tv Politics and Public Policy Today CSPAN November 6, 2015 1:00pm-3:01pm EST
around the critical issues in health care. like how do we solve our primary care shortage? we all know that integrated teams can make that happen, but what are the best models and how do we bring people together to discuss that? and one of the things we know is that when we go to tallahasse to talk to legislators, they have a huge agenda, as you from from all of the people you work with and how can they possibly know enough about some of these health issues? and what we'll be doing as we convene these, they'll bring tallahasse to the forums about the issues in greater detail so they can be a more informed legislator. so we see our mission as broad. much bigger than an insurance company paying the claim on the back end of the process. a huge stakeholder in driving the system to change, to quality and to innovation. thank you.
[ applause ] >> thank you very much for that, pat. that was very inspiring to think about health as being much bigger than health kcare and trying to find the solutions to get us there. now we are going to turn to avic roy who has just returned from his money moon. he's the opinion editor at "forbes." he has an interesting back glund includes both medicine and finance. he's a leading conservative change agent and a sought after presidential campaign advisor. he's currently advising senator marco rubio and has previously advised rick perry and mitt romney. he's the principal author of "the apothecary," the influential "forbes" blogs. and he also serves on the advisory board. join me in welcoming avik roy.
[ applause ] >> thanks, nancy, and let me just second what you just said there. it's -- i really enjoyed what andrew and pat had to say. i think it's inspiring to see some people focused on improving the quality of the delivery of care. it's been a tough problem, as you all know, and it's been actually difficult to prove in many cases that health insurance improves health outcomes and the great work you are doing is starting to move the needle on that. i'm going to talk about a slightly different issue which is the high price of prescription drugs. i know this has been a concern for many of you for decades. and what i want to argue today is that i think one of the challenges with tackling the problem of the high price of prescription drugs has been it's been seen as an ideological or partisan issue. and what i want to argue today
is that it shouldn't be. that it's actually extremely important for both parties to put their heads together and think about ways to tackle this very important problem. as i was mentioning, it's been sometimes difficult to prove that expanding coverage improves health, believe it or not. but what is incontra verdictable is that innovation in prescription drugs does improve health. just take the class of cholesterol lowering drugs called statins. they've dramatically improved life spans and health and reduced incidents of heart attack and other cardiovascular events. at a traction of what we spend on conventional health coverage. so the more we can do to expand pharmaceutical innovation at an affordable price will make a huge different in both the quality and the cost and the access to quality health care that all americans can achieve. i should make the disclosure, as
nancy mentioned, i'm advising senator rubio and his presidential campaign. these are my views only. please do not associate these views with the senator. he would get very mad at me if you did that. [ laughter ] there are two -- flawed theories might not be the right word, maybe it's oversimplifications. there are two oversimplificati n oversimplifications that have dominated the debate about prescription drug pricing in the united states. the first is that it's all about greed. that the reason why prescription drugs are so expensive because these for-profit drug companies are greedy capitalists and they're basically exploding the fact that we don't have price controls and other government measures to prevent profiteering for prescription drugs and, of course, the poster child for this now is martin skriel who
increased the price of an old drug used to treat toxoplasmosis. but here's the thing that's important think about is that if greed is the reason why prescription drugs are so expensive, well, car companies are theoretically greedy, too, right? they have a profit motive. tv companies have a profit motive. what makes them less greedy or more greedy than drug companies? why do we not need price controls for high definition televisions. we don't seem to need that even though they're just as motivated by the profit motive as any other drug company. and why is it drug prices have gone up so much every year? has there been an increase in greed by 14% a year or is it perhaps that there are other economic factors at play? this is something that's very important to understand. we've been talking a lot in the last 12 months and the reason
why drug pricing has been in the news over the last 12 months has been the new drugs -- new treatments for hepatitis-c and you can see that dark blue ban on the right most bar there. that's the increase in prescription drug spending last year due to new drugs and that's mostly hepatitis-c and multiple sclerosis drugs. but the light blue band is the important one which is price increases for drugs that have been on the market. often in cases -- often that these drugs have been on the market for five, ten years. and that's a bigger driverover what we spend on branded prescription drugs than these innovative drugs. it's the older drugs where drug companies where choosing to charge more. the touring pharmaceuticals example is an egregious one but it's a very common practice for drug companies to raise prices of drugs that have been on the market for many years. now the other theory that you
hear a slot that innovation is expensive and that that's why we have to charge what we charge in the united states for prescription drug and mark zuckerberg is laughing at that theory because as you know his product doesn't cost anything -- at least for you to use it as a user. as someone who joins the facebook social network. google search engine costs zero to use. those two companies don't argue that, well, i have to charge you a thousand dollars to use my search engine otherwise i wouldn't fund innovation. you'll never hear google say that. you'll never hear facebook say we need to charge a thousand dollars a month for you to use our social network otherwise we wouldn't be able to innovate. so why is it pharmaceutical companies and biotechnology companies argue that high prices are necessary to fund innovation? in fact, in most sectors of the economy it's low prices that drive innovation.
clayton christian son, the professor at harvard business school who wrote a whole book about this called disruptive innovation, his point is that most innovation happens at the bottom of the price scale. when japanese car companies dime the united states they didn't compete in the luxury market. they competed for the most affordable cars, the honda civics. and as they gained market share they moved up the price chain and now they make acuras and incindys and lexuses and dominate those markets, too. but they first found out how to deliver a high-quality reliable car at a low price and then moved up the value. why is it that that's not happening as much in pharmaceuticals. let's take another case. i mentioned google and facebook. you can say those are internet companies, that's software, those aren't physical products. maybe that's somehow different. what about apple? app apple's products are not cheap, as we all know. they're premium smart phones.
they cost more than the typical smart phone. how has pricing with apple products evolved over time compared to description drugs? it's hard to imagine and hard to believe but the first iphone is only eight years ago, it was launched only eight years ago. the iphone 1 we can call it now had eight gigs of memory. it has a 320 x 480 screen. let's not get into microprocessor, they're slower than the ones we have today and it cost $599 when it was first launched. the most recent yes mere iphone launched this year is the iphone 6 s plus. it has 128 gigs of memory. so that's 16 times the amount. it has a screen that's 13.5 times the resolution and on inflation adjusted basis costs 27% less than the original iphone. so i bring this up to say when
was the last time you heard of a new drug -- because we talk a lot about innovative pharmaceuticals. when was the last time you heard of a new drug that improved health outcomes by 16 times and cost 27% less than the prior standard of care? by that standard, the pharmaceutical industry has failed to deliver value and innovation in a scale that we're accustomed to seeing and expect from the retail technology industry. here's an example that i stole from one of my "forbes" colleagues peter bach who's a cardiologist at memorial sloan-kettering. he was talking about gleevec which was launched in 2001 and was the harbinger of the revolution we experience routinely where we've identified a molecular target for a disease and designed a drug that targets
that molecular defect and in the case of gleevec cures chronic my lodges now leukemia. the price of a gleevec -- this year the patent expired in the united states earlier this year but at the end of its patent life novartis was charging more than double for gleevec what it was charging when the drug was launched and that's despite the fact that two other similar drugs launched -- were approved by the fda over that 15-year time frame, 14-year time frame, including a drug manufactured by novartis. and so what has happened historically is that drug companies will say, you know what? i'm going raise the price of my older drug because -- and make my newer drug less expensive that way insurers have incentive to cover the newer drug and move people off the older drug because they'll save money and then when the older drug goes off patent everybody is on the new drug and companies have been
using that technique, drug companies have been, to extend the lives of their branded pharmaceutical franchises. and that's perfectly legal. insurance companies are going along with that or at least have historically. but that's one of the reasons why you see these older drugs, the prices go up over time. and think about that again. imagine if apple said the ipod from 2001, they were going to charge 2.5 times for that today than they did in 2001. we'd think they were crazy. if samsung did that with high definition televisions we'd think they were crazy but this is what happens in the pharmaceutical industry. so this isn't because of greed, i would argue. it's not because of innovation or the need to fund innovation. it's actually because federal policies have distorted the way we pay for and use prescription drugs in such a way that those
conventions of, say, the technology industry don't apply to prescription drugs. one thing that's actually the most important thing to point out i think is this is not merely a matter of affordability, description drugs, for people who need the them. it's also a fiscal problem. we spend $2 trillion a year in terms of government spending on prescription drugs and a big part of the reason why is because we subsidize as many of you know, if not all of you, the cost of health coverage for so many americans. we subsidize it through medicaid and medicare but also tax exclusion for employer-sponsored health insurance the value of which is just as large as what we spend on medicaid and almost as large as what we spend on medicare. so if you include the lost revenue to federal state and local governments to the employer tax exclusion and add
that on to what we spend on medicaid, medicare and the aca exchanges, we're talking about nearly $2 trillion of subsidies for health insurance every year. so is it any surprise that providers of health care services, including prescription drug manufacturers, charge a lot for their services knowing that the consumer is insulated from the price and value of those services and products? this is the cbo's projection of future federal spending and i've simplified their data into two buckets, health care and everything else. so the blue bar is defense, bridges to nowhere, unemployment benefits, whatever you like or don't like about the federal budget and the red is health care. except for, of course, interest on the federal debt so we'll never get to 2050 on this chart because china will pull the credit card and we will face a pretty significant financial and economic crisis. and prescription drugs are a
part of that problem and it can't be avoided. is so the point i want to make to my republican friends this room, i think there has been this unstated assumption and sometimes explicitly stated assumption that we shouldn't mess with the way we pay for prescription drugs in america. the way we do it today is perfectly fine, it's a free market capitalist system. it's not. it's not a free market system when a ten-year-old drug costs 2.5 times as much today than it did 15 years ago. when it doesn't actually increase the value to the patient. that's not how free markets work. free markets work by delivering better products at a lower price with more quality over time. that's what a truly innovative industry does. and we should be holding the pharmaceutical and biotechnology industries to that standard. what are the biggest reasons why we don't a free market in
pharmaceutical drugs spending today? one of the biggest as i mentioned is that we don't pay for this stuff directly that's the biggest driver of innovation in most other sectors. consumers want affordable products, they demand affordable products, when products aren't affordable they don't buy them so companies have an incentive, a huge economic incentive to deliver those products at a lower price point with more quality one thing we don't talk about you have? a regulatory mandate within the aca which i worry will be a precedent for the broader health care system which is that the aca actually requires that insurance companies in the aca exchanges cover branded drugs regardless of whether they're more effective than generic alternatives. for every pharmaceutical class aca insurance products are required to at least cover one branded drug. now, there may be cases where
there's entirely appropriate. but there may be cases where it's not appropriate where the generic alternatives are just as good if not better for a fraction of the insurers don't have the option to lower premiums and make them more affordable by rationalizing their formularies where they should. another problem is that even if insurance companies try to use things like deductibles and co-pays to incentivize patients to choose generic drugs over more expensive branded alternatives, pharmaceutical companies will often say "hey, we'll have patient assistance programs where we will cover the co-pay and deductible. so the patient doesn't have to worry about it." for the drug company that's a win-win because the patient gets on the drug which makes them far more money than whatever they're paying for co-pay and obviously it looks good to be able to help people for drugs that they otherwise wouldn't be able to afford so it seems nice but the
end result is there's a lot of utilization of branded drugs where it's not always obvious the clinical value is there. where it is, great, but it isn't always. the second very, very important area is, of course, that it's extremely difficult to develop innovative new drugs. the fda has gradually layered on more and more requirements to the point where it now costs according to tufts university an average of $2.6 billion to launch a new drug if you incorporate all the times drugs fail in development for every one that succeeds. there's also the fact of course there are patents. the patent extends on average about ten years after the fda approves your drug and that's a monopoly. that's okay. the constitution provides for that. that's meant to be a reward for innovation. that's a totally appropriate way to restrict competition in the short term but it does mean far period of the patent life, for the monopoly, there is a
monopoly a and this can be a barrier to competition because it's difficult to develop new drugs. where the free market is allowed to work in the pharmaceutical industry it actually works very well. one thing we don't spend enough time thinking about and talking about is the fact that for all the complaints about the high price of branded prescription drugs, the united states leads the world in the percentage of prescriptions that are actually generic because of a visionary law passed in 1984 by representative waxman and senator hatch drug companies in the united states, generic drug companies in the united states have much broader access to the patient pool once a drug goes off patent. so when the statin drugs i was mentioning before, the cholesterol lowering drugs went off patent like zocor and lipitor, generic drugs came in and took over that market at the fraction of the cost. it costs less to manufacture most generic drugs than it does to manufacture water or coke. so that's a major major driver
of value in our system compared to european countries with the ability of generic companies to substitute their products for older branded drugs is more restricted by regulation: so today 90% of all prescriptions in the united states are for inexpensive generic drugs so it is important to understand in context while we are concerned about the high price of branded drugs, the price of generic drugs is very low and there's more success in the united states far issue and insurance companies are getting smarter about delivering generic drugs to patients by steering patients to cost effective prescription drugs. that process is going on, as you heard earlier today. so what can we do to improve where we are? as you know, hillary clinton has proposed reforms to drug pricing to tackle this problem. i'm afraid her proposal would name problem worse in a lot of
ways. it would further subsidize the insurance coverage of pharmaceuticals in a way that would leave drug companies less accountable for the economic value of their drugs, it would shorten the patent life of pharmaceutical this is a way that would make it harder to develop innovative new drugs and some things like importing drugs from canada won't have an effect because canada is one-tenth the size of the united states and drug companies are more sophisticated now in restricting inventory to those countries so you can't import drugs. so bottom line, even if you could import drugs from canada it would haven't that much impact on the u.s. market. and importantly she did nothing on fda reform which is one of the principal problems that drives up the cost of health care and nothing on regulatory reform outside of fda reform is an extremely important problem. so what can we do to solve this problem? it's very simple, let's do more to reduce the barriers to entry
for new competitors. reform the fda in the house, that's a modest step but a good step to actually remove some of the barriers to competitive entrants in all of these disease areas. we can level the playing field between branded drugs with patents and insurance companies. today insurance companies are barred by regulation from banding together to negotiate with drug companies. people talk about medicare negotiating. what about private insurers? the way drug companies work now is they can say if you don't cover my drug but this guy does you'll lose your patients so insurance companies feel a pressure to cover drugs even when the economic value isn't there. let companies ban together to negotiate for the length of that patent monopoly. you would get a much more economically rational result. and you can do more to allow people to shop for their own health coverage because that gives health plans more of an incentive to rationalize their drug forms and not just with drugs but with doctors and
hospitals, too. to deliver that insurance product in a cost-effective way. . that will lead to all sorts of downstream effects with planned design and innovation like you've heard about today and better value for patients. if you want to hear more about my thoughts you can download these various documents and with that i thank you for your time and look forward to your questions. [ applause ] >> well, that was very thought provoking. just to be clear, we take no position on the election or any of these items and that we like to have different perspectives in the room and that was excellent and thought provoking. now we're going to hear from uva rhi reinhart who may have different ideas and we like to have all the ideas out here. it's my pleasure to introduce. uwe reinhart, the james madison professor of political economy at princeton university.
he's recognized as one of the nation's leading authorities on health care economics. he has served on numerous prestigious commissions, advisory boards and editorial boards and you can see more about his background in the packets. he's a prolific author and original thinker with a gift of making ris rouse complex economic analysis accessible to students and all of us here. he informs public policy and the public as a frequent speaker and blogger for the "new york times," "forbes" and jama. and talk about a wide range of outlets there. he's our longest serving advisory board member and i've had the pleasure of working with him for over 22 years. so it's a worm welcome that i offer to uwe rhine hart. reinhart. >> thank you, nancy, if more nice introduction. nancy called me and says she liked to have a skunk in the
garden party at every one of these meetings and i said that's why got created me. [ laughter ] so here i am. are my slides up? oh, yeah, i can see them. so if you think about innovation in health care, there are two areas, one is biomedical research, and the other i would call operations research, every industry has that. in our field we call it health services research which is aimed at improving the efficiency and patient safety with which health care is delivered, including drugs are delivered and these are quite different areas. on the biomedical side the advances have been breathtaking.
they could be even more breathtaking, we could have more yet of them. the viagra pill last 50 years, for example, or something like that. but the reason we are the leaders -- and the u.s. is the leader in this field -- is we have great scientists and if we don't grow them we just import them. we have a flourishing venture capital market such as no other country has and every year we spend tons and tons of money on supporting this particular kind of research both public money, roughly $50 billion, and private even more so. when it comes to operations research that's the stepchild, which is amazing to me. very few industries would spend close to $3 trillion a year and spend a little on operation
research as we do in health kcae the total federal spending on research in health care is about $50 billion. these numbers come from academy health which is the association for health services researchers. $2 billion on health services research. that's .07% of national health spending. or in plainer english, for every $10,000 of national health spending, $7 on operations research. not a lot. so in general we have paid for this because if you look at the publications that came forth from the institute of medicine over the years, to err is human, crossing the quality chasm and many others we spend a lot of money roughly with the exception
of switzerland, twice as much as most other industrialized nations per capita but everyone now agrees while american health care can be splendid overall we don't get our money's worth. that's now generally agreed. so congress i think has allocate add pit tonight to operation research and i don't quite understand why that is so the private sector has underinvested, too, but there is the feeling of public good, everyone who had econ 101 knows it. if my benefits accrue i will underinvest in that activity. so that doesn't mean private industry is evil, they just own to the theories we teach in econ 101, which is nice.
[ laughter ] and it gets worse. it took us years to establish the agency for health care quality research. i was one of the actors trying to get that established to get operations research, patient safety and quality into health care and yet of recent there has been talk at some point to zero out the budget of that agency or at least to cut its budget drastically. i think that is just penny-wise and pound foolish to do this and that agency gets about $400 million a year which is 1.016%, or $1.60 for every $10,000 national health spending. now if you think that will solve the deficit problem avik was talking about i have news for you. but that's really a shame. sometimes you get the impression as if congress is actually
encouraging inefficiency or at least doesn't care about it and they should. they should care about it because health care is breaking the nation's back so congress might pay some attention to the efficiency but also to patient safety. now, this morning at breakfast in the "financial times" i saw gillian ted had this thing "a revolution is under way in u.s. medical services." and you have gray hair like me you've heard these revolution miss, many times. [ laughter ] i had a slide that i decided not to use. it's a thing says bull shine protector that you put on at these conferences because i've heard this now for 30 years. i think there will be progress, obviously, in the use of it and the startups. some of them will pay off but the progress in this field will
be much slower for a whole number of reasons. this i've already said. i've heard microsoft and google and others, they i believe in at the -- i believe in at the fringes of this -- nibble at the fringes of this problem but i have yet to see the major fruit of that coming. so the world is not revolution it's evolution which does not however mean we should discourage it. there are going to be many good ideas. the problem always has been scaling up. we heard some wonderful presentations now from and from florida and the question is how they will succeed, i would hope. will it scale up nationally? and the reason i say that, again, you say why do you always say this? well, 70 years ago we invented a wonderful thing in america
called kaiser. right? kaiser, the kaiser permanente. i still personally believe that is the way health care should be delivered. it never scaled soup we now reinvented a bastardized weaker version of it called accountable care organization. if they succeed they'll sluch towards kaiser, but half of them will die so since we already invented a good thing, why do we have to reinvent something less good? i just don't get it. but i'm just an immigrant, may have i haven't -- [ laughter ] but there are other reasons also. very often the operations reach and health care delivery that change, they're disruptive. clayton christianson says disruptive innovation as if it were a good thing. not if i'm the guy whose life
gets disrupted so therefore there's going to be resistance to a lot of these things and we should always remember one person's efficiency is another person's income loss. that happens and so i shouldn't wonder if k street is populated with people devote their lives to perpetuating inefficiency in american health care because they're paid to do that. so for all those reasons, this is not easily done. now let me say a few words, i have to obviously disagree with avik, it's another reason i was born. [ laughter ] first of all, i will agree with him. getting a pharmaceutical product on market is a lot more difficult than most people realize. you really have to run the gauntlet. i have it here, it's not my
design, somebody else, you know you start thinking of a theory of a compound which is called a preclinical then it's phase one with a trial on humans just to see if it's safe. these are volunteers who do that. phase two they look at ef-asy. does it do some biological thing that it's supposed to do? and the third face is effectiveness means if that were applied and practice with patient compliance or non-compliance et cetera that would be effective? and then you make an application for approval and that takes many, many months, sometimes years and finally a drug succeeds. but at every stage multiple -- the bulk of them die. at every stage. so it's been estimated out of 10,000 tries that get started, one of two make it to the end.
so that has to be understood. and as avik correctly says you have to add to the cost of a drug that makes it all the costs of the failures of the dry holes in the oil industry as we would call it and you have to add to it the costs -- opportunity costs of the money, the finances that you sunk into it. to an economist that's as real a cost. if i could earn x% by putting my money into high-button boots or anything else and i put it into drug development, i must at least get compensated for the money i didn't make putting my finances into some other thing. so therefore the billion-dollar price tag one could argue about it. but many drugs cost between $1 billion to $2 billion to
develop. i believe that. i think that's easily demonstrat demonstrated. so that much is true. the interesting thing is one reason that drives health care cost is we are extremely finicky when it comes to drugs about the side effects or killing people. very finicky. [ laughter ] drug and devices are held to very excruciating standards, more than in u.s. than in other countries and, remarkably, though, when it comes to other areas of health care, hospitals, say, we've been much more relaxed. this is 1999 where the institute of medicine came out with a study that said anywhere between 50,000 to 100,000 patients die prematurely in american hospitals from avoidable errors. imagine if a drug killed that
many people. all hell would break loose. here's a later study that's just out 2013 that says 400,000 patients die every year from avoidable error. and that's from the abstract here, what it says, i'm just telling you, i'm not making this up. so why do we have this strange attitude with a hospital to say "that's too bad, i wish it weren't but --" and then for the drug industry it kills five people and all hell breaks loose and it's on the evening news. i don't quite understand that. there's many things in life i don't understand. the other thing i don't understand is why we have interstate highways, if anyone can tell me that. [ laughter ] by mean, i've thought a little bit about the pricing so the
pricing because -- we're producing drugs with investor-owned companies, with venture capitalist and all those tough people who are in there, we tend to think of the pharmaceutical industry as the quintessential samples of privateer be prize. i have a different view of it and here's my view. that's the dru industry. it sits in the protective hands of government like no other, very few other industries have to do that other than those with intellectual property. what are those protections? not only the nih money where tons of money is spent for research pharma can use but patents, market exclusivity if a patent runs out the fda can give you more years of market exclusivity. data exclusivity which means a generic company cannot use your
data, the brand name company's data to do research. probation of resale of drugs among customers. like we can't go to canada with a truck and buy stuff there and there are sundry other subsidies. so it's a highly protected industry and when you have that little bird in the hand, sometimes the governments say i want you to chirp a certain way. well you better do that because you could have price controls. now price controls for drugs is going to be very difficult. i wouldn't want to be on such a panel because there are really no costs to hang your prices on. that would be very complicated but you could -- well, before coming to that i want to say the industry now talks about value prices. they say, well, you know, we
just -- yes, our prices are not set on cost. incidentally, i should say no one's prices, no industry price is ever set on cost. if they happen to be equal costs, that's accidental, that's in a competitive market but you don't price on cost, you always price on what the market will bear. cars are that way. diet coke is that way. everything is that way and drugs, of course, are they way, too. and they call it value pricing. the problem is here when it involves human life what is the value of a quality adjusted life year that we could buy with drugs? we don't know that. if i were to canask you, can yo write that down for me? is it a hundred thousand? a million? we are too shy to discuss it and the drug industries can say well, let's just see how high it is. until they say no and we never
say no because the minute i say know at $150,000, i know that's the maximum price i put on human life and i look like a fascist. so therefore this is a very difficult thing to do but what could be done you could for example when a price looks unreasonable on it's face, this is not price control but when it really seems unreasonable, say, already you can do this but we're cut your market exclusivity we nibble away at this or data exclusivity or whatever benefit and protection we give you we'll take that away. that's not price control, it simply says it's a damocles sword. they say if you're too unreasonable with your price then we have these other methods. and i want to give credit to len
nichols, he wrote in the paper before i thought of it so he should get the credit there is, of course, the question we want to reward risk taking in america. and dark company investors take risks there's no question about it. the right amount of risk premium we want to pay investors in pharmaceutical enterprises is the amount that would give us the right flow, the desired flow of innovation. that's what we'd like to do. in real life that's very hard to do. so i was sort of thinking loosely as i sometimes do to say well there are other people who take risks for us. firefighters, police, the military they take enormous risk. what risk premium do we give them? that as that a benchmark and then say well, what do you need
to do something for america? something good. these guys fight for us, fight isis. you fight little bugs called bacteria or viruses or what not. what do you need to do something for america and if you look at it that way, then sometimes you say you know the risk premium we have been paying the drug industry is really quite good. this is a humvee, that's what it looks like what when it hits a road mine and we ask young people to drive this thing and take this chance. what do we pay you for this? so i say you don't always need a boat or a jet or something to develop new drugs for us. we want you to have a good rate of return to be sure but the sky shouldn't be the limit. health care has opportunity cost, among them educating our kids and so on and so forth. finally it is not uncommon to be
with people -- and i've been with these people -- who will tell you -- they defend the high prices of the drug industry. they argue for even more protection for the industry. they argue for cuts in social spending and lowering taxes and they do that all in one breath. i've literally been on panel with people like that, without connecting the dots. if you want everyone to have those drugs, that will increase social spending. you don't need a ph.d. to understand that. and that reminds -- brings to mind a theory that was developed at princeton, it's an astronomical theory and it says this. the strongest proof that there's intelligence life elsewhere in the universe is that it has never tried to contact us. [ laughter ] thank you very much.
[ applause ] >> well, thank you for that wonderful presentation. so i promised you an exceptional panel of speakers with diverse perspectives at the beginning of this and i hope you feel that that's what you got here today. you can see at nihcm we have a lot of fun in our meetings. not always a lot of agreement but a lot of fun. anyhow, now is the time for questions so if you have a question feel free to fill out that blue card in your pact and pass it forward. i'll go ahead and throw out the first question which was uwe's question. i'm going to put andrew and pat right on the spot and say he asked will it scale up? you're both doing some really interesting things. andrew, you've had a little bit more time to start the scaling up process. why don't you each take a stab
at that? >> it's a great question and it is important. in fact, within operations research that we don't do enough of as uwe said there's a growing science of scale that is of great interest to me. i actually think the scale answer was provided by in the opening talk by cms because our payment model was -- the alternative quality contract was written into the regulations that established the accountable care organizations and the goals and velocity that's been established by secretary burwell and the administration is on accountable care and payment reform, this is then causing the kind of delivery reform that we've seen in massachusetts and that pat is generating in florida i think is an example of scale. i think uwe's other question is
are we just going back to kaiser? i think there is an aspect of the kind of care we're promoting which is integrated and less fragmented and involves physicians practicing more as a team but i'd like to think it will allow innovations that may not have been possible in the kaiser system. >> nancy, let me make two comments. first of all, on behalf of everyone in the panel i want to thank you for having uwe be last. [ laughter ] because following him is not a fun thing. so thank you for that. let me also say that i believe that what we're trying to do will scale because what we try and do is have flexibility in our model. one of the things we asked for washington is guidelines not micromanagement because all of my markets in florida are different. i can't do it exactly the same way in each of those markets and think that it's going to scale.
one of the kaiser problems is thinking that because it worked in california it will work just the same in washington, d.c. or somewhere else and customers are the reason that kaiser didn't scale. customers weren't willing to go to that model when it went other places. now i think we have different market conditions right now because if you think about consumer choice, in the world most of us lived in, your employer made the decision about your health plan by selecting a health plan and there was a lot of anxious among some of the employees if they didn't get the health plan they wanted the market is becoming much more of an individual market greater choice employers are providing to their employees. and i think when individuals have the choice and they see the cost scale between the different options they're willing to make decisions about i'll take a narrower set of choices or i'll
take this particular set of providers because i understand the value tradeoff equation from my expense. that's different than when your employer makes that choice for you and you feel, you know, alienated from the decision that was made. is so there are different market conditions today and i think that allows more of the kaiser type model to flourish again. >> i have one more question for the two of you -- thank you. the -- i'm going to ask pat and andrew another question because the question seemed to be divided between the two and we'll give oau have and ovik a chance to recover. so can andrew and pat talk about patient outcomes. i.e., do die biabetics improve are cancer patients living longer under your models? from a national organization. no name.
>> i would say we have outcoms s data on the things we measure and we do measure diabetic care and diabetics are getting terms standard measures used to measure diabetic care. we don't yet have mortality data on that. and in the oncology area, that's an area where the measurement development is earlier in its life. but i have no doubt that based on the outcome data that we have seen which is now over a five to six year period that patients are healthier and healthier patients will ultimately live longer. >> similar to an credrew, we're seeing results that are headed in the right direction but it's early to make full-time conclusions. on the oncology side, we created two acos in practice and i thfl
they were the first that were disease specific. so what we're trying to do is drive patients to the very best facilities. if you think about how cancer is handled in the country, nearly every hospital is trying to manage it and yet there are clear steners of excellence. so we're trying to make sure that where we have the opportunity to drive to the center of excellence that hams the volume and has the expertise that we're giving our patients, our members the chance to get the care at the very best facilities. >> a question from somebody at a federal agency. what is the role of provider competition or consolidation in the transition to value based alternative payment models? many providers argue they must merge together to have the scale and resources and clinical integration necessary to achieve this transition. is this accurate or will competition actually drive the
triple aim of health care reform? >> i'd say that integration we believe is necessary to provide the kind of care thoo i thinkat lot of us have talked about today. but that integration does not imply that it has to be shared ownership. so you can have so-called virtual integration. we have some of our highest performing groups are smaller practices that are of a fill crated with one or two hospitals that are not owned practices.fi crated with one or two hospitals that are not owned practices. so integration we think is a condition but ownership is not necessarily. >> one comment i'd make in this space is that we bought a multispecialty practice just outside of tampa, florida. the highest quality practice in that area. and the interesting part was their two main susuitors were
hospital systems. they said we'd like for you to be in this process because if we're bought by either one of the hospital systems, we know we will have to compromise our approach to medicine and admit more patients than we think is right. and so we got in that mix because we wanted to learn, we thought this was the right partner, and they made a compelling case about how they would be compromised to admit a patient if they were in fact owned by the hospital. and so i think every patient out there ought to be thinking about if that practice is owned by the hospital, are you getting that doctor's best and most objective opinion about whether you should be hospitalized. >> now let's switch over to a question from somebody at a national organization. with all the buzz on drug prici pricing transparency, how do you think it will affect the industry? will it ever fast and is it the
direction we should be moving? >> i think transparency will help, but i'm not sure how much it will help. and in the sense that some of the transparency proposals have been around, well, drug companies should be able to list why they think this price is the right price. well, that's not -- why somebody thinks is the right price is the right price isn't how things work in a normal market. consumers actually decide whether the price is an appropriate delivery of value or insurance companies in the case of third party payment of health care. so, yes, transparency can help, but pharmaceutical companies already publish studies that are supposed to demonstrate if a new drug comes along how much it reduces the length of stay in the hospital and how much money therefore the system saves from doing so. and typically it shows that the drug actually will cost more in terms of the total cost of care
relative to what was being saved in the system from lower hospitalizations and things like that. so transparency alone i don't think is the issue. i think the real issue is we need to have more competition because competition is what leads to pricing signals that actually matter to patients and insurance companies. >> did you want to comment on it? >> yes, this price transparency in drugs and other areas of health care, martin gaynor was clear in points that out and it is what he said, if you have a noncompetitive market, price transparency doesn't help you at all. you still have very high prices. so you do need some form of
competition. and very often actually in the pharmaceutical industry, it does actually come in the form of me too products. there are a lot of people who are down on me too products. i've he never been so down on it because me too products can excerpt that competition which we have seen. the other problem of price transparency is in the u.s., there isn't one price for anything. it just varies by insurance company byproduct sometimes. i asked what do you pay for a colonoscopy and the ceo said there are probably 50 different prices. so then the question is what price do you actually reveal to people. so price transparency is a good thing. costs are difficult in pharmaceutical for the reason that both of us mentioned.
if you just look at the cost of making that drug, the clinical trials, et cetera, that is only a part of it. you would then have to add all the dry hold plus the opportunity costs. and to make people understand what these costs are. experts, yes, maybe, but forget laypeople. most laypeople cannot read the income statement of any company and understand it reasonably so. i mean that's why god created accountants, right? so i'm not sure what you actually get from asking for cost information on it. if you get it, you'll get all kinds of information that may or may not be valid. be very hard to audit. >> it might help more with physician and hospital service, but i think what drugs -- we actually have a reasonable amount of information about how drugs are priced. the problem is the lack of
competition and the high bearers to entry. >> i'll throw out one more. and i shouldn't restrict these questions. i'm just -- any panelist can jump in of course. so do you see tools such as drug advocates, the asco value framework or nccn's value matrix ultimately affecting drug prices? >> not really. to a degree they can perhaps help insofar as if there is a perception, a pr perception, that a drug is too costly. that is something take larger companies in particular pay attention to because if you're a large company with 20 drugs on the market, another 20 or 30 or 50 in development, you're not going to always be super aggressive on one drug because you know that might have policy and political ramifications for your entire foportfolio. whereas in the case of a more
entrepreneurial setting, he has one drug and if that drug is successful, he's going to do very well economically because of his equity stake in the company. so these kinds of metrics can help, but they also don't necessarily give you a real expression of value. the only true expression of value is a true system where the consumers and patients and insurance companies can compete and deliver pricing seg naturig. the uk as many of you know has this agency called nice, the national institute for clinical excellence. and they use these things that economy lists like called quality adjusted life years to assess,ing on, well, does this drug cost more than 20,000 pound sterling in quality adjusted life years. if it exceeds that, we won't recommend reimbursement for it. and a lot of people in washington agencies and in academic settings think that's really beautiful.
the problem is it leads you sometimes to some funny situations. so many years ago, about ten years ago, nice was trying to figure out whether to reimburse for a drug developed by a company that treats age related macular degeneration. and because the drug was expensive, nice decided that they would reimburse for the drug if you were already blind in one eye, but not if you could see from both your eyes. the idea being if you could see in both your eyes and you went blind in one eye, it was not a big deal because you could till see. whereas if you only had one eye and you lost vision in that eye, then you would be totally blind. so nice decided we'll pay to treat people who are already blind in one eye, but we won't pay to treat people who can see in both eyes and are at risk of losing sight? one of their eyes. you can understand why the average person in the uk thought that was completely redig could you ridiculous.
and it is clinically important to have sight in both your sides because you could lose depth perception. so when a bunch of people are sitting around in the room making these kind of decisions, and i love you, but, you know, when they're making these decisions in a room, they're not always thinking about what the patient actually wants. and in that case the patient might have actually said, you know, what i know it doesn't look like that drug is delivering value, but i actually do want to see in both eyes and i'm willing to pay for that and maybe some of the other things you think i should be willing to pay for, i wouldn't be. but consumers don't have the opportunity to whichever those price signals to the market. >> i think we all want to get in on this one. >> here he comes. >> the one thing i'd say with a different answer to the question is that the public debate about spending on pharmaceuticals has been mostly this debate that you've heard replicated a little bit around regulation versus
competition and the role of the fda. but what i'd say about the work that asco is doing is that it's bringing the voice of the krinish shan to the debate which has been largely absent. and by raising questions about the relationship between the price and efficacy of drugs which is what that group is doing, that's making really important contribution to the debate and i think the american public will not severally be looking at signals from health plan executives or sell crate c economists but from clinicians. so i think it will add a lot to the debate. go ahead. >> on the issue of -- i notice your english that you were using that i value this, right? so if a donald trump were to ask how do you value this, he put a different bid price on this than a waitress making $25,000 could
put on it. and then many economist s econo say the waitress doesn't value it as much. which is a misuse of english. because it means to appreciate it. she appreciates it just as much. so ultimately you ask do you want to distribute on the basis of price and ability to pay the way we do coca-cola or french wines. we could do that and an economist could not second guest this. it's an ideological view. or would you like everyone to have access to this product. and if sif you say the latter, becomes a collective decision. you doesn't avoid it. because then you're asking me how much should -- am i willing to pay for someone else whom i don't know, may not even like if i did know them, to get this
treatment. and therefore to argue that the market can solve this, that these did not become political questions, doesn't make sense to me. they are collective decisions that you have to make. now, the brits made that decision, realized the populist didn't like this and i'm sure nice relented. we have an sxerpexpert of nice sitting right in front of us. she's an adviser to nice. they relent when they see popular pressure on that. but that is a difficulty that i was alluding to, to say we do not know in america what value to put on quality adjusted life here. the brits sort of do relent whes there. we don't want to discuss it. this congress won't even allow costs to be entered in cost
effectiveness analysis. congress hates cost effective analysis because it might implicitly put a value on human life. that's how should i y we are ab this. so this is a larger than what i would be willing to pay for a drug. it always turns out clearly when you see the people who actually get this drug often are on public programs or in jail, it become as colles a collective d. and at some point our kids will have to come to terms with it. i think we can for a couple of years still sweep it under the rug. but what you would not catch me do is to say, yes, we should cover it and, yes, we should pay a high price. and we should cut social spending and lower taxes. that would not happen to me.
>> so i did want to comment on this, as well. but i didn't want him to explode waiting to get his answer out. so let me just make a couple of comments about pharmaceutical pricing, a up canal things. first of all, the margin on pharmaceuticals around the world is a fraction of what it is in the united states. we should be asking the question about that. why do we pay so much more than everybody else. and are we willing to fund the world's innovation and research and development. there is a question there. i went on a delegation trip when i was in minnesota to germany and the gentleman in charge of pharmaceutical purchase in determine any asked us why do you allow for pharmaceuticals to be advertised on television. has anyone seen the chart that shows u.s. phrma spending from before we had advertising on tv to after we had advertising on tv? it's straight up bar.
and so you have to ask about efficacy when in fact when we went direct to the consumer it exploded in terms of what we spend on phrma. so we're one of the most nation's in the world that is spending on phrma and yet our outcomes and our health levels are nowhere near where they are a lot of other places. so there are very, very baseline questions that we need to ask about whether or are not we're willing to fund the world on this. and the fact that we restrict ourselves from the government standpoint for negotiating with phrma is something that continues to amaze me that is it doesn't get more attention in the press, it doesn't get more debate in washington, d.c. the largest purchaser of pharmaceuticals doesn't get to negotiate the price. it's absurd. >> i'll throw out one more question and then we will end
after that because i want to put fair time on everybody here. the question is from a congressional office. most insurance companies offer price tools so policyholders know the price and quality before they visit a provider. but only about 2% of people use them. how are you motivating your policyholders to shop for health care? we'll make this the last question. >> i'll answer quickly and then i'll slip out the side because i have a lean to catch. in massachusetts, we're required to make that information veil to our members and the key barrier traditionally has been you could tell someone the price of a procedure, but could you tell them what their rice would be given their policy and their co-payments and their co-insurance. we now have the ability to do that and we're making that available both on mobile tools through our website and phone
calls. so the take up a still low, but it's starting to grow. >> i'd completely degree with andrew and i think i cite that had example earlier that we are encount encouraging that. and it's certainly available through our web side. the take up has been not as strong as we would like it to be, but it is better than the national number and we're seeing a trend in that direction. >> and if i can add one comment. the biggest reason why consumers don't use these tools is because they don't actually save any money. by and large the economic incentive isn't there for the patient. and that is a big part of also what drives hospital consolidation, which a piece described hospital monopolies as the biggest problem in health care that nobody talks about. because it does restrict competition and the ability of
insurers and patients to direct their business to the hospitals with highest cost care. so this is a huge problem that we have to do more to address. and we have to give more opportunities to patients to choose the insurance plan that delivers the best value to them. because in that way, the insurance company has the incentive to make sure that they're holding hospitals accountable for the quality and value and price of that care. >> there is also a fallacy that if it costs more, it's higher quality. we as a people believe the more expensive service is better and the data does not bear that out at all. >> on that point, andrew is gone, but massachusetts publish a cost report every year. and it actually turns out that
the drift has been towards more expensive facilities. in other words, they do have these prices andrew talked about, but in fact rather than what you would expect people to not know the prices and to gravitate towards the cheaper less costly facilities, it was the opposite from that. the other thing i was going to ask both of but now ask you, patrick, are these binding prices or are they what was in the past? in other words, if i go to a doctor that i thought was low cost, am i guaranteed to get low cost, are they in some sense binding? what am i looking at? >> today they're estimates within a range and based on history. so it's not an absolute contract, but it gets you within a pretty close proximity of the obligation. >> and maybe the popularity will grow over time. it's still quite new.
>> all right. let's make that the last word. i'd like to thank our panelists. let's have a final round of applause for them. [ applause sfchlt [ ] you've been a stunning audience to stay in here with us the whole time. if you could fill out your evaluation form, we'd appreciate that. we'd also like to thank the congressman's office for sponsoring our event. and caalso the staff who workedo hard so put this on today. so thank you very much.
coming up tonight, remarks by president obama on the keystone xl pipeline and his administration's decision to reject the request from a canadian company to build it. he spoke earlier today at the white house and we'll show you a portion of those comments now. >> several years ago, the state department began a review process for the proposed construction of a pipeline that would carry canadian crude oil through our heartland to ports
in the gulf of mexico and out into the world market. this morning secretary kerry informed me that after extensive public outreach and consultation with other cabinet agencies, the state department has decided that the keystone xl pipeline would not serve the national interests of the united states. i agree with that decision. this morning i also had the at the present time to speak with prime minister trudeau of canada. an while he expressed his disappointment, we both agreed that our close friendship on a whole range of issues including energy and climate changed whil disappointment, we both agreed that our close friendship on a whole range of issues including energy and climate change should provide the basis for even closer coordination between our countries going forward. and in coming weeks, senior members of my team will be engaging with theirs in order to help deepen that cooperation. for years keystone pipeline has
occupied what i frankly consider an overinflated role in our political discourse. it became a symbol too often used by both parties rather than serious policy matter. and all of this obscured the fact that this pipeline would neither be a silver pull let for the bullet for the economy as was promised by some nor the express lane to climate disaster proclaimed by others. let me briefly comment on the reasons why the state department reject this had pipeline. first, the pipeline would not make a meaningful long term contribution to our economy.thi. first, the pipeline would not make a meaningful long term contribution to our economy. so if congress is serious about wanting to create jobs, this was not the way to do it. if they want do it, what we should be doing is passing a bipartisan infrastructure plan that in the short term would create more than 30 times as
many jobs per year as the pipeline would and in the long run would benefit our economy and our workers for decades to come. in our business, it's created 268,000 new jobs this month, 13.5 million new jobs over the past 68 straight months. the longest streak on record. the unemployment rate fell to 5%. this congress should pass a serious infrastructure plan and keep those jobs coming. that would make a difference. the pipeline would not have made a serious impact on those numbers and on the american people's prospects for the future. second, the pipeline would not lower gas prices for american consumers. in fact gas prices have already been falling steadily. the national average gas price is down about 77 cents over a year ago.
it's down a dollar over two years ago. it's down $1.27 over three years ago. today in 41 state, drivers can find at least one gas station selling gas for less than two bucks a gallon. so while our politics have been consumed by debate over whether or not this this pipeline would create jobs and lower gas price, we've gone ahead and created jobs and lowered gas prices. third, shipping dirtier crude oil into our country would not increase america's energy security. what has increased america's energy security is our strategy over the past several years to reduce our reliance on dirty fossil fuels from unstable parts of the world. >> and among the reactions to today's announcement, tweets, this one from bernie sanders, as a leader in the opposition to keystone xl from day one, i
strongly applaud the president's decision to kill this project once and for all. this tweet from marco rubio, when i'm president, key phone will be approved and president obama's pack wards energy policies will come to an end.wa policies will come to an end. and from roll call, paul ryan calls keystone xl decision sickening, says obama is squashing tens of thousands of good paying jobs. again, the entire statement by president obama airs tonight at 8:00 eastern on c-span. everyone weekend the c-span networks feature programs on politi politics, nonfiction books and american history. as the nation commemorates veterans day, saturday starting at 11:00 a.m. eastern, american history will be live from the national world war ii museum in new orleans as we look back 70 years to the war's end and either legacy. we'll tour the museum exhibits and take your calls and tweets.
and starting this week and every sunday morning, our new program road to the white house rewind takes a look at past campaigns. this sunday we'll feature ronald reagan's 1979 presidential campaign announcement. and on c-span saturday night at 8:30, the steamboat freedom conversati conference debate, the effect of legalized marijuana. and sunday at 6:30, our road to the white house coverage continue its with martin o'malley who will speak at a town hall meeting at the university of new hampshire.ts y who will speak at a town hall meeting at the university of new hampshire.s with martin o'malle who will speak at a town hall meeting at the university of new hampshire.s with martin o'malle who will speak at a town hall meeting at the university of new hampshire. and saturday often on book tv at 4:00, it's the boston book festival featuring nonfiction author presentations, including jessica stern, joe klein, and james wood.
and sunday night at 11:00, a book discussion with with former first lady of massachusetts ann romney on her book "in this together" about her journey with multiple sclerosis. get the complete schedule at cspan.org. all persons having business before the honorable supreme court of the united states are admonished to draw near and give their attention. >> boldly opposed the forced internment of japanese americans during world war ii. after being convicted for failing to report for relocation, he took his case all the way to the supreme court. >> and this week on c-span's landmark cases, we'll discuss the historic supreme court case of korematsu versus the united states. after the attack on pearl harbor, president roosevelt issued an evacuation order
sending 120,000 people of japanese origin who lived close to military installations to internment camps throughout the u.s. >> this is a recreation of one of the barracks. the barracks were 20 feet wide and 120 feet long and they were divided into six different rooms p they didn't have sheet rock, they didn't have ceiling, they didn't have the masonite on the floor. it would have been freezing even in the daytime. the only heating would have been a pot belly stove. but this would not have been able to heat the entire room in a comfortable kind of way. >> challenging the evacuation order, frhe was arrested and hi case went to the supreme court. find out how the court ruled in view of the world powers of congress with our guest peter irons, author of "justice at
war." and karen korematsu executive director of the fred t.kor chlt matsu institute and the daughter of the plaintiff. we'll follow his life before, during and after the court's decision. that's coming up on the next landmark cases live monday at 9:00 p.m. eastern on c-span, c-span3 and c-span radio. for background on each case while you watch, order your copy of the land mark cases companion book available for $8.95 plus shipping at cspan.org/land mark cases. lawmakers are renewing calls to hold veterans affairs officials for misconduct after two refused to answer questions during a congressional hearing this week. kimberly graves and diane rubens invoked their fifth amendment
right when questioned about a program. this house veterans affairs committee hearing is a little over 2 1/2 hours. good evening. thank you for being here tonight's hearing to discuss for the second time the v.a. inspector general's final report entitled inappropriate use of position and the misuse of relocation program and incent e incentiv incentives. we're holding this second hearing tonight because the witnesses that we had requested to appear before this committee at the hearing on the 21st of october chose not to attend or were blocked by the department of veterans affairs there
attending. their failure to appear led to us unanimously vote on and issue subpoenas to compel their testimony, something we have never done before. the five individuals that we issued subpoenas to were danny pummill, miss diana rubens, miss kimberly graves, mr. robert mckenrick, mr. antoine waller. as we learned in our last hearing, the i gchg's report la out the alleged be a bus of v.a.'s's location expense appermanent change of station programs costing hundreds of thousands of dollars of taxpayer money. and how miss rubens and miss graves apparently inappropriately used their positions of thooauthority to p their own personal and financial benefit ahead of veterans tax
pace and their subordinates. as the saying goegoes, a picturs worth 1,000 words. so let me start with a map. you can look at the screen up here. initially miss graves and mr. waller discussed his potential transfer to philadelphia. those discussions are eventually shelved because mr. mckenrick is transferred from philadelphia r.o. director's job to become the lanos angeles r.o. director. then miss rubens transfers from v.a. headquarters here in d.c. to fill the now vacant philly r.o. job and receives about $274,000 this relocation assistance. mr. waller is subsequently transferred from the st. paul r.o. director job.
iron area director in philadelphia to fill the now vacant st. paul r.o. director job.ron area director in philadelphia to fill the now vacant st. paul r.o. director job.on area director in philadea to fill the now vacant st. paul r.o. director job.n area direct to fill the now vacant st. paul r.o. director job. area directo to fill the now vacant st. paul r.o. director job.area directoro fill the now vacant st. paul r.o. director job. receives about $129,000 in relocation assistance. finally both miss rubens and miss graves retained their ses salaries despite assuming lower responsibility jobs. it seems to me that miss rubens and miss graves use of the relocation expense program is an expensive and confusing waste of taxpayer money given they both volunteered to take these positions. as my colleague mr. kaufman pointed out at the first hearing on this report, their relocation expenses were exorbitantly more than even the highest ranking military officials receive when they and their families are ordered to move. i'm glad to see that v.a. has hit the pause button on this program. in my judgment it ought to be scrapped all together across the federal government.
the ig report sheds light on v.a.'s policy of providing relocation expenses in what i can only describe as gross and haphazard abuse of the program. it also details a scheme by which transferred ses employees received big pay raises and large incentives with very little connection to the relative responsibilities, complexities and challenges associated with the new position. as i've said before, the report is damning. and i believe it's important to go over the facts and the findings of the report as well as afford our witnesses who are here tonight, those that are at the center of the report, to have an opportunity to present their accounts of how events transpired. this is important both for our constitutional oversight duty and the department's transparency with the american people. after issuing the subpoena on
october 21st, i received a request from representatives of some of the witnesses to postpone the hearing or at least at the very least excuse miss rubens and miss graves from appearing today. i want to make it clear that requiring these individuals or any individual to appear before us today is not done to embarrass them as some may have asserted. they are here before us today because they are the subjects of this damning report which was completed at this committee's request. they are two of the individuals who allegedly created openings in philadelphia and st. paul for their own transfers to these locations and then also benefited significantly from v.a. relocation program to move to the openings that they allegedly generated. if this is not what happened, then i believe a public hearing is an ideal place for them to
tell us what actually did happen. this hearing is not a joke. the findings of this report provide a road map for further inquiry and reform. my suspicion is that this kind of behavior is ram pant only throughout the kept of veterans affa affairs but also the rest of the federal government.pant only throughout the kept of veterans affairs but also the rest of the federal government. v.a. must be better stewards of taxpayer dollars. as i've said before, if v.a. put half the effort into pushing for true account at or protecting their employees who come forth as whis i witle wloeers as they for the individuals investigated in this ig report, i honestly think the department would be a much better place. v.a. exists for veterans, not for itself or the unjust enric
enrichment of its senior employees. that's why we're here tonight to ask the right questions. and that is why the public and america's veterans have a right to hear from these witnesses. with that i recognize the ranking member miss brown for any comments she may have. >> thank you. the hearing this evening is a followup to the committee hearing nearly two weeks ago are regarding the september v.a. inspector general's report on inappropriate use of positions and misuse of relocation programs and incentives. the i gchlt repog report made a serious charges. the committee is looking in to the use of reallocation incentive as well as the cultural of the v.a.'s benefit administration.
when we see a v.a. where many important leadership positions gee untgo unfilled, we must determine whether these programs are work and as intended. if they are not, we must work together to make sure that they are used as recruitment and retention toolnd as intended. if they are not, we must work together to make sure that they are used as recruitment and retention tool and not simply a means to reward specific employees when the usual tools of bonuses and pay increases are not available. to further our efforts in this area, the chairman joined me in requesting that gchltao look in the appraise value offered or avo programs, not only at the v.a., but across the government. aim looking forward to their report in the very near future. the allegations in the ig reports are serious.m looking f report in the very near future. the allegations in the ig
reports are serious.'m looking report in the very near future. the allegations in the ig reports are serious. i hope our witnesses will be able to help to us get to the bottom of this. we all respect the rights of any of our witnesses to avail themselves to any constitutional rights they may have. but at the end of the day, we simply must find answers and make the reforms and changes we need to ensure that veterans it come first. with that, yield back the balance of my time. >> thank you very much. the first and only panel has the following individuals already seated at the table. mr. danny pummill, principal deputy undersecretary for benefits. miss diana rubens, philadelphia regional office. mr. robert mckenrick, director of the los angeles regional office. miss kimberly graves, director of the st. paul regional office. mr. antoine waller, director of the baltimore regional office. miss linda halliday, deputy inspector general for the v.a.'s office of inspector general.
i also invited former undersecretary hickey to testify tonight as a private citizen as her activities were heavily featured in the report. however, she did not respond to my request. i would ask the witnesses to please stand and raise your right hand so that we swaear yo if will for your testimony. the do you solemnly swear under penalty of perjury that the testimony you are about to provide is the truth, the whole truth and nothing but the truth? thank you. let the record reflect al witnesses answered in the affirm. before we start, i want to read rule 3-e of the committee's rules. whereby it states each witness who is to appear before the committee or a subcommittee shall file with the clerk of the committee at least 48 hours in
advance of his or her appearance or at such other time as designated by the chairman after consultation with the ranking member a written statement of his or her proposed testimony. we have been trying foroff a week to get testimony from the department. we were unable to receive that. i was told we would have it by friday from mr. pummill to give us. and then when i arrived in washington today, i was told we would receive it by 2:30. then i received a really two sentence summary and was told this committee would receive nothing else from the department. so i'm going to read to you. in summary, danny pull i will's oral statement will cover v.a.'s actions to date in response to the ig report. he will discuss v.a. he's accomplishments, elimination of the avo program across v.a., and
the ongoing review of other relocation incentives to ensure appropriate controls. mr. pummill, i know you're not the one that made this decision. and i'm sure whoever that person is probably watching or listening. but it's not acceptable. i am sick and tired of asking for information from the department and being given a runaround and to be -- i mean, i would asked if you could provide the testimony and i said of course you can provide testimony about if you provide a written statement prior to. and the reason for that is to allow members of this committee to read that testimony and be able to formulate questions that are important to that testimony. and we don't have that. and so because of that, i'm not going to recognize you you for
an opening statement, but i will be asking some questions of you in the next few minutes. miss rubens, the ig report con cruded that you used your position of authority for personal and financial benefit. what evidence do you have to dispute that conclusion? >> sir, i've been advised by counsel not to answer that question to protect my rights under the fifth amendment to the constitution. >> let the record reflect that miss rubens has asserted her fifth amendment right against self-incrimination. miss rubens, let me be very clear. are you declining to answer the committee's questions solely on the grounds that you believe the answer will incriminal nature you? >> sir, if the advice of counsel has been to not answer anything that will ensure i protect my rights under the fifth
amendment, i will continue to assert that. >> miss rubens, was mr. mckenrick lying when he said that he told you that he would only move from philadelphia to los angeles if it was a direct reassignment? >> sir, i've been advised by my counsel not to answer that question to protect my rights under the fifth amendment to the constitution. >> let the record reflect that miss rubens has asserted her fifth amendment right against self-incrimination. miss rubens, please let me a be very clear. are you declining to answer the questions that this committee puts forth solely on the grounds that you believe that the will incriminal nature you? >> sir, i've been advised by counsel not to answer any questions that might incriminate me. >> the report cites an e-mail from former undersecretary hickey to you which said she was, quote, all into help and make it happen, close quote, as
in move you to philadelphia. what was miss hick iky's role in your transfer and mr. mckendrick's transfer? >> i've been advised would counsel not to answer that question to protect my rights under the fifth amendment to the constitution. >> miss rubens has asserted her fifth amendment right. let me be very clear. are you declining to answer the committee's questions solely on the grounds that you you believe the answer will incriminate you? >> sir, i've been advised that any question that might incriminate me i should in fact as shesert my fifth amendment rights. >> why didn't you post the philadelphia job? were are there any other candidates other than you that were considered for the job? >> chairman miller, i've been advised by counsel not to answer that question to protect my rights under the fifth amendment to the constitution. >> let the record reflect that miss rubens has asserted her fifth amendment right against
self-incrimination. and let me be very clear. are you declining to answer the committee's questions solely on the ground that you believe the answer will incriminate you? >> sir, questions that might incriminate me in fact i've been advised by my counsel to assert my fifth amendment rights. >> miss rubens, according to the ig report, the hiring effort for the vacant r.o. position in los angeles was suspended at the direction of your office in the midst of the hiring process. why did you seemingly out of the blue stop the effort to fill this position? >> mr. chairman, i've been advised by counsel not to answer that question to protect my rights under the fifth amendment to the constitution. >> let the record reflect that miss rubens has again asserted her fifth amendment right. let me be clear. you are declining to answer the commit eye questions solely on the grounds that you believe the answer will incriminate you?
>> i've been advised by counsel not to answer questions to ensure i protect my rights to the fifth amendment under the constitution. >> miss rubens, are you refusing to answer any questions put before you this evening? >> no, sir. >> miss graves, the ig report concluded that you used your position of authority for personal and financial benefit. what evidence do you have that disputes that conclusion? >> upon advice of counsel, i respectfully exercise my fifth amendment right and decline to answer that question. >> let the record reflect that miss graves has asserted her fifth amendment right against self in-kram nation so misgraves let me be clear with you, are you declining to answer the committee's answers solely on grounds that you believe the answer will incriminate you?
>> upon advice of counsel, i respectfully exercise my fifth amendment right and decline to answer that question. >>miss graveses, with as many challenges that existed at the baltimore office, why didn't you volunteer for the position? >> upon advice of counsel, i respectfully exercise my fifth amendment right and decline to answer that question. >> let the record reflect that miss graves has asserted her fifth amendment right against self-incrimination. miss graves, are you declining to answer the committee's question solely on the ground that you believer the answerinc? >> i respectfully exercise my fifth haemd right and decline to answer. >> at what point did you put your name in no the st. paul opening, the seam opening the i sgchlt concluded you helped
create? >> i respectfully decline to answer that question. >> miss graves has asserted her fifth amendment right. miss graves, again, let us be clear. are you declining to answer the committee's questions solely on the ground that you believe the answer will incriminate you? >> upon advice of counsel, i respectfully exercise pie fifth amendment right and i decline it answer that question, sir. >> miss graves, whose decision was it not to advertise the open position at the philadelphia regional office? >> mr. chairman, upon advice of counsel, i respectfully exercise my fifth amendment right and i decline to answer that question. >> let the record reflect again that miss graves has asserted her fifth amendment right against self-incrimination. miss graves, are you declining to answer the committee's questions solely on the ground that you believe the answer wherein lynn criminal nature you some. >> upon advice of counsel, i decline to answer that question some. >> upon advice of counsel, i decline to answer that question. >> thank you.
mr. waller -- excuse me. mr. mckenrick, i apologize. since this report came out and prior to that hearing, have any senior leaders at v.a. reached out to you regarding the statements you made that were included in the report? >> no senior leaders have talked to me about the statements that were made. it's my understanding that it's under investigation. >> did any v.a. officials instruct you as to what to say during this hearing? >> no, they did not, chairman. >> the ig concluded in its report that you were essentially forced or coerced to move to the los angeles r.o. from the philadelphia r.o. is this correct? >> i was not forced or coerced, sir. i was direct reassigned. >> and what does direct reassign mean? >> direct reassignment means that the agency has determined in the best interests of the agency that arguably i was the right person at the right time
to take that assignment. it went through a vetting process, chairman. >> and had you not taken that assignment, what would have occurred? >> i don't know, chairman. >> miss rubens state in the her interview with the ig that you contacted her on your own and you volunteered to go to los angelesher interview with the ig that you contacted her on your own and you volunteered to go to los angeleser interview with the ig that you contacted her on your own and you volunteered to go to los angelesr interview with the ig that you contacted her on your own and you volunteered to go to los angeles interview with the ig that you contacted her on your own and you volunteered to go to los angeles and she was dumb struck that you called her. is her statement an accurate description of the initial contact? >> she is correct in that i did contact her and a we did discuss the reassignment and i was interested in the west coast. that was based on my participation in erb panel which is are hiring panels. i participated in san diego as well as los angeles.
>> are you familiar with the penalties for perjury? >> i am, chairman. >> you stated that "i would have to be reassigned, meaning i'm not jumping up and down saying send me to l.a., send me to l.a.." you also said "it's not a volunteer in my mind. i am not volunteering." you said that under oath to the inspector general and yet today it appears you are telling me something different. do you you wish to revise your statement to this committee? >> in that statement, chairman, it was a process of learning about the stations on the west coast, the opportunities. i had several dialogues with several individuals about the challenges of those stations. i did express an interest by making that phone call and several other takphone calls to
inquire. the final discussions were between mifrl and tyself and th. chief of staff. and it was through that process and the offers that were made there that the final decision was made. >> mr. waller, my time has run out, but i need to ask you very quickly, did you like your job at the st. paul r.o.? and if you would -- there you go. how about your family. did they want you to move from st. paul? >> not at the time that we had these discussions, no, they did that. >> this did they like living in paul? >> we liked living there, yes. >> do you feel that you were pressured to leave? >> do i believe that there was
pressure for me to take another assignment. >> and by whom?i do believe tha pressure for me to take another assignment. >> and by whom? >> it started with telephone conversations with miss graves as well as miss mccoy and miss rubens, as well. >> miss brown. >> thank you. i'm going to go back to mr. mckenrick. you're presently at the los angeles v.a. facility? where are you prepts ly? >> i am. >> i visited that facility. it's -- is that the -- you're the top person at that particular position? >> for the department of veterans affairs, congresswoman brown, i am the director of the los angeles regional office in that office. >> that is a very challenging
position, but also i would think a very interesting position in that you have an opportunity to work with a very challenging community that need a lot of help and assistance. did you after doing your research, did you decide that you wanted to take that position? >> i found that the position was very challenging and i was confused in the process of what was being offered for me to go. and my position was that if i was to go, i would have to be direct reassigned. and that the agency would tell me that there was -- that i was the one that had to go, the best candidate to go at that time. there was no one else that could do that mission. i was committed to the mission. and i am xleted to the mission of the v.a. i have struggled with a direct reassignment with another federal agency in the past. senior leader basically said we'll direct reassign to you a different position in another city. and i said what are the options.
and i was told none. and what is the alternative. and i was told you're fired. >> but that did not happen with the v.a.? >> that did that happen here, though i literally reached out to find out as much information as i could and i was very glad that the i was very glad that the agency engaged me in a thorough process that included many different levels. frankly, there were times when i was very committed to it but i had to take family into consideration, my children and not being near them and i went through the process and in the end my decision was after talking all the way up the chain that if i was going to go i would have to be direct assigned there was no other senior leaders in the work that would take this position. there had already been two panels that had not produced a successful candidate from the south outside, chairman brown -- i'm sorry, congresswoman brown. >> i like that. >> i'm sure i'll hear about that when the chairman gets back to me. >> let's go to mr. waller. you're now at the -- you're at baltimore?
>> yes, congresswoman. >> you did not want to go to baltimore? >> well, at the time that i was approached about the baltimore office i was not willing to accept voluntarily going to that regional office. >> so what happened? you got reassigned? >> yes. >> did you get compensation and the other house relocation and all of that? >> there were the benefits of an avo offer as well as a relocation incentive to go to baltimore along with a salary increase as well. >> did you have additional responsibilities in that reassignment? >> i'm not sure i understand your question. >> well, was it lateral or was it a promotion? >> it was a lateral as far as i was concerned. it was the same capacity as director of a regional office.
so i considered it to be a lateral transfer. >> i'm asking did you get additional reimbursement funds for it or was it just a lateral? >> right. yes, ma'am, it was just a lateral transfer. >> let me ask the question to the ig. you heard the testimony. is that contrary to your report? >> i think -- we classified the positions. based on the pay bands that va uses. i believe st. paul is a pay band two which is higher than baltimore, which is a pay band three. so, baltimore would essentially have lesser responsibilities. >> than where? >> than the st. paul, minnesota, borough where mr. waller
originally was. >> that's interesting. maybe va need to go back and relocate, reevaluate everything i know about baltimore. it would definitely be more challenging than the other location from actually physically going to baltimore and visiting the va facility. what about mr. mckinney's testimony? because it seemed to be contradictory to your report. >> mr. mckenrick, i believe, said all along that he would not go out to l.a. without a directed reassignment. i think it is consistent with our report because he didn't go, you know, because he wanted to go out there and i think that's the testimony that we have, that we provided to the committee. and i think that when you don't
take a directed management move, one option is you can be let go. >> that is one option, but the other option is that he was the best, he felt, qualified person for that particular position. >> i can't answer whether he was the best qualified for that position or not. there were a number of candidates that applied for that position out there. i think it was over 100 candidates when miss reubens' office cancelled that last hiring action. so, i don't know. it's their opinion, not mine. i don't know mr. mckenrick. >> yes, sir. >> freeze the clock for just a minute. i want to go back, miss halliday on page 34 in the transcript, question is asked of mr.
mckenrick did he want to go to l.a. or did he want to stay? basically it says i guess your first discussion with miss reubens on this did you prefer to stay in philadelphia or did you want to go to l.a. mr. mckenrick says stay in philadelphia. yield back. >> would you like to respond to that? >> i can, congresswoman brown. the process is a learning process. it's not static. it's getting information from different individuals and engaging them and say i want to learn more about it. it is interesting. i know the position was open. i was part of the last panel. it is interesting to me. did someone say do you want to absolutely go. i want to learn more about it. yes, i'm interested in it. as the process goes and you learn different things and you talk to family and you learn about the challenges, it's an interactive process that allows
you to say, well, no, i'm not going to be able to do this unless i'm direct reassigned. because you're in the mission, you're part of the team. you care about what happens in va. if the agency has determined above me that i'm the right person at the right time to go, then, yes, i'm willing to do my part to step into it and continue. as an army reservist they don't say do you want to go to iraq the first or second time. you stepped into what your job was because you were the right unit or the right members to go, and we did that. >> one last comment. i understand it was 100 applicants and you turned out to be the best person that va felt for the position. seemed to me that's a compliment. >> i can't answer to what va thought about me. >> all right. i'm going to yield back the balance of my time. >> thank you. >> thank you, mr. chairman. once again, thank you for your
leadership and bringing the subjects up for hearing. mr. pummel, i want to ask you a few questions. secretary gibson in his letter and chief of staff in response to ig's recommendations committed to completing proposed accountability actions by october 31st, saturday. now that this deadline is passed what if any accountability actions have been taken? >> congressman, besides the freezing of the avo program, a complete relook at all incentives and moves inside not just vba but va the secretary who is responsible for all scs i guess you would say punishment and enforcement inside of va. delivered proposed actions to both miss graves and miss reubens on october 31st -- i believe it was on october 31st.
they're under the new process, the accountability act. they are under the appeal time frame right now. as soon as that appeal time frame, i believe the first part is seven days and then there's an additional five days to the merit board, are complete, then he will release what that proposed punishment is. >> okay, thank you. at the committee's hearing in april you stated that miss reubens received the avo program benefit because the position was tough to fill, quote-unquote, is that correct? or are those your words? >> yes, that is correct, congressman. >> as we know opm policies restrict the benefits for hard to fill jobs. at the committee's hearing last month the inspector general concluded the position was never advertised. so my question is how was miss reubens eligible for these incentives if the va never tried to fill it? >> the office in philly is one of our larger regional offices.
it's a very complex office. it has multiple lines of business. it's not just a claims office. they have a pension center there and insurance center. there's a lot going on and we've had a history of problems in that office that we've been trying to work through. we wanted somebody in that office that could not only do the claims but the other lines of businesses but could also work with the local legislators, elected officials in the area. the unions. there was a union issue there, the employees and the veterans and the veterans service organizations. we felt that miss reubens had all those attributes. she was our most experienced person in claims in all of vba. i testified that was our roughest, toughest ro at the time. we wanted our best person there. >> so you didn't advertise the
position, you didn't interview anyone else, you just determined she was the one and that it was tough to fill and needed the incentives all as one decision? >> yes. >> is that correct? >> yes. >> okay. let's talk about baltimore. we were told that 131 people applied for the baltimore ro job, that when that one was advertised. why were none of them considered for the position? >> same set of circumstances, congressman. when we look at filling an ro, every ro is different, every ro has their own set of problems. antoine in minnesota had done a very, very good job. he was very aggressive with handling union problems. he was good at working with the legislators and working with the local vsos.