished. You have got to distinguish an ERISA plan from an HMO. The HMO here was delivering the services.

Mr. Andrews. But in the situation which I posited, the fact of the matter is that the only remedy that this plaintiff would have against the HMO would be, I assume, the cost of a day's stay in the hospital, right?

Ms. Greenman. No.

Mr. Andrews. What remedies would he have?

Ms. Greenman. The HMO is not an ERISA plan. The HMO is a healthcare provider. The HMO, especially a closed-panel HMO, is providing the services and controlling access. The employer plan is a payer.

Mr. Andrews. So it is your position that the consequential damages would lie against the HMO in that case?

Ms. Greenman. I think potentially, yes.

Mr. Andrews. Under what circumstances would liability best adhere?

Ms. Greenman. In the HMO?

Mr. Andrews. Yes.

Ms. Greenman. If the HMO, as a medical service provider, has been negligent…

Mr. Andrews. They are not.

Ms. Greenman. …has engaged in malpractice.

Mr. Andrews. But oh, no, they are not a medical service provider.

Ms. Greenman. Sure they are. The hospital is discharging the patient. The hospital is denying services.

Mr. Andrews. The doctor refused to discharge the patient. The hospital decided not to provide the services because they were told in advance they wouldn't be paid for it.

Ms. Greenman. But you are talking about a closed-panel system where access is controlled.

Mr. Andrews. So you are telling me, under those circumstances, if a state law tort suit were filed against the HMO, it would not be preempted under ERISA?

Mr. Atkins. It would depend who the employee was an employee of. If they are an employee of a state plan, no. If they are purchasing as an individual it would not be preempted by ERISA. If they are in an employer plan, it would be preempted by ERISA.

Mr. Andrews. This is a person who was in an employer plan, so it…

Mr. Atkins. Yes.

Mr. Andrews. …would be preempted by ERISA?

Mr. Atkins. Yes, it would be preempted by ERISA.

Mr. Andrews. So, therefore, the only remedy this person would have would be the cost of a day's stay in the hospital?

Mr. Atkins. Can I comment on this, because I think that the question also would be if the plan specifically said, ``We provide seven days of hospitalization'' or a specific procedure which the plan can do. Old indemnity plans used to do this.

Mr. Andrews. This one didn't.

Mr. Atkins. Then there is no basis for a lawsuit under any statute.

Mr. Andrews. You care to offer an opinion about the fairness of that result?

Mr. Atkins. Well I am not sure whether it is a fair result or not. I mean if you look at Medicare, it is ripe with limitations on coverage for very specific things. And a lot of medical necessity decisions are made by carriers operating under contract with Medicare. Those decisions are very similar to those kinds of decisions you are talking about. And you know the federal government has decided that there should be no liability for those decisions either. So if you are trying to control the health plan, you have a limited number of tools you can use to control the cost of a health plan. Medical necessity is really the fairest way to do it, because it enables you to approach things comprehensively. But if you don't allow medical necessity and if you create liability for making medical necessity judgments, then you go back to drawing very strict coverage lines.

Mr. Andrews. The Chairman has been very generous with his time. Let me just conclude with just one

Mr. Atkins. Sure.

Mr. Andrews. Under the existing law, tell me what his remedy is.

Mr. Atkins. Under the existing law if it is considered to be a coverage decision, because the courts are looking at these decisions, they are looking at them as medical treatment decisions that were made by the practitioner. If you were going to sue on a medical malpractice basis, ERISA would not preempt. And some courts are looking at these as coverage decisions where the plan, for example, said you can't have another day in the hospital, you have to be discharged in which case, his remedies would be under law.

Mr. Andrews. I assume you would favor a codification of that definition of coverage decision?

Mr. Atkins. Well, I don't favor a codification of it but I think that is where the courts are at this point.

Mr. Andrews. Thank you.

Chairman Boehner. Mr. DeMint.

Mr. DeMint. Thank you, Mr. Chairman. While we have the experts here today, just a slight departure. Employers are often caught in this need for protection because they have no choice of plans. We have the choice of deciding whether to regulate these plans to protect them or to facilitate more choice in these plans.

As to my question I will speak to you first, Ms. Greenman. In my opinion, the best external review would be between the patient and the physician. In the current situation, I would just like to ask you if employers would be willing, in your opinion, under the ERISA plans to offer employees individually-owned plans to help to facilitate that process in the current insurance market? Because we are either going to move towards telling employers what they have to do, creating more liability for them within a voluntary system, or employers are going to get out of it as quickly as they can. I am convinced.

Is there a way that we can help patients through the competition side rather than through more regulation and litigation as has been mentioned today? Is this even being discussed, as to how employers could facilitate individually-owned insurance plans?

Ms. Greenman. There certainly has been discussion of this. I think the sense that employers have from a paternalistic perspective is that individually owned employee programs would forego many protections that are built into employer-sponsored plans such as economies of scale, purchasing power and prudent selection and retention. Right now, employers often act as ombudsmen by providing a level of scrutiny. They can bring economic pressure to bear on insurance companies and other service providers because it is imperative to the employer that the employees for whom they provide benefits are getting the level of benefits that they want and believe that they are entitled to.

Mr. DeMint. That is why I asked the question, because employers could, in effect, bring all of that to bear on behalf of an employee-owned plan, rather than an employer-owned plan.

Mr. Hunt, if you would like to answer.

Mr. Hunt. Mr. DeMint, I would agree with everything that Jane said, as well as to point out two things. One, we always like to think everybody would be very responsible and there is already an example of this kind of system in our automobile insurance system. I saw a statistic the other day, in Washington, DC. Everybody is supposed to have car insurance, and I saw that 40 percent of the people have it. So, that means you and I have to buy uninsured motorists insurance. So one of the problems that happens is, I hate to say it, we don't want to put money out until we already see the crisis in front our face. You would have to create another law to say, ``Everybody, you must do it,'' like you must have Medicare and you must pay into social security. That may sound paternalistic, but I think the car insurance example around the country has been pretty indicative.

The other point is, and I know she represents a major, big company, a lot of the clients from my members are mom and pop and every size in between. One of the problems that you run into is a risk selection situation. You are going to have to juggle the numbers actuarially, because the 75-year-old couple who both have cancer are not going to be a real hot product on the market. They are going to have a hard time finding it, and meanwhile, you are going to have the young 23 year olds. Now, are you going to tell the young 23 year olds, ``I don't give a damn, you are going to pay enough to subsidize grandma and grandpa up here.'' That raises more problems with this whole thing of who is going to buy it? What is the fair price, et cetera?

So, obviously, in all of this, there is no easy answer. But don't underestimate the number of good things that the employers were able to do, that I don't think they could do if they were scattered around different plants. We even see it when large employers hire our members because they have branch offices and plants around the country. They are finding even that is a little bit chaotic, to be able to bring in the core of the coordination. Frankly, it is quality issues and how fast things get processed because they are all hither and thither.

Mr. DeMint. Yes, sir?

Dr. Flaherty. Just a comment on that. Obviously, this is a proposal that has come out of defined contribution by having the individual be more responsible for the options that they take, as far as their purchasing power.

And we have a model for that in the upper-Midwest. In Minneapolis-St. Paul the Business Buying Group now has 16 or 17 plans that are at issue with the large employers and small employers grouping together to give that option to their employees, where there is a basic benefit plan and add-ons. The experiment has been going on now for a couple of years. There certainly seems to be some acceptability as far as the employees are concerned, because there are some changes on the quality issues and also satisfaction issues in those pools. So I think that is a real option.

I would just like a moment to take about this fairness issue. We talked about the 62-year-old New Jersey man that was in one situation where he was in an ERISA-covered plan, as if he would have been in an HMO. And I think the distinction was made that there certainly isn’t a level playing field. If he was in the HMO, which is a state approved plan, he had the option for recourse against the HMO. If he was in the ERISA plan, even though it may be the same medical director from BlueCross doing the TPA situation, he wouldn't have that option. So I think it is a fairness issue.

Mr. DeMint. Thank you.

Ms. Greenman. May I just respond to one point Dr. Flaherty made? I think that the distinction between an employer plan, an ERISA plan and an HMO is a distinction that has been somewhat incorrectly characterized.

The ERISA plan is really the employer-sponsored plan that provides certain levels of coverage and payment for those defined levels of coverage. An HMO is a health provider, and that plan is making medical treatment decisions.

I think it is important to bear those distinctions in mind so leveling the playing field may be correct, but let's talk about the same players.

Chairman Boehner. Mr. Hunt?

Mr. Hunt. Just as a follow-up I think in fairness to Mr. Andrews, because you are trying to ask where the blame goes? I think that you were trying to ask where is the employer in the scenario you were talking about? The employer may have hired the HMO, and then is saying, ``Mr. HMO, you are responsible for the medical care decisions. This is yours.'' And so that is the product of the HMO and the doctors and all within that process.

I think when you are saying, ``Well, why can't we sue the employer?'' It would be as if the employer bought Ford cars for the company, and then there is a manufacturer's defect and the wheel falls off and somebody is killed. Do you sue the Ford Company, or do you sue the employer? And that is the thing. The employer hired the HMO and I think this is what Jane was saying, ``Hey, we hired you because we assumed that you were in this business and you knew what you were doing.'' Since HMO's are regulated by the states, hopefully, the States will take a larger role in enforcing that which they already have the power to do. I think they have been slack on this sometimes.

Chairman Boehner. Mr. Payne.

Mr. Payne. Thank you very much, Mr. Chairman. Unfortunately, as you know, I missed all of the testimony, but I may have a couple of general questions about the coverage since you all are experts.

As you know, there has been very little done in healthcare reform in the past four or five years. There was an attempt, as you know, four or five or six years ago, and it become complicated. There was a lot of opposition to the notion of the federal government running health insurance and so the whole thing was dropped. Since then, there has been very little done, except for the Kennedy-Kassenbaum Portability Act.

Could anybody inform me how effective you think the notion that people could take their preconditions to another carrier is? Has that been effective since that has been the only minimal reform we have seen?

Mr. Atkins. If I can answer that Congressman, to an extent. What HIPAA did is it provided the requirement that the plan has to offer coverage. It did not have an effect on the price at all, or the fact that people who had very high levels of risk were coming and going into individual plans in the market.

The individual market may be able to provide a product for coverage that is not affordable to the individual. The states that have tried to tackle pooling and other kinds of insurance reforms in the individual market have had a very difficult time. All but, I believe, one of the insurers in Kentucky in the individual market has left the state. I believe there may only be one individual market insurer in New York, because it has been very difficult to do anything to pool risk in the individual market.

Mr. Payne. Yes?

Mr. Hunt. Mr. Payne, I am glad you mentioned it because I had mentioned it earlier in my testimony. There is another part to HIPAA besides that which is the administrative simplification. In my testimony I probably went overboard in telling all the funny stories about the ways that information get screwed up before it ever gets to the claims processor

and administrative certification. We are still finding out what you do, and we are waiting for the Department of Health and Human Services to give us their guidance. I think that will probably streamline and help some of the things.

So one piece of healthcare legislation which you did do is already working. I don't agree with everything and how they are doing it, but the Department of Labor, as Larry mentioned, is also trying to figure out some ways.

You have heard all four of us say, as well as some of you, that we need to make a separation and to define what are we talking about because too often we are talking about apples and oranges; the payer and the provider plan. And if we are talking about the situation where the employer or the plan is in a banking function it is just paying for it and nobody is sitting bleeding in the waiting room. It is after the medical service has been provided that it is a very different situation. The remedies are very different and as Jane and all of us say, the system works phenomenally well.

[Laughter.]

As the system has grown, there needs to be some new situations like Mr. Andrews is saying to separate it. I frankly think sometimes too many people are wrapped up in the ERISA flag in the courthouse, and then when I talk to some of them on the phone and say, ``Well, now what about the ERISA fiduciary duty?'' and it is kind of, ``Huh, what are you talking about?'' I think that the courts need a little bit of education on this, too. But I think you are very right. There is some progress underway right now.

Mr. Payne. Yes?

Mr. Atkins. Can I make one more comment on HIPAA that I think is important for this Subcommittee?

Mr. Payne. Sure.

Mr. Atkins. One of the things that HIPAA could not quite figure out was how to regulate, through the federal government, state insurance regulation activities. HIPAA tried to set a uniform set of rules that applied across the board to everyone. And what it did is essentially set up a procedure in which the states are required in a period of time to adopt the rules that the federal government has enacted. And if they fail to do that or don't want to do that, then they can essentially turn over the regulation of the insurance industry for that function in their state to the Department of Health and Human Services.

That process has not worked very well, and there are a lot of problems with it. I believe GAO has reported on it. So I would urge the Committee as you get into this issue of how to regulate health plans across the board, to look carefully at the HIPAA experience on that.

Mr. Payne. I know she is not here, but Congresswoman Roukema has been dealing with ERISA and has some questions about federal coverage over state coverage. Some states, for example New Jersey, have legislated that you can not discharge a mother and newborn baby in less than 24 hours. We are giving them 48 hours. We are very liberal. Federally you know you can discharge them in 24 hours.

Now, if the federal government had the jurisdiction over states then the 24-hour situation would therefore, have to apply to New Jersey. So there are some questions about states that have more progressive laws protecting the patient than what is done on the federal level. I see that light kind of switched on prematurely.

[Laughter.]

I just have another quick question and this may not deal directly with ERISA but it is really short. Some labor organizations provide health coverage for their employees although it may be paid by the company or shared by the company and the labor union. In order to keep premiums down it would be beneficial for that organization to deny some charges.

Has there been any discussion about that? Yes?

Mr. Hunt. Well, our members do about two-thirds of what are called Taft-Hartley or ``multi-employer'' union management plans. And it is one of my favorite examples. This is not a setup, sir.

[Laughter.]

These multi-employer or Taft-Hartley plans are the ultimate example of democracy. They are working phenomenally well because the trustees who are making the decisions, both appeal decisions and everything else, are half management and half labor. So actually, it is your fellow worker who tends to be tougher, but it is because sometimes you are tougher on your colleagues than you are in general. The trustees must do things properly especially since that is an elected position to be a trustee and if they didn’t they wouldn't be a trustee long.

[Laughter.]

And plus you have all the other labor pressures and interactions going on. So that is one of the shining stars of how well the system works.

Mr. Payne. Well, great.

Ms. Greenman. I would…

Mr. Atkins. Can I comment. I am sorry, go ahead.

Ms. Greenman. Yes. To further answer that question, I think what you are positing is a very good example of where the existing ERISA statutory structure works very well. ERISA fiduciary responsibility imposes on the plan trustees, both the employer representatives and the labor representatives, a fiduciary obligation that goes beyond the obligation to their members and constituencies, to act for the benefit of all participants and beneficiaries, without considering the potential conflicting interests of the labor organization or the employer. They have got to put their trustee hat on and act exclusively as a plan fiduciary.

Mr. Atkins. And this is a classic case where the fiduciary dilemma is the clearest, because these funds have a fixed amount of money, and they have to be able to allocate that out to their population for medical procedures. If they have one claim that exhausts the entire amount of what they have to pay out, then all of the other beneficiaries are harmed by that. So the fiduciary has to look at claims adjudication from the standpoint of allocating out the resources in the most uniformly fair and consistent manner under the plan.

Dr. Flaherty. What you have heard, Congressman Payne, is a checks and balances system. You have two people, a checks and balances system, which is very, very important.

Mr. Payne. Thank you very much, gentlemen.

Chairman Boehner. Dr. Fletcher.

Mr. Fletcher. Thank you, Mr. Chairman.

Certainly, as we look at this issue in healthcare reform that is taking place from state to state, we see that it is a very complicated issue. Probably all of us have the same goals in mind, and that is we want excellent care for patients, and we don't want to increase the number of uninsured. We want to get as many folks and eventually everybody covered with some sort of healthcare. And I personally think that would be better done on a market basis rather than a single payer system, given what is occurring in some other nations.

So I think it is very prudent to be very careful as we regulate things, and look at long-term goals and what we want to accomplish. Some short-term things may help some anecdotal things but not in the long term, allow us to get to a goal that would include coverage of more folks.

Let me ask the entire panel and just get each comments if you can do it. I have other questions, so if you can answer as briefly as possible, it will help me keep within the Chairman's time limits here.

Is there any data or studies that look at both sets of ERISA plans, the ones that are administered and the ones that are HMO, and the non-ERISA plans regarding quality of care, outcomes, patient satisfaction, or cost benefit analysis to show that the ERISA plans because of their lack of liability are providing or that they are not? Is there some difference there?

Mr. Hunt. I see hundreds of studies every year, and sometimes HIPRA uses me for some things. And the one thing I have discovered is that statistics are in the eye of the beholder and all.

[Laughter.]

No, I mean normally it is better because as she said, there is a more paternalistic situation, especially in the self-funded plans and most of the ERISA ones are self-funded. Because in that situation, if your secretary or your assistant is getting a raw deal you can't say, ``Oh, it is that big, bad insurance company.'' Or, ``It is that big, bad HMO.'' The responsibility, literally and figuratively, rests with you.

Normally what we find, if anything, is there is a temptation by employers to be too generous and to include something that is not in the letter of the law.

[Laughter.]

So we also have to be careful and tell the employer don't go in that direction, your contract does not allow that. Just like a doctor in Medicare, if he wants to give prescriptions, sorry, he can't do it. It is not in the contract. So that is where that ends.

Jane?

Ms. Greenman. Yes, it has been my understanding that outcomes data is not generally available and where it is available it is pretty deficient. It is something that I think health providers and health plans are working on but I don't think there is adequate outcomes data out there today.

Mr. Atkins. Congressman, was your question really with regard to the access to liability and the impact on the difference between?

Mr. Fletcher. ERISA, from the liability standpoint and other issues regarding State mandates. I just wondered if we have any actual data showing differences in quality of care, and if they are worse or whatever?

Mr. Atkins. No, there aren't any that I am aware of. I not aware of any data, but I think it is important to bear in mind that when you are talking about the ERISA universe, you should include Medicare, Medicaid and the Federal Employee Health Benefit Plan, because many of the procedures particularly with regard to liability are in the same universe. So if you wanted to compare two groups that are treated very differently, I would look at state employee plans and individual plans versus the rest of the world and see what the impact of different procedures and different liability has been.

Very often the decision making about coverage is being executed by the same organization whether the employee is in the ERISA plan or the employee is in a state plan, because they are contracting with the same organizations. So it is not always that easy to separate those groups out and really see what the impact is.

Mr. Fletcher. Dr. Flaherty.

Dr. Flaherty. Yes, I am a splitter rather than a lumper.

[Laughter.]

I would not lump the Federal Employee Benefit Program in because that is a multiple-choice plan. The issue that you get into with the ERISA plans is the one choice for the employee base without having the other options. And that is the issue of satisfaction. If you do the surveys there isn’t anything on quality that really is definite and definable. The exception is the Minneapolis group which I think is about half or maybe at three-quarters satisfaction, a quarter quality, and by some sort of gross quality measure HEDIS and things like this.

But if you achieve the satisfaction area, then the significant areas are the lack of choice and the lack of access to the provider base that they want to be accessed to.

Chairman Boehner. If the gentleman would yield. All of you represent employers of some sort. How many employers in the hundreds of thousands that offer ERISA plans only offer their employee one healthcare option?

Ms. Greenman. When I think of large employers I can't think of any that only offer one option. We, using AlliedSignal as an example, are constantly adding choice and looking at ways to better satisfy employees. When you have multi-state employers, they are likely to have HMO's or providers in different states. You know, when you think about the individual purchase of insurance, if that were the route that employers were to go, it would be very easy and far more cost effective for employers to say, ``We are going to write a check to every employee in the amount of ``X'' dollars. You go out, fend for yourselves, and buy whatever insurance that will buy.'' The employers' liability is limited, but the one who is really going to end up on the short end of that stick is the employee.

Mr. Hunt. My members represent everything from mom and pop up to the lower end of her size. So obviously in a small employer you just don't have it. If you have three employees you can't afford to have three plans. Years ago I worked for the American Academy of Actuaries and there is the concept of spreading the risk and all the actuarial concepts are very important to know. That is why I worry when everybody says, ``Oh, well, we will just spread it out.'' Because you are going to have the sick people take the sick plan and the well people will take the low-risk plan, and then you have a spiral going down and not up. So it is important to think of the actuarial side of this.

Dr. Flaherty. I don't have a number, Mr. Chairman, but it is a significant number that only has one option. I serve on a advisory commission for the National Business Coalition of Health, which is the smaller coalition that provides for about 35 million people. Generally these small employers will only offer one plan. Now they may have an option. They may have a point-of-service option that is an add-on, but it really is a one-plan offering. And I think it is about 60 percent, if you go across the country, from employers that only offer one plan. It may have an option of some sort.

Chairman Boehner. Excuse me I am sorry, Dr. Flaherty. I will grant you your time that you had, back You may continue.

[Laughter.]

Dr. Flaherty. Well, thank you. I just want to make sure that we are talking about making some major reforms. It seems as if there is a paucity of data to indicate where some of the problems are. Clearly, there are some problems. I have talked to my colleagues, the physicians, and there are significant amounts of problems and dissatisfaction. The same with patients I will say. Some patients given the option will choose some plans that are very managed because of cost benefits. And so I think it would be helpful if we could look and try to get some data on that information.

Also, sometimes we don't think outside the box. I mean we think, ``Well, it is liability or not liability.'' I personally think that decisions ought to be made by physicians and patients and practitioners, not by insurance companies and not by courts and attorneys. I don't think physicians need to be making decisions on what we do in the judicial system and I don't think that that is the best place for a medical decision to be made. And so I would certainly encourage any other ideas that you have that would be outside the box in making sure that we address this problem of limited choice, based on the fact that there are some decisions that seemingly are made by clerks. You call up on the phone and they say, ``No, you can't do this.'' Or a patient that has gotten a call in the hospital and they are told, ``You need to leave; your time is up.'' That has happened.

Mr. Hunt. Well, fortunately I had some good conversations with your excellent staff and this very issue came up. I made the example of the Medicare claim for a pregnancy test and eight day hospital stay for an 80-year-old man. Now, somebody made the decision that that was not a legitimate claim and that I don't think it needed a panel of doctors for that decision.

The discussion we got into is that in most of the payer plans that I am talking about, it is just like Medicare and it is just like the Canadian Health System. You have got this little chart, the contract. This is what is covered. And so using the Medicare example, a doctor might say to my mother Mrs. Hunt that the greatest thing would be this new prescription. But sorry, you all had made the medical decision not to offer it under this contract of Medicare. That is the same kind of decision that the plan has. This is what is allowed.

Oregon, of course, is famous for having a very clear list of items that are covered. Something on that list may be wonderful, but I'm sorry, it is not on the menu today. And so I think we should be careful to understand what is a true medical decision?

It appears that there is no one right decision within the medical community. Then, what is simply interpreting a contract? And that is what Medicare does and that is what Canada does and that is what most of us on the administrative side of a payer plan do. Is this allowed to be paid, under the contract? And so, I think one option that will cut out a lot of the complaints and the problem areas is if we better define all of these pieces.

Mr. Fletcher. Dr. Flaherty, I would like to hear your side of it, but I am out of time.

Dr. Flaherty. Yes, I think the issue is a complex one, and this is probably not outside the box; it is probably inside the box. There certainly has to be clarity as to what you are purchasing or what is being purchased for you, so that you know what your choices really are and where your levels are.

Now, I don't look for a long list of things that are covered, but I think there should be some exceptions, things that aren't covered in contracts, so there is not any concern about it. When you have a soft definition of ``medical necessity'' and things are medically necessary, that is where the problems come in because the expectation is there, but the realization in not. And, consequently people become very, very irritable about it. And physicians become very irritated for the same reason. I see over-promise, under-fund situations that we are all very familiar with. So I think that the package is very important.

I think there has to be clarity, as far as the contract is concerned. There has to be prohibitions against conversations that you have with your patients, the gag clause issues, things like this. So you have to know what the real therapeutic menu can be and should be, and then the reality testing as far as economics go.

In the managed care areas I would like to say, if you have seen one managed care plan, you have seen one managed care plan. And that really is so true, because we are demographically different in this country and how we approach areas. But we can take the best of some areas where there has been more consumer choice, put it into the program and try to apply that across the board. I think it would be very important.

Mr. Hunt. Fortunately, Jane oh, I am sorry.

Ms. Greenman. Go ahead.

Mr. Hunt. Jane mentioned earlier something which answers what Mr. Flaherty said regarding ERISA being very specific regarding reporting and disclosing a plan summary. Plan descriptions are given to every employee and that is being updated by the Department of Labor right now in new written regulations so that that employee can read the fine print. I confess I don't on my policy but ERISA was very careful. It was designed to be the ultimate consumer protection law, and so it has as she mentioned before. When the person comes on board, here is the summary plan description. You have access to the plan language. So Dr. Flaherty is right and that is one of the good things about ERISA as it stands now.

Ms. Greenman. Dr. Flaherty has stated that the treating physician ought to be the ultimate arbiter as it were, of medical necessity determinations, or there should be an external review. However, I mean the treating physician has a direct economic interest. And if it is not the treating physician, then it is some level of local practice or medical standards. Medical necessity in the AMA has, I believe, a program and protocol to determine what the highest acceptable level is, and let me posit one example of many plans.

Health plans contract with centers of excellence, which perform, for example, heart transplants. There is one center of excellence that, on a cost-effective basis, can provide that treatment. Now, an employee may prefer to deal with a local physician and go to a local hospital because that is where the employee is more comfortable. But, in terms of quality, outcomes and cost, the plan has made a prudent decision, that that is not the care that is going to be underwritten by the plan. Those kinds of determinations should not be taken away in light of payment decisions. The employee is free to go to the local physician and hospital, but not at the expense of the plan. It is not part of the plan design.

Dr. Flaherty. Could I just respond, Mr. Chairman?

I am sorry if I misspoke, and I don't think that I did, but the treating physician is obviously most knowledgeable about the needs of the patient. If there is an appeal process obviously it is done externally and it would be someone who is independent, and also timely, hopefully. And there would be binding authority, but it would be independent. Now, when we say it is a local physician, it may or may not be a local physician doing that external review, but it is someone using the best standards, as far as medical care is concerned.

Chairman Boehner. The gentleman's time has finally expired. Mr. Ballenger.

[Laughter.]

Mr. Ballenger. I will probably have a different viewpoint than most of the people in here, due to the fact that I have a company back home that insures their employees. Everybody is saying you have to give them a multiple choice. Somewhere along the line, you run into the actual costs that you give the employee.

Now, my little outfit has 200 employees, so we are not in a class with you, where we can give a multiple choice. We are paying for it but everybody is saying, ``Well, you don't get any choice,'' However you are getting insurance, and it is free. Now I don't see where people should bitch at you for that.

[Laughter.]

Just somewhere along it doesn't seem right.

Ms. Greenman. I couldn't say it better.

[Laughter.]

Mr. Ballenger. Thank you, ma'am.

[Laughter.]

Mr. Ballenger. And another problem you find out slowly but surely, no matter what kind of insurance you buy it gets more expensive every year. I mean there is no way to employ two hundred people and not have anyone get really sick. So we self-insure. We buy the first $500,000 worth of claims and pay for them ourselves, and then buy insurance to cover the disasters that occur. We don't give a lot of choice. We give them what we consider good healthcare insurance. And yet the cost goes up substantially every year, because we can't seem to keep our people from getting sick enough. We have wellness programs. We have healthcare programs. We have all these other things and whoever was paying our surplus insurance that we bought is saying ``Well, we did it too low so we are going to have to go up on you this next year.''

Recognizing that managed care is not necessarily a very satisfactory thing, I think Ms. Greenman, you made the statement, and it is one I have been trying to use over and over again. If we find out what our insurance costs are and just say to our employees, ``Look, we can't handle it anymore. Whatever it costs, we will give it to you, and you take care of it yourself.'' And that is what scares me about what we are going to introduce. If you bring some sort of liability into small companies that don't have a staff of lawyers like you do then the liability falls on us because we self-insure, or falls on some poor little girl that fills out the paperwork. She could get sued to the ends of the world if we were to come out with such a plan.

I mean solving the problem for a really big corporations is easy. You all just raise prices and forge costs more or whatever you want to call it.

[Laughter.]

Ms. Greenman. I wish I could tell that to my customers.

[Laughter.]

Mr. Ballenger. I realize I am speaking with tongue in cheek. It is not necessarily the number of people, but the number of businesses that are limited as to what they can provide. T o have our great and wonderful government up here in Washington come up with the decision that it is going to be such and such a way, I think is one of the major factors they are going to have to look at is for small business people. If there are 40 million people uninsured at the present time as they claim, and you come up with a semi-restrictive or a semi-open whatever way you want to classify it plan, you are going to see 50 million uninsured. For a businessman your conscience says you ought to provide something so if insurance this year only cost me $5,000 per employee, let me give you $5,000. You go buy whatever you can, and you shop it and see if you can find somebody that won't cheat you when you go to the hospital and the doctor and so forth.

You all are great on talking theory, but when the rubber meets the road, it gets kind of mean. And I just wanted to throw that out.

Jane I was curious as to the experience you all have had and how often you have to change the administrators. I know you are mostly self-insured, but what about the administrator? Do you ever change the administrator?

Ms. Greenman. We are self-insured. We have a number of different companies we deal with. We have a large insurance company that acts as our external administrator, and we beat them up like crazy. We make them go through our internal process improvement training classes. This is where our leverage and our purchasing power comes in and we insisted that they set up a claims unit that was dedicated to only AlliedSignal. We have got all kinds of performance metrics that we insist that they come up to. The beauty of ERISA is that it works for small employers and large employers alike.

Mr. Ballenger. I agree.

Ms. Greenman. It allows the flexibility in a uniform, consistent national legislative framework for both smaller employers, mom and pop, as well as the large, multi-national companies of the world. It gives flexibility without lots of conflicting government regulation to set up programs that work within the cost constraints of a company and the needs of the employees.

Mr. Hunt. Mr. Ballenger?

Mr. Ballenger. Yes, sir?

Mr. Hunt. My members are the people who do firms like yours, so you have just given the most irradiate description possible.

[Laughter.]

One of the other things that we come back to is how people care. When we talk about people and individuals, one of the things that some of our members' clients, like yourself and you may want to try this, say is, ``Folks, I have got a great deal for you. I was going to give you a 5 percent raise, but our health, which is part of your compensation package went up 10 percent, so I am going to be taking 5 percent from our paycheck.'' You will see how interested individuals are suddenly and that I think comes back to what you were saying. You are trying to make the dollars meet because as Jane said in this day and age, you really can't raise the prices much.

Mr. Ballenger. Excuse me. Well, I just want to get one point across. Yes, sir, excuse me.

Dr. Flaherty. No, I was just going to comment. I empathize with you. I share a small insurance company that has about 60 employees, and we are self-insured and have our same healthcare costs. We have an open plan, so we don't have a plan that limits choice as far as the employee base is concerned, but we have that same issue. What we do and what so many small companies do is they obviously pass some of that along to their employees, which is not very popular but it does make a better consumer. When the consumers are making the choice some of it is out of their own pocket rather than just all of it out of the employer's pocket.

Business coalitions are really your friend in this area, and those hundred business coalitions have grouped together because most of them are run by very competent people. They understand the marketplace out there and the areas with tremendous increases in cost like pharmacy benefits at 14 or 17 percent last year. At least they will know it from an educational standpoint. They might be able to control it since they don't control it from the form letters. So there are issues out there that they can work with you on.

Mr. Ballenger. I would like to ask, Mr. Hunt, do you have any employer amongst your crowd that is as generous as the federal government and looks at Viagra as a specific…

Mr. Hunt. We have not done a study on Viagra specifically, but what we find normally is it is more generous whether it is like Mr. Payne mentioned with the management plans where the trustees which are workers, themselves and the employers design the plan. They can put whatever the hell they want in it. And so the answer is, ``Yes.'' We normally find it is more generous than that. And they are custom made.

I know there is one of our members that had a client that had a small textile firm and he had almost 95 percent female employees of childbearing age. Well, he designed the plan. So it is the most childbearing plan you can imagine. It doesn't do a whole lot for you or for me, but it would be great for his particular personnel. And that is one of the joys. So, is that generous or not? It probably doesn't have some things that the federal government would have for males, but it was perfect for that workforce.

One of the things I do worry about is when I hear about some of the ideas like the business coalitions self-funding. Everybody said self-funding, but a business coalition either has to turn everything over to an insurance company who now controls the pricing and the marketplace or it has to approve the AHP.

[Laughter.]

You have the Association Health Plans kind of legislation because you would lose what you are talking about if you were to go in and pool yourself in the business coalitions. So, always sort of think through all of the processes, because what you have is the ideal.

Mr. Ballenger. One more thing you all did not correct and I thought you would

about the poor mother being kicked out of the hospital in 24 hours. We changed that law back in 1996 to a 48 hour stay under normal conditions and 96 hours for a C-section. I just didn't want anybody to get away with a free shot at us without some rebuttal.

[Laughter.]

Ms. Greenman. Thank you.

Mr. Ballenger. Thank you. Mr. Chairman.

Chairman Boehner. Thank you. Mr. Talent.

Mr. Talent. Thank you, Mr. Chairman. Dr. Flaherty let me ask you this question. Tell me why a medical necessity provision isn't just another word for the Department of Labor dictating what is in everybody's health plans?

Dr. Flaherty. I think the issue, as far as medical necessity is concerned, revolves around the dispute between one person making a medical decision for someone else. When that happens, if it is the plan physician medical director making a decision one way and the treating physician making a decision another way, or making a recommendation another way, there has to be an outside appeals process, so that is the issue.

Mr. Talent. Yes, I am strongly for an appeals process. And as a matter of fact and I took part in the midwifing of the bill that passed the House, although maybe I should use the word ``midwife'' to a MD, I don't know.

[Laughter.]

But a bill I was instrumental in drawing up and passing had the best internal/external review process in the country. I mean more open, less expensive, more accessible to patients, quicker, tighter time limits than anything any of the states have come up. I fully agree with your testimony on that but again, I get back to medical necessity.

This is not a question about who decides whether a given treatment is necessary within the terms of the insurance contract, but rather who decides what the terms of the insurance contract are. In other words, I don't understand why in the normal course of events, a small business owner could decide he doesn't want a contract to cover, for example, Mr. Ballenger was talking about Viagra. I mean, why shouldn't he have the freedom not to cover that?

Dr. Flaherty. No, I agree with that completely. We agree with that completely. We agree with that.

Mr. Talent. Well, wait a minute. Now, let me follow up, because I don't have a lot of time, and I am late, but I want to make sure I get to the guts of this.

But if we had a medical necessity provision in this bill, and the Department of Labor decided that Viagra was medically necessary, it would have to be covered wouldn't it?

Dr. Flaherty. Well, you are much more knowledgeable about that than I am. If you put the imposition in by a federal regulation to cover something on a formulary, I suppose it would have to be on the formulary.

Mr. Talent. And somebody has got to decide what is medically necessary and what isn't.

I don't particularly like HMO's. We have HMO's in this country, in part, because the government and the Congress beginning about 20 years ago decided HMO's were a great thing.

[Laughter.]

I was practicing labor and personnel law at the time, this is a digression, and we had to keep up on all the new developments. You had to make sure during the window period that the people who were marketing HMO's had access to all your employees because the government liked HMO's. That is one of the reasons we got them.

[Laughter.]

But somebody is going to have to administer this. And if we have a requirement that every HMO cover everything that is medically necessary, then the Department of Labor is going to have to issue regulations defining what is medically necessary. To me, this is an inconsistency in testimony, because the rest of your testimony I either agree with or I am sympathetic to. So, comment on this and I will let you go.

Dr. Flaherty. Well, I think what is going to be necessary is a changing plane. I think it would be very difficult for the Department of Labor to define in law what is medically necessary. I think they can use a legal definition of what the prudent physician would do in this situation with the best clinical knowledge, which I think is a changing definition. Certainly, in my career, it has changed a great deal. What was medically necessary now would not have been 25 years ago in some areas, because of treatment modalities that we have. So I think it would be very difficult to capture that in the Department of Labor.

Mr. Talent. See, I agree, and that is one of the reasons why I am concerned about this. I don't want to do anything. I am very much in favor of passing managed care reform. I think it is almost a definition of failure, though, if we pass a bill that spawns tens of thousands of pages of regulations. And I think you, as a physician, would at least be sympathetic to what I am saying, even if you wouldn't necessarily agree with it.

If we get into this medical necessity area outside of those specific mandates and if there is some particular coverage that we decide everybody should have, regardless of their right to contract or the employers' right to decide what is in the coverage and we want to mandate that, that seems to me to be one thing. Mr. Ballenger mentioned we decided you have got to cover at least 48 hours in the hospital. I think that is too little. But the medical necessity thing is, in effect, saying to the Department of Labor it seems to me, you decide. You tell the small business people and the big business people and the physicians what you think is medically necessary, and that is how the review process is.

You don't see it that way, though?

Dr. Flaherty. No, I don't. I characterize it as more of a local issue than that. I think that you are going to have areas in the country where some medical necessity would be different than it is in other areas, just because of availability of treatment modalities, et cetera. You see a lot of variation in treatment around the country, and some of it we are very concerned about. Some of it is very predictable because of what is available as far as those communities are concerned.

Mr. Talent. Okay. Doesn't Medicare have a limit, for example, on the length of hospital stays? Isn't it 60 days, I think?

Dr. Flaherty. Medicare does. Medicare of course is very difficult as I said earlier regarding lumping because almost all the decisions of Medicare are retrospective. Decisions are made after the care is given with their denial of payment decisions. And I think we have learned to suffer under that and understand that.

Mr. Talent. But if a physician decided that more than a 60-day hospital stay was necessary, you would want the laws governing HMO's to be such that they would have to cover the stay, even though Medicare doesn't cover it?

Dr. Flaherty. No, what we are saying is medical necessity. The issue I think is a coverage issue generally, not a length of stay issue as far as these areas are concerned. Obviously, you are going to have some limitation in the contract. And you have to have contract terms that are relatively precise so you can go from there. The big concern that we have is not the payment issues, it is the coverage issues.

Mr. Talent. Well, if you are talking about spelling out what medical necessity is now we are getting to a point where you and I are coming closer to an agreement.

I mean my position has always been that people should have the freedom, subject to the mandates that Congress or the state legislatures may set, to decide what is covered and what isn't covered in the contract. If they only want to cover a certain length of stay, I mean that is the way the contract reads. But within the limits of that coverage, I agree with you. The power should be focused in the physician/patient relationship and not somebody looking over their shoulder.

Somebody else may want to comment, and then I am finished, Mr. Chairman.

Ms. Greenman. If I may comment on that. I think that there are many points that we have a fairly strenuous agreement on. One, we are not necessarily opposed to external review procedures, and, in fact, many employers have them. What we want to make sure does not happen is that the government ends up micro-managing the plans or that the external review disregards the terms of plans. And I think part of the potential answer to that is if there is to be external review then that be a process that is established, but the specifics be left to a plan because of medical necessity let's say. I think your examples were very good ones.

If medical necessity is the touchstone, then you are absolutely right. The Department of Labor or some governmental body has to come in and freeze ``medical necessity'' definition at a particular point in time. Today it gives up the flexibility and it gives up adaptation to changing medical needs and technology. It completely disregards cost consideration.

If medical necessity is not the standard or if medical necessity is a plan standard, and the Department of Labor says, ``Okay, if your plan standard is medical necessity here is the list,'' and go on for pages and pages of what you have to cover. Well, the answer for employers is very easy. Medical necessity is no longer the standard. The standard will now become a list. This is what we include and this is what we pay for, based on today's technology. And we will look at new technologies as they come out, and we will make a determination as to whether we add it to the list, because that will be the only way that payers have to limit the potential exposures. So what you are creating is a narrowing of coverage as the ultimate result, and not a broadening of coverage.

Chairman Boehner. Mr. Tierney.

Mr. Tierney. Thank you, Mr. Chairman. Mr. Chairman, I would like to yield to my colleague, Mr. Andrews.

Mr. Andrews. I thank Mr. Tierney. I thank him for his participation in the Committee.

I first want to ask unanimous consent to enter into the statement of record for Mrs. McCarthy who had to leave the hearing the prematurely.

Chairman Boehner. Without objection.

WRITTEN STATEMENT SUBMITTED FOR THE RECORD, CAROLYN McCARTHY, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE – SEE APPENDIX F

Mr. Andrews. I think we have gone a little far afield from the normal context in which medical necessity comes up. First of all let me establish a consensus that everyone on the panel believes there should be some external review of decisions made by managed care plans. Is that correct? Does anybody disagree with that? Do you disagree, Mr. Hunt?

Mr. Hunt. Well, only in the definition. In my vocabulary ``managed care'' is …

Mr. Andrews. Of an ERISA-regulated plan, Mr. Hunt, do you agree there should be some external review of its decision?

Mr. Hunt. There already is for an ERISA payer plan.

Mr. Andrews. So you think there should be, yes?

Mr. Hunt. It exists. Yes, sir.

Mr. Andrews. Okay. So everyone agrees there should be some external review.

I think the issue is whose opinion should carry the most weight in that external review. Let's take this example which I think is a fairly typical situation.

An individual goes to see his family practitioner. The family practitioner looks at an EKG or does an examination of the person's pulse and heart and concludes that it is necessary to refer the patient to a cardiologist, a specialist in the cardiology field. That referral, under many plans, requires pre-approval from the insurer. The insurer declines the referral. Under the proposal before us in the Congress, supported by Congressman Dingell and Senator Daschle, and it is the definition quoted by Mr. Atkins on page 11, health plans would be limited in their ability to deny coverage for the recommendation of a treating physician, as long as that recommendation was consistent with, quote, ``generally accepted principles of professional medical practice.''

Isn't the question really whose opinion should be given the most weight in the external review? It seems to me that the language I just read says that we are going to presume for the lawyers in the room are going to have a rebuttable presumption that the opinion of the treating physician is right. And if the plan can introduce credible evidence that the opinion of the treating physician isn't, the plan wins. If the plan can't meet that burden of proof, the plan loses. And if there is some real time or quick review, the decision is made and the referral takes place. What is wrong with that?

Mr. Atkins. Congressman, let me start by saying that external review should have its own standard of review. What we are talking about here is a medical and not a judicial review. So that, as you go into review, you have a denial of coverage or a denial of benefits that is the precipitating incident

Mr. Andrews. Right.

Mr. Atkins. The plan has made a determination that treatment A is more appropriate than treatment B, let's say, and they have denied treatment B…

Mr. Andrews. Now let's deal with my hypothetical.

Mr. Atkins. All right. I will deal with your hypothetical.

Mr. Andrews. The plan has decided that the treatment isn't necessary at all.

Mr. Atkins. All right it should not be a referral.

Mr. Andrews. Right.

Mr. Atkins. Okay. And they have done that presumably on some grounds.

Mr. Andrews. Occasionally, they seem to, yes.

Mr. Atkins. Yes. So you go to external review, and you take a look at what the plan has determined

Mr. Andrews. Right.

Mr. Atkins. You also look at what the treating physician may have recommended and the facts about the circumstances of the patient's health

Mr. Andrews. Correct.

Mr. Atkins. You also look at the medical literature. You look at any guidelines or protocols that may be out there including guidelines and protocols of the plan, and you look at consensus panel findings and so on.

Mr. Andrews. Right.

Mr. Atkins. In that process, if you determine that the recommendation of the treating physician, in fact, would have resulted in better care to the patient and is more appropriate, then the external reviewer should overturn the decision of the plan. But if in fact they find that the treatment recommended by the treating physician wasn't distinctively better, then they shouldn't.

Mr. Andrews Right. So, I think that is where we might…

Mr. Atkins. You don't go in necessarily with a presumption of burden of proof.

Mr. Andrews. I think that is where we disagree. You just told me that the physician has to meet the standard that his or her diagnosis is distinctively better than the analysis of someone who has never met the patient, didn't examine the patient and is not familiar with the patient's medical history. I disagree with that.

I think that the burden of proof should be on the other side. We should presume that the physician's judgment is distinctively better, and if the plan can come up with compelling evidence to the contrary, the plan should win. And I think that is more than a semantic difference.

Mr. Atkins. But, Congressman, I do. I agree with you. And I think it would end in a very difficult result, particularly if you apply it to Medicare as well as everything else. What you will end up with is a situation in which the plan capacity to review that 30 percent of medical care in this country that is inappropriate, unnecessary or harmful to the patient is gotten out of the system.

Mr. Andrews. Let me just point out that medical care that is inappropriate or harmful to the patient is subject to the tort system by the provider.

Mr. Atkins. Not inappropriate and unnecessary though.

Mr. Andrews. I am not sure about that. If the provider makes a decision that is deleterious to the health of the patient, the provider is held liable under tort law. You or your clients aren't, but they are.

Ms. Greenman. Yes, there is a difference between deleterious and unnecessary. And I think with regard to your hypothetical, the fundamental question is one of allocation of risk of economic responsibility. And if the treating physician says, ``It is my recommendation that you go to specialist.'' You should see that specialist.

Mr. Andrews. Right.

Ms. Greenman. Of course the patient is free to go see that specialist.

Mr. Andrews. No.

Ms. Greenman. The question before the House is whether…

Mr. Andrews. If the patient is willing to pay for it out of her own pocket.

Ms. Greenman. Right.

Mr. Andrews. Well, I mean that, frankly, is…

Ms. Greenman. However, if the plan makes a determination that the referral is within the scope of covered benefits under the plan, the plan will pay for it. Plans are not in the business of denying benefits and the overwhelming majority of claims are approved.

Mr. Andrews No, no. I am sure, under the hypothetical I have given, most plans would certainly say that services of a cardiologist are within the contract. The question here is whether it is an appropriate referral. And what you just told me is if the treating physician says that the referral should take place, and the patient wants the referral to take place, then the burden is on the physician to prove to the plan that the referral should take place, or the patient has to pay for something she thinks she has already paid for when she paid her premium.

Ms. Greenman. But what you are doing is putting the responsibility on the treating physician to practice in accordance with contemporary standards. The plan may be imposing a higher standard for reimbursement. Basically, all that the plan is doing based on your hypothetical is treating the physician's report, saying, ``Is this the set of symptoms that make referral to a specialist medically appropriate within the confines of the plans, and, therefore, would payment be authorized?''

Mr. Andrews. A set of symptoms based upon a statistical model developed by someone who has never met or examined the patient.

Mr. Atkins. Congressman, can I suggest a hypothetical?

Mr. Andrews. Sure, go ahead. If the Chairman consents. It is his hypothetical, not mine.

[Laughter.]

Mr. Atkins. Okay. This is a case in which a woman with a detectable lump in her breast is going to a physician who recommended a mastectomy. The mastectomy recommendation went up to the medical director who looked at the evidence and suggested that, in fact, lumpectomy might be more appropriate for this patient. It was less intensive and had shown to have favorable outcomes. They sent it out to a center of excellence for review that specialized in breast cancer treatment. That center of excellence confirmed that, in their judgment, a lumpectomy would be more effective as well, and lower risk to the patient. As a courtesy, the medical director called the treating physician and explained to them what they had done and asked them why he had recommended a mastectomy, and he said, ``Well, that is just the way we do things around here.''

Now if you create a situation in which generally accepted medical practice is the standard, and any doctor who does things because it has always been done that way around here is presumed to be right, then no plan that is exercising clinical guidelines developed by NAH or anybody else can ever overrule it. I think then you have put the patient’s health at risk, and I think that should be a very serious concern.

Mr. Andrews. I think sir I will say to you obviously I agree with the result of your hypothetical. I don't get too many constituents complaining to me that their managing care plans are referring them to centers of excellence too often. The complaints tend to be that they are not getting the referrals at all.

Mr. Hunt. I like your example Mr. Andrews and I can use it because it is a perfect example of how ERISA works today in a number of ways. The person had this and as we have all agreed there is no one right answer in medicine today. You can have 100 doctors get 100 right answers. So, that is an elusive thing. If the person has that condition, there is an automatic internal review, and we hope everybody can have their medical arguments come out happily, and apparently it does on a fairly good basis.

Let's say as the next step that the lady is angrier than hell. She can call the Department of Labor, there is still no cost to her, and say ``I think that I am really getting a raw deal on this.'' The Department of Labor comes in with all of its force, again no cost to the patient, and can look at all the different angles and investigate it. Then there are the courts. That begins to get into the cost. But the Department of Labor with fiduciary responsibility and threats as Jane mentioned is a very real thing. I can tell you we preach it like religion among our members to really watch out for that.

So, this system does work because if indeed the payer plan was being cavalier or lying, cheating, and stealing they can go to jail not just receive a fine.The Department of Labor can put them in jail if they have really cheated.

Mr. Andrews. We don't favor quite that strong a remedy.

[Laughter.]

Mr. Hunt. Well I mean it is there. It has been there since 1974, and occasionally it is the right remedy. So the system does work.

Chairman Boehner. Dr. Flaherty, do you want to comment?

Dr. Flaherty. Just a couple of comments. We talked about appropriate care and unnecessary and inappropriate care and it is very difficult to define those issues. The 30 percent number gets thrown around regarding unnecessary care, and that may or may not be. There certainly is a practice variation which is a concern in some areas.

But I did want to make a couple of comments. One is that there is a National Guideline Clearinghouse put out by AHCPR, the American Health Plans, and the AMA which has 621 guidelines in it. It is accessible to practitioners. I think that there has been over 100,000 new users on that since it is put out at the end of December. So there is some progress being made with evidence-based medicine which I think is very, very helpful to make those plan decisions.

If the lady with the breast lump in the incidence that Mr. Atkins related happened to be in northern Wisconsin, and it was 150 miles to a radiation unit, and she had to go for 6 weeks therapy on a daily basis, the decision may have be different. So there is variability in those medical decisions, depending on where you are and what you have, as far as your therapeutic areas.

Chairman Boehner. Well, I want to continue this conversation about medical necessity and who really gets to make these decisions. Before we continue this, let's step back a few steps.

It seems to me that over the last years, and including the Hearings we have had in this Committee, that everyone who is in a managed care plan has a problem which I know is not the case. I happened to meet with a large employer last week with over 250,000 employees covered in a self-funded plan that has an internal review and external review. I asked the question about how many cases got to an external review status last year, and the answer was ``Two.'' Two, out of over a million claims filed with this particular company. Two got to an external review.

So I want to ask all four of you to briefly give us some measure of the instances where this conflict that the Congress and everybody else is wrestling with occurs. How often does it really happen? Ms. Greenman, you are a large employer.

Ms. Greenman. I would say that in the overwhelming majority of situations, a claim for which all the appropriate data has been submitted, is generally granted. Where the claim is denied, I would say that we tend to err on the side of recommending coverage. If there is a good reason to do so there is a fiduciary Committee that will sit and review claims, look at medical necessity, look at all of the evidence including what has been submitted by the treating physician, what treatment is available and where the employee lives.

Chairman Boehner. What I am referring to is the incidents of denial where there is a real conflict, and there is not a resolution.

Ms. Greenman. Very small.

Mr. Atkins. My sense from our employers is that the overwhelming majority of those are in very new treatment areas or investigational treatments or areas in which there is a substantial amount of disagreement by the medical profession regarding the most appropriate way to treat That is where most of those issues come up.

There are a tremendous number of court cases for example on the issue of autologous bone marrow transplants which the National Institute on Cancer just recently indicated was a very questionable treatment. Most of the cases that have been going to court have been on autologous bone marrow transplants.

So they are in areas where there is not a clear medical opinion or an undivided medical opinion on these major treatment questions with a lot of money at stake.

Chairman Boehner. Dr. Flaherty?

Dr. Flaherty. Yes, I think it depends on where you are in the country and what kinds of plans you have. I think if you are in southern California, there is probably going to be a lot more than there are if you are in northern Wisconsin. I think it is a little bit regional.

I know that you can sample your state insurance commissioners, or whoever has control over that managed care market and they will register the numbers of complaints received.

Chairman Boehner. But we are talking about ERISA here.

Dr. Flaherty. I know but I am just trying to state an analogy. I don't think there is an ERISA number. I don't have one, and I don't think that we really have one. I think it is probably relatively small.

I think partly people don't know they have an appeals process. There have been lots of appeals that have come in recently with people saying we have an external appeals process and we have renounced it. But I think that there has been an ignorance of the process and there really wasn’t an appeal process.

Chairman Boehner. Mr. Hunt?

Mr. Hunt. Actually, they do know because it is handed to them in a little book when they are first hired. It is part of their summary plan description. Now, whether they like me read it or not is a different thing.

[Laughter.]

At the request of your staff, we did a quick review of our members who as far as we call tell cover about half of all the U.S. workforce in health plans. The number arrived at, and I use this as guidance not gospel, of all those turned down after appeals came to .045 percent. So a little over four-tenths of one percent were those that were turned down, and that includes those that might be totally ridiculous. This was in the payer plan side. That shows with a microscope as a guidance at least of what you are looking at within the payer plans. I think everybody is right. When you get into everybody trying to practice medicine and second guess whether it is the legislative side, the regulatory side or the employer it gets fuzzy because as the doctor has pointed out it changes from part of the country to part of the country and where a person was educated. But I think it is bigger in the press than it is in real life.

Chairman Boehner. Well, back to the issue of medical necessity. We would all like to endorse Dr. Flaherty's point that medical necessity ought to be determined by the treating physician. If it would work, everybody might endorse it.

The 30 percent number that you referred to comes from President Clinton's Advisory Commission on Consumer Protection and Quality in Healthcare Industry. ``There is ample empirical evidence to substantiate the existence of significant over-utilization of services which some have estimated to be as high as 30 percent of total healthcare delivered in the United States.''

We also have an a lot of information out there about under-utilization of services. There is an awful lot of literature out, including articles last week, describing the use of beta blockers as an essential therapy for most heart attack patients. However, recent studies showed that only 21 percent of eligible elderly patients were treated with beta blockers and that the subsequent mortality rate for those who did receive this treatment was 43 percent lower than for those patients who did not receive it. As a matter of fact, the AMA has recognized the problem and recently issued a quality alert to 170,000 physicians.

Let me go on. According to an NCQA study, NCQA is a managed care quality reporting organization, HMO members are two and a half times more likely than fee-for-service plans to receive beta blockers. So as much as we want the treating physician to make these determinations, there is a problem out there to some extent. I can't quite get my arms around how wide the problem is in terms of over-and under-utilization of appropriate medical care.

Dr. Flaherty. I think you have obviously hit a point of great sensitivity as far as the medical community is concerned, and that is why we have issued the treatment alert to physicians. The reluctance to use beta blockers is either an educational thing or a prior experience thing. When the early beta blockers came out, they had a lot more side effects than the beta blockers do now. It depends on what your historical experience with beta blockers is, but obviously that is a real concern.

Chairman Boehner. Any other members have questions? Mr. Fletcher?

Mr. Fletcher. I think it is important and Dr. Flaherty you made a very important point. You mentioned that one of the things that has happened is that consumers are taken out of the loop. It is interesting that just this morning I spoke to an OB-GYN physician who was talking about how we are never going to fix this system until we get the consumers who have a vested interest in making some of the decisions back in the loop. I think over-utilization is a problem in some cases. I can personally give you situations where on an indemnity plan I didn't see patients for a year. They would go back on a no-capitated HMO, and I would see them monthly thereafter.

[Laughter.]

So, there are some incentives that obviously do address over-utilization. I don't think managed care has answered questions, and it has obviously caused us a lot of problems or we wouldn't be here talking about this. But I would like to see some way, and I am not sure I have any or all of the answers. Certainly, we have got some suggestions about getting consumers back in the loop a little more, and I think they ought to be a part of the process.

External review is something we look at trying to define medical decisions, or medical necessity versus coverage decisions. Let me ask all of you. Say you had an external review and an insurance company, whether they are ERISA or not ERISA, refers something to an external review which is binding and it comes back and they follow that. You have got whether it is a center of excellence or whatever making the decision to follow that. Should that insurance company still be liable if they follow that external review in your opinion?

Dr. Flaherty. Are you talking to me?

Mr. Fletcher. Yes, sir.

[Laughter.]

Dr. Flaherty. No. I think there are big issues that are involved. Obviously there is an issue that has been captured by some of the bills regarding punitive damages. I certainly don't think there should be any punitive damages in that situation.

The issue is if you have had a bad outcome and there is some culpability along the way. I think the plan’s culpability has been a race with the external review situation. I don't see how they could be culpable for that.

Mr. Fletcher. Okay.

Ms. Greenman. Although I think it is not completely clear from some of the legislative proposals that the third-party review decision would be binding on both the plan and the participant, or that a reliance on a third-party review or determination would provide exculpation for the plan and the plan fiduciaries making determinations. Very importantly from an ERISA plan perspective the scope of external review has to be limited to the terms of the plan. If they were talking about a payment decision, the payment decision has got to be within the confines of that plan.

Mr. Fletcher. Let me interrupt you just briefly. If there was a definition of a medical decision within the spectrum of external review by not having someone define what medical necessity is, but rather defining who would define that in a particular situation. Do you think it would be helpful in understanding the difference between coverage and medical decisions so that there would be more clarity in the contracts given that external review would define medical necessity, and insurance companies were made aware of that?

Ms. Greenman. I think the answer is, I hate to give you a wishy-washy answer, it depends. I think that if medical necessity is the touchstone or the standard applied in a given plan, then having that determination it is possible to build in criteria that an external reviewer would look at. But ultimately I think it is important from my perspective and from an employer's perspective that the terms of the plan or what the plan covers not be overridden by some external definition of medical necessity.

Mr. Fletcher. Mr. Atkins.

Mr. Atkins. Congressman, yes, I do believe that if the Congress made it clear that medical necessity determinations, which are coverage determinations, were subject to external medical review, that it would clarify this question of what is a medical treatment decision and what is a coverage decision for the courts. Because the courts are having a very difficult time parsing it out right now.

Mr. Fletcher. I think my concern is that we have seen this in the ERISA decisions. They are moving more in the direction of liability.

Ms. Greenman. Yes.

Mr. Fletcher. Are we just going to allow judges and juries to make these decisions particularly in ERISA, as to whether they are going to send cases back to the states or whether they are going to keep them in the federal courts? So, we are allowing the judges to makes these decisions and I think we are being remiss in not giving them guidance for making decisions in the first place which would clarify and make it easier for the ERISA plans to define their coverage.

What about within the industry? I talked to an individual that had worked for a physician organization that established an insurance company, a managed care, back in Lexington, Kentucky. They were looking at NCQA because I was raising the issue of presenting within the industry broad-based quality patient information, non-Government entity but a private entity, much like we do in some of the other areas of presenting information on quality. I asked him about NCQA, and he said, ``Yes, well that is nice, but they wanted $200,000 up front to provide that.'' And they didn't do NCQA, but since it was physician-owned within the community everyone knew who was good and who wasn't anyway so we were able to manage the providers on those terms.

I wonder if you all have got any suggestions on that? And, obviously, briefly my time is nearly up.

Mr. Hunt. Well sometimes the quality of things we would have loved to have had for all the same reasons. It would be nice for an employer to say, ``Oh, look, I have the good housekeeping seal of approval.'' I don't think any of them have really taken off. I had one person who was involved in one of them say it is a little bit like political polling. So, I mean you are familiar with how it looks today, but it may not look the same if you ask the same question tomorrow. You are going to get a very different answer. That is a problem. The money is a problem.

I think one of the other problems about external review is we have merely assumed that there are these people out there. I'll bet you know every doctor in Kentucky. If you needed to have an external review on some decisions you were going to make, you would have to look pretty hard to find somebody you don't know because the medical community is pretty tight. There is a lot of interaction also. Do keep in mind that when we talk about independent review we are assuming that somebody is going to be totally blind. It probably is not going to be able to achieve that because as you said about this group, ``Well, gee, everybody knows everybody.'' So that is the kind of thing that they do, and it is fast-changing. That was the other thing that I talked about to people in this business. Everything changes so fast, that by the time they have something written down the medical community is moving ahead so quickly that it’s yesterday's news.

Dr. Flaherty. Go ahead.

Mr. Atkins. Congressman, if I could just respond to the issue about NCQA and the cost of accreditation because accreditation is expensive.

The NCQA accreditation has a fairly high standard and is getting higher all the time. It is expensive for the plan, not just the accreditation itself, but also the process of getting prepared and being able to handle business at that level of sophistication. NCQA actually does run kind of a lower level accreditation process for plans that are just getting started and are just building up, because usually it takes three or four years for a plan to get up to the point where they can actually go through an NCQA accreditation and pass.

And an NCQA accreditation should not be the floor. Everybody shouldn't have to be NCQA accredited. It should be the standard that people are striving for. There should be an intermediate standard for bringing the plans along and showing how to improve quality.

Dr. Flaherty. Just a comment and I will tell you my conflicts. First of all, I am a Commissioner for the Joint Commission and I am also on the board of AMAP, the American Medical Accreditation Programs. I can talk about NCQA.

[Laughter.]

I think the problem out there or the challenge out there for the purchasers is trying to differentiate provider quality. There really aren't differentials right now, you know. NCQA does a great job of looking at, for example, compliance rates for mammograms, immunizations and things like this. HEDIS 3.0 is going to get into oversight such as diabetic control and things like this so there is going to be something coming down the road but right now there is not a measure of difference.

I think, fortunately, because of the President's Quality Commission, we have gotten the three big groups together. The Joint Commission, NCQA, and AMAP have gotten a performance measurement coordinating council trying to get things established that can link the whole range of treatment modalities, plans, hospitals, and physicians. So maybe down the road we will have something that will be a measure difference as far as quality is concerned, but right now it is very difficult.

So most of the decisions are made in that big satisfaction part of the survey, and not so much the quality issue when you are doing the health plans.

Ms. Greenman. I would make the point, as a follow-up to Mr. Flaherty's comments, that when you look at organizations such as the ones that you have mentioned that are striving to set the bar extremely high, look either at really high-quality standards or at standards for extremely high-quality health care. Should there be a rebuttable presumption that the country doctor knows best? Then the burden shifts to the plan to rebut that presumption and demonstrate that it is the local country doctor who doesn't know best. These standards are the ones that ought to apply, and place the burden and the cost of that demonstration on a plan that doesn't make sense.

Chairman Boehner. Mr. DeMint.

Mr. DeMint. Just a quick comment. Thank you, Mr. Chairman, for holding these hearings. I want to thank all the witnesses.

I have been a businessman for 15 years, and believe me, I don't think we should add any regulations or liabilities. It scares me to even hear medical necessity discussed in Washington. I am convinced that as long as employer-based plans are the only good choices that it is inevitable that there will be more and more mandates on employers and inevitably a mandate to have health insurance. This voluntary status will certainly end because these discussions, as you can tell by some of the questions, continue to move towards more employer responsibility and more employer liability.

This is more of a challenge than a question. There are several of us trying to develop this concept of individually-owned health insurance. I believe that unless employers are willing to help us shift responsibility of healthcare to individuals, then the government will shift more healthcare responsibility and more liability on employers.

These plans can be done with employer support, but it is going to take a lot of work. I hope along with these other considerations that are necessary that we will look long term and see that we should not build our whole healthcare system on employer plans and eventually on the government Medicare plan.

That is all I have. Thank you.

Chairman Boehner. Well, thank you, Mr. DeMint. I want to thank all of the witnesses. You have done an excellent job in helping us understand what protections there are and what if any shortcomings we might be dealing with.

And to answer the gentleman from South Carolina's question, to some extent we have to recognize over the last 25 years that ERISA has been wildly successful in covering 140 million American workers in a cost-effective system that they may not have had if ERISA had not been created. I certainly understand the benefits of having more consumerism in the healthcare delivery arena. Long term I think there are benefits that could be helpful.

These hearings are going to continue and hopefully as the year progresses we will be able to determine what, if anything, is necessary for us to provide more confidence and more protections for employees.

Thank you all very much.

Whereupon, at 4:19pm the Subcommittee was adjourned.