U.S. GOVERNMENT PRINTING OFFICE

65–804CC WASHINGTON : 2000

PRESCRIPTION DRUGS: MODERNIZING MEDICARE

FOR THE 21ST CENTURY

HEARING

BEFORE THE

SUBCOMMITTEE ON

HEALTH AND ENVIRONMENT

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

JUNE 14, 2000

Serial No. 106–110

Printed for the use of the Committee on Commerce

(

COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON HEALTH AND ENVIRONMENT

MICHAEL BILIRAKIS, Florida, Chairman

FRED UPTON, Michigan

CLIFF STEARNS, Florida

JAMES C. GREENWOOD, Pennsylvania

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

Vice Chairman

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

ED BRYANT, Tennessee

TOM BLILEY, Virginia,

(Ex Officio)

SHERROD BROWN, Ohio

HENRY A. WAXMAN, California

FRANK PALLONE, Jr., New Jersey

PETER DEUTSCH, Florida

BART STUPAK, Michigan

GENE GREEN, Texas

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

LOIS CAPPS, California

RALPH M. HALL, Texas

EDOLPHUS TOWNS, New York

ANNA G. ESHOO, California

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

2

C O N T E N T S

Page

Testimony of:

Davenport-Ennis, Nancy, founding Executive Director, Patient Advocate

Foundation ..................................................................................................... 111

DeParle, Hon. Nancy-Ann Min, Administrator, Health Care Financing

Administration .............................................................................................. 26

Donoho, Patrick B., Vice President of Government Affairs and Public

Policy, Pharmaceutical Care Management Association ............................. 87

Feder, Judith, Dean of Public Policy Studies, Georgetown University ........ 83

Fuller, Craig L., President and Chief Executive Officer, National Association of Chain Drug Stores ............................................................................ 69

Ignagni, Karen, President and Chief Executive Officer, American Association of Health Plans ...................................................................................... 65

Kahn, Charles N., III, President, Health Insurance Association of America ................................................................................................................... 73

Pollack, Ronald F., Executive Director, Families USA ................................. 90

Material submitted for the record by:

Martin, James L., President, 60 Plus Association, prepared statement

of ..................................................................................................................... 154

(III)

(1)

PRESCRIPTION DRUGS: MODERNIZING

MEDICARE FOR THE 21ST CENTURY

WEDNESDAY, JUNE 14, 2000

HOUSE OF REPRESENTATIVES, COMMITTEE ON COMMERCE, SUBCOMMITTEE ON HEALTH AND ENVIRONMENT, Washington, DC.

The subcommittee met at 10:10 a.m. in room 2322, Rayburn

House Office Building, Hon. Michael Bilirakis (chairman) presiding.

Members present: Representatives Bilirakis, Upton, Greenwood,

Deal, Burr, Bilbray, Whitfield, Ganske, Norwood, Coburn, Cubin,

Shadegg, Bryant, Brown, Waxman, Pallone, Deutsch, Stupak,

Green, Strickland, Barrett, Capps, Hall, Towns, and Eshoo.

Staff present: Carrie Gavora, majority professional staff; Tom

Giles, majority counsel; Kristi Gillis, legislative clerk; Bridgett Taylor, minority professional staff; Karen Folk, minority professional

staff; and Amy Droskoski, minority professional staff.

Mr. BILIRAKIS. The topic of today’s hearing is Prescription Drugs.

Modernizing Medicine for The 21st Century.

I believe that this title is especially appropriate because we must

examine broader reforms to preserve Medicare for the future as we

consider adding a prescription drug benefit to this already financially troubled program.

In three prior hearings we discussed both prescription drug plans

which had been introduced at that time and more general concepts.

Today we will hear more about the specific details of different coverage options.

As most of you know, our committee colleagues, Congressmen

Bliley, Burr and Hall yesterday announced a bipartisan plan called

‘‘Medicare RX and Modernization 2000,’’ a plan to help senior citizens by expanding access to prescription drugs in a context of

Medicare modernization.

As our panelists and members of this subcommittee are aware,

in any effort to add a prescription drug benefit to Medicare the

devil truly is in the details. The path to a sensible, salient plan is

riddled with potential land mines and we must tread carefully and

cautiously.

Among the issues we will discuss today, this hearing will shed

light on the possibilities for disease management services, the role

of pharmacies, and the fate of Medicare+Choice.

As July 1 approaches we are beginning to hear about more

Medicare+Choice plans withdrawing from the program. An important part of the Medicare RX and Modernization Plan 2000 would

2

put the administration of the Medicare+Choice Program under the

purview of the Medicare Benefits Administration, the same new

agency that would administer the new prescription drug benefit.

I look forward to hearing the view of the insurance industry represented by our witnesses, Karen Ignagni and Chip Kahn, about

how this proposal could help stabilize the Medicare+Choice Program.

As I have continued to examine the issue of prescription drug

coverage under Medicare, the role of pharmacies and pharmacists

is an issue we all have carefully considered:

What is the appropriate role and function for pharmacists and

organized pharmacies, and how can they help in the administration

of prescription drug benefit?

I hope that Craig Fuller from the National Association of Chain

Drug Stores can shed some light on these questions.

Today’s hearing will again underscore the need for prescription

drug coverage for Medicare beneficiaries. I am hopeful that it will

also help us better understand all aspects of the new prescription

drug benefit, including administration, pricing, choice, and costs. I

would also like to welcome all of our panelists. Our first witness

is Nancy-Ann Min DeParle, Administrator of the Health Care Financing Administration. It has been some time since she last appeared before a subcommittee, and I know that my colleagues join

me in extending our congratulations on the birth of her child. I

look forward to hearing from all of our witnesses, and I would like

to thank them for their time and effort in joining us today.

In the interests of time, after the opening statement of the Ranking Member Mr. Brown, I would encourage my fellow subcommittee

members to limit their opening statements to 3 minutes. I know

that we all want to hear what our witnesses have to say and still

have ample time for questions. Thank you.

The Chair now yields to Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman. I would first ask unanimous consent to enter into the record Mr. Dingell’s statement and

statements of any other Members.

Mr. BILIRAKIS. Without objection, the statement of Mr. Dingell

and all members of this subcommittee will be made a part of the

record.

Mr. BROWN. Thank you, Mr. Chairman.

I would like to thank Nancy-Ann and other distinguished witnesses for joining us today.

Mr. Chairman, I am glad we have been given the opportunity to

discuss the need for Medicare prescription drug coverage today. I

am concerned, however, that the Republican proposal that prompted this hearing is being taken seriously when, frankly, it should

not be.

How can you try to convince seniors that you are helping them

when the only thing you have promised to them is a low-income

subsidy. You are not helping seniors above 150 percent of poverty

by subsidizing insurers; you are helping the insurers.

Your plan guarantees nothing other than some assistance for the

lowest-income seniors. In my district, prescription drugs are not

just a low-income problem. Seniors who thought they were finanVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HEARINGS\65804 pfrm01 PsN: 65804
3

cially secure are watching their savings go straight into the pockets

of drug makers.

You are trying to tell seniors that there will be a choice of reliable, affordable private prescription drug insurance plans available

to them. Based on what? Certainly not history.

Even the insurance industry is balking at this idea. It should tell

us all something that insurers do not sell prescription drug coverage on a stand-alone basis today even to young and healthy individuals. That is because it simply does not make sense.

Medicare is reliable. It is a large enough insurance program to

accommodate the risks associated with prescription drug coverage.

Individual, stand-alone prescription drug policies are not.

You are actually trying to convince seniors who stand firmly behind the Medicare program that expanding the current benefit

package is less efficient and more onerous than manufacturing a

new bureaucracy and conjuring up a new insurance market.

Seniors are too smart for that.

I do not want to ask seniors in my district and across the country

to rely on a market that does not want the business, to provide a

benefit not suited to stand-alone coverage to a population that, let’s

face it, has never been well served by the private insurance market.

I do not want seniors in my district and across the country to be

coerced into managed care plans in order to avoid dealing with

three different insurance plans. Medicare, Medigap, and individual

prescription drug coverage.

I do not want seniors in my district or across the country to receive a letter from their employers telling them the retiree prescription drug coverage has been terminated on the premise that

‘‘the government is offering private insurance now.’’

I do not want to forsake volume discounts and economies of scale

by segmenting the largest purchasing pool in this country and then

waste Trust Fund dollars on insurance company margins and on

insurance company marketing expenses.

And I do not think the individual health insurance market is a

reasonable model for Medicare prescription drug benefits.

In fact, as anyone who has had to purchase or sell coverage in

that market will tell you, the individual health insurance market

is not even a good model for individual health insurance. It is the

poster child for selection problems, for rate spirals, and for insurance scams.

The very fact that the drug industry backed Citizens For A Better Medicare supports the private-plan approach is a giant strike

against it. The drug industry and their puppet organization clearly

feel that undercutting seniors’ collective purchasing power, relegating seniors to private, stand-alone, you’re-on-your-own prescription drug plans is the key to preserving discriminatory, outrageously high prices.

My office has been deluged by FAXes and postcards, as we all

have, from Citizens For A Better Medicare warning us, ‘‘not to

force seniors into a Federal Government run one-size-fits-all prescription drug plan.’’ But Medicare itself can be characterized as a

Federal Government run one-size-fits-all insurance program. It is

4

also the most popular and successful public program in our Nation’s history.

Medicare came into being because half of all seniors were uninsured—not by their choice. Medicare, a nationwide plan with a risk

pool over 30 million strong, is a stable, reliable way of insuring coverage for our seniors.

Medicare works because it guarantees the same basic benefits to

all beneficiaries regardless of where they live, regardless of their

income, regardless of their health status. Simply put. It is equitable.

The Republican proposal leaving seniors to search for private

coverage means varying premiums and varying levels of restrictiveness on access to prescription drugs.

One other thing, Mr. Chairman. The subsidy to insurers means

completely unpredictable liability for the Federal Government. The

single most important objective we can fulfill this year is to secure

a meaningful prescription drug benefit for Medicare beneficiaries.

Let us not make a mockery of that objective by focusing on an

option that is neither responsible nor realistic.

I thank the chairman.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Deal for an opening statement.

Mr. DEAL. Mr. Chairman, I will yield my time in an effort to expedite the testimony of the witnesses.

Mr. BILIRAKIS. I appreciate that.

Mr. Waxman for an opening statement.

Mr. WAXMAN. Thank you very much, Mr. Chairman.

I welcome this hearing. I think a drug benefit for seniors under

Medicare is long overdue, but I am disturbed by the evident intention of this subcommittee to use this hearing to justify moving

through our committee and taking to the House floor a Republican

bill that has not yet been made available to the public, that our

witnesses have not even seen, that has been explained only in

vague and contradictory terms, and that apparently fails to meet

critical conditions for effective, available, and affordable prescription drug coverage.

In my view we can only meet our obligations to Medicare beneficiaries if we make coverage of prescription drugs a benefit that

all Medicare recipients are entitled to, a benefit that covers all

medically necessary drugs, a benefit that is available in every part

of this country, a benefit that is accessible and affordable to seniors

in fee-for-service Medicare as well as Medicare+Choice plans, and

a benefit that assures Medicare beneficiaries will no longer face the

discrimination in drug prices which has resulted in their paying

the highest prices out of their own pockets. But that is not the approach of the Republican bill.

It tells seniors that they can purchase a private insurance drug

policy patterned on Medigap policies which already fail to deliver

an affordable drug benefit. That is a cruel hoax.

Except for the poor, the Republican bill does not help seniors pay

their premiums. It subsidizes private insurance companies and

tries to claim that that will help seniors. What that really does is

mislead and confuse people about the help that is available.

5

The Republican bill shifts the responsibility to insurers to try to

provide a benefit when they know there is going to be an adverse

selection that almost certainly will make their product unaffordable

and unavailable. That is not a responsible choice.

The drug companies might like it. It will pay what the drug companies want to continue to be paid. But seniors will not like this

plan.

I know that the Republicans have a public relations consultant,

and we have a document that came out of their consultant’s distribution to the Republican Members. They suggested to the Republicans that they tell the American people that:

I care. It’s easier to say I care.

And then the consultant told Republican Members. It is more important to communicate that you have a plan as it is to communicate what is in the plan.

Well that approach results in a bill that tells seniors they can

purchase this policy, but it is not going to really be available to

them. The Republican bill does not help seniors pay their premiums. It subsidizes private insurance companies, and then tries

to claim that seniors will have a benefit.

The drug companies might like this bill. It is rhetoric but it is

not reality. I think the cynicism is breath taking.

Seniors do not need us playing politics with their health care.

Seniors need real coverage for prescription drugs. They cannot afford the high price of drugs, and they cannot afford to pay twice

what the big buyers pay. They do not need another Medigap. They

need a Medicare drug benefit.

Let’s join together in a bipartisan way and in a responsible way

to do exactly that.

I yield back the balance of my time.

Mr. BILIRAKIS. Dr. Norwood for an opening statement. Three

minutes, please, for members other than the chairman and the

ranking member.

Mr. NORWOOD. Thank you, Mr. Chairman.

I want to begin by thanking you very much for holding this hearing. As we move forward on this issue, it is important to express

our gratitude to you for the series of hearings which you have held

which I believe makes us far better equipped to address a drug

benefit for seniors.

Now from my perspective I believe there are many critical issues

that we must address in any bill we consider, but I will mention

just two.

If there is one thing we can be absolutely certain of it is that a

3-week stay in the hospital typically is far more expensive than

taking medications that have been prescribed for you.

When seniors are forced to ration drugs, or stop taking drugs because of the expense, they incur the likelihood that they will end

up in the hospital, which in the long run draws down on the Medicare Trust Fund.

Any drug benefit proposal we consider must be targeted to help

those seniors who can least afford expensive medications. Ultimately we know those seniors are most at risk to face the consequences of not taking their medication.

6

As I have discussed these issues with seniors in my district, I

have heard again and again and again that seniors are most concerned about the seemingly endless cost of prescription drugs.

The one thing we can do to help all seniors most I believe is to

provide a drug benefit that gives them some peace of mind; that

makes clear that there is only so much a senior will have to pay

out of pocket.

Providing seniors with stop-loss coverage for their prescription

drugs will frankly ease that concern.

Mr. Chairman, I am very pleased to read that my colleagues

have addressed these two key issues in Medicare Treatment 2000.

I am actually looking forward to reading the bill.

It would certainly make a real difference in the concerns expressed by my constituents, and I appreciate the attendance today,

Mr. Chairman, of our witnesses and look forward to their testimony.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Pallone for a 3 minute opening statement.

Mr. PALLONE. Thank you, Mr. Chairman.

Mr. Chairman, I cannot help but express my frustration this

morning over the fact that the Republicans apparently have put together some sort of proposal on prescription drugs which we have

not really had a copy of, which is not in legislative form but the

points have been put out there and, frankly, from what I can see

this Republican proposal is just an imaginary drug benefit that

does nothing for seniors and is just political cover and empty promises.

As Mr. Waxman has pointed out, the House Republican Conference put out a presentation by Glen Bolger on June 8 that basically talks about this from a communications point of view.

I have to say that that is all this is. There is nothing here. It

is just an effort to try to pretend that they are doing something

which will never pass, will never go any place, but will be used to

try to show that somehow they are trying to address this issue for

the next campaign in November.

From what I can see, the Republican proposal is not a defined

benefit. It is a premium support bill. It gives people whatever the

insurance companies can provide. You know, we do not know what

the insurance companies will give them, and they leave it up to the

insurance companies to decide what kind of benefit it is going to

be.

It is very cumbersome. It is ineffective. It is almost nutty, I

would say. What this should be—and the Democrats have proposed—is this should be a benefit plan.

I do not understand the whole concept of saying that somehow

we are going to have drug-insurance-only policies because we know

that insurance is risk-oriented. This is something that everybody is

going to take advantage of.

Everybody is going to need prescription drugs at some point. So

it should not be used in the insurance model; it should be a benefit

program under Medicare. It should not vary from State to State or

from region to region; it should be defined.

7

Also, from what I can see about the Republican proposal it does

nothing to put any pressure on price. Price discrimination is the

main thing that most of the seniors talk about today.

Now rather than proposing a prescription drug benefit that is

part of the Medicare Program itself, the Republicans want to force

the insurance industry to offer prescription drug-only policies outside of Medicare’s umbrella that the insurance itself says will not

get the job done.

Indeed, just yesterday Chip Kahn, the head of the Health Insurance Association of America, told the Ways and Means Committee

that the likelihood is that the people most likely to purchase this

coverage will be the people anticipating the highest drug claims

and would make drug-only coverage virtually impossible for insurers to offer to seniors at an affordable premium.

The insurance industry’s opposition to a Republican plan that

proposes to pump billions of Federal dollars into its own coffers is

very telling.

This is in my view a clear reason why the Majority once again

seems poised to offer a proposal on a pressing health issue that it

knows has no chance of going anywhere. And, Mr. Chairman, I

have to say it is just like the Patient’s Bill of Rights.

We know the Conference got bogged down. The Republicans have

no intention of passing a Patient’s Bill of Rights, or addressing

HMO reform, just like they have no intention today or any time between now and the end of the year of addressing Medicare prescription drugs.

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. PALLONE. I thank the chairman.

Mr. BILIRAKIS. Thank you.

Mr. Whitfield for an opening statement.

Mr. WHITFIELD. Mr. Chairman, thank you very much.

I am glad we are having this hearing. I find it interesting that

our friends on the other side complained about not seeing the bill

and then yet are very specific in their criticism of the bill.

Most of us on this side have not seen it either, but the importance of this hearing is simply to start addressing this issue. It is

complex and we look forward to hearing the testimony of our witnesses as we work to fashion an effective prescription drug benefit

plan.

Mr. BILIRAKIS. Mr. Towns for an opening statement.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Let me say, I think this is a very serious matter and we should

not be playing games with it. I think that we have a third of our

seniors out there who are without coverage of any sort. I think that

we owe them more. I think they need to have coverage, and I think

that this is an opportunity to do it.

But to move forward with this kind of legislation that we have

got ideas and going forward in the dark to me just does not make

a lot of sense if we are serious about doing what is right on behalf

of our seniors.

Our seniors in many instances of course they have paid a tremendous debt, and of course to come to this time in their life and

have to worry about whether or not they will be able to pay for

their medication to me does not make a lot of sense.

8

So I am hoping that we get very serious here and begin to look

at this. Because when I look at New York City, or New York State

I should say, New York as 2.3 million seniors who rely on Medicare. In about 2025 that number will rise approximately to 3.3 million. Only 24 percent of New York firms offer retirees health insurance.

The monthly premium for Medigap Insurance, including prescription drugs, average $159, which is out of reach for many seniors

in New York. Medicare enrollment in New York in the coming

years is increasing while at the same time access by retiree health

insurance and Medicare managed care is decreasing or inadequate.

This situation is not unique to New York. Other States also fall

into this same pattern.

The economy is doing well. With our budgetary surpluses, it is

time we start addressing our seniors’ concerns about affordable

prescription drug coverage.

I think we should do it. We should do it now.

Mr. Chairman, on that note I yield back. And I say to you that

we need to make certain that information is shared among all

Members because this is a very serious issue and I am hoping that

this is not being used for any kind of political maneuver.

I yield back.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Ganske for an opening statement.

Mr. GANSKE. Thanks, Mr. Chairman, and thank you for having

this hearing.

I certainly think some seniors in particular need help with their

pharmaceuticals. There is a group that do not qualify for Medicaid

if they are in the QMBY or SLMBY groups, the groups that are

just above the requirement for Medicaid, then they get help with

their premiums and in some cases with their deductibles but they

cannot get into the Title XIX, the Medicaid Drug Programs.

And they definitely have a problem. I also think that all Americans are concerned about the high cost of the drug prices. I hear

this from employers who are having to deal with 18 percent increases, annual increases in their prescription drug costs, and from

individual citizens.

I hear from seniors that they are concerned, and from others,

that they are concerned about the cost differential in drugs between Canada, Mexico, Europe, and the United States. And they

do not think that it is fair.

So I do want to say that I do have a plan, and I do have some

ideas on how we can accomplish this.

I sat through 8 hours yesterday of the Ways and Means testimony, and I took copious notes on this. Why did I have to do that?

Why did I have to listen to questions to Chairman Thomas yesterday?

It is because I have not seen a bill. I am told that there is a bill

in Speaker Hastert’s office. I am told that legislative counsel has

a bill, and I am told that the CBO has a bill.

I will not gainsay some of the Members who have worked hard

on this, but this is way, way too important an issue to be making

a decision on the biggest benefits expansion in Medicare history

without fully vetting this process.

9

I want to put a plea in. This is an issue that should go through

Regular Order, hearings, more than one, a subcommittee markup,

a full committee markup, both in the Commerce Committee and in

Ways and Means.

Why? Not for the benefit of the members of this committee but

for the benefit of our colleagues so that this issue is fully vetted

so that they understand fully what they are going to be voting on.

It would be a tragedy to put a bill on the floor that most Members do not understand what the implications would be. I just cannot support a bill that goes through that kind of process.

What did I learn from the chairman, Chairman Thomas, yesterday? I learned that there will be a SOP made to rural Members

with some modest increase in the AAPCC to try to buy their vote.

It will never be enough to get HMOs into those rural districts

like mine which are composed of elderly citizens that the HMOs do

not want to cover that have medical problems.

I heard yesterday that there will be a whole new separate bureaucracy set up in the GOP plan. We need to think about that.

But what is the big problem?

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. GANSKE. Mr. Speaker, could I ask unanimous consent for 1

additional minute?

Mr. BILIRAKIS. Well now if we start that, Greg, we are never

going to get to the hearing.

Mr. GANSKE. I understand that, Mr. Chairman, but how big an

issue are we going to face?

Mr. BILIRAKIS. Well this is a big issue and we have spent a lot

of time on it and we are going to continue to spend an awful lot

of time on it. I would appreciate it if the gentleman would withdraw his request.

Mr. GANSKE. I can take up this issue in comments later and I

will submit my statement.

Mr. BILIRAKIS. Ms. Eshoo for an opening statement.

Ms. ESHOO. Good morning to you, Mr. Chairman, and all the

members of the committee, and certainly to the distinguished individuals who are going to testify at this important hearing today.

I have of course a fuller statement for the record, but let me just

try to summarize in a brief period of time. There are time limits

around this. I know that that is important. We want to hear from

the witnesses. But as the gentleman just stated, this is an issue

that is not just large, it is a giant issue.

We really have to be devoted to giving the kind of time to the

scrutiny of the ideas and plans that are being placed before us here

in the Congress. We know what the problem is. It is not an issue

of whether we should do something about it, but rather how to.

I am very proud to have introduced legislation that really builds

upon the President’s plan and moves beyond it by incorporating

competition to bring down pricing. Seniors are paying too much for

their prescription drugs. But I think that we also have to reduce

the efficiencies that could be there relative to the administration of

a new benefit.

This legislation, the Medicare Prescription Drug Act of 2000,

H.R. 4607, I am very proud to say is originally co-sponsored by

many Democrats on this committee.

10

Suffice it to say that at least in my view—and I think in many

Members’ views—this is a benefit that needs to be consistent for

seniors.

I do not believe that insurance companies hold a great deal of

credibility today with seniors. They did not a couple of years ago

with HMOs. Now it seems to me that there is a move to HMO/insurance prescription drug benefits.

The insurance industry says that they do not want to insure this,

or that they can’t, and today in my district and I think districts

around the country insurance companies are pulling out of the

market.

If there is anything that my mother wants it is some consistency

in her life. You know? She has gone through the peaks and valleys

of life, and there are some things that she and her peers really

want to be able to rely upon.

So I think that the Congress needs to move in the direction to

make a benefit that can be counted on in Medicare, a full benefit.

And if someone has a benefit through their previous employer as

a retiree, so be it. If they want to count on it as a Medicare benefit,

it should be there. But we should not be backdooring it through

some kind of insurance plan.

I too spent a great deal of time yesterday, along with my Republican colleague and many others at the Ways and Means Committee testifying on my bill——

Mr. BILIRAKIS. The gentlelady’s time has expired. Please finish

up.

Ms. ESHOO. I think that the direction at least that Mr. Thomas

is taking is really not the most prudent one for seniors. So I look

forward to hearing from our witnesses today, and I thank you, Mr.

Chairman, for holding this hearing.

[The prepared statement of Hon. Anna G. Eshoo follows.]

PREPARED STATEMENT OF HON. ANNA ESHOO, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF CALIFORNIA

When Medicare was created in 1965, seniors were more likely to undergo surgery

than to use prescription drugs. Today, prescription drugs are often the preferred,

and sometimes the only, method of treatment for many diseases. In fact, 77% of all

seniors take a prescription drug on a regular basis.

And yet, nearly 15 million Medicare beneficiaries don’t have access to these lifesaving drugs because Medicare doesn’t cover them. Countless others are forced to

spend an enormous portion of their modest monthly incomes on prescription drugs.

Right now, 18% of seniors spend over $100 a month on prescriptions. Seniors comprise only 12 percent of the population, yet they account for one-third of all spending on prescription drugs.

The question before Congress is not whether we should provide a Medicare drug

benefit, but how to do it.

Our Republican colleagues believe that we should turn the problem over to the

private insurance market, but the private insurance market is pulling out from

under seniors in the Medigap and Medicare+Choice markets. I receive letters and

calls every day from seniors in my Congressional District who are frantic that their

Medicare HMO has raised prices, scaled back benefits, or is pulling out of the market entirely. Why should seniors trust the private insurance industry if this is what

is happening to them today? Chip Kahn of the Health Insurance Association of

America (HIAA), the trade association that represents the health insurance industry, has stated publicly that health insurance companies won’t offer Medicare drugonly plans because they can’t make enough money. So, I don’t believe that the private insurance model will work.

Some believe that the federal government should limit how much drug companies

can charge for their products. I disagree. Price controls are anti-competitive and can

11

place patient access at risk. I have the largest concentration of biotechnology and

pharmaceutical companies located in my Congressional District and I see every day

the capital risk that is inherent in research and development. Start-up companies

in my district won’t get the capital necessary to develop that next breakthrough Alzheimer drug if the investors know that the federal government is going to cap how

much they can charge for it.

I’ve introduced legislation that builds upon the President’s plan by incorporating

open competition and reduced administrative inefficiency. My bill, The Medicare

Prescription Drug Act of 2000 (H.R. 4607), stays true to the hallmark of the Medicare program by providing a generous, defined benefit package that’s easy for seniors to understand; yet we took a step into the future by introducing private-sector

competition. The result will be a more affordable drug benefit for both beneficiaries

and the Federal government.

The bill is simple. Available to all Medicare beneficiaries, the Federal government

will pay half of an individual’s drug costs up to $5,000 a year, when fully phased

in. For seniors who exceed $5,000 in drug expenditures—or $2,500 in out-of-pocket

costs—the Federal government picks up the whole tab.

PBMs will deliver the benefit and seniors will choose among multiple options

much like we do today in the Federal Employees Health Benefits Plan (FEHBP).

By allowing multiple PBMs to use the same tools that have made them successful

in reducing costs and promoting quality for employees in the private sector, my bill

will, for the first time, introduce open competition into Medicare, reduce prices, and

increase consumer choice.

According to CBO, if only one PBM is allowed in each region and PBMs are not

allowed to offer a selective formulary, there would be little incentive for reduced

pharmaceutical costs. Simply purchasing a large quantity of drugs does not drive

prices lower in the private sector. Pharmaceutical companies grant discounts when

a PBM can show that it increases a company’s market share.

By contrast, allowing for multiple PBMs, and allowing the PBMs to be more selective about the drugs they offer will result in price competition among pharmaceutical companies. We would also allow PBMs to pass cost savings on to Medicare

beneficiaries in the form of lower co-payments. The result would be lower drug

prices for beneficiaries and significant savings to Medicare. To ensure patient quality, when only one drug is available for a given disease or condition, the PBM would

be required to carry it on the formulary.

We’ve also removed sole administration of the program from HCFA. HCFA will

continue to oversee beneficiary eligibility and enrollment but it can’t, by itself, run

this program. The healthcare system has evolved rapidly, and regrettably HCFA has

not kept pace. HCFA lacks the expertise to run a benefit that relies on private sector competition to control costs.

Fortunately, there is another agency that has expertise interacting with private

sector health plans, and has proven that it can administer benefits effectively and

efficiently with a minimum of bureaucracy. It’s the Office of Personnel Management

(OPM)—which runs the widely acclaimed FEHBP. OPM will define market areas,

articulate quality and performance standards, and evaluate PBMs—just as it does

currently for health plans. OPM will ensure that competition is harnessed to run

an efficient benefit of the highest quality. Under OPM’s leadership, I’m confident

that an efficient and effective competitive benefit can be integrated successfully into

the Medicare program.

I’m proud of this legislation and proud of the support it has received to date.

Original cosponsors of the bill include a large number of Commerce Committee

members and a broad cross-section of the Democratic Caucus. We agree that the

best way to get this done is to provide a generous, reliable Medicare drug benefit

for seniors without price controls and without harming innovation.

For our Nation’s seniors, prescription drugs are not a luxury. During these times

of historic prosperity and strength, there is absolutely no reason to be forcing seniors to decide between buying prescription drugs or other necessities of life. In the

words of Franklin Delano, ‘‘the test of our progress is not whether we add more to

the abundance of those who have much; it is whether we provide enough for those

who have too little.’’ It’s time that we stop wasting our budget surplus on tax cuts

for the wealthy and use it to provide our Nation’s seniors with a basic healthcare

need—coverage of prescription drugs.

Mr. BILIRAKIS. Mr. Bryant for an opening statement.

Mr. BRYANT. Thank you, Mr. Chairman. I too want to add my appreciation to both you for calling this hearing and the panel, the

very distinguished panels we will have today.

12

I think when I came to Washington about 6 years ago I was an

optimist. I felt like we could come up here and work in the system

and both sides wanted to get a solution that would help everybody.

And over a period of time, that has somewhat eroded as I have

seen partisanship not just on one side but certainly on both sides.

You know we have a problem in this country on seniors having

access to affordable prescription drugs and we all want to solve it,

I think.

And then I come in today and I hear something about we have

got a public relations guy helping us. Gosh, that is a shock up here

in Washington.

Then I hear this term ‘‘Republican bill’’ and Republican bill, rather than a bipartisan bill. There are some Democrats on this.

It kind of makes me believe what I read in one of the papers up

here the other day that on the Senate side the Democrat Senator

who is co-sponsoring one of the Republican bills is facing sanctions

over there, punishment for doing that because he is not playing

politics.

Because everybody up here knows, and maybe it is unspoken,

today that some people want this to be the issue in the election

rather than trying to get down to business and solve the problem.

I think we can do that. I think both sides, when you really look

at it, really are not that far apart, particularly on dollars. I know

our plan we have worked very hard on it. It is a universal plan.

It is a voluntary plan. It is a choice out there to the citizens. It

helps those in financial need. It helps on the high end to prevent

people from having to sell their homes or use up their savings account if they have a catastrophic drug bill each year.

It is a good bill. I guess I would like to reach down and bring

back up some of that optimism and hope that we can work together

and not have this as a campaign issue but work together to get a

bill that will truly help our senior citizens.

I would yield back my remaining time.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Stupak for an opening statement.

Mr. STUPAK. Thank you, Mr. Chairman——

Mr. BILIRAKIS. And, Bart, our sincere sympathy, publicly.

Mr. STUPAK. Thank you, Mr. Chairman.

Mr. Chairman, we have really not seen the bill, but the talking

points we have seen reminds me of the old Golden Rule that seems

to be followed in this bill. Do not hurt the pharmaceutical. Increase

the insurance company profits, and make coverage as complex as

possible.

The GOP bill says. ‘‘Trust private insurers.’’

Trust the pharmaceutical companies whose profits are $20 billion, whose net operating profit is 28.7 after all the research, after

all the advertising, it is 28.7 percent on pharmaceuticals when the

rate of inflation is less than 3 percent. It is price gouging.

This is a study from my district in October 1998. Take any drug

you want. Zocor for cholesterol. If you are the Federal Government

you pay $42.95. If you are a major wholesaler, you pay $85.47. The

average price is $106.84. If you are a chain market, it is $101.29.

Independent pharmaceutical companies or stores pay $99.38. The

average retail price is $100.33. The price differential is 134 perVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
13

cent. That is in my district in northern Michigan. That is price

gouging. That is price discrimination.

Those who can least afford it, who do not have the insurance coverage, pay 134 percent more.

The GOP plan has more bureaucracy. There are no real protections. The GOP plan really says to the American people. Look, each

senior, you go out and negotiate whoever you want with the private

insurance companies, with the big HMO plans. We are not going

to help you. You negotiate. We will then give you some money. Not

to the American people but to the insurance companies and to the

HMO. Your pharmaceutical company will reap the benefits. Government will give you nothing.

This is the same GOP plan. Remember, they are the ones who

want privatize Social Security? Now they want to privatize your

prescription drug coverage. That is the same group that wants to

let Social Security wither on the vine.

If you take a look at it, we privatize Medicare—excuse me, Medicaid in Michigan. Two years ago, the State of Michigan ran it. The

administrative cost was $28 million. Two years later, after it was

privatized, the administrative cost is $141 million. In 2 years, $141

million.

It is unbelievable what you can do when you can privatize systems like we did in Michigan. Medicaid. Medicaid? Unbelievable.

Look at those administrative costs, $28 million to $148 million.

That is exactly what is going to happen to our prescription drug

plans.

Look it. The Democrats for 2 years had the Allen bill out there,

the Stark bill. We had the President’s plan. Give us some hearings

on it. Universal coverage. That’s what we need. Stop and think. We

need universal coverage so that all seniors are covered.

Stop the price gouging. If you do not, the profits will remain at

28.7 percent. No problem with profits. But if it is going to continue

to price gouge, we will all be in trouble.

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. STUPAK. Most Americans after this is over will not be able

to afford any type of drug coverage.

Mr. BILIRAKIS. Mrs. Cubin for an opening statement.

Mrs. CUBIN. Thank you, Mr. Chairman.

I would like to begin by associating myself with the remarks of

several of my colleagues, Mr. Bryant and Mr. Towns, stating that

this issue is far too important to politicize.

What we need to look out for are the best interests of our senior

citizens. I do not think anyone here at all underestimates the value

and the importance of drafting a prescription drug proposal program for our seniors.

We all want the life-saving drugs to be available, and no one

should go without food to get them. Our intentions are good, and

our expectations are very high. That makes crafting a drug plan all

that much harder.

Seniors are looking to us to help make a difference in the quality

of their life. They are not looking to us to politically attack one another and to try to find grounds to do that.

Today we are going to be considering some very pointed aspects

of the issue:

14

How do we administer a prescription plan?

Should it be voluntary?

Should it be market based?

Or should it be government run?

What kind of benefits are to be offered?

How much will the government subsidize?

How does it affect Medicaid?

I agree that all of these questions have to be adequately addressed for any plan to be successful, but I also think there is one

critical component that is not getting the attention that it deserves.

That is, how does any plan affect rural America?

As most of you know, I represent the State of Wyoming which

is the most rural State in the country. While you may be able to

identify Jackson Hole and Yellow Stone National Park with Wyoming, I do not think that it is easy for some people to be aware

and grasp the concept of the State’s true size and the amount of

vast open spaces.

With approximately 480,000 people covering almost 100,000

square miles, we sometimes have to drive hundreds of miles just

to access medical care. Oftentimes that means going to another

State.

We have to rely almost exclusively on fee-for-service in Wyoming.

And because of that, seniors in Wyoming have less access to drug

coverage than seniors would in California, for example, where there

are many Medicare HMOs.

Programs within the present Medicare system, such as

Medicare+Choice, have not been beneficial to rural areas as originally envisioned due to a lack of customer base in these areas.

So as a result, options for rural populations of our country are

often very limited, or many times nonexistent.

Having said that, I worry that a similar problem may occur in

any prescription drug plan benefit that does not adequately address the needs of rural Americans.

I urge all of my colleagues on the committee to keep that in mind

because there are a lot of people who live in rural America that

could be very adversely affected by any program that does not take

these elements into consideration.

Thank you, Mr. Chairman.

Mr. BILIRAKIS. Mr. Green for an opening statement.

Mr. GREEN. Mr. Chairman, I thought Mr. Strickland was here

earlier.

Mr. BILIRAKIS. Well I don’t know. I am taking you by order of

seniority.

Mr. STRICKLAND. I am very generous. Go right ahead.

Mr. GREEN. Okay. Thank you, Mr. Chairman.

Mr. BILIRAKIS. That is unusual.

Mr. GREEN. I will be glad to take my time from my colleague

from Ohio.

Mr. Chairman, I want to thank you for calling this hearing

today. I appreciate the number of hearings we have had on the prescription drug initiative and hopefully we will have legislation to

look at to actually mark up.

15

Sadly, it appears, that what I see in the press is the effort is not

as bipartisan as I would like it to be. We see a press release that

gives some ideas but not actually legislation.

Hopefully, by our committee working together, as is the tradition

of the Commerce Committee, we can come up with a plan that a

majority of Americans will support.

A plan that actually puts money into the pockets of seniors for

prescriptions and not necessarily insurance carriers. Working together we can put together a plan. Unfortunately, what I have seen

up to this point we have not been able to, and I hope our subcommittee can do that.

And again, all we are working from today is a press release, so

that is what I will base my remarks on. Medicare was created in

1965 because private-sector insurance could not provide coverage

for senior citizens.

Everyone was a claimant. Everybody had a claim. So profit and

loss would not work. We are having the same example today with

prescriptions. Every senior citizen has prescriptions. In fact, sometimes half a dozen of them. That is why the private sector cannot

work.

Except in this press release we are using it shows that that is

what it will do. The proposal is a new drug-benefit-only policy that

the experts say will be ineffective and inexpensive.

The drug-only benefit will have adverse selection for seniors.

Even worse, it allows the insurance companies to select what drugs

they will cover and how much they will charge. There is no guaranteed standard benefit.

Allowing insurance companies to set the benefit and price is like

letting the wolf guard the chicken house. And any savings would

not go to those seniors.

Some in the insurance industry will be able to set the prices. I

wonder why, instead of using taxpayer dollars wisely, the proposal

we have is to create a new bureaucracy: the Medicare Benefits Administration, or MBA, which duplicates what HCFA and our committees already do.

So we are going to take money straight out of the Medicare Trust

Fund to pay for this new bureaucracy.

Medicare has the most efficient administration. It is less than 1

percent, and I think that can be comparable to any other insurance

plan.

America’s seniors need prescription drugs. They are sick and

tired of the Medigap policies. The Medigap policies we have now,

the costs are going up so substantially and this would add just another Medigap policy to seniors who are already having to pay upwards from $200 to $300 a month in some cases.

So, Mr. Chairman, hopefully we will see a bill. And hopefully the

press release I have seen and the guidelines is not what our committee is going to be looking at.

Thank you.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Bilbray for an opening statement.

Mr. BILBRAY. Thank you, Mr. Chairman.

16

Mr. Chairman, I would really like to echo the words of my colleague from New York, Mr. Towns, and also my dear friend from

Wyoming.

The partisanship sounds great in Washington, and the bickering

between Republicans and Democrats may play well to the afternoon news, but I think the American people are sophisticated

enough to see that not only is this issue important enough to be

able to ignore partisan lines, but they are sophisticated enough to

know when people are trying to manipulate issues for political reasons on both sides.

I think they will hold us both accountable if we approach this

issue from a partisan point of view. I would just ask that my colleagues understand that as we snipe across the aisle we do not

make the other person look bad, we make ourselves look bad.

I would just ask us to consider the fact that there is a lot of common ground that we have here, not just political differences. We

have parents that need to leave healthy. We have children that

need not to be taxed to death to support their grandparents health

care.

We have the challenge of how we are going to administer the

next level of service to our seniors in this country.

Now there has been some sniping about the creation or the alternative way of administering this new benefit. The fact is that

Democrats and Republicans agree in many instances that HCFA is

not the agency to administer this program.

I want to commend my colleagues on the other side of the aisle

who have been brave enough to say we not only can do better than

HCFA, we have to do better than HCFA.

Now we may disagree with the President, and I think Democrats

and Republicans can convert the President over to our way of

thinking that there needs to be a better way than the traditional

HCFA way.

I want to thank my colleagues on the Democratic side for being

brave enough to say that.

I just ask us to really, let’s listen to the facts. Let’s not find reasons to snipe. Let’s look at these issues where we have common

ground. We can build on this common ground and build a foundation that not only makes us look good in the eyes of the voters but

also is going to provide the service that is going to make us look

good in the pages of history in the future.

I would ask you to consider the fact that we are going to be making decisions that are not only going to affect us, they are going

to affect our parents and they are going to affect our children and

our grandchildren.

I think that come November we are going to be judged by how

well we work together, not how quickly we found excuses to fight.

I yield back, Mr. Chairman.

Mr. BILIRAKIS. The Chair thanks the gentleman.

Mr. Strickland.

Mr. STRICKLAND. Thank you, Mr. Chairman.

My colleague from Tennessee said a few moments ago that some

would like for this to be an election issue. I do not know if that

is true, but I do know that it is true that it is going to be an election issue.

17

It is going to be an election issue because this issue is important

to the American people. They are paying attention.

When I hear my friend, Dr. Ganske, talk, I realize that it is not

a totally Democrat/Republican controversy, but it involves political

philosophy, and it involves each Member deciding who it is that we

were sent here to represent.

I think we will be held accountable district by district, Member

by Member.

This bill, as we have read about it, has nothing that I can see

on the cost side. In my district, just as in Representative Stupak’s

district, my senior citizens are paying twice as much for these lifesaving medications as are large HMOs or large insurance companies or the Federal Government.

As far as I can tell, this bill does nothing about that problem.

The American people are rightly outraged—outraged—that American tax dollars are used to develop medications that are being sold

in Canada, and Mexico, and everywhere else around the world for

one-third to one-half of what the American senior citizen has to pay

for that very same medication.

They are outraged.

They are not going to tolerate it anymore, and we have got to do

something about that.

For one, I am just tired of going to my district and seeing senior

citizens stand in these public meetings with trembling voices, quivering hands, and talking about their problems.

We are Representatives. Our response to this issue will decide

who it is that we represent. Yesterday in the House of Representatives there was a vote. It was fairly simple. It said that if tax dollars are used by pharmaceutical companies to develop drugs, those

drugs should be then sold to the American consumer at a reasonable rate. And it failed to pass.

I think that says something about why we sometimes talk about

this issue in partisan terms. It is not totally Democrat/Republican.

But as I said before, Mr. Chairman, it does reflect our political philosophies and our value systems.

I yield back my time.

Mr. BILIRAKIS. Ms. Capps for an opening statement.

Ms. CAPPS. Good morning, Mr. Chairman, and thank you for

holding this hearing on one of the most pressing health care issues

facing our country today, which is prescription drug coverage.

The creation of Medicare in 1965 found seniors more likely to undergo surgery for major health problems than to use prescription

drugs. Today it is the opposite. Prescription drugs are often the

only method of treatment for many illnesses and diseases.

In fact, 77 percent of all seniors take a prescription drug on a

regular basis and yet nearly 15 million Medicare beneficiaries have

no insurance coverage at all for prescription drugs.

Most of us today would agree that Medicare’s most glaring problem is the lack of drug coverage. Clearly, no one would design a

health insurance program for seniors today that does not include

a drug benefit.

I do not think anyone here would voluntarily choose a plan for

their family that did not cover this. And Medigap policies, which

18

were designed to fill this need, are too often expensive and inadequate.

We hear again and again about seniors on modest fixed incomes

choosing between food on the table and life-saving medication. At

this time of prosperity and strength, we really can and should do

better than that for older Americans.

This problem is getting worse. According to Families USA the

price of prescription drugs most often used by seniors has risen at

double the rate of inflation for 6 years in a row.

Congress can no longer sit idly by. As we consider different plans

to tackle this problem, I believe that any worthy proposal will provide certain key elements.

A strong plan would be universal, voluntary, affordable, accessible to all, and based on competition. It must also address the

issue of catastrophic coverage.

Many worthy legislative proposals have been raised. For example, the Allen bill, the Stark-Dingell bill, the Pallone bill. Most recently, I have co-sponsored H.R. 4607, Medicare Prescription Drug

Act of 2000 introduced by our colleague, Anna Eshoo.

Like the President’s proposal, the Eshoo bill creates a new voluntary Part D prescription drug benefit in Medicare that is optional and available to all beneficiaries regardless of income.

It includes a defined stop-loss benefit to prevent any individual

beneficiary from being bankrupted by a single catastrophic event

that causes unusually high drug costs, and it uses proven marketbased approaches to promote competition and drive down prices.

The Office of Personnel Management would administer the plan

in coordination with HCFA.

Mr. Chairman, Democrats have offered many different approaches to this problem, but I am disappointed that we do not yet

have a finalized bill from the Majority. It would be my hope that

we could work together in a bipartisan fashion as we craft the best

possible legislation for older Americans.

As I think about the countless seniors in the district I represent

on the central coast of California that have shared their personal

stories with me about crushingly high drug prices, I know in my

heart the prescription drug coverage is not a political issue.

It is simply the right thing to do as we seek to honor our seniors

and care for them as they move into their golden years.

And so I thank you, Mr. Chairman, for holding this hearing. I

hope we can move legislation as soon as possible on this most

pressing issue for our country.

Mr. BILIRAKIS. I thank the gentlelady.

Mr. Shadegg for an opening statement.

Mr. SHADEGG. Thank you, Mr. Chairman.

I will be brief. With your consent, I will insert my entire opening

statement in the record.

Mr. BILIRAKIS. Without objection.

Mr. SHADEGG. I simply want to thank you, Mr. Chairman, for

holding the hearing on this very, very important subject. I agree

with many of the comments that my colleagues have made. Clearly

no one in our society, and certainly not a Member of Congress representing a State like Arizona with many senior citizens, can not

19

be concerned about the cost of prescription drugs for our seniors

today.

So I think it is important, and indeed essential, that this Congress look at the issue and address it and do so in a thoughtful and

bipartisan fashion.

I think it is clear, however, that as we proceed that we make

sure that we do not do more harm than good. And I think that is

one of the injunctions that we have to be aware of. Our efforts have

to make sure that we do not unduly burden the current Medicare

system; that we do not create for it a financial obligations that it

cannot fulfill and burden its ability to do the other tasks that it has

to pay for the other parts of health care.

This is indeed I think one of the toughest challenges we face in

this Congress. I think it is also important in focusing specifically

on the drug issue that in what we do we do not cause the cost of

drugs to go up.

I compliment you, Mr. Chairman, and the other Members of this

Congress on both this committee and others that are looking at the

reasons behind the dramatic increase in drug prices and examining

whether or not the drug industry is in fact abusing the American

marketplace in some fashion, and if there are not other things that

we need to be doing to ensure that drug prices are not going up

in this country in an unfair fashion. So I think we have to keep

those issues before us. I think we have to act thoughtfully. I think

it is appropriate that we hold this hearing, and I am anxiously

awaiting seeing the full proposal that will be before us I guess

early next week, if not sooner.

And again, Mr. Chairman, I compliment you for holding this

hearing. I look forward to working with you, and I do urge all my

colleagues that we look at whatever costs we incur and whatever

obligation we place on future generations in what we do through

this legislation.

Thank you, Mr. Chairman.

[The prepared statement of Hon. John Shadegg follows.]

PREPARED STATEMENT OF HON. JOHN SHADEGG, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF ARIZONA

Thank you Mr. Chairman for holding this important hearing. I share my colleagues’ concerns about segments of our elderly population that are truly in need

when it comes to the prescription drug issue. At the same time, I also realize the

tremendous political pressure that has developed behind providing a Medicare prescription drug benefit. Before we discuss the positives and negatives of such proposals, I wanted to highlight concerns about the current solvency of the Medicare

system.

When I first came to Congress in 1995, the Medicare Part A Trust Fund was expected to be insolvent by 2002. As a result of Republican leadership and tough

choices we made in the Balanced Budget Act of 1997, the outlook for Medicare has

improved significantly. In fact, the March 2000 report by the Social Security and

Medicare Board of Trustees shows that we have pushed out the projected insolvency

date for the Hospital Insurance Trust Fund to 2025. I do want to caution all of my

colleagues, however, not to get lulled into a false sense of security. No matter what

we do, we still cannot redirect the demographic freight train bearing down on Medicare. It bears repeating that when the baby boom generation begins to reach retirement age in 2010, there are expected to be 3.6 workers per Medicare beneficiary.

This ratio shifts to 2.3 in 2030 as the last of the baby boomers reach age 65, and

continues to decline thereafter. Based on the intermediate assumptions of the Medicare Board of Trustees, income in the Hospital Insurance Trust Fund is projected

to exceed expenditures for the next 17 years, but is projected to fall short by

steadily increasing amounts in 2017 and later. Furthermore, Medicare spendVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 E:\HEARINGS\65804 pfrm01 PsN: 65804
20

ing will continue to grow by an average of nearly 7 percent over the next 10 years,

doubling current Medicare spending of $200 billion to more than $400 billion in

2010.

These are the sobering realities of Medicare’s current fiscal health. And they do

not take into account any new prescription drug benefit. Does this preclude us from

considering a Medicare drug benefit? No, and in fact, I am glad to see that the

House Bipartisan Prescription Drug plan takes a step in the right direction by involving the private sector. But, as we examine the prescription drug issue in Medicare, let us not lose sight of the overall Medicare picture. If we don’t do it right,

it could have disastrous consequences on our nation’s and children’s future.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Barrett.

Mr. BARRETT. Thank you very much, Mr. Chairman. And thank

you for holding this hearing. I appreciate the work that you have

done on this issue.

I sense from the comments of some of my colleagues on the other

side of the aisle that there is a frustration or a feeling that this

has become a partisan issue.

I would simply ask them, and those who are listening, to re-examine this and understand the frustration felt by the Members on

this side of the aisle because over 2 years now, sometimes as long

as 4 years, we have been talking about this issue, introducing bills,

trying to get hearings, trying to get this Congress and this Republican Party to focus on this issue.

We have been met time and time again with nothing but roadblocks. I am extremely pleased that finally this logjam has broken

and we are able to move forward.

I do think, and I think probably most of us recognize, part of the

reason for that is every single person at this panel knows that this

issue is literally off the charts when it comes to seniors in this

country.

This is a real-world issue. And I would bet anybody on this panel

who has held a town hall meeting in the last 6 months has heard

about how serious a problem this is for real people in our districts.

It is democracy working at its best when we respond to it. So I

am delighted to have the conversion—the pre-July 4 recess conversion—that we are seeing here that is allowing us to at least consider the merits of a bill.

I think, having said that, we can move to the next level. And the

next level is. Where do we go?

Here I think we can have a legitimate debate over what the best

course of action is. I do not buy into the notion that somehow we

are going to create a new insurance industry for prescription drugs.

I think that if there were a market for prescription drugs that

could be handled by the insurance companies that would have occurred long ago. I compare it, coming from Wisconsin, to saying

well let’s create a market for snow insurance. Anybody who doesn’t

want to get snowed upon can buy snow insurance.

Well nobody wants to get snowed on, but everybody is going to

get snowed on. In the same vein, nobody wants to buy prescription

drugs but everybody needs prescription drugs, especially when you

are elderly. So no one in Wisconsin is going to sell snow insurance,

and my guess is no insurance company voluntarily is going to come

and say, oh, sure, we will start selling prescription drugs knowing

every single person who buys this policy is going to make a claim.

It is just not realistic.

21

So we have to focus on the benefit. And I think that the plan

that the Democrats have developed is one that rightfully recognizes

that this is a benefit program and of course we are going to pay

for it. Of course, we have to pay for it. But to somehow suggest

that the laws of economics which for decades have prevented the

creation of this industry will somehow be translated shortly before

an election because we pass a piece of legislation I think defies economic logic.

It is just not going to happen. And I think we are trying to sell

people a pig in a poke if we are telling them that that is what we

are going to do.

So again I look forward to the debate on the merits. I think the

American people deserve this benefit. I think the American people

need this benefit. And I think it is our obligation to provide it to

them.

And I would yield back the balance of my time.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Deutsch for an opening statement.

Mr. DEUTSCH. Thank you, Mr. Chairman.

You know I think Congressman Barrett made some points that

I think are really worthy of a follow-up.

I believe most of us have probably had town meetings within the

last 6 months, and for any of my colleagues who have not they

should. Because this is an issue, if you are having a town meeting

and you are opening up the floor, people are going to talk about.

If you are in your office and you are looking at your mail, it is

the thing you are going to hear about.

We did a town meeting, an electronic town meeting, where we

sent follow-up letters where we had 9000 people in my district send

specific proposals, specific incidences of problems that they have

had in terms of Medicare coverage for prescription drugs.

That is off the charts in terms of any response that we have had

on any other issue. We had another electronic town meeting recently with the same type of overwhelming, real response we have

had physical town meetings with people, and the stories that you

hear are what our job is about.

The personal suffering, the personal tragedies, the things that

are disheartening because each of us on this committee know that

we can do something about it. And we can do something about it

within a policy context with only doing good.

The tradeoffs that exist are really not there. It is a question of

the political will to make this happen. Several colleagues, and my

colleague Ms. Capps, pointed this out, and I think this is also

something that we need to really focus on, if we were sitting here

in 1965 and creating Medicare there is no chance we would not

have included prescription drug coverage like we as Democrats and

the President are proposing.

The whole concept of Medicare as a national insurance program

for seniors is illogical in a sense without prescription drug coverage. And that is what we are proposing.

I think it is important to understand that there is a fundamental

distinction between at least the drafts and the press accounts of

what the Republicans are proposing.

22

The Republicans are, at least by press accounts, are in fact proposing a fundamental change in the concept of Medicare. One of

the reasons why Medicare has existed so well, and I think that

sometimes we need to pinch ourselves to remind ourselves that at

one point in time Medicare did not exist, and it does not exist by

an Act of God; it exists because of an act of people in the U.S. Congress in passing legislation, but the——

Mr. BILIRAKIS. The gentleman’s time has expired. Please finish

up.

Mr. DEUTSCH. Thank you, Mr. Chairman.

I will just close by saying that the Republicans—in at least the

proposals we’ve been able to read about—are changing the fundamental concept of universality within Medicare. It is an attempt to

really change Medicare in an incredibly and I think long-term negative way, and——

Mr. BILIRAKIS. The gentleman’s time has expired——

Mr. DEUTSCH. [continuing] I urge debate to continue to openly we

will vote on the floor on a proposal that——

Mr. BILIRAKIS. Dr. Coburn for an opening statement.

Mr. COBURN. I thank you, Mr. Chairman.

Mr. Chairman, I find myself in the peculiar position of being opposed to any Medicare drug benefit simply because we are fixing

the wrong problem.

We have this tremendous rise in drug prices and we need to ask

ourselves why that price rise is there. And I honestly believe that

it is there because there is a lack of competition in the drug industry, and I plan on demonstrating that on prices that have been surveyed throughout this country on competing drugs that have been

introduced in the last years.

And if there is no competition, there certainly is collusion among

the drug industry as they introduce new products.

So I find it ironic that no matter whose program we put forward,

the Republicans or the Democrats, we are putting forward a program that is going to spend too much for existing drugs because

there is way too much collusion within the industry.

I hope in the next 6 weeks to prove that to the American people.

I think the other thing is that Medicare is actuarialy unsound.

There has never been a time where this government has correctly

estimated the costs of any new benefit to Medicare.

As a matter of fact, the closest they have come that my staff can

find is they have missed it 700 percent. So if you take the conservative estimates of both the Democrats and the Republicans you are

talking about $280 billion over 5 years added to Medicare.

That is something that will sink it within about 6 years. We

must not forget that once we add a benefit we are not going to be

taking it away, as what we saw in the last 1989-1990.

The other thing that is important is the distribution by MedPak

of the total prescription drug expenditures in this country. Six percent of the Medicare patients spend over $3000, 14, $1500 to

$2999.

Fourteen percent do not spend any money on drugs. So whatever

plan we devise, what we have to do is to make sure that the price

that is paid for the drug is based on a competitive model that most

properly allocates the scarce resource in this country.

23

It is my contention that that does not exist in this time, and no

matter what we do in terms of Medicare benefit we are not doing

a good job for the public until we have assured ourselves that there

is in fact competition in the drug industry.

With that I would yield back.

Mr. BILIRAKIS. Mr. Burr for an opening statement.

Mr. BURR. Thank you, Mr. Chairman.

It is difficult to listen to just the opening statements of members

of this subcommittee, and probably Members from the House of

Representatives at large, and not get a feel for how difficult this

task is.

This is the most difficult thing I have ever worked on since I

came to this institution. Mr. Deutsch hit on a very good thing, but

there is—we ought to look at people that have looked at the entire

situation and look at the advice they gave us.

Gosh, as it relates to Medicare, I think it is the Medicare Commission who spent over a year looking at every aspect and said. not

only should there be drugs, there should be comprehensive modernization of the Medicare system. Our seniors deserve the best.

Well, politically we all know that the reality is we cannot do it.

In the absence of that, we try an approach that addresses the most

severe need of 38 million seniors and disabled who qualify for

Medicare, to make sure that a benefit, a benefit designed within

the limits of the financial tools that we have got available, exists.

Now we have a fundamental difference between those on the left

side of the dais and those on the right side. It is an argument over

whether government controls this new benefit or whether in fact

we use the competition of the private sector to monitor and to

hopefully make it successful and cost effective.

That is a huge difference. It is a huge difference, and it may in

the end defeat this effort. But I am confident that if we can put

words aside like ‘‘nutty,’’ ‘‘cruel hoaxes,’’ if we can take consultants

out of it at a time that we are out-purchasing $25 million worth

of TV ads for the fall to hit on this issue, that we can take politics

out of the debate on the Medicare drug benefit; that we can work

with Democrats, insurance companies, PBMs that Mr. Pallone’s impression of insurance companies will be the same as the day he introduced his bill which was insurance based and not today where

insurance companies are bad. But we have got to get past this.

Mr. Chairman, I am hopeful that we will get on the words ‘‘accessible,’’ ‘‘affordable,’’ ‘‘voluntary,’’ but that also every Member will

get in their vocabulary ‘‘security.’’ That without a stop-loss we have

done nothing for seniors.

Without the ability to say to a senior here is a dollar amount

that you will not be responsible for one penny after that point, that

we have fallen short of the predictability they need to plan in a

time of their life where their incomes are limited we can help to

make their futures predictable.

I am hopeful that this hearing today, which is not about our bill,

Ms. Eshoo’s bill, Mr. Pallone’s bill, Mr. Allen’s bill, or the President’s bill; it is here to educate us as to what should be part of a

bill for seniors and disabled in America.

I hope that we can move forward not only today but before the

end of this session of Congress. I yield back.

24

Mr. BILIRAKIS. I thank the gentleman.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Mr. Chairman, thank you for holding today’s hearing to examine alternatives for

crafting a prescription drug benefit for Medicare beneficiaries. I am deeply concerned about the burden borne by many individuals who do not have insurance coverage for prescriptions. No senior citizen should be forced to forego needed medication, take less than the prescribed dose, or go without other necessities in order to

afford life-saving medications.

I read and sign all of my mail, and I have seen a dramatic increase over the past

several years in the number of Medicare beneficiaries writing to me about the struggle they are having with rising prescription drug costs. These are not form letters

I am referring to. They are hand written letters—often with their bills enclosed. We

are fortunate in Michigan to have a state prescription drug program, but this covers

only low-income individuals with high monthly drug costs. Further, we have no

Medicare managed care plans in our district because Medicare’s payment rates are

too low to attract plans. Thus, my constituents are denied access to coverage

through this route. Yet they have paid the same Medicare payroll taxes into the system over the years and pay the same monthly premiums as beneficiaries who do

have this choice. This is a matter of fairness, as well, for my constituents.

Because of my keen interest in addressing this issue, I am very glad to be serving

with you the House Leadership’s prescription drug task force led by our Chairman.

Our nation leads the world in the development of new drugs and medical devices

that enable us to effectively treat diseases and conditions. But if people cannot afford to buy these drugs, their benefits are lost to many in our population.

I share the task force’s goal of and commitment to ensuring that every Medicare

beneficiary has access to affordable coverage and has protection from unusually high

out-of-pocket costs. I am committed to crafting a plan that is senior friendly-one

which avoids the often complex, complicated bureaucracy of the current Medicare

program.

Our goal in crafting this plan must also be one of ensuring that our nation continues to lead the world in the development of life-saving new drugs. Over the past

decade, we have seen so many breakthroughs in drug therapy, from a new, much

more highly effective treatment and perhaps preventive for breast cancer, to antivirals for AIDS and other diseases, to treatments for cystic fibrosis. As we continue

to map the gene and understand more fully the link between genes and disease,

think of the possibilities. We are perhaps within reach of preventing or curing diabetes, Parkinson’s, Alzheimer’s, and other debilitating and terrible afflictions. As

our population ages, we need to encourage further breakthroughs in the prevention,

treatment, and management of chronic, debilitating conditions such as arthritis and

osteoporosis, for that is the only real hope of controlling health care costs. Crippling

the incentives and resources needed for new drug discovery and development would

dash these hopes, leave these promises unfulfilled, and condemn many to suffering

and premature death.

The task before us is daunting. It will take all of us, Republicans and Democrats,

Ways and Means and Commerce, House and Senate and Administration, working

together to pull this off and plug a huge hole in the Medicare program with a common-sense, workable, comprehensive drug benefit. We need to put aside partisanship and short-term political considerations and do what is right for our constituents and for the future of health care in America.

PREPARED STATEMENT OF HON. TOM BLILEY, CHAIRMAN, COMMITTEE ON COMMERCE

I’m pleased that the Subcommittee is holding this hearing today. This is the

fourth hearing this Committee has held on the topic of senior citizens access to prescription drugs.

I’ve been studying this issue closely for a long time now and it is a tough one.

It is clear that too many seniors have trouble affording their medications. It is

equally clear that many seniors have drug coverage today that they like and don’t

want threatened by anything we do in Congress.

Americans have the best health care in the world. My first goal in helping seniors

afford medicine is to preserve what is good about our health system today. We are

on the edge of remarkable breakthroughs in new drug therapies to treat and even

25

cure diseases that just ten years ago were considered death sentences. We don’t

want to do anything to jeopardize this work.

Yet, America’s role as the world leader in drug research has its costs. Our challenge is to find ways to make sure seniors have access to needed medication without

resorting to price controls or big-government drug purchasing schemes.

Many folks under 65 years old are fortunate to have health insurance to cover

the costs of their prescription drugs. But Medicare does not pay for most drugs for

seniors. In my view, Medicare does not reflect how modern medicine is practiced

and delivered.

This is why I truly want to explore a way to give seniors access to coverage options available to Americans under the age of 65. Every Member of Congress has

coverage options. Let’s give seniors the same.

My colleagues and I have been working on legislation that provides all seniors access to affordable, private drug coverage. We will be introducing legislation soon. We

have a good bill which can and will draw bipartisan support. I hope to work with

our Democratic colleagues and the Administration on this proposal.

We share many common goals—that all seniors get access to a voluntary benefit

and that low-income seniors get extra assistance in purchasing their drugs. We

want to get a level of security for those seniors with the highest costs, so no one

has to choose between food or medicine. What’s more, no senior should be locked

into a one-size-fits-all benefit.

Again, I want to thank the Chair for holding this hearing and look forward to the

witnesses testimony.

PREPARED STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

Mr. Chairman, I welcome this hearing on the critical issue of providing prescription drug coverage for Medicare beneficiaries. The time to enact legislation to provide this critical service is long overdue.

I am disturbed, however, by the evident intention of this Subcommittee to use this

hearing to justify moving out of Committee and to the House floor next week a Republican bill that has not been made available to the public, that our witnesses

haven’t seen, that has been explained only in vague and contradictory terms, and

that apparently fails to meet critical conditions for effective, available and affordable

prescription drug coverage.

In my view, we can only meet our obligations to Medicare beneficiaries if we make

coverage of prescription drugs

—a benefit that all beneficiaries are entitled to,

—a benefit that covers all medically necessary drugs,

—a benefit that is available in all parts of the country,

—a benefit that is accessible and affordable for seniors in fee-for-service Medicare

as well as Medicare+Choice plans, and

—a benefit that assures Medicare beneficiaries will no longer face the discrimination in drug prices which result in them paying the highest prices out of their

own pockets.

But that’s not the approach of the Republican bill. It tells seniors that they can

purchase a private insurance drug policy, patterned on MediGap policies which already fail to deliver an affordable drug benefit. That is a cruel hoax.

Except for the poor, the Republican bill doesn’t help seniors pay their premiums.

It subsidizes private insurance companies and tries to claim that helps seniors.

What that really does is mislead and confuse people about the help that’s available.

And the Republican bill shifts the responsibility to insurers to try to provide a

benefit when they know adverse selection is almost certainly going to make their

product unaffordable and unavailable. That is not a responsible approach.

The drug companies might like it, but seniors will not.

I know the public relations consultants have told our Republican colleagues that

‘‘it is more important to communicate that you have a plan as it is to communicate

what is in the plan.’’ That sounds suspiciously like saying it’s the rhetoric that’s important, not the reality of putting a decent drug benefit in Medicare. The cynicism

is breathtaking!

Seniors don’t need us playing politics with their health care. Seniors need real

coverage of prescription drugs. They can’t afford the high prices of drugs. They can’t

afford to pay twice what the big buyers pay. They don’t need another MediGap, they

need a Medicare drug benefit.

Let’s join together in a responsible way and do it right.

26

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

I am delighted that the Commerce Committee is having another hearing on a

Medicare prescription drug benefit. My delight that we are continuing to explore

this issue in Committee is surpassed only by my delight that the House Republican

Leadership is finally unveiling a proposal to provide prescription drug coverage for

Medicare beneficiaries.

We have not had the opportunity to review the details of the Republican plan, but

we understand there are some key differences between it and the proposals put forward by the President and House and Senate Democrats. If, and as, we attempt to

bridge those differences, we should try to respect certain principles.

First, we should preserve choice of drugs and choice of pharmacies for seniors.

Second, we should offer a defined, meaningful benefit for all.

Third, we should minimize the ability of health plans to attract only the healthy

and the wealthy and ensure an affordable benefit for all.

Fourth, we should provide incentives to achieve price discounts and spend taxpayer dollars wisely. The skyrocketing cost of prescription drugs is a serious matter

that is not properly addressed by giveaways to HMOs or drug companies.

Fifth, the program should benefit the people who need it most and not the insurance industry who doesn’t.

Unfortunately, the majority’s plan at this point seems to offer an illusory drug

benefit that people can’t afford. I am hopeful that we can address these shortcomings through the committee process, and I look forward to further exploration

of this issue and a coming Committee mark up.

Mr. BILIRAKIS. Well, waiting patiently is our first panelist, the

Honorable Nancy-Ann Min DeParle, Administrator of the Health

Care Financing Administration.

Madam Administrator, welcome. As per usual, we will set the

clock to 10 minutes for you, and you of course may take whatever

time you feel you might need. Obviously, your written statement is

a part of the record.

If we can have order before the Administrator starts.

STATEMENT OF HON. NANCY-ANN MIN DePARLE, ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

Ms. DEPARLE. Thank you very much, Chairman Bilirakis and

Congressman Brown, and other distinguished subcommittee members.

I appreciate the opportunity to be here today to discuss prescription drug coverage for 39 million Medicare beneficiaries who need

it.

I am glad to be with you and, Mr. Chairman, I appreciate your

kind words.

Your subcommittee has been very interested in the topic of Medicare prescription drugs. I sit here and look at many Members who

have themselves introduced bills to try to deal with this subject.

The administration welcomes this opportunity to further our bipartisan dialog. As you indicated, I have submitted written testimony for the record that goes into much more detail about the

President’s proposal and why we hope this committee will view it

favorably.

But I want to say this morning that we are encouraged by the

growing commitment embodied in the new proposal announced yesterday by Congressman Burr, Congressman Thomas, Congressman

Peterson, and others to address this issue.

We want to continue working with you to enact legislation that

meets the key principles that President Clinton has laid out for a

Medicare drug benefit.

27

The drug benefit should be voluntary and it should be accessible

to all beneficiaries.

It must be affordable for beneficiaries and to the Medicare program.

It should be competitive and it should have efficient and effective

administration.

It should ensure access to needed medications and encourage

high-quality care.

And it should be consistent with broader reform.

We have said many times that we are flexible on the details of

how a Medicare drug benefit is provided as long as the design ensures that we meet these key principles.

The plan that was announced yesterday appears to mark some

important progress toward those principles, but as you pointed out

in beginning the hearing, Mr. Chairman, the devil is truly in the

details.

We need to see the details and then engage in a serious discussion and dialog about our differences as well as the places where

there are similarities.

Unfortunately, from what little we know about it so far the plan

does not appear to meet the President’s test of a meaningful prescription drug benefit that is affordable and accessible for all beneficiaries. And I want to talk about why.

Key among our concerns is the plan’s heavy reliance on participation by private insurers who have made clear that stand-alone

drug policies are not feasible.

Our concern is that even if some insurers do offer coverage, they

would likely come in and out of the market. They would be likely

to move to more profitable areas. And they would be likely to significantly modify benefit design from year to year based on the

prior year’s experience.

We have seen this before and it is not a good thing for beneficiaries. We are concerned that it would result, this kind of structure would result in the same instability and the same pullouts

and uncertainty that we see in managed care today.

The new proposal’s suggestion of a fallback mechanism whereby

the government—and here I am speculating but presumably the

traditional Medicare program would step in—seems to acknowledge

the difficulties inherent in trying to guarantee access through a

drug-only program.

The fallback mechanism also raises, I think from a health policy

perspective, serious risk-selection issues. These are very, very difficult issues and we need to have a serious discussion once we have

seen the details.

We continue to believe that the new prescription drug benefit

must be integrated into the Medicare Program, and that Medicare

should provide drug coverage the same way that virtually all private insurers do, by contracting directly with pharmacy benefit

managers in each region of the country.

That is what our proposal does. And Mrs. Eshoo also has a proposal that is slightly different but also relies on pharmacy benefit

managers.

28

This will ensure that all beneficiaries have access and that Medicare gets the best prices through the pharmacy benefit managers

who will negotiate the best prices on behalf of beneficiaries.

Another critical concern that we have with what we have seen

so far about the new plan that was announced yesterday is that it

does not appear to provide direct premium subsidies to individuals

with incomes above $12,600 a year.

Instead, it relies on indirect subsidies to the private insurance

plans to lower premiums. And I heard one person today refer to

this as a sort of a form of premium support, and I thought that was

interesting because I think it is sort of analogous to that.

It is unclear whether that amount of subsidy would ensure that

affordable coverage is available to all and would be equally affordable in all regions of the country, but I can tell you that we looked

at this very closely, this idea of what level of subsidy is necessary,

and I believe it would need to be substantially more than 25 or 30

percent to avoid risk selection problems.

We have additional questions that are outlined in my written

testimony and we look forward to discussing them with you.

I also want to say that I think Congressman Burr is right. This

is a terribly difficult issue, and it is important that we see the details. I do not want to be speculating about what is in their plan

because it I believe has changed from the first version I saw and

I want to provide you with the best answers I can about what we

are talking about here.

But I do think the most critical question of all—and I heard

many of you raise this question but it bears repeating—is how does

this plan, the one that was announced yesterday, the President’s

plan, whatever the plan is, how does it really meet the needs of

Medicare beneficiaries, the 39 million Americans who are depending on us to try to do something here?

Is the plan really a defined benefit that is guaranteed?

Can Medicare beneficiaries depend on it being affordable and accessible?

Will the new plan really result in more efficient and effective administration of Medicare?

These are important questions. They are difficult questions.

While all of these critical concerns remain, I do think the good

news is that we appear to have broad consensus that a Medicare

drug benefit is needed.

It is now time to get into the all-important deeper and very, very,

very tough details of how to make sure the benefit can succeed;

that it can succeed for the Medicare beneficiaries and that it can

succeed for the Medicare Program.

We look forward to getting the details of this new plan because

it is obvious that a great deal of work remains, and it is time to

sit down and get it done.

I look forward to continuing to work with you as we enter the

next phase on this critical issue.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Nancy-Ann Min DeParle follows:]

29

PREPARED STATEMENT OF NANCY-ANN DEPARLE, ADMINISTRATOR, HEALTH CARE

FINANCING ADMINISTRATION

Chairman Bilirakis, Congressman Brown, distinguished Committee members,

thank you for inviting me to discuss Medicare prescription drug coverage. This Subcommittee’s previous hearings on this issue have been highly constructive, and we

are grateful for the opportunity this hearing provides to make further progress. We

are encouraged by the growing commitment embodied in the new Medicare Rx 2000

proposal presented by Congressmen Thomas, Burr, Hall, and Peterson yesterday to

address this issue. We want to continue working with you to enact legislation that

meets the principles President Clinton laid out earlier this year.

Background

As we know, pharmaceuticals are as essential to modern medicine today as hospital care was when Medicare was created. Lack of prescription drug coverage

among senior citizens today is similar to the lack of hospital coverage among senior

citizens when Medicare was created. Three out of five beneficiaries lack dependable

coverage. Only half of beneficiaries have year-round coverage, and one third have

no drug coverage at all.

Those without coverage must pay for essential medicines fully out of their own

pockets, and are forced to pay full retail prices because they do not get the generous

discounts offered to insurers and other large purchasers. The result is that many

go without the medicines they need to keep them healthy, out of the hospital, and

living longer lives.

Drug coverage is not just a problem for the poor. More than half of beneficiaries

who lack coverage have incomes above 150 percent of the federal poverty level. Millions more have insurance that is expensive, insufficient, or highly unreliable. Even

those with most types of coverage find it costs more and covers less. Copayments,

deductibles, and premiums are up.

And coverage is often disappearing altogether as former employers drop retiree

coverage, Medigap is becoming less available and more expensive, and managed

care plans have severely limited their benefits. Clearly all beneficiaries need access

to an affordable prescription drug coverage option.

Key Principles

The President has identified key principles that a Medicare drug benefit must

meet, and we are willing to support proposals that meet these principles. It should

be:

• Voluntary and accessible to all beneficiaries. Medicare beneficiaries in both

managed care and the traditional program should be assured of an affordable

drug option. Since access is a problem for beneficiaries of all incomes, ages, and

geographic areas, we must not limit a Medicare benefit to a targeted group. At

the same time, those fortunate enough to have good retiree drug benefits should

have the option to keep them.

• Affordable to beneficiaries and the program. We must ensure that premiums

are affordable enough so that all beneficiaries participate. Otherwise, primarily

those with high drug costs would enroll and the benefit would become unstable

and unaffordable. And beneficiaries must have meaningful protection against

excessive out-of-pocket costs.

• Competitive and have efficient administration. Medicare should adopt the

best management approaches used by the private sector. Beneficiaries should

have the benefit of market-oriented negotiations.

• Ensuring access to needed medications and encouraging high-quality

care. Beneficiaries should have a defined benefit that assures access to all

medically necessary prescription drugs. They must have the assurance of minimum quality standards, including protections against medication errors.

• Consistent with broader reform. The drug benefit should be consistent with

a larger plan to strengthen and modernize Medicare.

The President’s Plan

The President has proposed a comprehensive Medicare reform plan that meets

these principles. It includes a voluntary, affordable, accessible, competitive, efficient,

quality drug benefit that will be available to all beneficiaries. The President’s plan

dedicates over half of the on-budget surplus to Medicare and extends the life of the

Medicare Trust Fund to at least 2030. It also improves access to preventive benefits,

enhances competition and use of private sector purchasing tools, helps the uninsured near retirement age buy into Medicare, and strengthens program management and accountability.

30

The President’s drug benefit proposal makes coverage available to all beneficiaries. The hallmark of the Medicare program since its inception has been its social insurance role. Everyone, regardless of income or health status, gets the same

basic package of benefits. This is a significant factor in the unwavering support for

the program from the American public and must be preserved. All workers pay

taxes to support the Medicare program and therefore all beneficiaries should have

access to a new drug benefit.

A universal benefit also helps ensure that enrollment is not dominated by those

with high drug costs (adverse selection), which would make the benefit unaffordable

and unsustainable. And, as I described earlier, lack of drug coverage is not a lowincome problem—beneficiaries of all incomes face barriers.

The benefit is completely voluntary. If beneficiaries have what they think is better

coverage, they can keep it. And the President’s plan includes assistance for employers offering retiree coverage that is at least as good as the Medicare benefit to encourage them to offer and maintain that coverage. This will help to minimize disruptions in parts of the market that are working effectively, and it is a good deal

for beneficiaries, employers, and the Medicare program. We expect that most beneficiaries will choose this new drug option because of its attractiveness, affordability,

and stability.

For beneficiaries who choose to participate, Medicare will pay half of the monthly

premium, with beneficiaries paying an estimated $26 per month for the base benefit

in 2003. The independent HCFA Actuary has concluded that premium assistance

below 50 percent would result in adverse selection and thus an unaffordable and

unsustainable benefit.

Premiums will be collected like Medicare Part B premiums, as a deduction from

Social Security checks for most beneficiaries who choose to participate. Low-income

beneficiaries would receive special assistance. States may elect to place those who

now receive drug coverage through Medicaid into the Medicare drug program instead, with Medicaid paying premiums and cost sharing as for other Medicare benefits.

We would expand Medicaid eligibility so that all beneficiaries with incomes up to

135 percent of poverty would receive full assistance for their drug premiums and

cost sharing. Beneficiaries with incomes between 135 and 150 percent of poverty

would pay reduced premiums on a sliding scale, based on their income. The Federal

government will fully fund States’ Medicaid costs for the beneficiaries between 100

and 150 percent of poverty.

Under the President’s plan, Medicare will pay half the cost of each prescription,

with no deductible. The benefit will cover up to $2,000 of prescription drugs when

coverage begins in 2003, and increase to $5,000 by 2009, with 50 percent beneficiary

coinsurance. After that, the dollar amount of the benefit cap will increase each year

to keep up with inflation. For beneficiaries with higher drug costs, they will continue to receive the discounted prices negotiated by the private benefit managers

after they exceed the coverage cap. To help beneficiaries with the highest drug costs,

we are setting aside a reserve of $35 billion over the next 10 years, with funding

beginning in 2006.

Benefit managers, such as pharmacy benefit manager firms and other eligible

companies, will administer the prescription drug benefit for beneficiaries in the traditional Medicare program.

These entities will bid competitively for regional contracts to provide the service,

and we will review and periodically re-compete those contracts to ensure that there

is healthy competition. The drug benefit managers—not the government—will negotiate discounted rates with drug manufacturers, similar to standard practice in the

private sector.

We want to give beneficiaries a fair price that the market can provide without

taking any steps toward a statutory fee schedule or price controls. The drug benefit

managers will have to meet access and quality standards, such as implementing aggressive drug utilization review and patient counseling programs. And their contracts with the government will include incentives to keep costs and utilization low

while assuring a fairly negotiated contractual relationship with participating pharmacists.

Similar to the best private health plans in the nation, virtually all therapeutic

classes of drugs will be covered. Each drug benefit manager will be allowed to establish a formulary, or list of covered drugs. They will have to cover off-formulary drugs

when a physician certifies that the specific drug is medically necessary. Coverage

for the handful of drugs that are now covered by Medicare Part B will continue

under current rules, but they also may be covered under the new drug benefit once

the Part B coverage is exhausted.

31

The President’s plan also strengthens and stabilizes the Medicare+Choice program. Today, most Medicare+Choice plans offer prescription drug coverage using the

excess from payments intended to cover basic Medicare benefits. Under the President’s proposal, Medicare+Choice plans in all markets will be paid explicitly for providing a drug benefit—in addition to the payment they receive for current Medicare

benefits. Plans will no longer have to depend on what the rate is in a given area

to determine whether they can offer a benefit or how generous it can be. This will

eliminate the extreme regional variation in Medicare+Choice drug coverage, in

which only 23 percent of rural beneficiaries with access to Medicare+Choice have

access to prescription drug coverage, compared to 86 percent of urban beneficiaries.

And beneficiaries will not lose their drug coverage if a plan withdraws from their

area, or if they choose to leave a plan, because they will also be able to get drug

coverage in the traditional Medicare program. We estimate that plans will receive

$54 billion over 10 years to pay for the costs of drug coverage.

Beneficiaries will have access to an optional drug benefit through either traditional Medicare or Medicare managed care plans. Those with retiree coverage can

keep it and employers would be given new financial incentives to encourage the retention of these plans.

Meeting Key Principles

We are flexible on the details of how a Medicare drug benefit is provided, but the

design must ensure that we meet the President’s key principles of a benefit that

is voluntary, affordable, competitive and efficient. We believe the Medicare Rx 2000

plan marks important progress. However, we believe it does not meet the President’s test of a meaningful benefit that is affordable and accessible for all beneficiaries. Key among our concerns are the apparent lack of an individual premium

subsidy for all beneficiaries, an inadequate level of support, and reliance on insurers

who are unlikely to participate.

Will prescription drug coverage be available? The Medicare Rx 2000 plan

appears to rely extensively on participation by private insurers who have made clear

that stand-alone drug policies are not feasible. Subsidizing private insurers instead

of establishing a reliable Medicare benefit means that outpatient prescription drugs

would not be part of the Medicare benefits package like doctor or hospital care. Beneficiary premiums would pay for expensive, private Medigap plans whose administrative costs are on average more than 10 times higher than Medicare’s, according

to National Association of Insurance Commissioners statistics, rather than an affordable Medicare option. Furthermore, Medigap plans have little experience negotiating with drug manufacturers and relying on numerous plans does not pool the

purchasing power of seniors; both elements are needed to keep the benefit affordable.

Building on the private Medigap insurance market would be especially difficult

in sparsely populated rural areas, where risk pools are smaller and seniors are more

likely to have higher costs, as a report released by the President today shows. There

also is no certainty or stability in the drug coverage options in the Medicare Rx

2000 proposal. Even if some insurers do offer coverage, they would likely come in

and out of the market, move to profitable areas, and significantly modify benefit design from year to year based on prior year’s experience. This would result in the

same pull-outs and uncertainty we see in managed care today.

The Medicare Rx 2000 proposal’s reliance on a ‘‘fall back’’ mechanism, in which

the government would ensure availability everywhere seems to acknowledge the

weakness of the drug-only insurance plans. We continue to believe that Medicare

should provide drug coverage the same way that virtually all private insurers do—

by contracting directly with pharmacy benefit managers in each region of the country. This will ensure that all beneficiaries have access and that the pharmacy benefit managers can negotiate the best prices.

Is drug coverage affordable to all beneficiaries? The Medicare Rx 2000 plan

does not provide direct premium subsidies to individuals with incomes above

$12,600 a year. Instead, it relies on indirect subsidies of 25 to 30 percent to lower

premiums. It is unclear that this amount will ensure that affordable coverage is

available to all or would be equally affordable in all regions of the country.

There are several additional areas where we have questions about the new Medicare Rx 2000 plan. These include:

• Is it a defined benefit? The Medicare Rx 2000 plan allows insurers to offer an unspecified ‘‘standard’’ benefit, or an actuarial equivalent benefit. Only the stoploss amount is specified, and insurers would set deductibles and copays. This

could lead to beneficiary confusion and benefit packages designed for ‘‘cherrypicking’’ of low-cost, healthy enrollees, with insurers offering no deductible, low

copays, and a low benefit cap that leaves a large gap before the stop-loss kicks

32

in. This would be a step backwards from the Medigap reforms of the early

1990s that standardized benefits so plans compete on price and quality rather

than consumer confusion.

• Does the plan assure access to needed medications? The Medicare Rx 2000 plan

requires insurers to cover only all ‘‘major’’ therapeutic classes of drugs. Depending on how that is defined, and the degree to which each insurance company

is permitted to define it, some seniors could be left without the medications they

need. It also requires a beneficiary to go through a formal appeals process to

get coverage of off-formulary drugs the physician deems to be medically necessary, which could limit access. Furthermore, the Medicare Rx 2000’s multiinsurer approach breaks up the pooled purchasing power of seniors, forcing insurers to reduce costs through restrictive formularies and limited pharmacy

choice.

• Will the plan increase access to coverage for rural beneficiaries? The Medicare Rx

2000 plan relies on additional assistance for Medicare+Choice plans as a means

of bringing those plans into rural areas where, because of sparse health care

service delivery structures, managed care has often had difficulty thriving. It

is not clear this will work.

• Will the proposed approach to remove international drug pricing disparities work?

We agree that Americans, particularly those who now lack prescription drug

coverage, should not disproportionately subsidize drug development. However,

it is not clear that having the U.S. Trade Representative negotiate to address

drug price controls in other nations will result in fairer prices here at home.

This proposal could simply result in higher prices abroad without having an impact on the high prices American consumers now pay.

• Will the plan result in more efficient Medicare administration? The Medicare Rx

2000 plan would create a Medicare Benefits Administration (MBA) to administer the drug benefit and Medicare+Choice program. It appears to be adding

a new layer of bureaucracy since many MBA activities would duplicate those

that HCFA would also need to continue, such as beneficiary education, resulting

in duplication and ignoring HCFA’s expertise.

Conclusion

We may be turning a corner in our efforts to secure the Medicare drug benefit

that we all agree is needed. We are nearing a workable consensus on the broader

outlines of how the benefit should be structured. Critical concerns about providing

an affordable, accessible, meaningful benefit and relying on private insurers remain.

But we are beginning to get into the all-important, deeper details of how to make

sure the benefit can succeed. While a great deal of work remains, momentum is now

with us. The challenges before us can be met if we continue the constructive approach that we have, together, taken to date. And I look forward to continuing to

work with you as we enter the next phase on this critical issue.

Mr. BILIRAKIS. Thank you, Madam Administrator.

You are of course correct. The legislation in terms of its specificity is still not out there. But one thing that seems to be relatively specific is the establishment of the new entity to manage

the program.

And of course you state in your testimony that establishing a

new entity to manage a direct benefit program would simply be,

using your words, ‘‘adding a new layer of bureaucracy.’’ And I am

not sure that anybody would disagree with that. Yes, it does add

that.

But clearly the Bipartisan Medicare RX 2000 Plan is not the only

proposal, as you know, which suggests that the management of the

drug benefit be administered by a separate entity outside of HCFA.

Ms. Eshoo’s plan proposes that OPM manage the benefit, as I understand it.

Mr. Pallone’s plan establishes a board outside of HCFA, as does

the Breaux-Frist bipartisan proposal in the Senate.

So I would ask you this question: Do you believe that all these

bills seek to establish redundant beneficiaries? But more imporVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
33

tantly, why don’t you just respond to the fact that so many plans

feel it should be managed outside of HCFA?

Ms. DEPARLE. Well I think the one thing I believe I have heard

this morning is that we all agree that a new prescription drug benefit, if it is added to Medicare, should be administered in an effective and efficient way.

I think over the past 2 years that I have been at HCFA I have

probably talked to every single member on this committee about

concerns you have about Medicare’s administration. Some of them

are very specific about providers in your districts.

Certainly we can do better, and I would like to have the opportunity at some point to show you all the things we have done to

improve the way we are administering Medicare.

One of the Members—I think it was Mr. Green—pointed out that

we are very efficient in our administration, and that is true. Our

administrative costs hover around 1.5 percent. I do not think there

is any insurance company in the country that would attempt to run

a program as complicated and as important as the one we are running with as many beneficiaries and more than $200 billion of taxpayer dollars with that kind of administrative expenses.

In my view sometimes we are a little too efficient. I want to

thank the committee because I have made this point with many of

you and you have helped us in the past with our budget to make

sure that we got the resources we need to do a better job.

But I think we have to go back to the question that Dr. Coburn

posed, which is we have to think carefully about what is the problem we are trying to fix here?

I think what you want is an efficient and effective administration. I think it is possible to do that the way the President’s plan

proposes using private pharmacy benefit managers like private insurers do, and having us contract with them.

What I would say to you is, we are eager to get into that discussion with you. If you give us the authority and the resources to do

that job, I can promise you that we will do a good job of it.

Mr. BILIRAKIS. Well I expect there will probably be others who

will explore the area you mentioned about the private drug benefit

managers and how its usage is intended under the President’s

plan, but I would go to an area that I think practically everybody’s

opening statements referred to. That is, the need to help those with

real high drug costs with a stop-loss benefit, the catastrophic, if

you will, a word that we do not like to use up here for obvious reasons.

The President’s plan did not provide for that. Afterwards of

course, sometime afterward, he decided to set aside funds for patients with high out-of-pocket costs to begin in 2006. Not to begin

now, or even close to now, but in 2006.

So I guess I would ask you—and I think we all wonder because

we have not seen anything in that regard—how would you propose

those funds be spent? Has HCFA or the President come up with

a plan that would use those funds in order to help those people

with very, very high out-of-pocket cost?

Ms. DEPARLE. Well, Mr. Chairman, we did not propose the stoploss benefit, the catastrophic coverage, in our original proposal 2

years ago.

34

The President did propose it in this year’s budget, but he said

we had set aside $35 billion to start in 2006 and we wanted to sit

down and work with the Congress to talk about the details of that.

We have been looking at various benefit designs. There are a

number of proposals up here already looking at various benefit designs, and we are ready to sit down with the Congress whenever

you all are ready to talk about how best to design such a program.

Mr. BILIRAKIS. All right, my time is about to expire so I am just

going to go ahead and yield to Mr. Brown at this point.

Mr. BROWN. Thank you, Mr. Chairman.

In light of your comments about the devil being in the details,

and Administrator DeParle echoing the same thing and going

through a very dispassionate, well thought through analysis of

some of the strengths and weaknesses of this legislation and other

proposals, and Dr. Ganske’s point of how serious a matter this is

and how we do not have the legislation yet and need to learn more,

I was shown a letter to Chairman Bliley from Speaker Hastert saying it is his intention to have legislation addressing prescription

drugs on the House floor the week of June 19, I would just hope

that we would be able to—I would hope we could go through the

process on this subcommittee and this full committee with markup

both places prior to that date, if possible, so we really do have a

better understanding of this issue.

We have not seen the bill yet. I mean Members on this side certainly have opinions and have seen outlines and have heard rumors and everything else. We know about the bill, or we think we

know about the bill, but I think it is important that we have that

opportunity, this subcommittee, on an issue that is so enormously

complex as this and is so important for so many people in this

country.

I would like to talk about the PBMs that the chairman mentioned, Administrator DeParle. The President’s plan proposes using

these private entities as pharmaceutical benefit managers to provide the benefit to seniors.

How do you ensure that these private-sector entities are actually

providing the care that they promise?

Ms. DEPARLE. Well we would have quality standards. It would

not just be competitive bidding based on price, Congressman. And

we would do a competitive bidding in various areas of the country.

We have met with pharmacy benefit managers who currently

provide this kind of service to other private insurers, and I believe

they would be able to do a good job of doing it with Medicare.

We would have to be very specific with them about what we

wanted. We might want them to do some disease management. We

might want them to do utilization review and provide us with data

about that kind of thing. We would just have to be very specific in

contracting with them and telling them what we expect.

Then we would have to make sure they got it done.

Mr. BROWN. The Republican plan relies on the private sector to

administer the Medicare drug benefit. In this proposal, private insurance companies would be in charge of running the program.

How does that plan assure that these private-sector plans are

providing the care that they promised to seniors?

35

Ms. DEPARLE. Well I suppose the new Medicare Benefits Administration that is referred to in the document that I saw yesterday

would be in charge of contracting with private insurers.

It sounds to me almost like a Medigap model, although yesterday

I did attend a hearing in Ways and Means and I heard some of the

sponsors of the bill say that it is not supposed to be that, but it

sounds like a Medigap model.

In that model our oversight is quite limited. It is not clear how

much ability the Medicare Benefits Administration would have to

oversee the provision of prescription drugs by these plans.

I would add another thing, too, which is that there is a real tension in here between what I heard yesterday from the sponsors

who talk about wanting to provide seniors with as many different

choices as possible.

That is a philosophical view, and it is something I have talked

to Congressman Burr and others about, that they would like to see

lots of different kinds of plans out there I think.

There is a tension between that and the thing that Mrs. Eshoo

talked about earlier, and that I hear when I talk to seniors, which

is their desire to have a reliable, guaranteed benefit and to know

what their costs are going to be from year to year.

That is something that is going to be a very difficult issue for

this committee and for your colleagues to grapple with. How much

do you go in the direction of choice? And what does that do in

terms of risk selection?

It enables plans then to ‘‘cherry pick’’ the healthier seniors. What

sort of oversight would you need to have over that kind of thing?

And what are the results of that?

And one of the results would be much higher premiums for everyone, if the seniors are ‘‘cherry picked’’ into certain private plans.

And then what happens in the areas where these plans do not go

in.

There are a lot of questions here, and it is unclear to me how

we would ensure that the private insurers, if they exist and if they

come into the market, are providing what they are supposed to be

providing.

There is not a defined benefit, as I understand it, in this plan.

Mr. BROWN. You mentioned Medigap. One of the major criticisms

of Medigap is that it is simply not affordable to a large number of

people.

In a private plan model such as the Republicans have suggested,

talk about the affordability for seniors there. Would they be affordable for most seniors?

Ms. DEPARLE. Well again we have to see the details. As I understood it yesterday from Mr. Thomas, there would be an indirect

premium subsidy to the plans. So that would indirectly subsidize

individuals who chose those plans, if they were available.

There are a lot of ‘‘if’s’’ here. My concern is the level of the subsidy as he described it at around 25 or 30 percent, from my discussions with the independent actuaries who work for the Medicare

Program and the Medicare Trustees, as well as with private insurance company executives, what they have suggested is that that

level of subsidy will not be enough to attract most seniors to join.

36

So then you would end up with the same problem Medigap has,

which is the problem I guess that Congressman Barrett described

where they are trying to provide health insurance for the sickest

people, or drug insurance coverage for the sickest people who are

going to use the most drugs.

It starts a spiral that our actuaries call a death spiral in terms

of the premium getting higher and higher and fewer people being

able to afford it. This is a complicated issue that we really would

have to spend time analyzing.

Mr. BROWN. I thank the chairman.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Burr to inquire.

Mr. BURR. Nancy-Ann, welcome.

Ms. DEPARLE. Thank you.

Mr. BURR. It is a long, difficult process but the one thing that

we can feel confident in is that at some point we will get to the

end of it. The question today is will we get it right?

Let me ask you. From the plans that you have read, or read

about, is there anybody that is not aspiring to the belief that every

plan has to be voluntary?

Ms. DEPARLE. No.

Mr. BURR. So we can take one of those four things that we talked

about and say everybody agrees that ‘‘voluntary’’ is an absolute necessity?

Ms. DEPARLE. Yes, but—if I could——

Mr. BURR. Sure.

Ms. DEPARLE. The first principle is it should be a voluntary benefit accessible to all beneficiaries.

Mr. BURR. So——

Ms. DEPARLE. The voluntary part—Yes, sir.

Mr. BURR. [continuing] But it has to be accessible?

Ms. DEPARLE. Accessible, I’m not so sure about. Yes.

Mr. BURR. You mentioned yesterday in the Ways and Means

hearing that it had to be voluntary but we had to guarantee. Could

you distinguish between the two? What do you mean?

Ms. DEPARLE. When I talk about guarantee, I mean that, just

like a Medicare beneficiary today knows they have physician coverage. They have coverage if they need to go to their doctor.

And just like they know they have coverage if they need to go

to the hospital, they need to know they really have drug coverage.

I do not think it can be something that is contingent on whether

a private insurance plan comes into their area.

Mr. BURR. So as long as there is a provision in a bill that one

would see in the absence of everything that could exist, nothing

exist, here is the answer, as long as that exists, then the guarantee

exists for all eligible?

Ms. DEPARLE. Well I would have to see the language, but I believe, as I understood yesterday from the description, there has

been a change, and that, yes, the plan that I heard described is attempting to say that there will be something provided for everyone;

that a drug benefit will be available if there is not a private insurance plan. That is what I heard.

Mr. BURR. Given the approach that you are familiar with to a

large degree, to have more than one option, or more than one

37

choice for seniors in a given market, whether it is a benefit manager or whether it is an insurance product or whether it is a new

entity that we have not even discovered yet, is it beneficial to the

eligible beneficiaries out there?

Ms. DEPARLE. Well, you know, I would like to give you a ‘‘yes’’

or ‘‘no’’ answer but I really cannot. It can be beneficial. The problem is, it also—every time you segment the market more you introduce more likelihood of risk selection.

Mr. BURR. Why doesn’t OPM only allow a small number of

health plans for Federal employees, then? Why is the list in North

Carolina some 30 people that I have to pick from? Does that help

people negotiate?

Ms. DEPARLE. I assume because the law—well, I think you would

have to ask them. I think—so your contention is it helps them to

negotiate better prices somehow?

Mr. BURR. Yes.

Ms. DEPARLE. The problem is, it may help you some on the negotiating side but it also hurts you some in that you segment the

market. You introduce risk selection. So plans can——

Mr. BURR. We spread the risk out.

Ms. DEPARLE. Not as much as you do if you have only a couple

of plans. If you had just—under the President’s plan, for example,

you can go to an HMO and we would reimburse them directly for

providing prescription drugs which we don’t today, because it

would be a Medicare-guaranteed benefit, and then you could also

be in the fee-for-service plan.

When you go beyond that, you start introducing in more and

more risk selection by segmenting the market. And you get—plans

will be smart enough to design benefit packages that could end up

excluding some people and picking out the healthiest people.

Now if your desire is to provide as much choice as possible, you

may see that as an advantage. My concern is it raises the premium

costs for beneficiaries.

It can result in the people being left in a plan that is more expensive, and then as I said you start this sort of death spiral with

the premiums.

Mr. BURR. If I understand you correctly, the more people who

might join a plan the cheaper the premium gets because of volume?

Ms. DEPARLE. In general, yes, sir. In general, that is what insurance is. You spread the risk over as many people as possible because then you lower the chances that you are going to get just sick

people who are going to need to really heavily use the benefit.

Mr. BURR. Aren’t we both——

Ms. DEPARLE. So you have to weigh that against your desire to

have choice. And as I said, you and I have discussed this, and I

know why you like that.

The other thing, though, I would raise is what Mrs. Eshoo raised

about her mother and what she wanted. And when I talk to seniors—maybe we talk to different ones—some of them may like

choice, but the main thing I hear is I need to know what my costs

are going to be.

Mr. BURR. It needs to be predictable, doesn’t it?

Ms. DEPARLE. Yes, sir, it does.

Mr. BURR. That is an important aspect. Let me just——

38

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. BURR. I thank the chairman.

Mr. BILIRAKIS. Mr. Waxman.

Mr. WAXMAN. Thank you, Mr. Chairman.

What is so frustrating to me about this hearing is that we do not

have a bill before us. We have some concepts on the piece of paper,

really just a couple of pages, and we are asking very specific questions which you cannot answer because you cannot see the proposal.

We are being told this proposal may be on the House floor next

week, so you wonder what a committee is supposed to do and why

we have witnesses here if we cannot get testimony about a specific

proposal.

But we have a Communications Document that the Republicans

have put out. I want to ask you about what you understand that

proposal in that document to mean.

Is it correct to say that there is no defined benefit in the Republican plan? In other words, you do not know what you are actually

going to get if you are in Medicare if you are able to buy an insurance policy for prescription drugs.

Do we know, in any way, from their communications how much

people are going to have to pay out of their pockets for these pharmaceuticals? Or even for their premiums?

Ms. DEPARLE. Well I do not know it from the paper I saw yesterday. I did hear discussion at the Ways and Means Committee of

I think the sponsors are still in active negotiations and deliberations with the Congressional Budget Office trying to get the premium numbers down.

But I did not see a defined benefit in what I looked at yesterday.

Now I will say, the President’s bill has been up here since March.

We spent a lot of time drafting it. So I would be happy to discuss

that. And of course when the other bill does come out, if we can

provide any technical assistance we will.

Mr. WAXMAN. Well could it mean that if you are on Medicare and

you need certain kinds of drugs you might not have an insurance

policy to provide those drugs that you need?

Ms. DEPARLE. It could mean that, if there is not a defined benefit.

Mr. WAXMAN. And if all they are saying is you have a chance to

buy some insurance, could it mean that there is no insurance really

available for you to buy, or affordable for you to buy?

Could it mean that you are only going to have a chance to have

some drugs covered if you sign up at a managed care plan and that

is it? Maybe you have a choice of two managed care plans?

Ms. DEPARLE. If there is no defined benefit, there could be lots

of variation about what is provided. It would be very important for

people to know, I believe, what is in the plan, how much they are

going to be expected to pay, and that cuts against some of the arguments about having lots of choices.

Mr. WAXMAN. Well choices are great if everybody wants you to

choose them. But when you are a real sick elderly person who is

going to represent a huge cost to an insurance company, they are

not anxious to have you sign up with them. They would like you

to choose someone else.

39

When we adopted the Medicare Program, we said that no matter

how sick you are, no matter how wealthy or poor you might be, you

are going to be guaranteed coverage for your doctor bills when it

is medically necessary, your hospital bills when it is medically necessary, and a lot of other services.

Shouldn’t we say that you are going to be guaranteed coverage

for prescription drugs? Isn’t that what this is all about? Isn’t that

what the American people really want?

Ms. DEPARLE. Well I believe that is what we should do. I believe

that that is consistent with Medicare’s principles.

And I do believe it is different from the way the Federal Employees Health Benefit Program has been structured under the law.

There, there are choices. And it is more a defined contribution program.

Medicare has been a defined benefit. There is a discussion in the

materials I saw yesterday about an actuarial equivalence in dollar

terms, but it is not, as I understand it, a defined benefit as Medicare has traditionally had.

Mr. WAXMAN. The most peculiar thing to me about this proposal

is we do not give anybody anything. We just tell them, we are

going to give you a chance to buy private insurance. But since private insurance companies do not now have affordable plans for

drug coverage, we are going to give the money to the insurance

companies—not to the beneficiaries—in hopes that they will lower

their prices and make a plan available, and maybe some people can

afford it.

Is there any beef there? Where is the beef in all this? If a senior

is watching this hearing, can they feel that if this plan is adopted

they will know their drugs are going to be covered and they are

going to be able to buy any policy wherever they may live in this

country?

Ms. DEPARLE. Well I do not know that yet. I think that, as I

said, we have questions based on what we have seen about the affordability and accessibility of the plan that we are discussing

today.

We are eager to see the details. We heard from the sponsors that

they intend to provide a fallback mechanism so that there will be

something available. But we need to see the details on that.

Mr. WAXMAN. Well I think you are right. We have to see the details. But this may be the only hearing this committee, which has

jurisdiction over these issues, will ever have on this proposal. So

when the details come out, we may just see them when the bill is

already on the House floor and we are told you vote ‘‘yes’’ or ‘‘no,’’

and if you vote ‘‘no’’ there will be nothing. But if we vote ‘‘yes,’’ we

may not have anything that is really worth it when all is said and

done.

Thank you, Mr. Chairman.

Mr. BILIRAKIS. the gentleman’s time has expired.

Mr. Whitfield.

Mr. WHITFIELD. Thank you, Mr. Chairman.

Mr. Burr was focusing on the importance of choice and using the

Federal insurance plan for Federal employees as an example. Of

course philosophically one of the reasons that any of us advocate

a choice is we feel like the competition can keep prices in line.

40

And as Dr. Coburn mentioned earlier, we know that in the long

term there are some real financial difficulties facing the Medicare

Program, its solvency.

Do you agree that choice is a way to promote competition, and

in doing that can maybe keep the costs down of a prescription drug

benefit?

Ms. DEPARLE. Well choice can be a way to promote competition.

But what we have seen in the past is that the competition has really not been on price in the same way that you would expect.

You referred to the Federal Employees Health Benefits Program.

In our discussions with the Office of Personnel Management—and

they actually testified with me in front of the Senate Finance Committee—they made the point that you have to take into consideration that the two programs and the populations they serve are

really very different in that Medicare serves an elderly population

with much more intense and predictable health care needs than

the Federal employees program does.

And again, when OPM negotiates with plans, under the statute

it is pretty much open to any plan that meets a certain requirement. There is no defined benefit package, really. It is more of a

defined contribution system.

So I am not sure. I just don’t think the incentives are the same.

Now in our plan, we want seniors to get the best prices possible.

We want Medicare to get the best prices possible for drugs and we

want to do it in a way the private insurance companies do it, that

some of these same insurance companies that participate in

FEHBP use pharmacy benefit managers to negotiate with the drug

companies to keep the prices lower.

So we want to get the benefits of competition. I am just not convinced that competing among the plans with the senior population

is the right way to go.

Mr. BURR. Mr. Chairman, I think the microphone system has

gone out.

Mr. WHITFIELD. How legitimate is the——

Mr. BILIRAKIS. I think it has gone out.

Mr. BILBRAY. The gentleman from Kentucky will rise to the occasion.

Mr. WHITFIELD. How legitimate is the concern that for senior

citizens the more choices you have in trying to understand the different plans the more it is difficult and confusing for them? Do you

think that is a legitimate issue?

Ms. DEPARLE. I am glad you asked about that issue because I

would like to, at some point if the committee is interested, provide

you with some more details about that.

As a result of the National Medicare Education Program that we

have been doing to provide seniors with information about Medicare and about their Medicare choices, we have done a lot of focus

groups around the country about what do they understand.

What we are told is, even the information about basic Medicare

and the Medicare+Choice Plans that are available in some areas of

the country, despite all of our efforts at getting that to be really

understandable, it is still something that is difficult to convey to

seniors.

41

I am not saying it is impossible, but it is very difficult to do. And

what we find is, they tell us things like—we want to provide them

with quality information, and they tell us, gee, this is like homework. It is very difficult to get through all of this.

So I do hope the committee will be sensitive to that in looking

at how to structure this.

Mr. WHITFIELD. Would you review for me, there were a few Republicans—and I was one of them—at the White House when the

President revealed his plan back in March. Would you just go over

quickly the cost structure and what he was proposing for costs for

senior citizens?

Ms. DEPARLE. Yes. Is my mike out, too? I will do the best I can.

The President’s proposal would provide a prescription drug benefit that in the first year would be worth around $2000 to beneficiaries. The government would share in 50 percent of the cost up

to $2000. The beneficiary would pay a premium of about $26 a

month, our actuaries estimate. Then they pay 50-50 up to the

$2000.

We would phase in our benefits so we would get up to $5000 in

about 2010, I believe. And at that point, the premium would be

around $50 and the co-insurance would still be 50 percent.

During that time, after that time, the cap, the $5000, would grow

at the rate of inflation. So there would be some increase in it, and

the President announced in March that he had set aside $35 billion

to be used for stop-loss coverage for beneficiaries with usually high

costs, and he has not laid out the details of that piece of the plan

yet.

We want to sit down and work with the Congress to come up

with what would be a good proposal there for stop-loss coverage.

But that is the basic parameters of the plan.

Mr. WHITFIELD. So over——

Mr. BILIRAKIS. We are well past the 5-minute time limit.

Mr. Pallone.

Mr. PALLONE. The microphones are not working.

Mr. BILIRAKIS. We will have to speak up a little bit.

Mr. PALLONE. Thank you, Mr. Chairman.

I want to go back to what Mr. Waxman was mentioning about

the difference, if you will, between the President’s proposal and

what we believe is the Republican Thomas proposal, I guess, is in

terms of the lack of a defined benefit.

The way I understand the President’s proposal, we have access

to medically necessary drugs in the language, and that seems to

me basically a decision by a physician, or a pharmacist, or whoever, about what is medically necessary. So that is a defined benefit.

On the other hand, under the Republican proposal we are getting

language—again I am looking at what apparently Thomas described—the benefits have to equal an actuarial value of $740 or

an actuarial equivalent to a certain dollar amount.

I guess my concern is, I think the way the Thomas proposal is

is essentially a voucher that limits a certain dollar amount because

of the language about actuarialy equivalent.

On the other hand, the President says ‘‘medically necessary

drugs.’’

42

Would you just comment on this distinction there? I know you

have sort of gotten into this, but I think there is a big difference

there. One seems to be targeted to a dollar amount, and one is to

a specific description about what is medically necessary.

Ms. DEPARLE. As I understood the plan yesterday, it offered an

unspecified benefit. It does talk about an actuarial equivalent benefit. I think the $740 number you heard is what I heard as well,

but as I understand it only the stop-loss amount is really specified.

So insurers could then set deductibles and co-pays. That is the

issue we have been discussing about whether we really think seniors want and need all of those different choices, or whether that

structure would guarantee adverse selection and then difficulties

with unaffordable premiums and access.

I do want to add, though, that it mentioned something about covering major therapeutic classes of drugs. We are not sure how that

is defined. It is different. The language is different than saying all

medically necessary medications, but we do not know whether that

is intended to signify a term of art, or whether some will be covered and others not, or whether someone put an adjective in that

they really didn’t mean.

So I can’t tell you at this point what exactly would be covered

in terms of the drugs.

Mr. PALLONE. It varies from day to day and year to year. Theoretically there might be some selection that gives you some idea of

what you get, but on the other hand what is to stop you from varying depending on what the costs are, because this leads to some

kind of fixed dollar.

Ms. DEPARLE. That would be a mistake. I would hope that the

language would specify a definition for this and would say it is not

up to each insurance plan to decide what is a therapeutic class of

drugs. I imagine, frankly, that that will be necessary to get it

scored.

Mr. GREENWOOD. Would the gentleman yield for 5 seconds?

Mr. PALLONE. I will give you 5 seconds.

Mr. GREENWOOD. It is true that in both cases there is a formulary? Is that not correct? There is a formulary in the President’s

plan? There is a formulary in the Republican plan and caps in each

plan?

Mr. PALLONE. My understanding is you don’t have the formulary.

Mr. GREENWOOD. Caps in each plan.

Mr. PALLONE. I’m glad you raised that, because it is my understanding you do not have the formulary.

Ms. DEPARLE. Well I do not think I am clear, Mr. Greenwood——

Mr. GREENWOOD. PMBs would establish formularies in both instances.

Ms. DEPARLE. They are permitted to, although in the President’s

plan if a physician says a drug is needed a beneficiary is allowed

to get that drug.

In the plan that I heard about yesterday, it does make mention

of a formal appeals process that a beneficiary can go through to get

off formulary drugs. So therefore I assume a formulary must be in

there, but I have not seen the details about that.

Mr. PALLONE. I just want to take back my time.

Mr. BILIRAKIS. You can use a mike now, I think.

43

Mr. PALLONE. The way the President defines this in terms of

medically necessary I think is very important. There is a big difference there in terms of what the President’s proposal says in saying it is medically necessary drugs.

Ms. DEPARLE. The President says this has to be a defined benefit

that ensures access to all medically necessary prescription drugs.

And that means that if there is a drug that a beneficiary needs according to their physician, but it is not on a formulary that a PBM

has, that the beneficiary can get that drug. The physician’s medical

judgment is what would rule.

Mr. PALLONE. Thank you.

Is my time up?

Mr. BILIRAKIS. Your time is up. Thank you.

Mr. PALLONE. Thank you, Mr. Chairman.

Mr. BILIRAKIS. Let’s see.

Dr. Ganske.

Mr. GANSKE. Thank you, Mr. Chairman.

I hope that our electrical problems this morning are not indicative of how the grid will work after electric deregulation.

Well, Ms. DeParle, I want to first start out with a comment that

is a follow-up of a question that Chairman Archer asked you yesterday. You have already alluded to it in some of your answers.

I will be bipartisanly critical of both plans as I have seen them

so far. I would point out that when we are talking about bipartisanship on these bills it will take more than 2 or 3 members of the

other side of the aisle, as much as I love Ralph Hall, to make a

bipartisan bill and be able to move a big issue like this.

But this is what I see as the big problem with both the President’s proposal and what I am seeing coming out of the Republican

plan. It relates back to 1988 when Congress passed a catastrophic

bill that had prescription drugs in it.

That applied to all senior citizens. It involved a premium increase. I want to read what Chairman Rostenkowski said recently

about that experience. He said:

We adopted a principle universally accepted in the private insurance industry. That is, that people pay premiums today for benefits

they receive tomorrow. Apparently the voters did not agree with

those market principles.

So what has been the lesson in Washington on that experience?

The lesson has been. Well, by George, we better make this voluntary. This has to be a voluntary benefit. But this is the problem.

And we were able to get some of this information from the hearing

yesterday.

Chairman Thomas, when he testified, pointed out that the Republican bill will cost somewhere between $450 to $500 a year in

premiums plus a 50 percent co-pay, and we know that the President’s plan I think originally costed out at something like $25 per

month, but that you are willing to talk about stop-loss so it will be

higher than that.

Congressman Burr in a previous hearing very aptly pointed out

that under the President’s plan for this to be a cost-effective maneuver by a Medicare beneficiary they are going to have to have

out-of-pocket expenses somewhere around $1200.

44

It will probably be somewhat similar to that with the GOP plan.

And this is the problem. If you look at the data for MedPak, they

show that of current Medicare beneficiaries—this is 1999 data—14

percent of Medicare beneficiaries today spend nothing on prescription drugs; 36 percent spend from $1 to $500.

So you have got 50 percent of Medicare beneficiaries today with

less than $500 out-of-pocket expenses. Now if you are a senior citizen and you are looking at having to have expenses of greater

than $1000 for either the GOP plan or the Democratic plan, to

make signing up for this voluntary program cost effective for you,

why on earth would you do that? Why on earth would 50 percent

of people do that?

The answer is. They won’t.

They won’t.

So that gets into the adverse risk selection of those who will.

These are going to be the seniors, you know, that 6 percent, or 14

percent, who have expenses of more than $1500.

What do we know happens from the current program under that

scenario? Well, we know what happens because there already are

Medicare supplemental programs that provide that drug benefit.

And the only people who sign up for them are those who have a

lot of expenses.

And what happens? The premiums are very high for those programs. So unless we take a huge amount of extra dollars from the

General Fund to cushion that shock for those who will sign up for

it, I think we are looking at significantly higher expenses.

This is what I think the solution should be. And I think that is

the fundamental problem with both. I happen to agree with Mr.

Kahn on this. Here is what he said. He represents insurance:

I am happy to say this because not always do I agree with the

insurance industry. I’ve got Karen Ignani here, too. He said, private-drug-only coverage would have to clear insurmountable financial, regulatory, and administrative hurdles simply to get to the

market.

Assuming that it did, the pressures of ever-increasing drug costs,

the predictability of drug expenses, and the likelihood that the people most likely to purchase this coverage will be the people anticipating the highest drug claims would make drug-only coverage virtually impossible for insurers to offer to seniors at an affordable

premium.

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. GANSKE. So I would just finish by saying, you know we have

a big adverse risk problem in both of the plans that have been presented and I look forward to additional time. Thank you.

Mr. BILIRAKIS. Well let’s see here. Mr. Stupak.

Mr. STUPAK. Thank you, Mr. Chairman.

You were asked some questions by Mr. Burr and Mr. Whitfield

on choice and risk. In the Federal Employees Health Benefit Package, that basically reflects people like ourselves where prescription

drug risk you are talking about would be people who are 65 and

older, is it not?

Ms. DEPARLE. I think that in talking to the people at OPM who

run and manage the FEHBP program, they do believe that the two

populations are very different.

45

Mr. STUPAK. And the risks are very different?

Ms. DEPARLE. The risks are very different for an insurer facing

those populations. And I think the insurance companies would tell

you the same thing.

Mr. STUPAK. Okay. I understand that yesterday the President released a report prepared at the request of Senator Max Baucus

that showed rural elderly are 60 percent more likely to fail to get

needed prescription drugs because of the cost.

Could you please discuss some of the conclusions of that report,

since I have a large rural district myself?

Ms. DEPARLE. Yes, and I have been to your district——

Mr. STUPAK. Yes, you have.

Ms. DEPARLE. [continuing] and I do know that.

It is the cost, as well as the fact that, if you look at the Medicare

population, the people who are fortunate enough to have prescription drug coverage have it primarily because they worked for large

employers which are less likely to be in rural areas. So as retirees

they got that coverage from their former employer. They are less

likely to have that.

As well, they are less likely to have access to a Medicare HMO.

In the past——

Mr. STUPAK. We do not have any up there.

Ms. DEPARLE. You do not have any up in the Upper Peninsula.

And in the past, in some areas of the country where those are

available, then beneficiaries go to a Medicare HMO to get prescription drug coverage.

Mr. STUPAK. Well then——

Ms. DEPARLE. So those two things combined with some of the

factors that you raised in your opening statement about the price

discrimination and the fact that it is harder to negotiate on behalf

of large numbers of beneficiaries in a rural area means they have

less access.

Mr. STUPAK. Well how would the President’s plan then address

prescription drug coverage in rural areas like mine?

Ms. DEPARLE. Well under our plan we would have pharmacy

benefit managers in different areas of the country that would cover

a region and would negotiate on behalf of those beneficiaries who

lived in that region to get the best drug prices possible for them

under this defined benefit.

Then when the beneficiary had gotten up to the cap, they would

still get the benefit of those negotiated lower prices if they needed

to go further than that.

Mr. STUPAK. From what we know of the Republican plan, and I

understand you were at the hearing yesterday, what does the Republican plan do to help elderly in rural areas like mine?

Ms. DEPARLE. Well what I know about that is what I heard discussed by the Members of Congress who were talking about their

plan.

Mr. Peterson, who is from Minnesota——

Mr. STUPAK. That is a rural area.

Ms. DEPARLE. [continuing] said he believed it would help rural

areas in I guess two ways. One is that he believes there will be a

fallback mechanism whereby the government would stop in where

plans are not available and provide prescription drug benefit.

46

As I said, we have a lot of questions about whether that would

really be affordable and accessible and what the premiums would

be, but that is what he said would be there for rural beneficiaries.

And also I believe the plan includes some additional payments

for Medicare HMOs in rural areas. He thinks that will entice them

to come into some rural areas and provide Medicare HMO coverage, which they have not in the past.

Mr. STUPAK. Okay. So if we do not have an HMO like up in my

district there are no HMOs in my area, then the government would

be the fallback here and negotiate those prices? Is that your understanding?

Ms. DEPARLE. That is my understanding of what he said.

Mr. STUPAK. Well what would stop, then, the government being

the fallback whether they are in a rural area or an urban area as

insurance companies cherry pick only the healthy seniors to put in

their plan?

Ms. DEPARLE. That is my concern, is that the more you segment

the market like that, the more it results in adverse selection and

then higher premiums for the people who do not have other

choices, and subsidies for people who do have other choices. I am

just not sure that is the right direction to go in.

Mr. STUPAK. There has been some talk about Medigap policies

and the administrative costs. In fact, I brought up the Medicare situation in Michigan where the State ran it for $28 million. Now

they have turned it over to these private companies, including private HMOs, and now the administrative cost is $141 million in

Michigan per year.

The Medigap, is that the administrative costs to run the plan

and market it to individuals, is that high, the Medigap policy, is

that low? For example, with Medicare you said you run it at about

1.5 to 2 percent?

Ms. DEPARLE. Yes.

Mr. STUPAK. That’s your overhead. Medigap plans, do you know

what their administrative costs are?

Ms. DEPARLE. Well on average their administrative costs are

around ten times higher than Medicare’s according to the National

Association of Insurance Commissioners.

Mr. STUPAK. So that would be about 20 percent as their administrative cost?

Ms. DEPARLE. Well, no, I guess it would be 10 or 11 percent, if

ours is 1.5 percent.

Mr. STUPAK. Right. Okay.

Mr. BILIRAKIS. Mr. Norwood—Oh, I beg your pardon. Were you

finished?

Mr. STUPAK. Just one more.

Mr. BILIRAKIS. Very quickly.

Mr. STUPAK. If the administrative costs are higher than the 20

to 15 percent, then the money that the seniors would be paying

would not go necessarily for a drug benefit but more money would

go for the administrative costs? Right?

Ms. DEPARLE. Well both the seniors and the Federal Government

would pay because this is a 50-50 proposition in the President’s

plan. But I assume some of this would be paid by the Federal Government in their plan as well. It is not clear.

47

But, yes, we would be paying for higher administrative costs.

Mr. BILIRAKIS. Dr. Norwood to inquire.

Mr. STUPAK. Thank you.

Mr. NORWOOD. Thank you, Mr. Chairman.

Nancy-Ann, how many people are on Medicare?

Ms. DEPARLE. 39 million-plus, sir.

Mr. NORWOOD. Could we examine your first sentence in your

statement? You said that 39 million people need drug benefits? Are

you saying that everybody on Medicare needs a government-run

drug benefit plan?

Ms. DEPARLE. No, sir, I am not saying that because in our

plan——

Mr. NORWOOD. So it’s not 39 million that need drug benefits?

Ms. DEPARLE. If I can finish? In our plan, we have proposed to

include some subsidies to encourage employers who are currently

providing coverage to continue providing it, and we hope they will.

Mr. NORWOOD. So just let’s get to this answer——

Ms. DEPARLE. But when I say they need it——

Mr. NORWOOD. [continuing] Do 39 million people need drug benefits or don’t they?

Ms. DEPARLE. I believe they need a guaranteed Medicare prescription drug benefit. They don’t have that——

Mr. NORWOOD. All 39——

Ms. DEPARLE. [continuing] now.

Mr. NORWOOD. All 39 million?

Ms. DEPARLE. Yes, sir, because they do not have security right

now that they have a drug benefit. Some of them——

Mr. NORWOOD. Even the 50 percent that Dr. Ganske referred to

that are very happy with their supplemental drug plans paying

zero or very little, they need it, too?

Ms. DEPARLE. What I find when I talk to seniors—maybe the

ones in your district are different—but when I talk to them, they

are concerned about the rising costs of drugs and the fact that they

do not have coverage.

Some of them have retiree coverage but they are not sure it is

still going to be there. So what I am talking about here is——

Mr. NORWOOD. Well they are not sure Medicare is going to be

there, either, the way we act. But the point is, you can’t make the

statement that 39 million Americans need or even want a government-run prescription drug plan. That is not a true statement.

Ms. DEPARLE. I don’t want to argue with you, Mr. Norwood, but

what I am trying to say is——

Mr. NORWOOD. You can’t argue with me. I know them in my district who don’t want it. So don’t tell me everybody out there on

Medicare wants the government to take over their medications.

They don’t. I just want you to be honest before this committee. You

said——

Ms. DEPARLE. I am being honest, sir.

Mr. NORWOOD. [continuing] that all 39 million——

Mr. BROWN. Mr. Chairman, I——

Mr. NORWOOD. You may not interrupt, sir.

You said all 39 million Americans can’t wait for government-run

prescription drug——

Ms. DEPARLE. Now that is not fair. That is not what I said.

48

Mr. NORWOOD. That is what you said, 39 million people need a

drug benefit.

Mr. BILIRAKIS. The witness will respond as best as she can, and

then let’s just move on.

Ms. DEPARLE. We obviously have a philosophical difference here.

I believe——

Mr. NORWOOD. Well, no. I am just trying to find out if you actually believe that every American wants to have a government-run

medication plan. That’s all. You obviously believe they do. I know

they don’t.

Now let me go to the next question because my time will run out.

Mr. BILIRAKIS. Right.

Mr. NORWOOD. It seems to me that presently when you are 65

years old you have to go into the government-run health care

known as Medicare. You do not have any choice about that.

If you are a patient over 65 years old and you wish to seek treatment from a physician for example who maybe does not take Medicare, or wish to seek—Regular Order—if you wish to seek, for example, a treatment that Medicare does not cover, we today as a

Congress and as a government say you go to that physician and

that physician treats you, we’re going to give that physician a great

deal of pain, whether it’s putting them in jail, or fining them, or

whatever. Now that’s presently what we do in Medicare.

If the President’s plan were to be put into Medicare, would that

then mean the same thing for seniors in terms of their prescription

medication? Would that mean they would have no other choices but

then to use the two options in the President’s plan?

Ms. DEPARLE. Well, no, sir. And I do not agree with your characterization of what happens now. If beneficiaries need or want treatments that are not covered by Medicare, that would not be the

case.

Mr. NORWOOD. It is not the case that they can leave then and

go to the physician of their choice, and if the physician of their

choice treats them that the Federal Government comes down on

that physician to take their license or put them in jail or fine

them?

Ms. DEPARLE. That is not the case.

Mr. NORWOOD. That’s not true?

Ms. DEPARLE. No, sir.

Mr. COBURN. Will the gentleman yield?

Mr. NORWOOD. I will yield.

Mr. COBURN. Can I referee here a little bit? The physician if he

gets a disclaimer notifying the Medicare patient that this is not a

covered benefit, the government cannot touch him. The problem is

if your nurse fails to get a disclaimer.

Mr. NORWOOD. Or if it is a benefit that happens to be covered

where you wish to go to a physician who does not take Medicare.

That is what happens, whether you say it is or isn’t, and that is

what we do.

I am asking you if we put the President’s plan into Medicare,

does that mean then the senior citizens, half of them who presently

have supplemental plans that they seem to enjoy and like, would

no longer be able to use those but have to simply use those two offered by the President’s plan?

49

Ms. DEPARLE. No, sir, it does not mean that.

Mr. NORWOOD. I will yield back, or yield to Mr. Burr.

Mr. BILIRAKIS. Well you only have 7 seconds left to yield to Mr.

Burr.

Mr. BURR. Clearly us Southerners cannot even ask one in that

time.

Mr. BILIRAKIS. Amen to that.

Ms. DEPARLE. Nor can I answer in that amount of time.

Mr. BILIRAKIS. Let’s see. Mr. Strickland to inquire.

Mr. STRICKLAND. Thank you, Mr. Chairman.

Mr. Chairman, I would like to correct the record on something

I said in my opening statement. Although the amendment I referenced, Mr. Sanders amendment, did pass the House, it was opposed by well over 100 Members.

I would like to give you a chance to explain, if you can, to my

colleague what it is that you mean by that sentence that apparently is in question. If you would, I think you are an honest person

and I do not think you are trying to mislead us, and so I would

like to give you a chance to explain the difference of opinion that

apparently exists between Dr. Norwood and yourself on that particular statement.

As I read it, it says it includes a voluntary, affordable, accessible,

competitive, efficient quality drug benefit that will be available to

all beneficiaries.

I do not interpret that as you saying that every Medicare-eligible

person would choose, and the fact that it is voluntary is in there,

it seems to me to be rather clear that it is not something you are

wanting to impose on all Medicare beneficiaries.

Ms. DEPARLE. That is right. And in fact the President’s plan, as

I was trying to explain, includes some subsidies so that people who

are fortunate enough to have coverage through their employer now

as retirees would continue that coverage; that the employers would

find it to be in their interest financially to continue providing coverage. I think the philosophical difference I have with Dr. Norwood—and I actually agree with him on a lot of things—but I think

on this what I am saying is that I believe that beneficiaries need

the same kind of assurance that they are going to have their physician visits covered, and that they are going to have their hospital

visits covered, about prescription drugs.

Right now, today, they do not have that. Some of them are fortunate enough to have prescription drug coverage. That is great. We

want that to continue. But unfortunately there are many seniors

who have unreliable coverage, who are losing coverage, who may

have it 1 month and not another, whose Medicare HMO has left.

So what we are talking about here partly is a philosophical issue

about whether they need that security in insurance or whether

they don’t.

Mr. STRICKLAND. Thank you for that clarification.

I have a document that is supposed to be an analysis of the Republican plan. On the covered drug section it says:

‘‘The proposal will cover all outpatient prescription drugs, excluding those already covered by Medicare Part B.’’

And then it says:

50

‘‘Individual plans may establish formularies, however, that may

limit beneficiary access to certain drugs.’’

And then it goes ahead to say that if your physician feels like

you need a drug that has not a part of the formulary, there can

be an appeal process.

Now one of the reasons many of us want a Patient’s Bill of

Rights is that we think decisions are made that are different than

what a physician would choose.

Do you see a problem with setting up a system where the physicians may have to once again advocate for something that they

think is in the best interests of the patient when we are finding

it very difficult to develop an appeals process even under a Patient’s Bill of Rights?

Is this a problem in your judgment in terms of drugs that would

be available?

Ms. DEPARLE. I think it is a problem any time we are not clear

about what is covered and what is not covered. And I think that

in working together to design this benefit, we should try to do everything we can to make sure that a physician’s medical judgment

about that is allowed to govern.

Mr. STRICKLAND. And last, I am troubled that under the President’s plan the stopgap measure kicks in in 2006. That is a long

way away. And could you briefly compare what it is you know

about the Republican plan’s stopgap measures versus the Democratic plan? Because quite frankly, I think the President’s plan is

very troublesome to me.

Ms. DEPARLE. Well, as I said, the President’s plan, really the

only detail that he specified was that we had reserved $35 billion,

set aside that, to work with the Congress to design a stopgap plan.

And his does start in 2006. And frankly, that is a question of the

availability of the dollars that we think will be necessary to design

such a benefit.

The House Democrats announced the outline of a plan a few

weeks ago that has a stop-loss that begins at $3,000 of out-of-pocket spending for a beneficiary.

And I believe it would start right away, or 2002, anyway, earlier

than the President’s plan had talked about. And the Medicare

RX2000 Plan, just looking here, again I believe that it starts at the

same time the House Democrats’ plan does.

Maybe I should ask Congressman Burr. And I think it starts at

$6,000. Is that right?

Mr. BURR. Yes.

Ms. DEPARLE. So there are 2 or 3 ideas on the table. It is not

clear. I think they said their premiums were going to be $35 to

$40, and I guess that includes the catastrophic or stop-loss protection. That is what we know so far.

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. STRICKLAND. Thank you.

Mr. BILIRAKIS. Ms. Cubin—Mr. Bryant is back. Mr. Bryant.

Mr. BRYANT. Thank you, Mr. Chairman. Welcome.

I apologize for having to step out to attend a conflicting meeting

here, and I missed—I did hear your statement and missed most of

your examination. As I hear bells ringing, we may be leaving and

51

have to go vote, but I wanted to pick up on my friend from Ohio’s

question, because they are important.

I think one of the key things that makes our proposal attractive,

because many of the bills that are offered today that are out there

do rely on private sector insurance companies, and management of

those outside HCFA. So this is not an idea unique to the particular

bill that the Republicans are talking about.

But one of the things that makes that bill particularly attractive

is the stop-loss provision. And like I assume so many of us that buy

regular health insurance that are healthy, we buy that insurance

to protect us against that catastrophic and—apparently we do not

like that word around here, I do not know—but those bad things

that can happen to you.

We would envision the same concept at the level of prescription

drugs and senior citizens in this bill. Not every senior citizen uses

prescription drugs, and obviously some use more than others. But

it is that concept that is very important.

And that is why I want to go back to Mr. Strickland’s questions

about the President’s plan taking til 2006 and even then, in reviewing the language—and I hope I am not quibbling over semantics

here, but as I read that particular language he does reserve that

$35 billion from our surplus for either debt reduction or in the

event that the President, he and Congress agree, whoever the

President may be, on a policy that provides for protections against

catastrophic drugs costs for Medicare beneficiaries or policies that

otherwise strengthen the Medicare program.

So I think there is some probably flexibility in his proposal that

that $35 billion is not specifically dedicated to the stop-loss type

program.

And again I think that is one of the things in ours is. It is dedicated for that. I mean, it is a guarantee, as much as we can guarantee anything.

So I would hope that as the administration looks at that very important piece of this modernization that there is more of a lock in

and more of a guarantee to that rather than leaving that up to the

administration and the Congress at that time.

Do you follow that?

Ms. DEPARLE. Yes. I do. And as I said to Chairman Bilirakis, we

clearly need to sit down with all of you and discuss what the contours of a catastrophic or stop-loss protection should be.

I think the good news is that everyone here agrees that that

needs to be a component of this, with the possible exception—I did

listen carefully to what Dr. Ganske said about some of the difficulties in designing this. But I think we ought to sit down and talk

about it.

Mr. BRYANT. Well, you know, we have I think a very good benefit

on this committee of having some doctors who really have firsthand experience and add so much to the committee in discussions

like this. And I think many of us I think, if I understand on the

other side now agree that it is a very important issue that we have

to begin to sort of set partisan politics aside and continue to work

toward solving this problem together.

But I think any bill that comes up with the underlying principles

that it is going to be universal, it is voluntary for people to be in

52

or stay in the very good program they might be in already as far

as drug costs, and they are going to have choices within that, and

you have got this stop-loss provision. So I think as long as we all

maintain those concepts that, again, I am becoming perhaps more

of an optimist that we can work this out and solve a very important problem.

Do you have any comment on that?

Ms. DEPARLE. Well, I am optimistic too. Thank you.

Mr. BRYANT. Thank you. Yield back.

Mr. BILIRAKIS. Ms. Eshoo to inquire. Anna?

Ms. ESHOO. Yes. Thank you, Mr. Chairman. I am sorry I had to

step out of this all important hearing, but there was an important

bill on the floor on digital signatures. So while that may not seem

so related to everything that is going on here, we have gone past

pen and quill and ink and even wax imprints. Now in a new century we are going to be able to transact things in cyberspace. So

that is being done on the floor.

Thank you, Madam Administrator, for your opening statement.

Let me just try to get some socks on this octopus. As I said in my

opening statement, it is no longer a question of whether we should

or should not do this. The reason why this hearing is so important

is because we are trying to flesh out how to do this.

It seems to me that at the heart of this debate of how to is the

benefit package. I know that you touched on that in your opening

statement. I have not had the benefit of some of the questions and

your responses, but could you for the record just for a moment—

because I want to come back in on the coverage part of this—say

why in your view it is so important for beneficiaries to have a defined Medicare drug benefit?

Ms. DEPARLE. Well, for several reasons.

First and foremost really is the one that you mentioned in your

opening statement, which is that the seniors I talk to want to know

what they have, how much they have to expect in terms of their

cost. They want it to be predictable, and they want to know what

is covered. And that is one of the I think very positive things about

Medicare today, is they know that they are covered to go to the

doctor, they know that they are covered to go to the hospital, and

they need to have that same level of assurance about their prescription drug coverage.

I also think that if we do not have a defined benefit that we introduce a really scary element of additional risk selection into this.

And several of the members on this committee have talked about

that, and I can tell that everyone is trying to grapple with it. And

that is, if you allow plans to design lots of different benefit packages, that promotes choice, which is a value that some members

want to promote, but you have to be very careful not to introduce

cherry picking of the healthiest seniors in risk selection and then

also Mr. Whitfield raised the question of confusion for beneficiaries

and the fact that it would be very difficult for them to navigate

among the plans.

Ms. ESHOO. Right.

Ms. DEPARLE. All those things are things that we are really

going to have to look at carefully.

53

Ms. ESHOO. Because they are all warning signals in terms of how

we should design this.

Let me just cover two other points, and they both have placement and direct attention in the legislation that introduced.

In one area, and there are different ideas out there on this and

that is what we are talking about today, ideas. The idea of stoploss—catastrophic insurance—and how it is designed and how it

kicks in.

Now there are different ideas about it. In the bill that I introduced, the out-of-pocket expenses of the beneficiary are $2,500; the

government, Medicare, picking up the other half. So once you reach

the ceiling of $5,000, then the stop-loss kicks in.

There are other plans out there that do not work that way. There

is a gap between what is covered, what the beneficiary pays outof-pocket, and how long they have to wait until stop-loss kicks in.

And I put this out more as a red flag, because members are going

to have to consider this, because their constituents will face it.

The reason why I think it is important to have stop-loss is very

obvious. I do not know how many of us would be able to afford

some of these drugs even with our salaries and the insurance coverage that we have once it goes past the out-of-pocket. So I say this

to this subcommittee that is going to have something to do with

that.

The other thing is the administration of this. With great curiosity yesterday, I listened to Mr. Thomas talk about the bureaucracy that he is designing, which, I am assuming, is going to be in

my Republican colleagues’ bill. I am issuing a warning on that. I

really do not think we need to do that.

Now, in the bill that I have introduced along with 10 Democrats

on the Commerce Committee, I do not have, as you know, Madam

Administrator, your agency administrating the program. Rather, I

put it into OPM.

Now I am the first to admit that many of the problems that

HCFA has are congressionally inspired, but there are problems. I

think that you are already——

Mr. BILIRAKIS. The gentlelady’s time has expired.

Ms. ESHOO. Can I take just 30 seconds so that she can answer

this?

Mr. BILIRAKIS. Well, not 30 seconds, but a very brief answer.

Ms. ESHOO. Okay.

Mr. BILIRAKIS. But you have to briefly ask the question, too.

Ms. ESHOO. I think that you are understaffed and overburdened.

Do you have a problem with OPM administering this, or do you feel

strongly that HCFA must administer it, or—maybe you could just

answer that.

Ms. DEPARLE. Well, I feel strongly that——

Ms. ESHOO. I think it is a tough question, but I want to ask it.

Ms. DEPARLE. I feel very strongly that this benefit needs to be

integrated into the Medicare program. And I believe that HCFA

can administer it the most efficiently, effectively, and I would like

a chance to convince you of that.

Ms. ESHOO. Thank you. Thank you, Mr. Chairman.

Mr. BILIRAKIS. Ms. Cubin to inquire.

Ms. CUBIN. Mr. Chairman, I yield to Dr. Ganske.

54

Mr. GANSKE. I thank the gentlelady. I will get to a question.

I think we need to look at will either the Republican plan or the

President’s plan work, how much will it really cost. I have already

expressed some reservations about the first. I do not think we really know the second.

I think we need to think about making sure that we continue

drug research. Drug research companies—or the drug companies

have had basically a flat line in R&D. They have increased their

marketing a lot. But we have got a lot of antibiotic-resistant bacteria out there that could cause some very, very significant problems to everyone who flies in an airplane and is worried about antibiotic-resistant tuberculosis, for instance.

We need some real dollars going into that, so I do not want to

hurt that.

I think it is fair for me to criticize plans without offering a solution. So my question at the end of this is going to be, you know,

will the administration think about this if this is the only way that

we can get something done this year? And this is what I think a

partial solution to this could be.

I sat on the bipartisan Medicare Commission for a while. In the

context of comprehensive care, we were looking at expanding basically the prescription drug benefit, because there is some prescription drug benefit for dual eligibles; i.e., Medicare beneficiaries who

are so poor they qualify for Medicaid.

There are two groups in Medicare that have enough assets that

they are not quite in Medicaid, but they get some assistance on

their premiums and some assistance on their copayments and

deductibles. They are called qualified Medicare beneficiaries,

QMBYs and SLMBYs. And it is that group, the poor widow who

is existing on her Social Security, who has to make that choice between her rent, her food, and her prescription drugs, who is not

quite so poor that she is in Medicaid, that I think we need to significantly look at helping, and sooner rather than later.

So when we looked at this in the bipartisan Medicare Commission, we though we can expand the Medicaid prescription drug benefit to those people and the cost would be about $61 billion over

10 years. And furthermore, to prevent a notch, you could create a

spend-down group, so that if those people, Medicare beneficiaries

who have some additional expenses, higher expenses, they could

deduct that from their income and then they could get into that

qualifying group. That helps the neediest.

But we also have 40 million people in this country who have no

insurance at all, and I think we need to look at how do we cover

them. And we also have to think about the fact that in a few years

we know that the Medicare program is not going to have sufficient

funds for any of the benefits that it is offering.

So my solution would be this. Do the QMBY SLMBY with a

spend-down, address the issue of cost in some way for all Americans, whether you are looking at something like propose a modification or something proposed by Tom Allen or Gil Gutnick, or

simply saying to the FDA and Customs, you can warn people who

order their drugs from Geneva, Switzerland, but you cannot intercept an individual’s drugs. So it is buyer beware.

55

I mean, there are many ways that we could look at trying to get

some competition into that market for everyone, not just looking at

a senior citizen.

My question to you, Ms. DeParle, is this. If it looks like this is

just going to be a simply straight line Democratic vote on a Democratic bill, the President’s bill that will go down, or a straight line

partisan vote on a Republican bill that the President will veto, is

the administration interested at looking at any compromise type of

legislation?

Ms. DEPARLE. Well, Dr. Ganske, you know that your suggestions

are always thoughtful, and you know that I will listen to them.

And I believe—I am from Tennessee like Congressman Bryant. I

am an optimist. So I think we can work together to get something

done.

I would say, I hear you on the low income benefit, and I am concerned about those people, too, but when I look at our numbers, as

you have done, I see that, you know, 60, 70 percent of our beneficiaries have less than $16,000 a year, something in that range.

So while I hear you about the very, very low income, my concern

is, if we have an opportunity here to do something that assures security on prescription drugs for all beneficiaries, I would like to do

that. I do not want to give up on that.

Mr. GANSKE. But we should not forget——

Mr. BILIRAKIS. The gentlelady’s time has expired.

Mr. GANSKE. Thirty additional seconds?

Mr. BILIRAKIS. Well, the gentlelady has the time, and it has long

expired.

Mr. GANSKE. I will ask next round, Mr. Chairman. Thanks.

Mr. BILIRAKIS. Ms. Capps.

Ms. CAPPS. Thank you. And if you would like, Dr. Ganske, you

can have 30 seconds of my time.

Mr. GANSKE. I thank the gentlelady. I think it is fair to point

out, you know, that there are a significant number of Medicare

beneficiaries who do have a drug benefit. They have it from their

employers, and that helps keep their out-of-pocket expenses down.

We have a significant number of Medicare beneficiaries who have

a pretty low out-of-pocket expense. As I said, from MedPAC, 50

percent have less than a $500 out-of-pocket expense.

So if we are looking at trying to balance providing some health

care assistance to those who do not even have anything, much less

a prescription drug benefit, would not it be advisable to take some

of—a little bit more global approach to where we are heading than

to try to piecemeal this and have some unintended consequences

for the later fiscal solvency of the program? Or for that matter, not

being able to have sufficient funds to handle those who do not have

any insurance at all?

Ms. DEPARLE. Well, if understand your question, if by a global

approach you are referring to covering the uninsured, I would love

to sit down and talk to you about that. And I am listening to what

you have to say.

Mr. GANSKE. Thank you.

Ms. CAPPS. Thank you. And I am going to be brief. I want to ask

you about two different things, and Administrator DeParle, I thank

56

you for enlightening us and for being willing to go through this

conversation. It is very helpful to me.

I am sitting here as we have been discussing this thinking about

me being, all of us on this subcommittee, being part of arguably

one of the best benefit packages of any employee, the Federal Government. And there has been a lot of comparison between the Federal Government benefit plan and Medicare. And maybe you could

articulate—and I know it is repetitive a little bit—so that we are

clear.

We are a very different kind of pool across this country of employees, working people, hopefully fairly healthy, compared with

the population that Medicare serves. And this issue of the importance that some would say to giving seniors choices of their plan,

I would like you to contrast that with what I hear frequently, seniors saying my doctor—I need to take this particular heart medicine to keep me alive, and my HMO will not cover it.

Ms. DEPARLE. Well, you have raised some issues that we have

been grappling with this morning. On the differences between

Medicare and the FEHBP program, I think you are exactly right.

And in speaking with the people who run FEHBP at OPM, they

say the populations are very different, that the insurance companies who come in to participate in the FEHBP program say the

populations are different, and that the risk that you are assuming

is quite different among the two populations.

Medicare beneficiaries tend to be poorer, sicker. They are not active employees. There are a lot of factors that lead to higher expenditures.

Ms. CAPPS. Now could I raise one caution also about, as we are

entertaining these various plans. I represent a rural district, one

about 100 miles north of Los Angeles, where there is a great reimbursement rate from HCFA. Ours is about half of that. Our cost

of living is not half of that in Los Angeles.

This disparity that impacts service, whether through hospitals or

providers, is so pervasive. There are no HMOs in a large part of

my congressional district. Seniors have no choice there.

And any kind of plan that is going to come in in discussion my

district is going meet a jaundiced ear both about HMOs and people’s disenchantment with that form of service for medicine and

also with the pairing of that with delivery of a vital part of seniors’

health care, which is prescription drugs.

That is an enormous hurdle I believe that we have to get through

in this discussion.

Ms. DEPARLE. I agree that it is a hurdle. And as you know, the

amount that we pay the managed care plans is based on historical

costs under Medicare for fee-for-service, and we have some—well,

one of our doctors left, but Dr. Ganske is still here, who can talk

about why is it that it is so different in different areas of the country.

But that is what those payment rates are based on. And let me

say too that we are not reimbursing managed care plans right now

to provide prescription drugs——

Ms. CAPPS. I know.

Ms. DEPARLE. [continuing] which they tell us they need to offer

to seniors in order to get them to join. So one of the things we need

57

to do is to reimburse HMOs to provide prescription drugs, and that

is one of the things we want to do.

Ms. CAPPS. I turn back the rest of my time. Thank you.

Mr. COBURN [presiding]. Thank you. I am sitting in for Chairman

Bilirakis, and I believe I am the next in order, so I will recognize

myself for 5 minutes.

I believe that is accurate. I wanted to ask you the most important question today, is how is your baby?

Ms. DEPARLE. He is great.

Mr. COBURN. Great.

Ms. DEPARLE. Thank you for asking.

Mr. COBURN. Great. You know, I made some statements in my—

some sentences and statements in my opening statement about the

best way to allocate a scarce resource is vigorous competition. And

I do not know if you are familiar with some of the FTC actions of

late against several drug companies and four others that are pending on collusion that have cost American citizens a ton of money,

several hundred million dollars in the last year.

And I just wondered if you had a comment about that, because

no matter what we do—and I am sure we are going to do something despite my no vote—whatever we do is going to cost more if

we are not sure that there is competition there. And I just wondered what your thought was about that.

Ms. DEPARLE. Well, I think you are right. There does need to be

competition. The way we go about it, there are different ways of

doing it. The way we go about it is have pharmacy benefit managers to negotiate to get the best prices. But it is a very difficult

problem, and I am somewhat familiar with, just from what I read

in the newspapers with what is going on over at the FTC, and it

is a difficult problem to get your arms around.

Mr. COBURN. Does it surprise you that retail pharmaceutical

prices, not including new drugs, rose 8 percent last year when the

cost increases were about 2 percent?

Ms. DEPARLE. No. And I have talked to a lot of employers and

managed care plan executives who tell me their costs, their spending is going up, you know, 17 and 18 percent.

Mr. COBURN. Does the administration have a position as to allowing the decision made in 1997 for direct television advertising

for prescription drugs?

Ms. DEPARLE. I do not know, Mr. Chairman. I am aware of the

decision, but I do not know about any position that we have on

that.

Mr. COBURN. Just for the record, it is $1.9 billion this last year,

and that goes straight to the bottom. And I think Dr. Ganske made

note of the fact that the expenditures on R&D, I think he was in

error. The expenditures on R&D in the pharmaceutical industry

are rising. They are not flat line. But the expenditures for advertising and promotion direct to the consumer have gone up significantly.

Have you calculated from inside HCFA the increased utilization

rate of Medicare based on television advertising the pharmaceuticals?

Ms. DEPARLE. You know, we have not. But our actuaries have

been looking at the kind of data that you and Dr. Ganske have

58

been discussing in assessing what the cost of this would be, and I

know CBO has been looking at it as well.

I do not think we have looked at whether it has increased any

Medicare utilization. I guess you would be suggesting——

Mr. COBURN. I am suggesting that because of promotional advertising, demand pull through advertising by the drug companies,

what we are seeing is increased utilization. I am seeing it in my

practice. More people are coming in because the drug company told

them they had to, because they could not get well without this

wonderful drug.

I would like unanimous consent to introduce into the record the

FTC cite listing the consent decrees with two large pharmaceutical

companies and make that a part of the record. No objection.

There was some discussion made about the efficiency of HCFA

in terms of its cost. I think it is important for the record for people

to know that one of the reasons HCFA is efficient is the vast majority of the work has been transferred to the provider in terms of the

paperwork and the clearance and everything else.

So it is important, although the same amount of work is being

done, a large amount of that work now is done in the provider’s

hospitals and the physician’s offices across the country.

And it is true. I believe you are very efficient for what you are

asked to do. I do not like the system very well, but I think you do

a great job.

If we were to start all over—and this is the last question—and

you could tell us, how can we go take care of those people who really are making a choice between necessities of life and their medicine in this now politicized kind of who is going to win the next

election environment, would you have any advice for us to solve

this problem to really meet the needs of people without ruining the

drug industry, without, you know, ruining pharmacy benefit providers?

Because I see the same thing happening on pharmacy benefit

providers that happened to the clinical labs. I mean, that is what

is going to happen.

We are going to have 3 or 4 major clinical labs in the country—

I mean, pharmacy benefit providers—and that is it.

And so I just wondered, is there an advice that you could give

us that if we were to start over on this that would take it out of

the political to where we really went to solve the problems?

Ms. DEPARLE. You always ask the easy questions. You know,

Medicare is going to be 35 years old next month. So I have actually, just was watching recently the video of the signing of Medicare and the speeches that were given. And there is no question

that there have been difficulties and challenges that Medicare has

faced and continues to face, but I think it was a great thing to do.

I think if you were looking at it today, you would put prescription drug coverage into Medicare. And I think we should figure out

a way to do it, and I do believe it should be something that is universal and voluntary. It is going to be very tough. And I already

heard you say that you think the problem is so tough and the challenges that Medicare faces are so great already that you would not

go there.

59

But I hope that we can have some conversations and I can convince you that for our generation and the generations to follow that

it is the right thing to do, because I believe it is.

Mr. COBURN. I thank you. I just would make one comment before

I recognize Mr. Greenwood is—is Mr. Deutsch next? Is that we are

adding a cost to a program that is technically bankrupt from an actuarial standpoint. And it is important that the American people

know that. They may want us to do that, but there is no actuarial

that would go out there and say you should add another cost to this

program based on what the numbers looked like today.

Mr. Deutsch, I would yield you 5 minutes.

Mr. DEUTSCH. Thank you, Mr. Chairman. I want to give you a

chance at least to respond, because I think to leave a statement

like that open-ended would be a mistake; the system is not bankrupt. That it is an actuarial system that in the 8 years I have been

in Congress we have made changes which have increased the actuarial stability of the Medicare system.

And a lot of the actuarial problems are high class problems. High

class problems in that part of—the average life expectancy of

Americans has gone up dramatically. I mean, one of the incredible

statistics in that 1965 when Medicare was created, the average life

expectancy of Americans was in fact 65, and now we are talking

about it being over 75 years old. So as a person who administers

the Medicare program, if you can—I want to give you the opportunity to respond a little bit to the chairman’s comments about the

system being bankrupt.

Ms. DEPARLE. Well, and you also highlighted the reasons why I

say Medicare was a great thing and why—you know, I can remember what it was like when my grandmother did not have Medicare

coverage, and then when it came into effect. And I know what a

difference it has made in the lives of not just senior citizens but,

frankly, our generation. That we have not had to worry as much

about providing for them, and that we have been able therefore to

concentrate on our educations and other things. So I do think it

has been a great thing.

I think what the chairman is talking about is the fact that while

we have made some very tough decisions together up here, which

have been, you know, extremely difficult for all of you and things

that providers in your districts have been very unhappy about, that

have extended the life of the trust fund through 2025. I think that

was the right thing to do. I also think it was a very, very difficult

thing to do. And frankly, I think it is one of the reasons why HCFA

is not the most popular agency in town these days.

He is right, though, that we face a huge demographic challenge

as all of us in the next 20 years come into Medicare.

Mr. DEUTSCH. Can I just, again, just to interject and highlight

something you just said. There are two separate issues. Medicare

is an insurance plan where there is an obligation for it to be actuarially sound. So what you have just stated is something people

need to hear. Until the year 2025 under the present projections, we

are actuarially okay out to 2025, which is 25 years from now. Not

to say that we should not do something about that on an actuarial

basis today.

60

But I think it really is somewhat disingenuous to say the system

is bankrupt today. It is not bankrupt today. There is the baby boom

issue, the demographic issue that we are going to have to deal

with. But a reason not to do a complete Medicare prescription drug

plan under the premise that the system is bankrupt is just not—

it is not credible. The system is fundamentally sound to 2025.

I wish we did it this year, hopefully we will do it this year, I

doubt we are going to do it this year. We can do it next year in

terms of dealing with the baby boom issue, which we can do. But

that is not a reason not to do prescription drugs under a universal

Medicare program today, which is really the essence of the final

question, which is something also that you have talked about.

I think—and I mentioned in my opening statement as well—the

fundamental difference between what the Republicans are proposing and what we are proposing is really that issue. I think what

we are saying, what the President is saying is that we ought to extend Medicare to include prescription drugs, and what they are

saying is, hey, you cannot do that. You ought to do it maybe just

for people at 135 percent of poverty, or at poverty or a limitation.

And I think if you can elaborate a little bit more about that fundamental difference and what type of impact that would have on

Medicare in general or for that matter the stability that Medicare

consisted, I strongly believe that one of the successes of Medicare

is that it has been a universal system. That if it was funded at 135

percent of poverty when it was created, it probably would not exist

today, because the political will to push the system, to make the

hard choices that you talked about to change the actuarial dates

that we have done in the last 8 years, I do not think you would

have had the political will to do that if it was a system that only

provided for coverage 135 percent of poverty.

Ms. DEPARLE. I agree with you, Congressman. I think that one

of the great strengths of Medicare is that it has been a program

that is available for everyone, everyone pays into it, everyone participates in it, and I think that has been one of its strengths. And

as I said, I believe there is a way to provide a prescription drug

benefit for all beneficiaries, and I think that is the right way to do

it.

Mr. DEUTSCH. And I guess just because I think it really is the

essence of the difference. I mean, if we are talking about the Republican proposal, even if it is 135 percent of poverty, we are really

talking about prescription drugs from a welfare context. And I

think, you know, just as a Congress which collectively and with the

President we have eliminated welfare as we know it, which was a

positive thing, I mean, that is really what they are proposing, effectively.

And I just see, you know, we have just gone through this process

of eliminating welfare as we know it to come back and sort of create welfare for Medicare beneficiaries.

Mr. COBURN. The gentleman’s time has expired. The gentleman

from Pennsylvania is recognized for 5 minutes.

Mr. GREENWOOD. Good morning—afternoon. You indicated earlier that you are optimistic that we can get this job done, and I am

optimistic, too, and I think there are reasons for us to be optimistic. And the President clearly wants to do this. I think he wants

61

this to be part of his legacy that he leaves office having accomplished a Medicare prescription drug benefit.

Clearly, Republicans in the House and the Senate want to get

this done. The Democrats in the House and the Senate want to get

this done. I think we all want to do it this year, and whether it

is the third of the Medicare beneficiaries that have no coverage, I

mean, they certainly want us to do it; and whether it is the half

that maybe have inadequate, either no or inadequate coverage,

they certainly want us to do it. So there is a huge national consensus I think to get this thing done.

The only thing that would make me pessimistic is the extent to

which partisanship creeps in. Because obviously, you have a Republican Congress and a Democratic President, and if we do not—

if everyone gets partisan about it, the job will not get done. The

President’s not going to sign a bill he does not like, and we are not

going to send him a bill that we do not like. So it has to be bipartisan.

It seems to me that there are two ways that partisanship creeps

into this debate. The first one is the—and we have heard it here

in the course of this hearing already today. The first is the what

took you so long argument, what is taking you so long? You do not

have a bill yet. Get on the mark and get this done.

The reality is—and I do not want to sound partisan in this—but

the fact of the matter is that the Democrats controlled the Congress for 40 years since the birth of Medicare and did not come up

with a prescription drug benefit. The President’s been in office 71⁄2

years, and it took him that long to get one on the table, and it is

taking us a little while, too, because it is hard.

But the fact is that the reason it was not done sooner is because

we were in deficit spending for most of that time. And now because

of a lot of things that have gone on in this town the several years,

we have a balanced budget, we have a surplus, we have taken Social Security off the budget, and now we have the ability fiscally

to do this, and I think that we can do it.

Another way partisanship creeps in is we accentuate the differences between the bills. We spend all our time saying, well, the

President’s bill does this and yours does not, or ours does this and

the President’s does not, and tha is what the people hate about

what happens in this town, because we accentuate our differences

instead of looking at how we can find commonalities.

But there are more commonalities, it seems to me, than there are

differences if you look at the two plans. The fact is that both plans

are based on the reality that we have finite resources. We would

all love to just say, everyone go get free drugs and Uncle Sam will

pay for it, whatever it is, for however much money you have. But

we do not have the resources to do that.

We have limited resources, and that is why both of us are looking at premiums, both of us are looking at copays, both are looking

at deductibles, both are looking at some kind of limitation or cap

on the benefit, and that is because reality dictates that.

Both the President and the Republican, or I should say the bipartisan bill actually that we will be introducing later this week, both

want to make sure we do not disincentivize or create disincentives

62

to the private sector continuing to produce the benefit. You are for

that and we are for that. That is good.

Neither of us wants adverse selection. We have to have a process

that makes sure we do not have that problem. Both of us see the

value of the private sector being involved, whether it is PBMs or

whether it is insurers or both, the private sector has to be involved,

it seems to me, because the pace of change in the prescription drug

world is so fast that it would be impossible for a bureaucracy to

keep adding this drug to the benefit and that drug to the benefit.

You have to have the private sector out there being able to move

at a much quicker pace so that seniors can benefit from these

changes.

Both of us see the need for a stop-loss. You have indicated today

repeatedly that that is something that is not in the President’s

plan, but you see the value of it, it is in our plan, and we need to

get there. Both of us agree that it needs to be voluntary.

So my question is, if you were to sit down with Republican leaders who have been most familiar with this issue tomorrow, and you

said let’s get this compromise done. Let’s get a hybrid bill here between what the President has put on the table and what Republicans and some Democrats who have joined with us have put on

the table, what would be the areas, maybe 2, 3, 4 areas where you

think we would have to work the hardest? Where are the differences that we need to compromise in order to get to a plan that

we can all happily feel good about?

Ms. DEPARLE. Well, I would start with whether or not there is

a defined benefit package. And we have had a lot of discussion

about that today, and I think that is very important.

Mr. GREENWOOD. And I would say I think that is very malleable

to that kind of work. I think we are pretty much on the same page

there, that we want medically necessary drugs to be available.

Ms. DEPARLE. And then I would also want to look at whether the

plan as I have heard it described that Congressman Burr and others are working on relies too heavily on private insurance plans.

I believe this needs to be a guaranteed benefit, an entitlement.

There are lots of views about that up here, too, but that is what

I believe. So I would be looking to see, is this thing really affordable, is it really accessible? And the question I have there—and

frankly, I think it is partly—it may be malleable, but it is partly

governed by what is in the budget resolution. I am not sure that

the subsidy in the way it is provided, the indirect subsidy, is

enough to provide a benefit package that is attractive enough to attract most beneficiaries and therefore guarantee access and affordability.

So I would want to spend a lot of time working with you on those

issues.

Mr. GREENWOOD. Thank you, Mr. Chairman.

Mr. BILIRAKIS. Mr. Barrett.

Mr. BARRETT. Thank you very much, Mr. Chairman. I want to

talk about the merits of the plan that is being proposed, but first

I have to just address for a moment the comments of the previous

speaker who I think tried or implied that somehow the Democrats,

because we controlled Congress for 40 years did not address this

problem.

63

As you said in your statement, this was not an issue when Medicare was created. It was not an issue in 1965. And the reason it

has become an issue in the last 5 years is because the price of prescription drugs has gone totally through the ceiling, and that is

why people are mad about it, and that is why it has been an issue

for the last 3 or 4 years and why we have had Democrats in Congress who have tried desperately to try to move this issue as a national issue.

I thought perhaps one of the most telling indicators was just the

vote we had yesterday, the vote that was the tripartisan amendment with Bernie Sanders and Republicans and Democrats, that

called for some cooperation with pharmaceutical companies if they

have benefited greatly from NIH grants. And when we had a vote

on that 4 years ago, it garnered 180 votes. When we had the vote

on it yesterday, there were over 300 votes in favor of the same

amendment. You do not need a weatherman to tell which way the

wind is blowing.

And it is clear that the American people are sending a message

through their elected representatives that this is a problem now,

and it is a much more serious problem now than it was even 4

years ago.

Mr. GANSKE. Would the gentleman yield?

Mr. BARRETT. I would be happy to yield briefly.

Mr. GANSKE. I agree with the gentleman that because of the

price of—the cost of drugs has gone up a lot and the volume, the

usage has gone up a lot, that it is really on the radar screen. But

I think it is also fair to say that, you know, if you look at the

record, 1965, pharmaceutical benefit was discussed, and it has been

discussed many times over the last 30 years. The predominant

problem has always been, as Chairman Rostenkowski has said,

where is the money coming from for that?

Mr. BARRETT. And I agree, and I would reclaim my time. I want

to get to that point now in terms of the plan that is being proposed.

And specifically, as I understand the plan, and we have not seen

the plan, is that this would rely primarily on private insurance

companies.

My question for you is, is there a market out there right now?

Is there a number of private insurance companies that are offering

prescription drug-only plans? Are companies interested in doing

that? Where is this supply going to come from?

Ms. DEPARLE. Well, the closest I guess experience that we have

is with Medigap. There are some Medigap plans that are primarily

there because they offer prescription drug benefits, and the experience there has not been great; partly because I think the benefit

design is not rich enough to attract a lot of seniors to join it. And

therefore—the premiums are very high and you do not get much

for what you pay.

So I do think, as I have said several times today, that there are

some real difficulties inherent in trying to do a plan that relies so

heavily on private insurance plans. Now, should there be Medicare

HMOs offering a prescription drug benefit? Yes. And we intend

under our plan to reimburse them for doing it. But a drug-only

plan, I think the industry has suggested, is not an attractive risk

for them to assume.

64

Mr. BARRETT. In your plan, one of the problems that some of us

have is the Medicare reimbursement rate. And there are wide geographic disparities in this. How do you address that?

Ms. DEPARLE. Do you mean the Medicare+Choice plan?

Mr. BARRETT. My good friend from Florida, Mr. Deutsch, who

just left, represents what those of us in other parts of the country

call the poster child of Medicare reimbursement rates, where their

Medicare reimbursement rates are much higher in Florida than

they are in Minnesota or Wisconsin.

Mr. BILIRAKIS. Not in all of Florida, by the way, Tom, only South

Florida.

Ms. DEPARLE. That is true. It is not in Mr. Bilirakis’s area.

There is only, you know, I guess I was talking about Medicare

turning 35 next month, and it is appropriate therefore to look at

the history.

The history of this is that from the beginning, Medicare reimbursement rates were supposed to be tied to what physicians were

charging or hospitals were charging in a particular area. That is

a heavy part of it. And therefore, the volume and intensity of what

is provided by doctors and hospitals is reflected in the cost, and

Medicare HMO payments under the statute are tied to those payments. So that is why you have such dramatic differences around

the country in what the capitation payments are.

Mr. BARRETT. And I do think that at some point if the parties

are interested in working something out that there will be some

sort of compromise. But I think that what we are seeing is in some

parts of the country, you can have a generous prescription drug

benefit, and in others you can’t.

Ms. DEPARLE. Right. And that is what I do not think is fair. I

think this is a national program, and all beneficiaries should have

access to an affordable drug benefit.

Mr. BARRETT. Thank you. And I would yield back my time.

Mr. BILIRAKIS. Thank you, Tom. Well, Madam Administrator,

thanks so very much for your patience and for being here, and you

have been very helpful. I do not know what the future holds, but

obviously—I honestly feel that we all want a prescription drug

plan, and hopefully, if we all work together and put partisanship

aside, we will get it done. But we always say that and then it never

really happens, does it? We will do our best. Thank you very much.

Ms. DEPARLE. Well, I am optimistic, and I want to thank the

committee for your serious commitment to helping beneficiaries.

Mr. BILIRAKIS. Thank you. The second panel, if they will come

forward, please, consists of Ms. Karen Ignagni, President and Chief

Executive Officer of American Association of Health Plans; Mr.

Craig Fuller, President and Chief Executive Officer of the National

Association of Chain Drug Stores; Mr. Charles N. Kahn, President

of the Health Insurance Association of America; Ms. Judy Feder,

Dean of Public Policy Studies, Georgetown University; Mr. Patrick

B. Donoho, Vice President of Government Affairs and Public Policy

for the Pharmaceutical Care Management Association; Mr. Ron

Pollack, Executive Director of Families USA; and Ms. Nancy Davenport-Ennis, Founding Executive Director, Patient Advocate Foundation of Newport News, Virginia.

65

Ladies and gentlemen, your written statement as per usual is a

part of the record, and we will set the clock at 5 minutes and ask

that your oral testimony complement your written statement.

We will start off with Ms. Ignagni.

STATEMENTS OF KAREN IGNAGNI, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN ASSOCIATION OF HEALTH

PLANS; CRAIG L. FULLER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF CHAIN DRUG

STORES; CHARLES N. KAHN III, PRESIDENT, HEALTH INSURANCE ASSOCIATION OF AMERICA; JUDITH FEDER, DEAN OF

PUBLIC POLICY STUDIES, GEORGETOWN UNIVERSITY; PATRICK B. DONOHO, VICE PRESIDENT OF GOVERNMENT AFFAIRS AND PUBLIC POLICY, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION; RONALD F. POLLACK, EXECUTIVE

DIRECTOR, FAMILIES USA; AND NANCY DAVENPORT-ENNIS,

FOUNDING EXECUTIVE DIRECTOR, PATIENT ADVOCATE

FOUNDATION

Ms. IGNAGNI. Thank you, Mr. Chairman, members of the committee. I would like to make four points in speaking with you this

afternoon.

First, our members support creating a drug benefit for Medicare

beneficiaries. It is a long overdue matter that this Congress can

and should confront, in our view.

Making prescription drug coverage available is an essential part

of the effort to bring the 1965 program in sync with the benefits

programs of today. In fact, a linchpin of effective disease management strategies is actually the presence of prescription drugs, and

many physicians report around the country that they have barriers

to prescribing the right and most appropriate procedures for beneficiaries because of the absence of prescription drugs in this population.

No. 2, in our view, an essential part of ensuring that seniors

have access to affordable prescriptions will be to build on what

works. To that end, we have been encouraged both this morning,

in the Ways and Means committee discussions yesterday, and indeed in the public dialog, that choice is a key principle within so

many proposals.

And second, there is a growing recognition about the need to preserve what exists as a building block for taking the next step.

No. 3. Medicare+Choice is already providing drug coverage to

millions of beneficiaries who otherwise would not have access.

However, in a little over 3 weeks, our plans face a deadline to let

HCFA know whether they are going to be able to continue to participate in the Medicare+Choice program. We have seen pullouts,

we have seen plans being forced out because of the unintended consequences of the Balanced Budget Act, which this committee has

spent a great deal of time on, as well as the sheer number of regulations and instability and unpredictability within the regulatory

environment.

Now to her credit, the Administrator DeParle has recognized

many of these problems as well and has already embarked on a

strategy designed to deal with some of the unpredictability, but

more needs to be done.

66

You have it in your power to stabilize this program, and we urge

you to act now to preserve the program that has in fact served so

many low- and moderate-income beneficiaries who have nowhere

else to turn for protection from high out-of-pocket costs in the traditional Medicare benefit, catastrophic benefits, and prescription

drugs.

Also I would like to comment, Mr. Chairman. There’s been some

discussion this morning about rural areas and whether managed

care is interested in being in rural areas, and I would suggest to

the committee that plan decisions are very much influenced by the

willingness of single hospital-based systems in rural areas that in

fact contract with our plans.

Finally, No. 4, in testimony we have offered principles for your

consideration in designing prescription drug coverage. These principles are embedded in many of the proposals being discussed

today, beginning with the concept of universality, which is that all

beneficiaries should be eligible to participate in this benefit. We believe that that is common to both proposals as we have heard them

discussed.

Subsidies for low-income beneficiaries. That seems to be common

to both proposals.

Sustained funding is a challenge for all proposals in this area, as

it would be for any new benefit, and options and flexibility. You are

having a great deal of discussion about that. We commend you for

that.

And finally, a floor package of benefits, which we understand the

concept of a floor is common to both.

In conclusion, Mr. Chairman, we stand ready to work with you

to contribute to the committee’s efforts, and we support the objective which we know all of you share of providing this important

benefit and this important population with affordable prescription

drug coverage. Thank you.

[The prepared statement of Karen Ignagni follows:]

PREPARED STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CEO, AMERICAN

ASSOCIATION OF HEALTH PLANS

I. INTRODUCTION

I am Karen Ignagni, President and Chief Executive Officer of the American Association of Health Plans (AAHP). On behalf of the more than 1,000 HMO, PPO and

other network-based health plans that are members of our association, I am pleased

to testify this morning on the vitally important issue of extending prescription drug

coverage to this nation’s 38 million Medicare beneficiaries.

It bears mentioning that our membership includes the majority of

Medicare+Choice organizations, which collectively serve more than 75 percent of

those beneficiaries who have chosen Medicare managed care over the traditional feefor-service option. As such, we are delighted that Congress is focusing so much attention on this urgent national priority that affects so many American seniors and

their families.

II. PRESCRIPTION DRUG COVERAGE CRITICAL TO MEDICARE PROGRAM

We believe that creating an affordable prescription drug benefit under Medicare

is the single most important piece of unfinished business this Congress can and

should confront. Not because the issue is important to those who will play a role

in actually delivering a prescription drug benefit, but because it affects so profoundly the lives of Americans who have given so much to our nation and to the

generations behind them.

We owe it to these millions of Americans—the men and women that have so eloquently been called the ‘‘Greatest Generation’’—to ensure that no Medicare senior

67

in this nation faces the cruel reality of having to decide between paying for drugs

or the monthly food bill.

Our great economic expansion—which has created so much prosperity for so

many—must now be big enough to accommodate a simple proposition: that Medicare

seniors deserve access to affordable prescription drugs. And that no one will be left

behind.

When established in 1965, Medicare reflected the state of the art in health care

delivery and benefits design. At that time, few people with private health insurance

had coverage for prescription drugs. Today, most commercially-insured individuals

receive care through managed care plans, and prescription drug coverage is the

norm, not the exception. Prescription drugs have transformed the treatment of innumerable illnesses and conditions and have improved the quality of life for millions

of Americans. Access to prescription drugs is particularly crucial for Medicare beneficiaries. Although the elderly comprise 12 percent of the population, they account

for 34 percent of total prescription drug costs (Mueller, 1997). It is estimated that

individuals over the age of 65 use four times as many prescription items as those

under 65. Prescription items are common treatment regimens for chronic conditions,

which are highly prevalent among the elderly. Health plans and disease management companies have pioneered programs to help individuals with chronic conditions, such as congestive heart failure and cancer, among others, to maintain their

health, and prescription drugs are a central component of these programs.

III. MEDICARE+CHOICE PROGRAM IS CRITICAL TO ENSURE A STRONG FOUNDATION FOR

PRESCRIPTION DRUG COVERAGE

We believe that Congress can deliver a prescription drug benefit to America’s seniors through a bipartisan effort, and that members can create a system that is faithful to Medicare seniors and indeed all Americans.

The job won’t be simple. And the choices won’t be easy. But the first step is to

listen closely to what seniors really want from their Medicare system, and to build

upon what’s already working in the marketplace.

First and foremost, seniors are telling us that they want control over their health

care to rest with them, not with Washington. That means preservation of choice—

so that Medicare seniors can choose a prescription drug benefit that’s right for their

unique needs and wants, and that no one gets locked into a one-size-fits-all system.

Second, we can’t find common ground by, in essence, throwing out a coverage option that has proven to be effective. Managed health care has played a significant

role in providing an affordable prescription drug benefit to most of the 6 million seniors who have chosen the Medicare+Choice option. The simple fact is that managed

health care has already played a key role in expanding a prescription drug benefit

under Medicare to millions of Americans who otherwise would not have had access

to it.

Building on that success—instead of allowing Medicare+Choice to remain in a

state of crisis—is the first significant step we can make to answering the Medicare

prescription drug challenge that has been laid before us.

AAHP’s member plans have had a longstanding commitment to Medicare and to

the mission of providing beneficiaries high-quality, comprehensive services and

lower out-of-pocket costs. Many of our member plans have served beneficiaries since

the inception of the Medicare HMO program as a demonstration project. Recent

studies highlight Medicare beneficiaries’ high levels of satisfaction with their Medicare health plans. HCFA data show that, among beneficiaries who identified themselves as having strong preferences, HMOs have a larger proportion of very satisfied

enrollees than fee-for-service Medicare. Beneficiaries’ satisfaction with the program

was further demonstrated last month, when more than one hundred beneficiaries

who have chosen a Medicare+Choice plan over the fee-for-service delivery system

came to Washington to talk about the importance of having a choice of coverage,

having additional benefits, and having protection from higher out-of-pocket costs.

Health plans participating in the Medicare+Choice program have long recognized

the importance of prescription drugs in meeting their members’ health care needs.

In fact, almost 70 percent of plans and most of the more than 6 million beneficiaries

enrolled in a Medicare+Choice plan have a prescription drug benefit. A recent

AAHP analysis of HCFA data showed that many of these beneficiaries are ‘‘unsubsidized’’—meaning they do not receive any third party assistance from, for example,

a former employer or through Medicaid, in purchasing supplemental coverage for

prescription drugs. Specifically, AAHP found that a majority of unsubsidized

beneficiaries with coverage for prescription drugs were enrolled in health

plans (see attachment: ‘‘Financially Vulnerable Medicare Beneficiaries Rely on

HMOs for Prescription Drug Coverage’’). Without this option, these financially vulVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00071 Fmt 6633 Sfmt 6621 E:\HEARINGS\65804 pfrm01 PsN: 65804
68

nerable beneficiaries undoubtedly would be forced to forego medication therapies

that would help maintain their health and improve their quality of life. This is why

we believe it is critically important to assure that Medicare+Choice beneficiaries

maintain the important benefits they currently receive through their

Medicare+Choice plans.

The promise made to beneficiaries in the 1997 Balanced Budget Act (BBA) of a

stable Medicare program that offered a wide array of choices all over the country

to allow beneficiaries to meet their health needs in the most effective way possible

has yet to be fulfilled. Unintended consequences of the BBA have resulted in beneficiaries who chose to join a health plan losing benefits, facing sharp premium increases, and, in many instances, losing the option of even remaining in the plan of

their choice. Since enactment of the BBA, nearly 700,000 beneficiaries have had

their Medicare+Choice coverage disrupted. Already, a number of plans have announced that they will be forced to exit the program effective January, 2001 because

of inadequate funding and excessive regulatory burdens.

Last year, this Congress, in passing the Balanced Budget Refinement Act of 1999

(BBRA), took the first steps to correct the BBA’s unintended consequences. The

phase-in of HCFA’s risk adjuster was slowed in order to minimize its impact on

Medicare+Choice enrollees. Among other changes, Congress expressed its intent

that the risk adjuster be budget-neutral rather than used to reduce total payments

on behalf of seniors and individuals with disabilities who choose a Medicare+Choice

plan; and user fees for the beneficiary information campaign were fairly apportioned. We appreciate the work of members of this Committee in recognizing the importance of Medicare+Choice and in advancing proposals to further stabilize the program. We strongly urge you to take bold measures this year to preserve beneficiary

choices and avoid any further disruptions in coverage. These efforts are crucial to

ensuring a strong foundation for the effort to expand prescription drug coverage.

IV. AAHP PRINCIPLES AND ISSUES FOR CONSIDERATION IN EXPANDING ACCESS TO

AFFORDABLE PRESCRIPTION DRUG COVERAGE

Again, AAHP member plans favor expanding access to prescription drug coverage.

This topic was central among those discussed by our Board of Directors last winter.

AAHP’s Board believes that beneficiaries deserve a wide variety of coverage choices.

Recognizing that all beneficiaries do not have the same needs and that many have

already exercised their choice of coverage, our Board committed to conveying the importance of respecting choices currently available and minimizing any disruption of

these choices. Our Board approved the following principles on prescription drug coverage:

• Enhance Coverage of and Financial Support for Prescription Drugs: Any

proposal to expand prescription drug coverage should reflect Medicare’s underlying philosophy of universality. All beneficiaries should have equivalent financial support for affordable prescription drug coverage. Additional financial support should be made available for those with special needs.

• Sustainable and Actuarially Sound Funding that is Equivalent Across All

Funding Options: Expanding prescription drug coverage will increase total

Medicare spending. The additional costs should be supported by a responsible

and sustainable financing mechanism, not on a discretionary basis. Any sustainable initiative should be designed with the incentives needed for a stable

private sector delivery system. Federal contributions should be equivalent

across all coverage options. New funds dedicated to prescription drug coverage

should include options that have previously provided prescription drug coverage.

• Allow Beneficiaries a Range of Options So They Can Select Coverage

That Best Meets Their Needs: Any proposal should recognize various existing

coverage options and other potential innovative solutions and should retain

beneficiaries’ ability to select the option that best meets their coverage needs.

• Meet Beneficiaries’ Needs through Flexibility in Benefit Design and Effective Delivery Strategies: Flexibility in benefit design and strategies that

promote the effective use of prescription drugs are critical features of effective

drug coverage. Should an initiative link financing to a minimum benefit, entities that offer coverage should be allowed to structure benefits that meet or exceed this minimum according to an actuarial equivalence or similar standard.

Likewise, strategies—such as formularies, generic substitution, and programs to

prevent problems associated with use of multiple prescriptions—are essential to

high-quality coverage for beneficiaries. Permitting flexibility in structuring coverage will promote broader choices and better care for beneficiaries.

69

• Minimize Disruption of Benefits Among Beneficiaries Who Currently

Have Coverage By Ensuring Equity and Value in the Government’s

Contribution: Recent reductions in government funding have forced many

Medicare+Choice plans to reduce the scope of their prescription drug benefits

or to increase beneficiary cost-sharing. Stabilizing the Medicare+Choice program is crucial to prevent the further erosion of benefits and coverage choices.

Although the Balanced Budget Refinement Act of 1999 (BBRA) was a good first

step toward this end, much work remains to ensure that the promises made to

beneficiaries with the passage of the BBA will be fulfilled.

• Preserve Access to Integrated Health Care Benefits: Health plans that offer

prescription drug coverage have sought to fully integrate this benefit into other

coverage that Medicare enrollees receive. For example, medication therapy is a

central component of health plans’ disease management programs, which coordinate the delivery of health care services to beneficiaries with chronic conditions.

Any proposal should preserve health plans’ abilities to incorporate prescription

drugs into an integrated benefits package.

In addition, proposals to expand prescription drug coverage for Medicare beneficiaries must address the difficult issue of adverse selection. To be viable, a program must strongly encourage beneficiaries to begin purchasing coverage when they

are using few prescription drugs, rather than when they need or anticipate the need

to use many prescription drugs. Failure to address this issue could jeopardize the

Committee’s efforts by undermining every organization’s long-term ability to offer

affordable prescription drug coverage.

To expand on the issue of flexibility in benefit design and management, we urge

the Committee to consider the implications of state requirements governing prescription drug coverage. Simply stated, the application of state mandates or restrictions limits plans’ abilities to design affordable prescription drug benefit packages

that best meet beneficiaries’ needs. Although the BBA preempts state benefits mandates, HCFA has interpreted the BBA preemption to exclude state cost sharing

standards related to those mandates. The consequence is that a Medicare+Choice

plan that offers benefits beyond the fee-for-service benefits package, such as prescription drug coverage, may be bound by the cost sharing requirement in state law.

Another concern involves state requirements related to benefits management and

administration. We support clarifying the preemption language so that state requirements do not prohibit health plans from managing benefits effectively and

achieving the goal of maintaining the affordability of coverage over the long-term.

A federal benefit will not remain affordable if state law requirements still restrict

flexibility.

V. CONCLUSION

The American Association of Health Plans (AAHP) and its member plans stand

ready to contribute as the Committee continues its deliberations on the best way

to expand access to affordable prescription drug coverage. We have tried today to

contribute to the Committee’s dialogue and pledge any further assistance on the

issues of expanding prescription drug coverage, broader Medicare reform, and the

need to preserve the Medicare+Choice program as an important building block toward these objectives.

As you move forward with specific legislative proposals, we urge you to allow

beneficiaries a range of options so they can select coverage that best meets their

unique needs and circumstances. At the same time, please assure that beneficiaries

maintain control over their health care choices and do not lose any of the coverage

options they currently enjoy. Any legislation Congress enacts this year should place

a high priority on protecting the benefits and choices of Medicare beneficiaries who

currently receive prescription drug coverage through Medicare+Choice plans.

AAHP is pleased that Congress is addressing this critical issue of prescription

drug coverage for Medicare. As described today, our health plans have significantly

contributed to the ability of beneficiaries to access prescription drugs. We thank you

for the opportunity to testify.

Mr. BILIRAKIS. Thank you, Karen. Mr. Fuller. And nice to see

you, sir.

STATEMENT OF CRAIG L. FULLER

Mr. FULLER. Thank you, Mr. Chairman, and members of the

committee. It is a pleasure to be here. I have submitted a stateVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
70

ment which you have for the record, and maybe during the questioning we can address some of the issues there.

I thought that I might reflect a little bit on some of the comments that were made by the members in their opening statements

as well as some of the questions, because there was much that we

agreed with and many very fine questions raised.

I represent 150 chain pharmacy companies, 32,000 pharmacies.

And for many of the seniors that are without drug coverage today,

I sense something of a train wreck coming. I fear that with

thoughtful deliberation which you are having today and in other

places of the Congress—most of us spent 8 hours yesterday at

Ways and Means. We are prepared to—and happily we would

spend 8 hours with you today to advance this. Some of us would.

Because it is—and it is a serious issue. But at the end of the day,

if nothing passes this Congress, there are hundreds of thousands

of Americans who will go into those 32,000 pharmacies today, they

are going to continue for years to face the same problem.

We worried about this some months ago. And as a result, we at

the National Association of Chain Drug Stores considered an approach slightly different than what has been talked about during

much of the day, but it relates to some of the issues that have been

raised.

Because if you take the 39 million people on Medicare and you

take out the 70 percent that have some prescription drug coverage

now and you look then, as we have done, at the individuals that

are 200 percent of the poverty line and below, you could provide

coverage for them through the States with a grant of $30 billion

at the Federal level, supplemented by the States, or you can put

$41 billion out there to the States and cover it all. You might have

a copayment at the State level. You would not have a cap. You

would not have a premium.

You could put it into effect fairly quickly, because somewhere—

Chip and I are close. We say 15 and he says 19. We are approaching 20 States that already offer benefits to seniors. And you could

do it this year. And you could provide them with the coverage very

quickly, so that with all the fine deliberation that is going on, you

would give yourselves next year with the Congress and a new administration a chance to really tackle major Medicare reform,

which we are all for, and I think we all believe should have prescription drug benefit.

Mr. BILIRAKIS. So you would do that outside of the scope of Medicare?

Mr. FULLER. Pardon me?

Mr. BILIRAKIS. Your suggestion would be outside of the scope of

Medicare?

Mr. FULLER. It would be provided by the States outside of HCFA

and—yes. Yes, sir. And in fact, it would be similar to a State-based

approach, sir, that you have offered as H.R. 2925 and——

Mr. BILIRAKIS. That is just coincidental.

Mr. FULLER. It is coincidental. But we find much to recommend

it.

My statement says, and we have really applied three tests to our

plan and to others. We say, look, first of all, there needs to be a

71

sense of urgency about this. I have addressed that. It needs to be

enacted this year.

Second, it needs to recognize and it ought to enhance patient

care and patient outcomes. After all, at the end of the day what

we want to make sure of is that seniors are getting the kind of care

they need.

You raised, Mr. Chairman, in your opening remarks the comments about the role of pharmacy. I have great respect for insurance companies. I have great respect for pharmacy benefit managers. But frankly, it is pharmacists that manage health care for

patients, working with their doctors. And if we turn the program

over or hope to turn some of these programs over to institutions

that do not recognize the role of the pharmacist—I am not suggesting insurance companies do not recognize it—but if we do not

recognize the role of pharmacists, clearly, the kind of problem that

Mr. Stupak mentioned where a patient buys a prescription for

$100, whether he agrees or disagrees with the price, for a drug that

has to be used properly or it is not worth anything, we are going

to see a further erosion of the quality of patient care.

So part of our plan and part of our SeniorRx Gold plan, would

specify the kind of pharmacy services that should be covered.

And finally, and I will close with this third test—third question

is, a fair return for community pharmacy. You know, 10 years ago,

75 percent of people purchased their prescriptions at retail. Utilization is increased, the quality of pharmaceutical medication has dramatically increased. They are of tremendous benefits to people.

Certainly the cost has increased. But so has the whole process by

which—the process has evolved by which we pay for this medication. So that today most of the chains that I represent, 90 percent

of the prescriptions are paid for by a third party plan, usually involving a PBM, which has driven down the price.

A CBO study, which I can provide you with, shows most of the

costs are driven out by attacking costs at the pharmacy level. But

at pharmacy, the margin is about 2 percent or less. So you are not

going to find much more savings there. And you are in fact making

it more and more difficult for community pharmacy to provide the

kinds of services they should be able to provide. Perhaps I can discuss that more in some of the questions.

Thank you for the this opportunity.

[The prepared statement of Craig L. Fuller follows:]

PREPARED STATEMENT OF CRAIG L. FULLER, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, NATIONAL ASSOCIATION OF CHAIN DRUG STORES

Mr. Chairman and Members of the Committee. I am Craig Fuller, President and

Chief Executive Officer of the National Association of Chain Drug Stores (NACDS).

I appreciate the opportunity to appear before you today to discuss various legislative

proposals to cover prescription drugs under Medicare, and their impact on Medicare

beneficiaries and community retail pharmacies.

NACDS represents more than 150 chain pharmacy companies that operate over

32,000 community retail pharmacies in the United States. The NACDS membership

base fills about 62 percent of the approximately 3 billion prescriptions that are dispensed each year in the United States. We employ approximately 94,000 pharmacists in our stores.

First and for the record, let me say that NACDS and its members applaud the

significant time and effort that you have contributed to the debate about the best

way to expand prescription drug coverage to Medicare beneficiaries. We understand

and appreciate the need to improve prescription drug coverage for seniors. Every

72

1 According to IMS Health, almost 75 percent of prescriptions filled in a community pharmacy

were paid for with cash outside of a plan in 1990. Now, almost 85 percent of all prescriptions

are paid for by plans—most with a prescription benefit manager involved.

day, we see the impact on people who too often must choose between the food they

need to sustain them, and the medication they need to treat an illness.

As many of you know, NACDS has been working for several months on a statebased plan that would fund a prescription benefit plan for needy seniors that we

call SenioRx Gold. SenioRx Gold is supported by a coalition of groups, including the

American Pharmaceutical Association, the American Society of Consultant Pharmacists, the Food Marketing Institute, and the National Consumers League.

Mr. Chairman, you offered a similar state-based approach to providing prescription drug coverage to low-income seniors in H.R. 2925, ‘‘The Medicare Beneficiary

Prescription Drug Assistance and Stop Loss Protection Act’’, which has bipartisan

support. We applaud your efforts in this regard, and believe that, at the end of the

day, this approach makes the most sense this year.

While the specifics of ‘‘The Medicare Prescription Drug and Modernization Act’’

are new to us, because of our work on SenioRx Gold, we have a pretty clear idea

of the critical elements that must be considered if real prescription drug assistance

is going to reach those who need it most. Indeed, we have attempted to apply three

important tests that we believe should be applied to any proposal designed to enhance prescription drug coverage for seniors.

Sense of Urgency

First, we need a national sense of urgency about reaching needy seniors across

America this year with a program that allows them to receive the prescription medication they and their doctor agree they need. Frankly, the leadership in Congress

has repeatedly stressed the importance of meeting this challenge, and with these

hearings today, your committee is expressing an urgency, which we fully commend.

However, as you are aware, the insurance industry has expressed concerns about

the viability of private-market ‘‘drugs only’’ insurance proposals, calling them ‘‘unworkable’’ and raising serious questions about whether they would amount to nothing more than ‘‘unfulfilled’’ promises to needy seniors.

We also know from experience that the Balanced Budget Act of 1997 created various other types of health insurance and provider options for Medicare beneficiaries,

which have not come to fruition. We are concerned that ‘‘drugs only’’ policies would

meet the same fate.

Enhance Patient Safety/Improve Patient Outcomes

Second, any successful plan must enhance patient safety and improve patient outcomes. We must not settle for an approach that fails to safely care for seniors, who

generally have more intense prescription medication management needs than nonsenior populations. We know that Members of Congress are truly concerned about

structuring a benefit that provides medication management programs for seniors.

The House leadership proposal would create ‘‘drugs only’’ insurance policies that

Medicare beneficiaries could purchase in the private marketplace. These policies will

likely be administered by pharmaceutical benefit managers—or PBMs. As you know,

community retail pharmacy has a significant amount of experience in dealing with

PBMs.1

For the record, let me state that, with all due respect, insurance companies and

PBMs do not manage care—pharmacists do. The role of the pharmacist in reducing

the risk of conflicting medications and in assisting patients with proper dosage and

usage requirements is a well established, critical element of healthcare delivery.

But seniors need more intense care—medication management, disease management, refill reminders, and consistent monitoring. Will ‘‘drugs only’’ insurance plans

be structured so that we are providing both prescription drugs and important medication therapy management programs to seniors?

We believe that any new Medicare prescription drug plan should assure that

these important programs are part of the standard benefit package—just like the

prescription drug product—especially for those seniors most at risk for potential

medication-related adverse events.

We also believe that it is important that legislation assure that pharmacists have

adequate time and proper incentives to deliver these important quality improvement

services for Medicare beneficiaries.

73

2 Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected

Prices and Returns in the Pharmaceutical Industry, July 1998, p. 8. The study found that 50

to 70 percent of the drop in the plans’ spending on prescription drugs resulted from lower retail

prescription prices. Only 2 to 21 percent of the savings resulted from manufacturer rebates that

the PBMs shared with the health insurance plans.

Fair Return for Community Pharmacy

Which leads me to my third point: any successful plan should assure that the

highly-efficient community pharmacy infrastructure—which operates on 2 percent

net profit margins—remains viable to serve the health care needs of all Americans.

I’m not suggesting that the entire issue of pharmacy reimbursement for public

health care programs be tackled by this committee (at least in this session), but I

do want to point out that PBMs tend to focus most of their cost containment on

pharmacy providers. This has resulted in a steady reduction of margin at the pharmacy level.

While I want to point out that language currently in the proposal allows PBMs

to aggressively negotiate discounts from pharmaceutical manufacturers, you should

be aware that a 1998 CBO study said:

‘‘Much of the savings that PBMs achieve appear to come from the lower prices

paid to pharmacies rather than from the rebates offered by drug manufacturers.’’ 2

Moreover, the plan before us today would allow for ‘‘price controls’’ on retail pharmacies. That’s right—the plan before us today would allow PBMs to mandate a certain price that pharmacies could charge Medicare beneficiaries for prescriptions

after they have reached their coverage cap. We are unsure why Congress would impose price controls on a highly competitive industry that operates on a 2 percent

net profit margin. We urge Congress to reject price controls on retail pharmacies.

Conclusion

Mr. Chairman, I’d like to conclude by saying we recognize that these are serious

and difficult issues and we appreciate your leadership and that of members of your

committee for bringing this important legislative proposal forward for review and

discussion. You, members of your committee and your staffs have encouraged us to

be frank and candid during this entire process. We would be pleased to work with

you in addressing some of the concerns I have outlined in my testimony. We think,

as I suggested earlier, that there are several reasons we can provide an important

perspective.

Finally, I will end by saying that we also remain committed to the notion that

if the Medicare Prescription Drug and Modernization Act cannot be advanced in the

shortness of time, we hope given the sense of urgency you and others have shown

for the millions of needy seniors and their families, that you would consider turning

to the state-based program we call SenioRx Gold. It is not perfect and it is not the

long-term solution. However, it does, in our view, meet the three critical tests I outlined to you today and would provide meaningful benefits, effectively and safely to

those seniors with the greatest need.

This program is designed as an interim, or stopgap approach. By providing federal

assistance to states that voluntarily elect to develop prescription assistance programs, SenioRx Gold builds upon the 15 states that already have been successfully

operating these programs. It gives the states the flexibility to meet the needs of 64

percent of those Medicare beneficiaries without prescription drug coverage. In fact,

SenioRx Gold would provide a more comprehensive benefit than other proposals.

With no premiums, no annual deductible and lower copays, needy seniors would not

be deterred from participating.

Whichever course you pursue, we thank you for the opportunity to share our

views and remain committed to working with you to address this and other issues.

Thank you very much.

Mr. BILIRAKIS. Thank you, Mr. Fuller. Mr. Kahn.

STATEMENT OF CHARLES N. KAHN III

Ms. KAHN. Thank you, Mr. Chairman. As you know, Mr. Chairman, over a decade ago, I worked long and hard on the last attempt by the Congress to develop a drug benefit for seniors in

Medicare Catastrophic. Later I staffed the members who led the effort to repeal that law also. So I have a deep and personal underVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00077 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
74

standing of how truly difficult it is to develop a Federal policy to

assist seniors in purchasing drugs.

If nothing else, as has been pointed out today, I think it is critically important that seniors have full confidence from the get go in

whatever policy you develop and that they understand there will

be cost sharing and that cost sharing is bound to be acceptable to

them before you enact anything.

This and other lessons of that Medicare Catastrophic debate are

important to draw upon as the committee examines this complex

issue.

I also assisted in the development of Medicare+Choice, and share

the subcommittee’s concerns about the future of that program. I believe that the future of market-oriented approaches to preserving

Medicare depends on keeping Medicare+Choice viable.

Mr. Chairman, I believe there is a consensus today that seniors

need help with prescription drugs. Advances in drug therapies have

vastly improved medical care, as well as the very health of millions

of Americans. However, at the same time, these advances come at

a tremendous cost.

A study done for HIAA and the Blue Cross/Blue Shield Association by the University of Maryland projects that the Nation’s

spending for prescription drugs will increase by 15 to 18 percent

annually over the next 5 years. I repeat, over the next 5 years.

This reflects more than doubling of annual drug costs to $212 billion by 2004. These growing drug costs are clearly putting a

squeeze on our Nation’s seniors.

Mr. Chairman, we all agree on the goal of helping seniors with

drugs. But as you and the subcommittee consider solutions, I urge

you to weigh carefully the consequences of the policy alternatives.

The lessons of unintended consequences were learned well in 1988

and 1989.

I will be happy to comment specifically on the new bipartisan

drug coverage plan when the legislative details are available. I can

say, however, from my understanding of the proposal, it appears to

provide a realistic approach to assuring seniors that coverage for

drugs will be available to them since it has a fallback.

However, HIAA continues to maintain its strong conviction that

the much discussed private-drug-only insurance insurance option is

unworkable and will not fulfill the expectations of seniors.

In my written testimony I provided a detailed critique which

elaborates on our member companies’ concerns.

Additionally, as you consider options, because of the expensive

nature of drug coverage, we are equally concerned that simply

mandating that Medicare HMOs or Medigap plans cover outpatient

prescription drugs will not serve beneficiaries well.

Next, the bipartisan proposal recognizes that Medicare+Choice

plans are severely underpaid, and action is necessary now to save

this important option that so many seniors depend on.

Most Medicare HMO plans now offer prescription drugs coverage.

However, sustaining this benefit will be difficult since payment inequities and regulatory burdens are major hurdles.

Medicare+Choice cannot continue to offer even the basic Medicare

benefits if the status quo remains.

75

Therefore, for a seniors’ drug program to be successful, Medicare

must make a firm commitment to provide payments to Medicare

HMOs that keep pace with escalating medical costs, including

those for pharmaceuticals.

Finally, the proposal for a new Medicare Board to replace HCFA

has great potential. Our experience indicates that HCFA has had

great difficulties implementing the Medicare+Choice program, and

a fresh start is needed.

Last week HIAA released a white paper by Bruce Fried, the

former director of HCFA’s HMO office. The paper well documents

the problems that have caused many HMOs to throw up their

hands and either exit all or part of the Medicare program. I urge

you to review the Fried report and consider his recommendations.

In conclusion, I would like to reiterate the point that if the Congress and the administration do not address the pressing problems

facing Medicare HMOs, it will be difficult if not impossible to succeed at developing true, market-oriented approaches to reforming

Medicare.

Thank you very much, Mr. Chairman. I will be happy to answer

any questions the subcommittee may have.

[The prepared statement of Charles N. Kahn III follows:]

PREPARED STATEMENT OF CHARLES N. KAHN III, PRESIDENT, HEALTH INSURANCE

ASSOCIATION OF AMERICA

INTRODUCTION

Chairman Bilirakis, distinguished members of the Committee, I am Charles N.

Kahn III, President of the Health Insurance Association of America (HIAA). Before

joining HIAA, I devoted a significant portion of my professional life to working on

Medicare policy as a staff member for both the United States Senate and the House

of Representatives. I was involved in the last attempt to provide seniors with access

to prescription drug coverage through the Medicare program through enactment of

the Medicare Catastrophic Act over one decade ago. I also worked on the subsequent

repeal of that legislation. As Staff Director to the Subcommittee on Health of the

Committee on Ways and Means, I also played a major role in the development of

the Balanced Budget Act of 1997 and the creation of the Medicare+Choice program.

HIAA is the nation’s most prominent trade association representing the private

health care system. Its 294 members provide health, long-term care, dental, disability, and supplemental coverage to more than 123 million Americans. HIAA also

is the nation’s premier provider of self-study courses on health insurance and managed care. We represent companies offering a broad range of insurance products to

our nation’s seniors, including Medicare+Choice, long-term care insurance, Medicare

Select, and Medicare Supplemental plans.

I am very pleased to be here today to speak with you about how best to increase

access to affordable prescription drugs for our nation’s seniors.

SENIORS SHOULD HAVE EXPANDED ACCESS TO NEEDED PHARMACEUTICALS

Clearly, pharmaceuticals have become a critical component of modern medicine.

Prescription drugs play a crucial role in improving the lives and health of many patients, and new research breakthroughs in the coming years are likely to bring even

greater improvements. With older Americans becoming an ever-increasing percentage of the overall United States population, the need for more medicines for this

sector of the population is becoming equally urgent. There is continuing emphasis

on new pharmaceuticals to treat diseases typically associated with aging. Over 600

new medicines to treat or prevent heart disease, stroke, cancer, and other debilitating diseases are currently under development. Medicines that already are available have played a central role in helping to cut death rates for chronic and acute

conditions, allowing patients to lead longer, healthier lives. For example, over the

past three decades, the death rate from atherosclerosis has declined 74 percent and

deaths from ischemic heart disease have declined 62 percent, both due to the advent

of beta blockers and ACE inhibitors. During this same period, death rates resulting

76

from emphysema dropped 57 percent due to new treatments involving antiinflammatories and bronchodilators.

PRESCRIPTION DRUG EXPENDITURES ARE RISING AT A RAPID RATE

These advances have not come without their price. Rapid cost increases are putting prescription drugs out of reach for many of our nation’s seniors. Because of both

increased utilization and cost, prescription drug spending has outpaced all other

major categories of health spending over the past few years. For example, while hospital and physician services expenditures increased between 3 and 5 percent annually from 1995 through 1999, prescription drug expenditures have increased at triple that rate, averaging between 10 and 14 percent. According to projections by the

Health Care Financing Administration (HCFA), prescription drug spending will

grow at about 11 percent a year until 2008, more than double the rate of spending

on hospital and physician services.

A study for HIAA and the Blue Cross and Blue Shield Association by the University of Maryland’s School of Pharmacy found that drug spending will increase at an

even faster pace than the government is predicting. University of Maryland researchers project that the nation’s expenditures for prescription drugs will increase

at a rate of 15-18 percent a year over the next five years, more than doubling annual drug spending from $105 billion in 1999 to $212 billion by 2004. According to

the lead author of the study, C. Daniel Mullins, Ph.D., 60 percent of those expenditures will be caused by increases in the price and use of drugs already on the market today, while 40 percent will be attributable to the cost of drugs still under development—so-called ‘‘pipeline’’ pharmaceuticals. I have attached a copy of the executive summary and slides from that study, and ask that it be made part of the record

of this hearing.

MANY SENIORS HAVE SOME DRUG COVERAGE, BUT BENEFITS OFTEN ARE LIMITED

About two-thirds of seniors have some type of insurance coverage for pharmaceuticals—either through employer-sponsored retiree health plans, private

Medicare+Choice plans, Medicaid, or individual Medicare Supplemental (Medigap)

policies. But this coverage often provides limited benefits for prescription drugs, and

it is likely to decline over time as cost pressures mount for employers, insurers, and

individual consumers. For example, recent surveys indicate that employers are contemplating several changes to their retiree health care plans over the next several

years, including increasing premiums and cost-sharing (81 percent of respondents

to a 1999 Hewitt Associates survey sponsored by the Kaiser Family Foundation) and

cutting back on prescription drug coverage (40 percent).

Also, unrealistically low government payments to Medicare+Choice plans are having the effect of reducing drug coverage for many seniors enrolled in these plans.

Increases in per capita payments on behalf of beneficiaries enrolled in

Medicare+Choice plans from 1997 to 2003 are projected to be less than half of the

expected increases during the same period for those individuals in the Medicare feefor-service program. In fact, the President’s Fiscal Year 2000 budget projected fiveyear medical cost increases of 27 percent for the original Medicare fee-for-service

program and 50 percent increases for the Federal Employee Health Benefit Program, while Medicare+Choice payment increases during the same period will be

held to less than 10 percent in many counties. The toll these lower payments are

taking on drug benefits is already apparent—only three years into the new

Medicare+Choice payment scheme. Some beneficiaries now face higher out-of-pocket

costs, lower maximum benefits, and higher co-payments on brand name drugs.

Adding to the problems is the fact that most seniors live on fixed incomes and

their purchasing power will continue to erode over time as drug expenditures increase more rapidly than their real income. In terms of current dollars, seniors’ income has increased very little over the past ten years. From 1989 to 1998, the median income of households with a family head 65 years of age or older increased

from $20,719 to $21, 589. This represents an increase in real income of less than

5 percent over the entire decade.

HIAA HAS DEVELOPED A SOLUTION TO HELP ALL SENIORS

It is important to recognize that we all share a common goal—to improve drug

coverage for seniors. The fact that Members of Congress have chosen different

routes to achieving this goal is a testament to the magnitude and complexity of the

task.

As this Committee begins to weigh options for expanding pharmaceutical coverage

to seniors, we want to bring to your attention several important policy considerations that draw upon our member companies’ considerable experience providing

77

health insurance coverage in the private market and through government programs

such as Medicare.

In particular, we believe that the potential effects of any new proposal must be

carefully examined to ensure that unintended consequences do not erode the private

coverage options that beneficiaries rely on today to meet their health care needs.

I want to emphasize that, although it has proven difficult to provide affordable prescription drug coverage through the private options available to seniors today (and

I will discuss the reasons for that later in my testimony), the private coverage seniors rely on to supplement Medicare is extremely important to them. Medicare covers just one-half of beneficiaries’ health care costs and provides no coverage for truly

catastrophic illness. Supplemental insurance and Medicare+Choice coverage protect

seniors from financial ruin and is highly valued by them for that reason.

Before I outline some of the concerns we have about aspects of several drug coverage plans that have been proposed, let me first make clear that HIAA believes

strongly that the status quo is unacceptable. Reforms clearly are needed to expand

access to prescription drugs for the nation’s seniors. My belief is that the most rational and responsible way to accomplish this is in the context of overall Medicare

reform and restructuring. HIAA believes that broad reforms are necessary and that

a sustainable long-term solution to providing affordable drug coverage for seniors

is best accomplished in the context of securing Medicare for the baby boom generation—and beyond.

However, we also recognize that significant steps can be taken in the short term

to provide relief to seniors. Last year, HIAA’s Board of Directors approved a threepronged proposal developed by our member companies that would help seniors better afford prescription drugs. The HIAA program would: (1) help lower-income seniors through a federal block grant to expand state drug assistance programs; (2) provide a tax credit to help offset out-of-pocket drug costs for all other seniors; and (3)

ensure fair payments to private Medicare+Choice plans that are struggling to provide prescription drug coverage for seniors despite unrealistically low government

payments that will not keep pace with medical inflation and the projected increases

in drug costs.

Nineteen states already have drug coverage programs for low-income seniors; several more are considering such programs in the current legislative session. We believe a federal block grant, with no requirement for state matching funds, would

give needy seniors additional support in these states and encourage other states to

adopt such programs. Each state would receive a per-capita payment sufficient to

cover the equivalent of drug coverage with a $1,500 annual maximum for eligible

beneficiaries. States would have considerable flexibility under our approach, and

could use the funds to expand existing drug assistance programs or create new ones.

We estimate that about 10 million lower-income seniors would be eligible for this

subsidy.

The HIAA program also would provide a tax credit to offset out-of-pocket prescription drug expenses for those seniors who file tax returns. A single Medicare beneficiary with income above about 200 percent of poverty (about $16,300) would have

been eligible for a tax credit worth up to $1,000 a year, after incurring $500 in outof-pocket expenses. A couple with an income above approximately 250 percent of

poverty (about $28,000) could access a tax credit worth up to $1,500 per year after

they jointly paid $500 in out-of-pocket drug expenses. The value of this credit would

grow over time to keep pace with inflation. We estimate that nearly 22 million beneficiaries would be eligible for this federal tax credit.

Finally, the HIAA proposal includes a number of measures to assure that seniors

choosing to enroll in Medicare+Choice plans are not disadvantaged by unrealistically low government reimbursements. As members of this Committee know, the

vast majority of Medicare+Choice plans provide some coverage for prescription

drugs and this has proven to be a very popular benefit for seniors. However, inequitable government payments are undermining the Medicare+Choice program and

harming seniors who depend on these plans for their health coverage. In effect, the

growing disparity between payments to Medicare+Choice plans and per-capita payments for seniors enrolled in traditional Medicare fee-for-service disadvantages the

former, forcing them to shoulder an increasing out-of-pocket burden for prescription

drugs.

The Balanced Budget Act of 1997 (BBA) reduced payments to Medicare+Choice

plans by $22 billion over five years and HCFA plans to reduce payments by another

$9.9 billion through ‘‘risk adjustment.’’ The Balanced Budget Refinement Act of

1999 restored less than $1 billion of the cuts made through the BBA. Clearly, additional steps are needed: (1) HCFA should be required to implement risk adjustment

in a budget neutral manner and the current phase-in should be halted at its current

10 percent level; (2) HCFA should not expand encounter data collection beyond the

78

hospital inpatient setting and should replace the planned universal encounter databased risk adjustment scheme with a less burdensome approach; and (3)

Medicare+Choice payments should be linked more closely to local medical inflation

trends.

The HIAA proposal represents an immediate and workable step that will provide

meaningful relief for seniors, while avoiding the disruption and confusion for beneficiaries that surely would result were Congress to make changes in seniors’ private

benefit options before addressing needed changes in the underlying Medicare program. Equally important, it would not foreclose the integration of drug coverage into

broader Medicare reform.

CONCERNS ABOUT PRIVATE DRUG-ONLY INSURANCE AND PRIVATE SECTOR MANDATES

As you work to develop a solution to this very difficult issue, we hope that you

will draw upon the HIAA proposal. We recognize, however, that Congress is weighing various Medicare drug coverage initiatives that do not involve block grants or

tax credits.

Some of the proposals we have examined that rely on ‘‘stand-alone’’ drug-only insurance policies simply would not work in practice. Designing a theoretical drug coverage model through legislative language does not guarantee that private insurers

will develop that product in the market.

Other proposals seek to assure seniors drug coverage by mandating that private

health plans—either Medigap or Medicare+Choice, or both—provide enhanced coverage for pharmaceuticals. While this option has the perception of being virtually

cost-free from a federal budgetary standpoint, it would be far from inexpensive for

seniors who, according to our estimates, would experience premium increases for

Medigap products of between 50 and 100 percent. It also would result in many seniors dropping the supplemental coverage they depend upon, possibly creating new

public policy challenges. Seniors in rural areas, in particular, rely heavily on

Medigap coverage to help them meet their health care needs. If coverage that consumers cannot afford is mandated, the result will be unsustainable premium increases, limited choice, and reduced coverage.

WHY A ‘‘DRUG-ONLY’’ BENEFIT IS UNLIKELY TO MEET THE GOAL OF UNIVERSALITY

Some have proposed that seniors’ drug coverage needs could be met through new

private insurance coverage options. Theoretically, these ‘‘drug-only’’ policies would

be offered either as stand-alone policies, or sold in conjunction with existing

Medigap coverage. However, the evidence suggests that it would be extremely difficult to ensure the universal availability of drug coverage to seniors through this

type of proposal.

Creating a new form of insurance is not easy. As with any new product, startup efforts are costly and time-consuming. Adding to the difficulty is that such insurance policies would have to meet existing (and possibly new) dual state and federal

requirements before they could be sold. Thus, before making its entry into the marketplace, a ‘‘drug-only’’ policy would have to clear a multitude of economic and regulatory hurdles. Our members have told us these hurdles are likely insurmountable.

Economic Barriers and Adverse Selection Problems

Insurance carriers attempting to bring this type of product to market would face

many barriers, including the costs of development, marketing, and administration.

Premiums for the policy would have to reflect these costs. Adding to these administrative expenses is the inherent difficulty of developing a sustainable premium

structure for a benefit that is so widely used and for which costs are rising so dramatically.

Volatility in pharmaceutical cost trends also will make a stand-alone ‘‘drug-only’’

policy difficult to price. While there has been relative stability in the rate of increase

of hospital and physician costs during the past two decades, pharmaceutical costs

have been more difficult to predict. In March 1999, for example, HCFA estimated

that prescription drug expenditures would reach $171 billion by 2007. Just six

months later, in September, HCFA was forced to revise these projections and now

predicts that prescription drug spending will reach $223 billion by 2007, a 30 percent increase over the previous estimate. Since the Administration first offered its

Medicare drug benefit proposal just last year, it has had to revise cost estimates

for the program upward by more than 30 percent due largely to greater-than-expected increases in the costs of prescription drugs.

For many reasons, ‘‘drug-only’’ policies would be very expensive to administer.

Adding to the economic liabilities of these policies are the expense margin limitations insurance carriers must meet under Omnibus Budget Reconciliation Act of

79

1990 (OBRA), which are likely to be too small to support separate administration

of drug benefits.

The most difficult factor driving up premiums, however, will be ‘‘adverse selection.’’ Adverse selection occurs because those who expect to receive the most in benefits from the policy will purchase it immediately, while those who expect to have

few claims will hold off purchasing coverage until they believe it is needed. When

people with low drug expenses choose not to enroll in coverage while those with

high costs do enroll, insurance carriers are forced to charge higher premiums to all

policyholders. Higher premiums over time will price many seniors out of the supplemental market. As beneficiaries drop their coverage, premiums invariably will rise

yet again—creating what insurers call a rate ‘‘death spiral.’’ Moreover, the more opportunities there are for enrollment, the greater the risk of adverse selection.

Adverse selection would be a very real problem for this type of product. Projections indicate that one-third of seniors (even if all had coverage for outpatient prescription drugs) will have drug costs under $250 in the year 2000, with the average

cost estimated at $68. These seniors are unlikely to purchase any type of private

drug coverage, given that the additional premium for such a policy would be at least

10 times higher than their average annual drug costs. Of the two-thirds who might

buy the coverage, many would be doing little more than dollar trading. Some may

actually end up much worse off: a person with $500 of drug expenses could have

premium, deductible, and coinsurance costs equal to over 200 percent of the actual

costs of drugs. Consequently, many seniors are not likely to purchase the product,

resulting in further premium increases for those that do.

Limiting the sale of these policies to the first six months of Medicare eligibility

would help in theory only, given legislators’ demonstrated proclivity to expand on

‘‘guaranteed issue.’’ The Clinton Administration’s Medicare drug coverage proposal

seeks to avoid adverse selection by limiting enrollment in a government-provided

drug coverage plan to the first six months when beneficiaries initially become eligible for Medicare. While this type of rule theoretically helps, the concept seldom

works in practice because legislators and regulators expand guaranteed issue opportunities over time in response to political pressure. For example, the ‘‘first time’’

guaranteed issue rule originally in place for Medigap policies has been greatly expanded over time—both through new federal rules in the Balanced Budget Act of

1997 (BBA) and through state law expansions.

Regulatory Hurdles

Even if such insurance policies were economically feasible, they would face significant regulatory barriers. The National Association of Insurance Commissioners

(NAIC) would likely have to develop standards for the new policies; state regulators

would have to approve the products before they could be sold, as well as scrutinize

their initial rates and any proposed rate increases. Even relatively straightforward

product changes based on proven design formulas can take several years to progress

from the design stage through the regulatory approval process and, finally, to market.

Because insurers would be required to renew coverage for all policyholders (as

they are required to do with Medigap products), policies could not be cancelled if

new alternatives were authorized by subsequent legislation or regulations. This

would exacerbate adverse selection problems for these plans, since people with the

greatest drug needs would retain them while others may seek out less costly alternatives. It also would dampen interest in offering the product in the first place, as

insurers would be locked into offering these policies once they were issued.

Guaranteed renewability also would exacerbate pricing problems for these ‘‘drugonly’’ products. While many in Congress have said that they oppose government

price controls for pharmaceuticals, private insurers offering ‘‘drug-only’’ coverage are

sure to face premium price restrictions on their products at the state level (all states

have adopted either rate bands, modified community rating, or full community rating for Medigap as well as medical insurance coverage options available to non-seniors). Even when proposed premium increases are consistent with state law parameters, state regulators are likely to be resistant to the magnitude of increase it

would likely take to sustain a ‘‘drug-only’’ insurance policy as drug prices grow over

time.

If the NAIC did standardize these policies, as some have proposed, it could impose

unworkable limitations on insurers. If insurance carriers were prevented from adjusting co-payments and deductibles as drug costs continue to skyrocket, effective

cost management would not be possible without significant premium increases over

time. On the other hand, allowing needed flexibility would destroy the standardization of Medigap that Congress and the NAIC have worked so hard to achieve during

the past decade.

80

High-Deductible Options Introduce Additional Practical Limitations

Various suggestions have been made to render these policies economically viable.

One suggestion that flies in the face of historical reality is to design the policies

with very high deductibles—a feature that has never been popular with seniors.

Comprehensive high-deductible Medicare+Choice medical savings account plans authorized under the Balanced Budget Act of 1997 (BBA) are not available because

no company believes it can develop sufficient market size to make offering such a

product worth the effort. It is also notable that the high-deductible Medigap policies

with drug coverage authorized under the BBA 97 have not gained market acceptance, largely out of the knowledge that this product would not be attractive to a

large enough block of seniors to make it viable. Primary carriers have not entered

this market and, as far as we are able to determine, only a handful of these policies,

if any, have been sold. The most common reasons for this cited by insurers are: (1)

lack of consumer demand; (2) consumer confusion; and (3) unworkable systems

change requirements and regulatory barriers (e.g., states will not approve policy

forms for 2000 or 2001 because of the federal government’s delay in publishing allowable deductible levels). The $1,500 deductible in those BBA Medigap policies is

considerably lower than some of the deductible levels proposed by advocates of the

new drug-only policies.

Government-Funded ‘‘Stop-Loss’’ Coverage Is Unlikely to Make Such Policies Affordable

Some have discussed providing government-funded ‘‘stop-loss’’ coverage as a way

to help those beneficiaries with catastrophic annual drug costs and reduce the cost

of private drug-only insurance. While this proposal would no doubt help seniors with

extremely large annual drug expenses, it would do little to make drug-only insurance affordable. Nearly nine out of 10 Medicare beneficiaries have annual drug costs

under $2,000 (see Figure 1). Moreover, stop-loss coverage provided to beneficiaries

with drug expenses in excess of $2,500 a year would cover just 16 percent of annual

drug costs (see Figure 2). Stop-loss protection would cover just 4 percent of annual

drug costs if offered to beneficiaries with pharmaceutical expenses above $5,000 per

year (see Figure 3).

Figure 1

Nearly Nine Out of Ten Medicare Beneficiaries Have Annual Drug Costs Under

$2,000 1

Source: National Academy of Social Insurance, 1999; estimates of 1999 expenditures by Actuarial Research Corporation based on data from the 1995 Current Beneficiary Survey. HIAA estimates for distribution above $2,000. 1 Expenditures include out-of-pocket spending and third-party payments. Figures are for all

non-institutionalized Medicare beneficiaries except those who enrolled in a Medicare+Choice

plan at any point during the calendar year.

81

Figure 2

Stop-Loss for Expenses Above $2,500 Will Cover Just 16 Percent of Total Annual

Drug Spending by Medicare Beneficiaries 2

Source: National Academy of Social Insurance, 1999; estimates of 1999 expenditures by Actuarial Research Corporation based on data from the 1995 Current Beneficiary Survey. HIAA estimates of amounts within each category. 2 Expenditures include out-of-pocket spending and third-party payments. Figures are for all

non-institutionalized Medicare beneficiaries except those who enrolled in a Medicare+Choice

plan at any point during the calendar year.

Figure 3

Stop-Loss for Expenses Above $5,000 Will Cover Just 4 Percent of Total Annual

Drug Spending by Medicare Beneficiaries 3

Source: National Academy of Social Insurance, 1999; estimates of 1999 expenditures by Actuarial Research Corporation based on data from the 1995 Current Beneficiary Survey. HIAA estimates of amounts within each category. 3 Expenditures include out-of-pocket spending and third-party payments. Figures are for all

non-institutionalized Medicare beneficiaries except those who enrolled in a Medicare+Choice

plan at any point during the calendar year.

In short, a ‘‘drug-only’’ policy is unlikely to meet the promise of guaranteeing all

seniors access to expanded prescription drug coverage.

A Drug Mandate Is Also a Bad Idea

Another bad idea is mandating drug coverage for Medicare+Choice plans or Medicare supplemental insurance. (More than 20 million Medicare beneficiaries have

Medicare supplemental coverage, with about nine million policies purchased individually and 11 million through the group market.)

HIAA is strongly opposed to proposals that would require Medicare supplemental

insurance or Medicare+Choice plans to cover the costs of outpatient prescription

drugs without the addition of prescription drug coverage as a Medicare covered benefit. The growing cost of pharmaceuticals would force plans with mandated drug

coverage to raise premiums, increase enrollee cost-sharing, or reduce other benefits,

all of which would be counterproductive as seniors dropped their supplemental or

82

Medicare+Choice coverage. Mandated drug coverage could also lead to overly-restrictive government limitations on private plans, such as prohibitions on the use of

formularies or mandating certain levels of coinsurance.

Today’s Medigap marketplace is convenient and flexible, offering many choices to

seniors. Of the 10 standard Medigap policies (A through J) sold, three (H, I, and

J) provide varying levels of coverage for outpatient prescription drugs. Largely because of the increased costs of the policies with drug coverage, only a relatively

small number of seniors have chosen to enroll in them. Of the 9.5 million Medicare

beneficiaries with individually purchased Medigap policies, HIAA estimates that

only 1.3 million have drug coverage through the standardized H, I, or J plans.

Several studies show that adding a drug benefit to Medigap plans that currently

do not include such coverage would increase premiums dramatically. Seniors who

today have chosen to purchase Medigap policies that do not provide a drug benefit

would end up paying $600 more a year (assuming a $250 deductible for the policy),

according to HIAA estimates.

If Congress were to require more comprehensive drug coverage, those premiums

could double. According to a May 1999 study by HIAA and the Blue Cross Blue

Shield Association, requiring all Medigap plans to include coverage for outpatient

prescription drugs would raise Medigap premiums by roughly $1,200 per year, an

increase of over 100 percent.

Premium increases of 50 to 100 percent would result in many seniors dropping

their Medigap coverage, leaving them without protection against the high out-ofpocket costs of the hospital and physician services not covered by Medicare. Moreover, increases of this magnitude would discourage employers (who are also purchasers of supplemental coverage) from offering such a benefit at all.

It is doubtful, then, that requiring all Medigap policies to include a drug benefit

would be popular with seniors—who would experience diminished choice of policies,

higher prices, and in some cases, loss of coverage.

Initial Comments on House Republican Drug Plan Concept

Mr. Chairman, while the press has reported over the past several days about aspects of the developing House Republican Medicare drug coverage proposal, HIAA

has not had an opportunity to review the details of this proposal. We applaud those

members of Congress that have worked hard to address this problem; however, we

must reserve final judgment until we have had the opportunity to review the final

legislative language.

First, it appears that the proposal will not rely solely on private health plans to

meet its goal of offering universal drug coverage to seniors. The ‘‘fallback’’ mechanism that has been reported in the press is a contribution to the debate that we

expect to examine more fully in the days ahead.

Second, there appears to be a recognition that Medicare+Choice plans are severely

underpaid and that more needs to be done in the short run to save the important

private health plan options that many seniors now enjoy.

The vast majority of Medicare+Choice plans now offer coverage for prescription

drugs and view this is an important benefit for seniors that they would like to continue offering. However, to the extent Medicare+Choice plans are required to cover

prescription drugs, we need to ensure payments are adequate. Under the BBA payment rules, payments to Medicare+Choice plans serving the vast majority of beneficiaries have increased only 2 percent per year, while medical inflation is increasing

at 8 percent or more. Medicare+Choice plans cannot continue to offer even the basic

Medicare benefits if this underpayment is not addressed. And as you know, prescription drug costs are increasing at a much greater rate than overall medical spending.

Therefore, for this program to be successful, the government must make a firm commitment to provide payments to private plans that will keep pace with escalating

medical costs, including those for pharmaceuticals.

Finally, we view the new Medicare board as a potentially positive development.

It is clear from our experience that HCFA’s implementation and management of the

Medicare+Choice program has been difficult. The new Medicare board may allow for

a fresh start.

Last week, HIAA released a white paper by Bruce M. Fried, the former director

of HCFA’s office of health plans and providers, which oversaw the Medicare+Choice

program. The paper finds that a combination of inadequate payments and the crushing cost of excessive government regulation are causing HMOs to withdraw from the

Medicare program ‘‘at an alarming rate.’’

This is an important point, Mr. Chairman and members of the Committee. In the

short term, whether or not Congress is able to pass a Medicare prescription drug

benefit this year, immediate steps need to be taken to resuscitate the

83

Medicare+Choice program. Mr. Fried’s paper suggests a course of action that includes:

• Congress must increase payments to Medicare HMOs to keep up with medical inflation.

• HCFA should take immediate steps to reduce the administrative burden and expense of prescriptive government regulation, and Congress should exercise its

oversight authority to ensure that this occurs.

• Congress should require HCFA to implement risk adjustment in a budget neutral

manner and direct HCFA to explore more cost effective—and less administratively burdensome—methods of assessing health risk status. Until a less burdensome system is developed, HCFA should (1) halt plans to collect multiple

site encounter data, and (2) freeze the phase-in approach so that no more than

10 percent of an Medicare+Choice Organization’s capitated payment amount

would be based on the current risk adjustment method.

• Congress should engage in increased scrutiny of the level and type of administrative burden imposed on Medicare+Choice Organizations and the impact and cost

of such burden.

• The Secretary of the Department of Health and Human Services (HHS) should

consolidate HCFA’s responsibility for overseeing the Medicare+Choice program

in one division.

We commend this paper to you, and we urge this Committee to take immediate

action to rescue this troubled program. If Congress and the Administration ignore

the pressing problems and developments in the Medicare+Choice program, the program will die a slow and painful death, and it will be difficult—if not impossible—

to generate industry support for, and involvement in, future market-oriented approaches to delivering Medicare services.

Comments on the Democratic Drug Coverage Proposal

The Democrats’ plan to extend drug coverage to Medicare beneficiaries relies primarily on an expansion of the traditional Medicare fee-for-service program. While

it avoids some of the problems that would be associated with the creation of private

‘‘drug-only’’ insurance policies, it would create a costly new benefit entitlement without substantive programmatic reforms that are so desperately needed to ensure that

the program remains on solid footing for the baby boom generation and beyond.

Moreover, it is far from clear whether payments to Medicare+Choice plans competing with the traditional fee-for-service program to provide prescription drug coverage would be adequate under the Democratic proposal to ensure the long-term

survival of the Medicare+Choice program. If these payments indeed prove inadequate, seniors could lose the private health plan options that provide them with

high quality coverage today.

Conclusion

The plight of seniors who are struggling to make ends meet and are finding it

difficult to pay for medicine is very real. But the immediacy of the problem should

not lead to short-term fixes that would do much more harm than good. We believe

Congress should step back and examine a broad range of proposals—such as financial support for low-income seniors, tax credits, and fair payments to

Medicare+Choice plans, most of which offer drug benefits. We believe there are

workable solutions that can meet the needs of our seniors without undermining the

coverage they currently rely upon. HIAA stands ready to work with the members

of this Committee, and all in Congress and the Administration, to ensure that all

seniors to have access to affordable prescription drugs.

MR. BILIRAKIS. Thank you, Chip. Dr. Feder, we have had the

pleasure of having you here before, and it is good to see you again.

Please proceed.

STATEMENT OF JUDITH FEDER

Ms. FEDER. Thank you, Mr. Chairman. Mr. Chairman, Congressman Brown, members of the committee, it is a pleasure to be with

you this afternoon to discuss the design of a Medicare prescription

drug benefit.

In brief, it is my view first that a meaningful benefit is sorely

needed. Prescription drugs have become a fundamental part of

medical treatment. It is a travesty that prescription drug coverage

84

has become a standard part of insurance coverage for the workingage population and is still not provided to the population over age

65, who most needs the protection.

Second, it is my view that the way to provide the benefit is to

build on the success of the Medicare program, not to pretend that

a means-tested voucher or reliance on a private insurance market

can be any substitute for the financial access and financial protection that is achieved by a universal public program.

Let me elaborate first very briefly on the need. Despite the widely recognized importance of drug protection, the sources of that protection are deteriorating, not improving. In recent years we have

seen a dramatic decline in the number of employers who are providing prescription drug coverage for their employees.

Medicare+Choice plans have restricted the benefits they are providing, and Medigap plans have to charge so much for their limited

coverage that it is hard anymore even to call that insurance.

In short, the sources of protection are indeed drying up.

Happily, we see less debate today than even a year ago that the

limited availability of affordable coverage is a significant problem.

But as shown this morning, we still see significant debate about

how to address that problem.

Some argue that public support is needed only by the low income

population. That argument ignores lots of evidence and lots of experience. First it ignores that the problem of affordability does not

stop at incomes of 133 or 150 percent of poverty. An individual

with $15,000, $16,000 or $17,000 is no better able to afford insurance coverage than an individual at $12,000 or $13,000. And for

people with these incomes, even relatively modest expenses on

drugs can be catastrophic.

Second, it ignores that means-tested programs, in the words of

Congressman Waxman, tend to be mean programs. They tend to

pose barriers to participation rather than promoting ready access.

They are likely to offer lower quality care. Think for a minute

whether Members of Congress would like to be in the lowest cost

plan. And as compared with programs that bring together all people of all incomes as Medicare does, they are likely to be vulnerable

to inadequate political and financial support.

Some also argue that the appropriate vehicle for coverage is a

private insurance market, again ignoring lots of evidence and experience. The Medigap and the Medicare+Choice markets show us

that competition does not provide beneficiaries service and efficiency they can count on.

On the contrary, competition creates tremendous uncertainty as

to what plan or what benefits will be available to beneficiaries at

any given time. And competition tends to divide the healthy from

the sick and the modest income from the better off as plans compete to get good risks and avoid those in need of service.

It is disconcerting at best that even when insurers themselves

acknowledge that they are not the ones to count on for stable, affordable coverage, that some nevertheless continue to insist that

they can do the job.

Today’s arguments about means testing and private insurance

and even about the destruction of industry of the private sector are

remarkably similar to the arguments that were made prior to enVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00088 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
85

actment of Medicare in 1965. We rejected those arguments as a

Nation in 1965. It is time to reject them again.

Contrary to what some would have us believe, Medicare is an

enormously successful program. It is time to incorporate prescription drug coverage that ought to be there within it according to

Medicare’s principles.

In brief, the drug benefit must be designed to provide, not just

claim, that it is a universal entitlement for all Medicare beneficiaries. That——

Mr. BILIRAKIS. Please summarize, if you will, Doctor.

Ms. FEDER. Absolutely. It must be affordable for all beneficiaries,

which means subsidies must grow across the income spectrum so

that we have universal participation to match universal entitlement, and the benefit must be defined, specific, and uniform for everyone, because we cannot have an entitlement unless beneficiaries

know what they are entitled to.

In sum, the evidence and experience makes clear that the right

thing to do is to incorporate a prescription drug coverage into Medicare, not to invent or create an alternative that is doomed to failure.

Thank you, Mr. Chairman.

[The prepared statement of Judith Feder follows:]

PREPARED STATEMENT OF JUDITH FEDER, PROFESSOR AND DEAN OF POLICY STUDIES,

GEORGETOWN UNIVERSITY

Chairman Bilirakis, Congressman Brown, distinguished Subcommittee members,

thank you for inviting me to discuss my views on the design for a long overdue

Medicare drug benefit. While there seems to be increasing agreement in Congress

about the need to provide a Medicare drug benefit, there is less consensus about

the benefit design required to ensure access to needed medications by beneficiaries.

I would like to take this opportunity to explain why a Medicare drug benefit is necessary and outline the principles that I believe are essential to keep in mind as the

legislative process unfolds.

Increasingly, advances in medical treatment take the form of new prescription

drugs which improve health outcomes, replace surgical treatments and provide

therapies for conditions that were once untreatable. Medicare beneficiaries use prescription drugs at a rate that far exceeds the non-Medicare population but they are

much less apt to have drug coverage than the general insured population. More

than one observer has noted the similarities between the current state of drug coverage for the Medicare population and the inadequate health insurance available to

the elderly before the passage of the program. Thirty-five years ago, many of the

elderly were denied the benefits of medical advances, represented then primarily

through technological breakthroughs in hospital care, because of lack of insurance.

While about one half of the population over the age of 65 had some form of hospital

insurance, the rest either could not afford insurance or did not have access to it.

Despite arguments against a government program supplanting the private market,

a bipartisan majority in Congress recognized that private insurance could not ensure that all beneficiaries would have access to the advances of modern medicine.

As was the case with hospital insurance in 1965, Medicare beneficiaries currently

receive drug coverage through a patchwork of public and private programs. In the

1990s, many beneficiaries sought drug coverage through access to employer-sponsored retiree benefits, enrollment in Medicare managed care offered by private

plans, and purchase of individual supplemental Medigap policies. Experience has

shown that much of this coverage has been either unreliable, unavailable or

unaffordable, and sometimes all three.

• While retiree health benefits typically provide a generous drug benefit, access to

this coverage depends upon whether the individual’s former employer chooses

to provide retiree coverage. Those who worked in small firms or live in rural

areas are less likely to receive these benefits. Further, all recent surveys indicate that this coverage is eroding. For example, the 1999 Kaiser Family Foundation and Health Research and Educational Trust (HRET) survey recorded a

86

decline in large firms offering retiree benefits from 40 percent in 1993 to 28 percent in 1999.

• Medicare+Choice plans, which had been a source of increasing coverage in the

mid-1990s, have cut back on their drug benefits in the past few years. For example, 70 percent of these plans now cap drug benefits at $1000 or less. Here

in the District, one plan limits coverage for brand name drugs to $400 per year;

another in suburban Maryland sets a $300 cap on coverage for all drugs. Depending upon the particular condition of the beneficiary, that limit might cover

the cost of only two prescriptions for the entire year. Further, decisions by private plans to pull out of the Medicare program in the last few years have left

beneficiaries uncertain of whether their benefits will be there when they need

them.

• Lastly, some beneficiaries obtain drug coverage through the purchase of supplemental Medigap policies. Yet, Medigap policies with drug coverage are expensive, unavailable, and inadequate. In many cases, policies with drug benefits

are subject to medical underwriting and not available for all. In other cases,

premiums are far higher than the total value of the drug benefit. The high cost

of these policies has sharply limited their appeal. A recent analysis of 1998

NAIC data shows that fewer than 2 million beneficiaries have drug coverage

through standardized Medigap plans.

There are many similarities between the current debate over a prescription drug

benefit and the earlier debate over the enactment of the Medicare program itself.

In 1965, some policymakers believed that gaps in insurance coverage could be filled

by providing medical coverage to the low-income elderly. This argument is often

heard today. Yet even with modest subsidies for individuals with incomes above 150

percent of poverty (as low as $13,000), a beneficiary would be forced to pay substantial premiums for a private plan or do without coverage. Since it is unlikely that

many low to middle income beneficiaries could afford unsubsidized premiums, they

would be forced to do without coverage despite the existence of a nominal Medicare

drug benefit. In addition, the type of coverage available in a means-tested program

is likely to be both more vulnerable and of lower quality.

We rejected a means-tested model in 1965 and we should reject it now.

In 1965, Congress rejected the notion that the private insurance market could be

counted upon to ensure health insurance coverage for the elderly. However, we continued to rely upon supplemental private coverage to fill in the gaps in benefits not

covered by Medicare. Yet failures in the individual Medigap market make it clear

that this is not a realistic expectation as far as drug coverage is concerned. Consumer Reports shows premiums for a 65 year old woman to purchase Plan I, which

covers 50 percent of drug costs up to a cap of $1250 after a $250 deductible, that

range from $2049 to $4358 in Florida. In most states, premiums rise with age. Thus,

for a 75-year old woman in Florida the premium rises as high as $4850. The cost

of the premium ensures adverse selection as only those with a strong likelihood of

high drug expenses will purchase these policies. An adverse selection cycle leads to

a spiraling of premium costs. As a result, many firms do not offer Medigap policies

with drug coverage at all. For example, MedPAC reports that in New York 14 carriers offer Plan A but only one offers Plan J, the policy with the most generous drug

benefit. Even with a modest subsidy, these policies are unlikely to be made affordable. Given the problems of adverse selection and high premium costs, it is not surprising that HIAA reports little enthusiasm for a stand alone drug policy among its

member companies. They were quoted again this week saying they were unaware

of any members that would offer coverage in response to the anticipated Republican

proposal.

We recognized that private insurance could not fill the coverage gap in

1965 and we should reject that model now.

I would argue that three principles must be maintained as a drug proposal goes through the legislative process.

• The drug benefit must be designed as a universal entitlement for all

Medicare beneficiaries. Since the program’s inception, all Medicare-covered

benefits have been available to all eligible beneficiaries, subject only to medical

requirements. This guarantee goes to the heart of the social insurance model

that has made Medicare one of the most successful and popular programs in

the history of this country. As a result of the Congressional decision to create

a universal entitlement, seniors went from being among the least likely Americans to have health insurance to the most insured segment of the population

with 97 percent of seniors covered by Medicare. Not coincidentally, the average

life expectancy for a 65 year old woman has increased by almost 20 percent

since 1960.

87

• The drug benefit must be affordable for all beneficiaries. No one would

deny that low income beneficiaries are in great need of help affording the cost

of medications. However, both the cost and critical importance of new breakthrough medications has created a problem for all beneficiaries without access

to prescription drug coverage. More than half of all beneficiaries without coverage have incomes about 150 percent of poverty and one-fourth have incomes

above 400 percent. It is entirely unreasonable to assume that a widow with an

income of $15,000 per year could afford to purchase private drug coverage even

if that coverage was offered to her. This problem would only increase over time

as premiums surged because of the same cycle of adverse selection that currently affects the Medigap market.

• Beneficiaries in all areas of the country, rural and urban, healthy and ill,

must have secure access to a standard benefit. As long as it is left to the

private market to design actuarially equivalent benefits, beneficiaries will be

forced to navigate their way through a confusing morass of differing benefit limits, deductibles, copays, formularies, and pharmacy networks. The potential for

benefits designed to facilitate cherry-picking of healthy beneficiaries will be

great. Access to coverage will continue to depend upon where an individual lives

and what her medical condition is. In addition, insurers might offer low option

coverage that would erect barriers to beneficiaries receiving the innovative medical treatments that they required. Paper drug coverage might turn out to be

less than adequate when an individual most needed it.

Drugs are expensive no matter who buys them. Seniors cannot bear this cost

alone. The increased use of prescription drugs by all of us but particularly seniors,

and the rising cost of new therapies makes cost containment concerns inevitable. We

must use the best tools available to us to control costs and recognize that we will

learn more as we go along. In sum, Mr. Chairman, Medicare has been a successful

program for 35 years. It is time that we built upon this system that we know works

to fill the critical gap in coverage that still exists so that we, as a society, have ensured that the benefits of pharmaceutical advances are available to all who need

them.

Mr. BILIRAKIS. Thank you. Mr. Donoho.

STATEMENT OF PATRICK B. DONOHO

Mr. DONOHO. Mr. Chairman and Mr. Brown, members of the

committee, my name is Patrick Donoho. I am Vice President of

Government Affairs and Public Policy for the Pharmaceutical Care

Management Association.

PCMA represents managed care pharmacies and organizations

who a substantial part of their business is managing pharmacy

benefits. We are the PBM industry.

I am pleased to provide you some of our outlooks on views on

providing the prescription drug coverage under Medicare.

Our members currently provide care for over 10 million Medicare

beneficiaries through employee retirement plans and

Medicare+Choice plans.

Collectively they cover benefits for over 150 million Americans.

We are pleased that many of the pending proposals recognize that

it would be more efficient to use existing drug benefit managers in

an expanded Medicare drug benefit program than to attempt to recreate these capabilities in HCFA.

Let me give you our six basic principles that we think would

make a successful program.

First, the benefit should be delivered in a manner that enhances

the health of seniors and the disabled. It is essential that the program not simply help pay for drug costs but also protect the health

of seniors. Some drugs are inappropriate for use among the elderly;

others are used at different dosing levels than are appropriate for

younger populations.

88

Seniors without prescription drug coverage do not currently benefit from the safety of drug interaction screening mandated by

OBRA 1990 for Medicaid recipients and presently in virtually all

third-party programs.

Second, legislation should provide the benefit through the private

sector. Competition among private sector PBMs delivers significant

cost savings and has spurred innovation in the use of advanced

technology for administering those benefits.

A new drug benefit should embrace and promote competition

among these entities and ensure the vitality of innovation through

competition.

We had a slight discussion yesterday in Ways and Means and repeated it here today about rural coverage. Many of the plans in the

private sector today mandate that you have rural coverage, and I

think there are 52,000 pharmacies in the United States, and we

have to ensure that we have coverage for the people in the plans

that we administer.

Third, the legislations should retain flexibility and cost controls

within the private sector. Prescription drug coverage for Medicare

enrollees must permit pharmacy benefits managers to continue

such programs as pharmacy network management, formulary development and management, mail service pharmacies, disease

management, prescription compliance and adherence programs,

utilization review, and provider profiling for adherence to best medical practices.

Fourth, legislation should encourage the continuation of current

prescription benefit plans. A prescription drug benefit plan for seniors should contain some incentives for employers to continue to

provide prescription drug coverage to their current retirees.

Fifth, a plan should be designed to protect beneficiaries against

catastrophic liability.

And sixth, the goal of an agency overseeing the administration

of a prescription benefit should be to foster innovation and competition. The legislation should not freeze in time the management

techniques used today by PBMs.

In examining the various proposals that have been announced or

introduced, we see much commonality. In particular, most proposals appropriately focus on PBMs, encouraging or mandating use

of the latest tools to improve health outcomes and to eliminate

medical and medication errors.

Where proposals differ is on whether we as PBMs will have the

flexibility to use our tools in the management of the benefit. Any

legislation that does not empower us as PBMs to negotiate discounts in the pricing concessions from drug manufacturers and

pharmacies, as we do today in private plans, will not be able to deliver on the anticipated cost savings.

We share the concerns expressed by the Congressional Budget

Office and the General Accounting Office that political pressures on

policymakers and PBMs might limit the tools available to a PBM,

making it more a transaction processor than a benefit manager.

We also share the concerns of some of the authors of the proposals that HCFA is unlikely to favor competition over regulation.

Therefore, we are pleased to see that some legislation envisions

new structures for administering a Medicare drug benefit.

89

I am willing to answer questions hereafter and am willing to

help you craft a bill. Thank you.

[The prepared statement of Patrick B. Donoho follows:]

PREPARED STATEMENT OF PATRICK B. DONOHO, PHARMACEUTICAL CARE

MANAGEMENT ASSOCIATION

Mr. Chairman, Mr. Dingell, members of the Committee, my name is Patrick

Donoho and I am Vice President of Government Affairs and Public Policy for the

Pharmaceutical Care Management Association (PCMA). I am pleased to appear before you today to testify on behalf of the PCMA.

PCMA represents managed care pharmacy and pharmacy benefit management

companies (PBM). Members are organizations that, as a substantial portion of their

business, manage pharmacy benefits. PCMA’s member firms are an extremely diverse group, including both publicly traded companies and divisions or subsidiaries

owned by other healthcare organizations. While many of our members serve broad

national populations, some focus on the needs of specific communities such as patients with HIV/AIDS, organ transplants, or cancer.

We are pleased to provide our association’s views on providing coverage for prescription medicines for those individuals enrolled in the Medicare program. Our

members have a deep interest in the subject of this hearing. Already today, our

member companies provide quality, affordable pharmaceutical benefits to more than

ten million current Medicare’ beneficiaries who receive these benefits through their

or their spouse’s former employers or through Medicare+Choice plans. Collectively,

PCMA’s members administer prescription drug programs for more than 150 million

Americans. All of the major legislative proposals for expanding prescription drug

coverage propose using PBMs to deliver these benefits. We are pleased that all of

these proposals recognize that it would be more efficient to use existing drug benefit

managers in an expanded Medicare drug benefit program than to attempt to recreate those capabilities within HCFA.

As an industry, we have been successful in not only managing the cost of these

benefits but also in managing the quality. We know how important good pharmaceutical care is to the elderly and disabled. Therefore, PCMA supports legislative

efforts to ensure that all seniors have access to prescription drug coverage. Any program to provide prescription drugs to seniors should rely on the demonstrated drug

management experience of the private sector to operate an efficient and cost effective program.

PCMA’s Principles

As the Committee examines various proposals for expanding access to medicines

for Medicare beneficiaries, we urge you to consider six principles that we have

agreed to as an association of member companies to whom much responsibility will

be placed by any legislation.

First, the benefit should be delivered in a manner that enhances the health of

seniors and the disabled. It is therefore essential that the program not simply help

pay for the cost of drugs, but also include pharmacy benefit management services

to ensure that seniors obtain, and remain compliant with, clinically appropriate and

cost effective drug therapy.

Many drugs are inappropriate for use with the elderly, others should be used at

different dosing levels than are appropriate for younger populations. Seniors without prescription drug coverage do not currently benefit from the safety of drug interaction screening mandated by OBRA ’90 for Medicaid recipients and present in virtually all third party programs.

Second, legislation should provide the benefit through the private sector. Competition among private sector PBMs deliver significant cost savings and spurred innovation and the use of advanced technologies for administering drug benefits. PBMs develop and administer disease and wellness management programs specifically designed for elderly populations. A new benefit should embrace and promote competition between these entities and ensure the vitality of innovation through competition.

Third, legislation should retain flexibility and cost controls within the private sector. Innovation and creativity in pharmaceutical care has resulted in a number of

programs and services that have improved care and managed costs. Prescription

drug coverage for Medicare enrollees must permit pharmacy benefits managers to

continue this development and use such programs as pharmacy network management, formulary development and management, mail service pharmacy, disease

management, prescription adherence programs, utilization review, provider profiling

90

for adherence to best medical practices, and other such programs to manage the

benefit.

Fourth, legislation should encourage the continuation of current prescription benefit plans. In order to encourage employers to continue to provide prescription drug

coverage to their retirees, a new prescription drug benefit for seniors should contain

financial incentives to compensate employers for, and recognize the financial impact

of, their efforts.

Fifth, a plan should be designed to protect beneficiaries against catastrophic liability. Recognizing that many seniors have limited incomes and that major or

chronic illnesses can impose significant drug costs in a single year, any new Medicare prescription drug benefit should endeavor to include an out-of-pocket expenditure cap.

Sixth, the goal of any agency overseeing the administration of a prescription drug

benefit should be to foster innovation and competition for improving pharmaceutical

care and the provision of a cost-effective program. PBMs must be able to create financial incentives to encourage Medicare beneficiaries to help control the cost of the

benefit. Moreover, the legislation should not freeze in time the management techniques used today by PBMs. To do so would cause the drug benefit to lose the opportunity for innovation and improvement, which has been the hallmark of the pharmacy benefits management industry.

Review of Current Proposals

In examining the several proposals that have been announced or introduced as

legislation, we see much commonality in meeting the goals we seek. In particular,

most proposals appropriately focus on PBMs, encouraging or mandating use of the

latest tools to improve health outcomes and eliminate medical and medication errors. Most proposals also seek to ensure that those Medicare beneficiaries who today

have good private sector coverage can keep that coverage by rewarding, through financial incentives, employers that have served well the interests of their retirees

by covering prescription drugs within their health benefits. And, importantly, most

proposals would address the issue of providing protection against catastrophic costs.

Where proposals differ is on whether we as PBMs will have the flexibility we need

to control costs. Any legislation that does not empower us as PBMs to negotiate discounts and other pricing concessions from drug manufacturers and pharmacies—as

we do today in private plans—will not be able to deliver the anticipated cost savings. Our members are strongly united on this point. Restrictions on the use of common, private-sector cost containment tools, as we see in some legislation, will deny

our members the ability to do what we do best in terms of providing a cost effective

benefit in the interests of patients and the taxpayers who will pay for this program.

We share the concerns expressed by both the Congressional Budget Office and the

General Accounting Office that political pressures on policy makers and PBMs

might limit the tools available to a PBM, making it more a transaction processor

than a robust benefit manager. Such tools as managed pharmacy networks and negotiated reimbursements, formulary development and management, and beneficiary

cost sharing of areas which may be restricted by a program that is less private sector are examples oriented, and therefore less competitive.

Proposals also differ on the administration of the program. We share the concerns

of some of the authors of proposals that HCFA is unlikely to favor competition over

regulation. Therefore, we are pleased to see that some legislation envisions new

structures for administering a benefit.

In conclusion Mr. Chairman, as an industry we are ready, willing and able to provide our expertise and experience in providing prescription drug benefits to all

Medicare beneficiaries. Our support of the various proposals will be based on the

authority and flexibility granted PBMs to implement all of their programs to effectively manage costs, foster innovation, and enhance the quality of pharmaceutical

care for seniors. We will assess the probability of regulatory limitations, de jure or

de facto, on the ability of PBMs to perform this role. We again appreciate your seeking PCMA’s views and look forward to your questions.

Mr. BILIRAKIS. Thank you for that, Mr. Donoho. Mr. Pollack.

STATEMENT OF RONALD F. POLLACK

Mr. POLLACK. Mr. Chairman, thank you very much for inviting

us to lunch. I appreciate it.

In my testimony, I focused on the need for a prescription drug

benefit and for moderating prices. Here I would like to focus on the

legislation that we have been talking about this morning, mainly

91

because there appears to be a rush to mark up this legislation, and

notwithstanding the fact that this is still a work in progress, I

think we know enough to say there’s reason for abundant caution.

Clearly, the proposal looks much better from a distance than it

does closer up. Let me suggest to you five areas that I would like

to see us look more carefully at.

First is the question about the reliance on the private insurance

industry to provide this policy. We have had ample discussion

about this this morning. We know that the industry, notwithstanding the fact that it has been offered very significant subsidies,

has balked at offering this coverage through its own private plans.

But we do not need merely the protestations of the industry to

tell us that we have to look at this with abundant caution. We have

experience with the Medigap program which for many years has

been offering a prescription drug benefit. And I would suggest if I

may, if you look on Appendix 2 that is appended to my testimony,

one of the things we looked at were the differences in prices that

people experienced for very comparable policies, one that provides

prescription drug coverage, and another that does not.

Now what we find first of all is that only 8 percent of America’s

seniors in the Medicare program have opted into a Medigap plan

that provides prescription drug coverage. This is a mature product,

and yet only 8 percent of America’s seniors have opted into it.

If you look at the comparison between Plan F and Plan J under

Medigap, with J being the one that provides a prescription drug

benefit, you will see on average the price differential is over $1,700.

It gives you good reason why it is unlikely that the industry is

going to be able to develop a plan that is going to be usable.

And if I can accentuate one thing, it is the second point. That

is, that I do not think that seniors are going to get good value for

their premium dollar under this proposal. There are three reasons

for that. One reason Mr. Ganske has already explained, and that

relates to adverse selection. I would be happy to discuss what I

think is a real comparison between the potential adverse selection

problems in the administration’s proposal and this one. I think

there is a major difference. But obviously there is a significant adverse selection problem.

But there are two other concerns. And that is that Medigap plans

use about 35 percent of the premium dollar on items that have

nothing to do with claims benefits, whether it includes agent’s fees,

advertising and marketing, profits and administration, it is considerably more expensive than it is under the Medicare program, and

that means less value is provided.

But perhaps the most important reason really goes to the question as to why the pharmaceutical industry, sight unseen, is giving

us full-page advertisements telling us why they support legislation

that has not even been crafted into language. And I think the reason is very obvious. The pharmaceutical industry knows that if we

establish private insurance policies, we are not going to have the

same kind of marketing power that exists in the Medicare program.

We will have very vulcanized bargaining power when you have various insurance companies negotiating for seniors as opposed to the

Medicare program that can really bring clout to the table. And

92

frankly, that is the bottom line difference between this bill and the

administration’s bill.

Under this bill, there would not be that bargaining power to rein

in the prices, and as a result, senior citizens would not get the

value that they would receive under Medicare.

Third, it is really absurd to now pull at the thread of the genius

of the Medicare program, which is a program that brings people together irrespective of their age, irrespective of their health condition, and irrespective of their income. And now we want to in effect

provide a means-tested benefit.

Now I do not want to take second seat to anyone in saying I support a special care for the poor. But as Judy Feder indicated, we

are talking about a very miserly standard here. When we are talking about 150 percent of the Federal poverty level, we are talking

about $12,525 a year in income for a widow.

And if I may just refer you to Appendix 8 in the testimony, let’s

take a look at what the costs are for that widow and what a bite

out of her income it will take when she has just minor health conditions.

If she has a problem with diabetes, hypertension and cholesterol,

she is going to take Glucophage, Procardia XL, and Lipitor 10, and

that is going to cost her as much as $2,295 a year. That comprises

over 18 percent of her income. One out of every $6 of her total income just for those three pills, and we are saying we are not going

to provide benefits for people at that income level.

Mr. BILIRAKIS. Mr. Pollack, your time has long expired. If you

could summarize within just a few seconds, I would appreciate it.

You know, you will probably have an opportunity to make these

points, which are very good ones, during the inquiry section.

Mr. POLLACK. Well I guess the last point I would make, very

shortly, is the question about this fallback. What is this fallback?

Is this fallback in effect going to be a public program for those portions of the population that the industry does not wish to serve?

If it does, we are going to have wonderful segmentation. We are

in effect inviting the insurance industry to provide coverage for

those people who are the easiest to cover. The least sick, the youngest, and those portions of the geography of our country that they

think they can make a profit in. And of course then perhaps the

Medicare program would wind up holding the bag for all the rest.

I fear that years from now we are going to come back and look at

such a scheme——

Mr. BILIRAKIS. Mr. Pollack——

Mr. POLLACK. [continuing] and we are going to say the Medicare

program does not function well.

[The prepared statement of Ronald F. Pollack follows:]

PREPARED STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA

Mister Chairman and Members of the Committee: Thank you for inviting me to

testify today. Families USA is a national non-profit organization dedicated to protecting and improving the health care of consumers. We have been engaged in analyzing the implications of changes in the Medicare program on Medicare beneficiaries for some time. Our most recent research efforts have focused on examining

the prices of prescription drugs and what impact those rising prices have on prescription drug coverage for Medicare consumers. This testimony will describe what

we have learned about drug prices. The bottom line is that seniors need help to buy

the drugs they need. A sound public policy will ensure that seniors gain the benefit

93

of two basic policy changes, Medicare coverage of prescription drugs and reasonable

steps to ensure that drug costs are moderated.

Medicare beneficiaries are the only insured population group without prescription

drug coverage. At any point, approximately 35 percent of all Medicare beneficiaries

are without drug coverage. Over the course of the year, nearly half of all Medicare

beneficiaries are without drug coverage for all or part of the year. (See Appendix

1.) Based on recent trends, it is likely that this situation will get worse. Among the

primary sources of prescription drug coverage for those beneficiaries who have it—

Medigap, Medicare+Choice, and employer-sponsored coverage—drug coverage is increasingly unaffordable and unreliable.

Medigap: Individually purchased Medigap policies cover a relatively small number

of Medicare beneficiaries, roughly 3.3 million beneficiaries (or about eight percent

of all Medicare beneficiaries). Given the additional cost of a prescription drug policy,

it is understandable why a senior living on a fixed income does not see this as an

affordable option. Looking at the average cost of Medigap policies with and without

prescription drug coverage, the cost differential clearly illustrates why few people

purchase plans with drug coverage. Simply put, the costs of the plans with drugs

are considerably more expensive—substantially as a result of adverse selection.

If you compare premiums for two moderate policies (of the ten standardized

plans)—plans letters E and H, where the only significant difference in coverage is

that the latter covers drugs and the fomer does not—you will see an annual premium difference of approximately $600. Even so the drug plan is sparse. The drug

benefit under plan H has a $250 deductible, a 50 percent copayment, and a cap of

$1250—coverage that still leads to significant out-of-pocket costs for beneficiaries.

The premium differential is considerably larger for plans with more considerable

health coverage. The difference between Plan F (without drug coverage) and Plan

J (with drug coverage) is more than $1,700 per year. Clearly, for many, the premiums for Medigap drug plans are unaffordable (see Appendix 2).

Medicare+Choice: Approximately 13 percent (5.2 million) Medicare beneficiaries

had some prescription drug coverage through a Medicare+Choice plan. However,

Medicare+Choice plans are an increasingly unreliable source of prescription drug

coverage for seniors because plans covering prescription drugs are not offered consistently across the country and the benefits they offer are being reduced. In 2000,

beneficiaries in four states (AR, IO, NE, and WV) have no access to plans offering

drug coverage. In an additional four states (DE, LA, NM, and NC), beneficiary access to plans with drug coverage decreased significantly.

Obviously, as health plans drop out of Medicare+Choice, the availability of prescription drug coverage is jeopardized. For those beneficiaries who do have access

to plans with drug coverage, the value of the drug benefit is decreasing. Between

1999 and 2000, the proportion of plans with benefit caps of $500 increased by 50

percent. During the same period, the number of beneficiaries living in areas with

copayments on brand name drugs averaging at least $25 more than tripled. Recent

announcements from two major Medicare+Choice plans suggest beneficiaries will

have fewer options in 2001. Cigna Corporation recently reported it will no longer

serve Medicare markets in 11 states beginning January 2001. Aetna Inc., will also

terminate its participation as a Medicare+Choice provider in a number of markets

in January 2001.

Employer-Sponsored Retiree Coverage: Employer-sponsored retiree coverage is declining, leaving more Medicare beneficiaries on their own to purchase coverage or

to pay for drugs out-of-pocket. Among large firms of 1,000 or more, the percentage

of large firms offering retiree coverage dropped from 80 percent in 1991 to 67 percent in 1998. The trend is the same across firms of all sizes. According to a recent

Mercer Foster-Higgins survey, the percentage of firms offering retiree coverage

dropped from 40 percent in 1994 to 28 percent in 1999. Thus, employer-sponsored

retiree coverage—which has been the most significant pathway to drug coverage for

seniors—is diminishing rapidly (see Appendix 3).

Rising Prices and the Impact on Seniors

Seniors without drug coverage are most affected by rising prescription drug

prices. In November 1999 Families USA released a report looking at prices of the

50 top-selling drugs for seniors. The report found that prices of these 50 top-selling

drugs rose much faster than inflation. In April we released an updated version of

that report, ‘‘Still Rising: Drug Price Increases for Seniors 1999-2000.’’ Among the

50 top-selling drugs for seniors, there was some good news and some bad news. The

good news for the 1999-2000 period was that the prices of 12 of the 50 drugs rose

slower than inflation—with nine of those not increasing in price at all. The bad

news was that 33 of the 50 drugs rose in price at least one and one-half times inflation. Half of the drugs rose at least twice as fast as inflation. Sixteen drugs rose

94

at least three times inflation and one-fifth (11) rose at least four times the rate of

inflation (see Appendix 4).

Some drugs are rising at much faster rates. For example, the price for furosemide,

a generic drug, rose 50 percent in this one year. Klor-con 10, a brand name drug,

rose 43.8 percent (see Appendix 5).

The report also compared prices over the six-year period of 1994-2000. Thirty-nine

of the 50 drugs were on the market for the full six years. Of those 39 drugs, prices

for 37 rose faster than inflation (see Appendix 6). Prices for three-fourths (30) rose

at least 1.5 times inflation. Over half (22) rose at least twice as fast as inflation

and over a quarter (11) rose at least three times the rate of inflation. Six drugs rose

at least five times the rate of inflation. Examples of some of the faster growing

drugs include lorazepam (which rose 409 percent, or 27 times inflation) and

furosimide (which rose 210 percent, or 14 times inflation). (See Appendix 7.)

While these price increases may seem dramatic, the impact on seniors is clear

when we look at two examples:

For a widow or widower with a gastrointestinal problem, the drug most likely to

be prescribed is Prilosec. Based on 1998 data from the Pennsylvania Pharmaceutical

Assistance Contract for the Elderly (PACE) program (the largest outpatient prescription drug program for older Americans), Prilosec is the second highest of all the

top-selling drugs prescribed for seniors. The annual cost for a senior with no drug

coverage taking Prilosec (20 milligram, controlled release capsules) is $1,455. For

a widow or widower subsisting at 150 percent of poverty ($12,525 of income per

year), the annual cost of Prilosec alone will consume more than one in nine dollars

(11.6 percent) of that senior’s total budget. Even at twice the poverty level ($16,700

per year), Prilosec will consume almost one out of eleven dollars (8.7 percent) of that

widow’s total income (see Appendix 8).

The second example is a senior with no drug coverage who has diabetes, hypertension, and high cholesterol—three conditions that often occur in conjunction with

one another. A widow with these three conditions is likely to be treated with

Gluophage, Procardia XL, and Lipitor. Annual costs for Gluophage (500 milligram

tablets) will be $708. Annual costs for Procardia XL will either be $521 or $901, depending on whether 30-milligram tablets or 60-milligram tablets are prescribed. The

annual cost for Lipitor (10 milligram tablets) will be $686 (see Appendix 9).

Thus, total annual spending for seniors with diabetes, hypertension, and high cholesterol—for these three drugs alone—will range from $1,915 to $2,295. For a widow

subsisting at 150 percent of poverty, this expenditure will constitute as much as

18.3 percent of her annual income. Even at twice the poverty level, these costs will

consume up to 13.7 percent of her annual income. These costs, therefore, are likely

to cause significant economic hardships.

Clearly, affordability of prescription drugs is a problem. Coverage for prescription

drugs, for those people who have it, makes a difference as to whether or not seniors

get the drugs they need. In 1996, seniors with drug coverage obtained, on average,

21 prescriptions, while those without drug coverage received only 16 prescriptions

(see Appendix 10).

Paying More For Prescription Drugs in the U.S. Than In Other Countries

It is clear that drug prices are much higher in the United States than they are

in other countries. Several months ago USA Today compared prices in the U.S.,

Canada, Great Britain, and Australia for the ten best-selling drugs. The comparison

found that Prilosec was two to two-and-one-half times as expensive in the U.S.;

Prozac was two to two-and-three-quarters as expensive; Lipitor was 50 to 92 percent

more expensive; and Prevacid was two-and-one-third to four times more expensive.

Only one drug was cheaper in the U.S. than in the other countries, Epogen. In the

case of all other ten drugs, the U.S. price was highest, by far (see Appendix 11).

Two General Accounting Office studies from 1992 and 1994 show similar results.

Comparing prices for 121 drugs sold in the U.S. and Canada, prices for 98 were

higher in the U.S., and almost half were more than 50 percent higher. Comparing

77 drugs sold in the U.S. and in the United Kingdom, 86 percent of the drugs were

higher in the U.S. and more than 60 percent were more than twice as high in the

U.S.

The R&D Defense is a Canard

The pharmaceutical manufacturers argue that they need these higher prices so

they can undertake research and development. They say that, if we reduce these

prices, research and development will be curtailed. The drug industry’s assertion in

this respect is wildly exaggerated. Among the top pharmaceutical companies, more

money goes for marketing, advertisement, and administration than for research and

development. More money is received in profits than is spent on research and develVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00098 Fmt 6633 Sfmt 6621 E:\HEARINGS\65804 pfrm01 PsN: 65804
95

opment. In 1999, among the five companies with the highest revenues, four spent

at least double on marketing, advertising and administration than was spent on research and development. For example, Merck spent considerably more than twice

as much on marketing, advertising, and administration than it did on research and

development. Comparable comparisons apply to other large pharmaceutical companies. Indeed, for the ten companies with the highest revenues (for which data are

available), only one reports spending more on research and development than on

marketing, advertising, and administration. Merck’s profits for that year were approximately three times its research and development budget (see Appendix 12).

For the manufacturers of the top 50 drugs sold to seniors, profit margins are more

than triple profit rates of other Fortune 500 companies. These drug manufacturers

are receiving an 18 percent profit rate of total revenues compared to approximately

five percent for other Fortune 500 companies (see Appendix 13). Given their profit

margins and advertising budgets, it is a wild and irresponsible exaggeration for

pharmaceutical companies to suggest that, if prices were moderated, the first and

only place they would cut is their research and development budget.

The pharmaceutical manufacturers are quick to overstate the role they play in research and development and to understate the role the government plays in this

area. According to a study conducted by MIT and cited in the New York Times, of

the 14 most medically significant drugs developed over the past 25 years, 11 have

roots in research funded by the government. In general, much of the basic research

essential to the development of new drugs is conducted at NIH or funded by the

government. Taxol and Xalatan are examples of drugs developed from basic research

conducted by the government. These two drugs alone now earn their manufacturers,

Bristol-Myers Squibb and Pharmacia, hundreds of millions of dollars annually (see

Appendix 14).

It is amusing to see how the pharmaceutical industry has a love-love-love-lovehate relationship with the US government. On the one hand, the industry loves the

advantages gained through NIH research, patent protections, and laws governing

re-importation. In addition, the industry loves the multiple tax advantages it receives, including the research and development tax credit and tax breaks for manufacturing in Puerto Rico. On the other hand, they continue to object to any effort

by the government to moderate prices for the population most in need of drugs, the

seniors and persons with disabilities in Medicare.

The rising prices of prescription drugs in the U.S. and the difference between

what consumers pay in the U.S. compared to other countries raises real questions

about equity and fairness of the drug industry’s pricing practices. However, the best

protection for consumers against high prices is to have guaranteed coverage that

uses market clout to moderate drug prices and helps consumers pay for these drugs.

Recommendations for Affordable Drugs for Seniors

A sound public policy will ensure that seniors gain the benefit of two basic policy

changes, Medicare coverage of prescription drugs and reasonable steps to ensure

that drug costs are moderated. The principles for those changes include:

• Coverage must be a defined benefit (both basic and catastrophic) included in Medicare, not the promise of access to a private insurance policy: Prescription drug

coverage should be added to the Medicare benefits package in such a way that

beneficiaries have the same guaranteed coverage for drugs that they have today

for hospital, physician and other Medicare covered services. Public policy predicated on the availability of private-sector drug-only insurance will be a mirage

for most seniors. Insurance companies are unlikely to provide such coverage,

and the premiums would quickly be unaffordable due to adverse risk selection.

• Prescription drug costs must be contained: A Medicare drug benefit will not be affordable if it does not include efforts to contain prescription drug costs. There

are a number of mechanisms that Medicare can use to contain costs but Medicare should use its size to leverage the lowest price possible.

• The Medicare benefit must be affordable to all seniors, with special subsidies for

low-income beneficiaries: The Medicare benefit must offer coverage that is affordable, including reasonable premiums and coinsurance requirements, and it

should include catastrophic protections. Poor and near-poor Medicare beneficiaries should receive special assistance in paying for their premiums and outof-pocket expenses. Low-income beneficiaries should have the premiums fully

subsidized and should also receive help with any coinsurance requirements.

• Administration of low-income protections should be improved: The low-income assistance component of Medicare should eventually be integrated into the Medicare program, including full federal funding and federal administration of this

benefit. It makes little sense to foist responsibilities of low-income protections

on the states through Medicaid.

96

Concerns about ‘‘Medicare Rx 2000’’

In response to the prescription drug plan unveiled by Congressman Bill Thomas,

we have a number of concerns regarding the contents of this proposal. We believe

this plan will not provide a real benefit for seniors and it does not meet the basic

principles outlined above. More specifically, we raise the following concerns:

• Medicare Rx 2000, like previous versions of this plan, relies on private insurance

offering prescription drug coverage, something the insurers have already emphatically stated they will not do. In fact, the president of the Health Insurance

Association of America called this idea ‘‘an empty promise to America’s seniors.’’

• The plan apparently has a provision that requires the government to step in when

plans are not available. This means that the government will try to negotiate

with the plans to make offering coverage more attractive to them. It does not

mean that the government will offer a plan. When the sponsor, Cong. Thomas,

testified that ‘‘this is a guaranteed entitlement,’’ it remained unclear how seniors would get this coverage and now much he proposes that the government

should pay insurance companies to induce their participation. There appears to

be no mechanism to ensure that Medicare beneficiaries gain the benefit of the

subsidies to insurance companies.

• Under this plan, consumers with incomes over $12,525 a year must pay 100 percent of the cost of the private plan, even if the insurance companies can be persuaded to offer it. Under this income level there is some help for the premium

of the lowest-cost plan. There is no help for co-payments or the deductible. The

lowest-cost plan could be a lower-quality plan. This scheme potentially creates

a two-tiered system with lowest-income people segregated into lower-quality

plans.

• Consumers don’t know what they will to get in drug coverage. The proposal leaves

the actual benefit undefined. The plan has an actuarial value of $740. The deductible, co-payments and benefits will vary across the country. In some areas

this amount will buy more than in others. Administrative costs (usually around

35% in Medigap plans as compared to 3% in Medicare) will most likely come

out of the actuarial amount.

• For oversight, the proposal—ironically—creates a new federal bureaucracy with

its own budget authority. It makes recommendations directly to Congress and

the President. The term of office is not concurrent with the administration. The

‘‘new agency’’ does not report to the secretary. This appears to be a ‘‘new agency’’ that has office space within the Department of HHS, but acts independently

on all matters within its charge.

In conclusion, we hope to work with members of this committee and the rest of

the Congress to make a prescription drug benefit in Medicare a reality.

97

98

99

100

101

102

103

104

105

106

107

108

109

Mr. BILIRAKIS. Mr. Pollack, I am sorry to cut you off, but I have

really got to move on.

Ms. Davenport-Ennis, please proceed.

STATEMENT OF NANCY DAVENPORT-ENNIS

Ms. DAVENPORT-ENNIS. Thank you, Chairman Bilirakis and

members of the committee for your invitation to be here this afternoon.

I am Nancy Davenport-Ennis. I am the Executive Director of two

national organizations, one of which is the National Patient Advocate Foundation. Our organization supports public policy that ensures patients timely access to cutting-edge therapies.

Our affiliate, the Patient Advocate Foundation, provides oncology

nurse case managers, coding and billing specialists, and attorneys

to both consult and intervene on behalf of patients who have faced

denial of access to care in the health care delivery system in this

country.

Based on the work of our organizations, we are pleased to share

our ideas for the design and implementation of such a program.

Our ultimate goal is a rational and balanced prescription drug

program that will meet the needs of all seniors, including individuals with serious and life-threatening diseases.

Because of our experience with cancer patients and perhaps because I am a twice survivor of cancer, I am the mother-in-law of

a cancer survivor, I am the aunt of a now-deceased 34-year-old

niece who died after a 5-year battle with ovarian cancer, and perhaps because I have the opportunity to interface with case managers that served over 29,000 Americans last year who were facing

denial of care, many of my recommendations will be specific to the

issue of cancer protection.

I would also like to cite for the record that because I have not

had access to the bill that has been introduced, I am here to talk

about Medicare modernization and not to address specific tenets of

specific legislation.

I would like to go back to the evolution of cancer care and cite

that Medicare does pay for prescription drugs, as you know, that

are provided incident to a physician’s services.

Because most current anti-cancer drugs are administered intravenously by physicians, they are already covered by Medicare.

Cancer patients have come to expect, and in fact to prefer dramatically, care in the community setting. And I thank the Congress

for their role in seeing that we have been able to maintain continuity of care in this particular area.

With regard to the future of cancer care, Medicare currently pays

only for those oral chemotherapy agents that are a replacement for

intravenous chemotherapy agents. Oral chemotherapy drugs that

are not a replacement for existing IV drugs will be a critical part

of cancer care in the future. And cancer patients have expressed a

strong desire to use these medications.

Medicare reimbursement will play a key role in the acceptance

and proper use of these drugs. It will not be sufficient for physicians to give a patient a prescription for these drugs and have no

further responsibility for that patient’s use of the drugs.

110

The payment system must recognize that these drugs will need

to be monitored more carefully than many other self-administered

drugs because of issues of side effects and compliance; therefore,

physician reimbursement for supervision of this therapy must be

adequate.

In order to prevent financial disincentives against the use of

these drugs, including the imposition of unreasonably large copayments or coverage caps, oral chemotherapy drugs should be incorporated in the existing Medicare drug coverage system.

Our constituents—cancer patients and others with serious and

life-threatening illnesses—will benefit from a new prescription drug

benefit only if it is administered fairly and consistently.

In administering any benefit, it is essential that a balance be

achieved between the availability of the benefit and the preservation of funding for the benefit.

At times it appears as though the balance struck by HCFA is

weighted more toward preservation of financing than availability of

benefits.

I base that again on the fact that we have served so many Americans that have confronted problems with denial within the Medicare program.

Last year alone, patients from 44 States contacted us for help

with regard to denial of Medicare benefits.

A series of agency actions, both recently and historically, confirm

our concerns about HCFA’s administrative approach.

These actions include development of an outpatient prospective

payment system that would have severely limited if not eliminated

cancer care in the hospital outpatient department.

The problems in this proposal were remedied legislatively after

an outcry from patients and others.

We are concerned about the policy for injectable drugs. And certainly the Congress has been successful in once again making certain that patients will continue to have access to physician pointof-service injectable drugs.

The issue of average wholesale pricing has also been a concern.

HCFA has repeatedly sought to reduce reimbursement for Medicare outpatient drugs, threatening a situation where oncologists

would suffer a loss of drugs administered to Medicare patients.

Cancer patient groups have made clear their objections to these

changes unless the modifications are accompanied by appropriate

and adequate adjustments in chemotherapy administration fees.

With regard to clinical trials coverage, the cancer patient community celebrated a victory last Wednesday when the President announced a policy of Medicare coverage for routine patient care costs

for those enrolled in clinical trials.

We are now quite concerned to learn that HCFA has prepared

a program memoranda implementing the President’s directive that

would in fact negate the President’s announcement on this fact.

Mr. BILIRAKIS. Please summarize, Ms. Davenport-Ennis.

Ms. DAVENPORT-ENNIS. I will be happy to. I am here this afternoon to say to each of you, we are most willing to share with you

data that we have as a result of our patient cases that may be beneficial to you as you design a new Medicare program that is going

to work in the area of prescription drug benefits.

111

We will be happy to share the specifics of what we feel would be

important in that, and we are most happy to answer questions

from members of the panel this afternoon.

Mr. BILIRAKIS. Thank you, ma’am.

[The prepared statement of Nancy Davenport-Ennis follows:]

PREPARED STATEMENT OF NANCY DAVENPORT-ENNIS, NATIONAL PATIENT ADVOCATE

FOUNDATION

Good morning and thank you for inviting me to testify today on the issue of modernizing Medicare drug coverage. I am Nancy Davenport-Ennis, Executive Director

of the National Patient Advocate Foundation, or NPAF. Our organization supports

public policy that ensures patients timely access to cutting-edge therapies. Our affiliate, the Patient Advocate Foundation, provides caseworker services to individuals

who have been denied coverage for their health care.

Through our work at NPAF and the Patient Advocate Foundation, we have become quite familiar with the difficulties that Medicare beneficiaries experience in

reliably securing reimbursement for potentially life-saving therapies under the current limited drug benefit. That experience has provided valuable insights into the

appropriate structure and administration of an expanded Medicare prescription

drug benefit, and we are pleased to share our ideas for the design and implementation of a prescription drug program.

Many—although not all—of our direct services are provided to cancer patients,

and our advocacy program focuses on cancer policy issues. Therefore, some of my

remarks will refer specifically to cancer patients. However, our recommendations

have relevance for all Medicare beneficiaries. Our ultimate goal is a rational and

balanced prescription drug program that will meet the needs of all seniors, including individuals with serious and life-threatening diseases.

Evolution of Cancer Care

As you know, Medicare pays for prescription drugs that are provided incident to

a physician’s services. Because most current anticancer drugs are administered intravenously by physicians, they are already covered by Medicare. This is a system

that works well for cancer patients, and we would be concerned if any new Medicare

drug benefit changed this situation.

The gradual shift of chemotherapy from the inpatient setting to the physician’s

office has been aided by the introduction of certain supportive care products and by

the availability of Medicare reimbursement. Cancer patients have come to expect,

and in fact to prefer dramatically, that their chemotherapy be administered in the

physician’s office and that they recuperate from the effects of the therapy in their

own homes with the support of family and friends.

This shifting of practice from hospital to physician’s office has been cost-effective

for Medicare, and it has been a humane development for patients, who benefit not

only from care in the outpatient setting, but also from limited copayment requirements and the absence of a benefit cap for their cancer chemotherapy. Continuity

of care for cancer patients is very important, and changes to the current successful

system of cancer care should be approached with caution.

The Future of Cancer Care

Medicare currently pays only for those oral chemotherapy agents that are a replacement for intravenous chemotherapy agents. Oral chemotherapy drugs that are

not a replacement for existing IV drugs will be a critical part of cancer care in the

future, and cancer patients have expressed a strong desire to use these medications.

Medicare reimbursement will play a key role in the acceptance and proper use of

these drugs.

It will not be sufficient for physicians to give a patient a prescription for these

drugs and have no further responsibility for that patient’s use of the drugs. The payment system must recognize that these drugs will need to be monitored more carefully than many other self-administered drugs because of issues of side effects and

compliance; therefore, physician reimbursement for supervision of this therapy must

be adequate. In order to prevent financial disincentives against the use of these

drugs, including the imposition of unreasonably large copayments or coverage caps,

oral chemotherapy drugs should be incorporated in the existing Medicare drug coverage system.

Role of HCFA in Administering an Expanded Drug Benefit

Notwithstanding our desire to have a comprehensive program of cancer benefits

administered under Part B, we have some concerns about the expansion of HCFA

112

authority to administer a new program including all drugs. Our constituents—cancer patients and others with serious and life-threatening illnesses—will benefit from

a new prescription drug benefit only if it is administered fairly and consistently. In

administering any benefit, it is essential that a balance be achieved between the

availability of the benefit and the preservation of funding for the benefit.

At times, it appears as though the balance struck by HCFA is weighted more toward preservation of financing than availability of benefits. We are mindful of the

need for HCFA to be a responsible guardian of Medicare funds, but we do not think

that it should be the highest priority of the agency. Where the balance has not been

appropriately struck, we have seen narrow coverage determinations, resistance to

introduction of new technology, and unwarranted reimbursement denials.

A series of agency actions, both recently and historically, confirm our concerns

about HCFA’s administrative approach.

• Ambulatory Payment Classification System—HCFA’s proposal for an outpatient prospective payment system would have dramatically underpaid for certain chemotherapy agents, failed to pay for supportive therapies, and created

disincentives for the introduction of new therapies. Congress had to intercede

with revisions of the outpatient prospective payment proposal because the original plan would have severely limited, if not eliminated, cancer care in the hospital outpatient department. Just as patients prefer care in the physician’s

0ffice over inpatient care, they also prefer care in the hospital outpatient department to care as an inpatient. • Policy for Injectable Drugs—Since the inception of the Medicare program in

1 965, reimbursement has been available for injectable drugs based on the

usual method of their administration. In the last two years, however, HCFA has

attempted to modify that policy and eliminate reimbursement for many

injectable drugs. The agency has challenged the expectation of Medicare beneficiaries that injectable drugs administered in the physician’s office will be reimbursed. In 1999, Congress was forced to intervene and direct HCFA to restore

its historical reimbursement policy based on the usual method of administration

of injectable drugs. The appropriations rider that mandated that coverage is in

force only until September 30, 2000, and HCFA has already indicated an intention to revise its coverage policy. • AWP—HCFA has repeatedly sought to reduce reimbursement for Medicare outpatient drugs, threatening a situation where oncologists would suffer a loss on

drugs administered to Medicare patients. This situation would not be sustainable, and in the past Congress has directed HCFA to refrain from implementing

these reductions. Cancer patient groups have made clear their objections to

these changes, unless the modifications are accompanied by appropriate and

adequate adjustments in chemotherapy administration fees. I have attached the

NPAF statement and copies of Cancer Leadership Council letters on this topic. • Clinical Trials Coverage—Although the cancer patient community recently

celebrated a victory when the President announced a policy of Medicare coverage for routine patient care costs for those enrolled in clinical trials, this accomplishment came only after years of delay. Cancer advocates suggested years

ago that HCFA had the authority to cover clinical trials and proposed specifically how that might be accomplished. After years of resisting this change,

HCFA made the modification only because of a Presidential directive. We are

still awaiting the details of the coverage announcement. • Coverage of Off-Label Drugs and New Medical Devices—Beyond these recent issues, HCFA historically has expressed reluctance to cover certain new or

developing technologies even after they have been fully incorporated into good

medical practice. The cancer community still chafes under the recollection of

Medicare policy during the 1980’s and early 1990’s, when the program routinely

denied coverage for medically accepted uses of anticancer drugs that were different from the specific use approved by the Food and Drug Administration.

When supported by sound clinical data, these so-called off-label uses of drugs

are standard therapy for many cancers. HCFA firmly resisted efforts to reform

its backward reimbursement policy in this regard, until Congress finally felt

compelled in the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) to take

the unusual step of mandating that HCFA follow the recommendations of certain private review bodies with respect to the off-label use of drugs for the treatment of cancer. In addition, Medicare acceptance of new medical devices is notoriously slow, leaving many approved devices unreimbursed by Medicare years

after their introduction in the private sector.

Our organization recommends that Congress, when considering its options for administration of a Medicare prescription drug benefit, include among those choices

market-based mechanisms for procurement of drugs for seniors.

113

Fundamental Principles of Prescription Drug Coverage

As advocates for individuals with cancer, we believe the issues we have discussed

above deserve serious consideration during debate on a prescription drug plan. I

would also like to discuss briefly some additional issues of broad impact that should

be weighed by Congress.

We propose a number of fundamental principles of prescription drug coverage that

are important to individuals with cancer and other serious and life-threatening illnesses:

—Formularies—We cannot foresee any venue where a restrictive formulary would

be appropriate. Decisions regarding medical care should be made by the patient

in consultation with his or her physician and should not be limited by a formulary. Differences in prescription drugs that are perceived by benefit managers to be minor may be a matter of life and death for cancer patients. It is

not adequate to have an appeals process for access to drugs not on the formulary, because delays during appeal may be life-threatening for some individuals. —Pharmaceutical benefit managers—For individuals with serious and lifethreatening illnesses, care by a comprehensive health care team is important

and the involvement of a pharmaceutical benefit management company does not

facilitate such care. —Appeals of coverage denials—The new prescription drug plan should include

procedures for the timely review of denials of coverage, including complaints by

beneficiaries, providers, and pharmacists. —Information and education campaign—Implementation of a new benefit will

create confusion among Medicare beneficiaries. Therefore, a substantial educational effort is a necessary component of the new program. While patient and

provider organizations can play a pivotal role in beneficiary and provider education, the agency responsible for program implementation must also have a

broad-based dissemination initiative and provide funds for private sector educational efforts.

We believe enactment of a prescription drug benefit is necessary to ensure Medicare beneficiaries access to life-saving therapies. However, the success of any new

plan will depend significantly on a fair and balanced approach to program implementation. In light of our experience to date with HCFA implementation of the current benefit, we urge Congress to evaluate a range of administrative options, including market-based solutions, before you reach your decision.

I would be glad to answer your questions.

Mr. BILIRAKIS. You have been so patient sitting here all of these

hours and sharing lunch with us so I really hesitate and hate to

cutoff anyone. But you have got to have structure in order to be

able to function. So I hope you will forgive me in that regard.

Ms. Eshoo—I am glad to see that she is still here—coined a

phrase earlier which probably said it better than any of us could

when she talked about this problem being like putting socks on an

octopus.

It says it all I think. It is just so very, very difficult to do this

right. Not just to do it, but trying to do it correctly.

I have as much optimism as anyone and I like to think we will

get the job done and get it done this year.

We have to be practical. Will we be able to get it done this year?

Politics certainly plays a very large part in all this. Partisanship

will play a big role, as will the details of any proposal.

So I guess I would raise the question, and Mr. Fuller touched on

it. There are people out there who are hurting. And I know that

a couple of you made comments about means testing. For the life

of me I cannot understand why, when there are a limited amount

of resources available, we cannot rightly focus those resources for

those who are more in need than others.

Mr. Fuller referred to State-based programs that are in place already—there are approximately 20 around the country. In fact, I

understand that one of the top priorities at the National Governors’

114

Conference was to install a prescription drug program in their

States. Florida just recently completed it in their legislature, and

they are putting a program into place.

If we have these programs in place, what is wrong with complementing and supplementing those existing programs with Federal

dollars until we get it right and make a prescription drug benefit

a part of Medicare? I trust, if it is done correctly, that these programs could help even more people, maybe double the number of

people, for example, than they take care of presently.

And of course, if you add to that some help for those people who

maybe do not qualify as being very poor, if you add to that the

stop-loss concept for those who would not qualify for the subsidy

but at the same time have prescription drug costs that would be

out of the roof and really run them into a hole.

So I raise that question. Very quickly. I do not have that much

time. If each of you could take maybe just a few seconds to respond

to that, I would appreciate it. Negative or positive, whatever.

Mr. KAHN. Well, Mr. Chairman, HIAA believes that the issue you

are raising is an important one, which is we ought to do now what

can be done. And clearly, States are showing they can very rapidly

implement these programs. I mean, it has grown from around 13

to about 19 in just a few short weeks actually.

Mr. BILIRAKIS. Right.

Mr. KAHN. And I think anyone at the table has got to admit that

the current pricing of drugs is Byzantine and the complexity of

adopting any kind of benefit, whether it is private sector or public

sector, that is universal is such that it will take years.

And so we believe firmly that the best to do now would be to help

those most in need immediately. Because otherwise, it is going to

be years.

Mr. FULLER. I would just maybe supplement what I said by saying that in the months that we have been working on this, we have

seen the American Pharmaceutical Association come on board supporting it. They represent the Nation’s pharmacists.

The American Society of Consultant Pharmacists, Food Marketing Institute, and the National Consumers League all signed on

to the program. So we think there is growing attraction to the

State-based approach.

I would also add that we would recommend that the program be

sunsetted, so that this does not continue forever; to sunset it in 5

years or whenever there is major Medicare reform so we keep the

pressure on.

Mr. BILIRAKIS. Right.

Mr. FULLER. But it is the kind of pressure in which there can be

constructive dialog.

Mr. BILIRAKIS. That would be a concern. You have got to keep

the pressure on, that is for sure.

Ms. IGNAGNI. Mr. Chairman, I think that without a doubt if the

choice is doing something or doing nothing, something is always

better than nothing.

Having said that, we have a time of tremendous prosperity in

this country, probably like no other we have seen in a very long

time.

115

There are two issues that remain to be addressed in health care,

and probably many, many others, but two large ones loom over us.

One is the matter of prescription drugs to update this 1965 benefit

program; and the second is the matter of the uninsured, which

looms large and will undoubtedly get larger as the economy slows.

So we would say on the part of our members that we would like

to sit with you, to sit with members of the minority, and work together to try at this juncture to address this unique opportunity to

fulfill that promise that was made in 1965 to beneficiaries.

Mr. BILIRAKIS. Dr. Feder.

Ms. FEDER. I actually agree with Karen Ignagni that the promise

of Medicare of mainstream protection is no longer being fulfilled

without the prescription drug protection.

Mr. BILIRAKIS. Agreed. Agreed.

Ms. FEDER. Good. And the barrier really is political. Sure it is

hard to do the specific design, and it takes effort, and there is contention around it. But we are capable of agreeing as policy analysts

on a design.

The greatest underlying problem that I see in reaching agreement is that rather than having a political consensus on the value

of the Medicare program, the Medicare program, even its basic benefit, in addition to its administration, has been under siege for the

last 5 years.

And it seems to me that to go in a direction of very modest

means-tested benefits which we know from the outset will be inadequate, is to walk away from what we need to do and have the resources to do, which is to strengthen and recognize and support the

program that we know works.

Mr. BILIRAKIS. But in the meantime, of course, an awful lot of

needy people out there would not have——

Ms. FEDER. But that is because we are not willing to act. We can

do it.

Mr. BILIRAKIS. Mr. Donoho.

Mr. DONOHO. Mr. Chairman, I guess, you know, our association

starts with the premise that Medicare needs to be reformed. We

spent a year or more in the last couple of years studying this issue.

What we are here today about is taking a piece of that study an

enacting it for Medicare.

From what I understand, and I guess the concern I would express, because our association has not taken a position on a Statebased plan, is that once you give it to the States as a block grant

or however you do that, how do you bring it back under a Medicare

style program?

I mean, it is just a question. And once you get a program operating similar to Title 19 Medicaid, how do we achieve reform and

how do we come back to it in terms of Medicare itself?

Mr. BILIRAKIS. Which is a question that would have to be answered.

Mr. Pollack.

Mr. POLLACK. Mr. Chairman, let me tell you that we actually

have worked with numerous States actually to establish some of

these programs.

116

Having said that, let me make clear what the impulse was on the

part of the States and why I do not think it is the right direction

to go in here.

The States have done this because they have thrown their hands

up, and they have said we are waiting for the Federal Government.

We cannot do anything else. We are at a position today where we

can do something much more significant.

I have three fears.

One fear is that if we move in this direction, we are not going

to keep the same sense of urgency about the real reform that we

need.

Second, these low-income programs have very poor participation

rates. If you look at things like the Qualified Medicare Beneficiary

program, the SLMBY program as well, they have very low participation rates because they are treated very differently than when

you have a universal program.

And last, these programs do not have the opportunity of containing costs and containing prices. And so if we do not contain

those costs and prices, that benefit quickly will be less meaningful.

Mr. BILIRAKIS. Well, all right. Ms. Davenport-Ennis, very briefly,

if you can, since you are last.

Ms. DAVENPORT-ENNIS. Thank you. I would like to concur with

the remarks that Karen Ignagni made in terms of the need to absolutely look at addressing prescription drug benefits while we have

an economy that will allow us to do that.

I think also from our experience, we must do something to deal

with the uninsured population.

I would also have to say that based on our experience in State

legislation before moving to the Federal level in that activity, each

time that we worked in a State to effect reform, what we found was

that the process was usually a slow process. It was hit-or-miss

process.

We ended up with citizens in one group of States having one set

of services and in other States having no services at all.

With regard to the Block Grant Program, we would share the

same concern that has previously been voiced, that if we get it

started at the State level, how are we ever going to get it back?

And, as you say, Chairman Bilirakis, there are so many people

that are hurting, right now the one vehicle that we have available

to them in all States is to try to get them into an indigent drug

program either through their State or through a pharmaceutical

manufacturer.

And I can share with you, in great detail,——

Mr. BILIRAKIS. Please don’t, please don’t today.

Mr. DAVENPORT-ENNIS. No, I won’t go into great detail, but I will

share with you that it is very difficult to effect remedy for the atrisk populations that find themselves needing this help the very

most.

Mr. BILIRAKIS. Thanks. I asked for it and I got it.

Mr. Brown? I appreciate the committee’s indulgence.

Mr. BROWN. Thank you, Mr. Chairman.

Mr. Pollack, you held up a larger, but a black and white version

of this. This was in Congress, I think in Congress Daily today. ‘‘PriVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00120 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
117

vate Drug Insurance Lowers Prices 30 Percent To 39 Percent:

Shouldn’t Seniors Have It?

Your point was that it segments the market not using Medicare

buying power, if you will. There is another underlying perhaps inadvertent message, I think, that says something else.

That is, that in the background you hear the drug companies,

over and over, talking about $500 million, it costs them $500 million to research a new drug, they have never really provided evidence of that $500 million but that is the number that even the

media sometimes accept without really any documentation. It has

almost become part of the rap in this town that it costs $500 million, no questions asked, even though almost 50 percent of prescription drug research and development is paid for by taxpayers.

And that is rarely mentioned in all this.

The drug companies go on and say, ‘‘Any action by Congress to

reduce prices in any way would make the drug companies unable

to to this wonderful’’—and it is wonderful—research that they do.

But this ad says, ‘‘If all seniors had access to private market discounts, the medicine they need on average would cost 30 to 39 percent less, private prescription drug insurance is the cure. A hundred-and-fifty-million Americans don’t pay full price for the medicines. Why should any senior?’’

Are they suggesting in your mind that if senior citizens could get

a 30, 39 percent discount that they still would be able to do all this

research?

Mr. POLLACK. I made that very point in testimony yesterday in

the Senate with Alan Homer, the President of the Pharmaceutical

Research and Manufacturers Association. In effect, they seem to be

saying, come at us with 30 to 39 percent discounts. It is not going

to be harmful to us.

You know, the point you are making I think is amplified in Appendix 12 to my testimony. If you look at the various companies,

you will see that they are spending considerably more on marketing, advertising, and administration than they are spending on

research and development.

They take considerably larger amounts in profits than they

spend on research and development. If I just might give you two

illustrations:

Merck spends 21⁄2 times as much on marketing-related costs than

it does on research and development. It receives profits that are

three times as high as what the spend on research and development.

Eli Lilly spends 11⁄2 times as much on marketing and takes 11⁄2

times as much of research and development for profits.

Clearly, if we moderated prices, it would not hamper the ability

to undertake research and development. And the industry seems to

be admitting this with their advertisement.

Mr. BROWN. Dr. Feder, if I could switch gears. The Republicans

claim that relying on the private sector would permit flexible benefits and avoid a one-size-fits-all approach that Medicare’s traditionally successfully used.

Give us the downsides of that in a prescription drug program.

Ms. FEDER. Sure. I think that the one-size-fits-all language is intended to be pejorative, and if we step back, No. 1, we need to step

118

back and look at what the one size that does fit all is being advocated, that being that we are saying that everybody is to be entitled, every senior ought to be entitled to a defined prescription

drug benefit.

That kind of protection everybody does indeed need. So the label

itself is misleading. When they talk about flexibility, I think that

they are implying that there ought to be a variation in benefits, a

wide choice of plans, and we have heard a lot of problems in that

argument discussed this morning.

One is that the flexibility that is talked about in terms of relying

on a private market is a flexibility to serve some areas and some

people and not others.

It is a flexibility and uncertainty that has plans coming and

going from markets and changing their benefits because that is the

way the market works.

So we have heard a lot of discussion about the uncertainty that

it creates for beneficiaries.

In terms of the flexibility on benefits, it means, as we have heard

many others say this morning, and many members of the panel say

of the committee say that it creates concerns about what people

can expect, as well as a competition in the marketplace that is designed to avoid risky patients, rather than to really provide care efficiently.

So I would say, in all those respects and add to them the administrative costs and the marketing costs and the lack of knowledge

that consumers will have going into a plan on what they are really

getting with formularies, for example.

That what is being called flexibility is really confusion and fragmentation.

Mr. BILIRAKIS. The gentleman from Pennsylvania, Mr. Greenwood.

Mr. GREENWOOD. Thank you, Mr. Chairman.

In quick response to Mr. Brown’s commentary, I would agree it

would be a good idea for us to get documentation of what exactly

it costs to produce a drug, because I know I use that $500 million

per drug figure. And by virtue of this statement, I would hope the

pharmaceutical industry would provide us with that substantiation.

I would also like some substantiation of the gentleman from

Ohio’s statement that 50 percent of the profits of pharmaceutical

companies come from, are taxpayer funded because that gets bandied around a bit too, and needs some substantiation. So I hope

you can provide the committee with that.

Mr. Pollack, in your testimony, you say that prescription drug

coverage should be added to the Medicare benefits package in such

a way that beneficiaries have the same guaranteed coverage for

drugs that they have today for hospital physicians and other Medicare care coverage services.

I want to understand what your proposal is. Would you assume

that the beneficiaries pay a premium for that?

Mr. POLLACK. Yes, I do.

Mr. GREENWOOD. And would you assume that there is a co-pay?

Mr. POLLACK. Probably, yes. With the probable, hopeful exception

to those of lower income who would have that subsidized.

Mr. GREENWOOD. You assume that there is a deductible?

119

Mr. POLLACK. Not necessarily. It might, might not.

Mr. GREENWOOD. Would you assume that there is a stop loss. In

other words, would you assume that there is a cap, I should say.

Do beneficiaries have access to whatever the costs are, if it is

$10,000, $20,000, $30,000,——

Mr. POLLACK. There should be a catastrophic benefit, yes.

Mr. GREENWOOD. And what would that cost?

Mr. POLLACK. Well, it depends on how it was designed. I am not

an actuary so I do not think I can give you that cost, and of course

it will depend very much on a variety of factors, and so I do not

know how I could give you an estimate of that without knowing the

details.

Mr. GREENWOOD. Well, in your testimony, you say we have been

engaged in analyzing the implications of changes of the Medicare

program and Medicare beneficiaries for some time. And you talk

about the research you do. And you have come to the committee

and made a very clear recommendation.

And I am a little surprised if you have not any idea what your

recommendation would cost because that is——

Mr. POLLACK. I did not say that we are coming in with a proposal. We said the approach should be to incorporate this into the

Medicare program. There are many ways to do it, and those different ways are going to cost very different amounts of money.

Mr. GANSKE. Would the gentleman yield?

Mr. GREENWOOD. Briefly, Mr. Ganske. People would yield to you

before and lose their time.

Mr. GANSKE. One additional question to your series of questions.

And that is, it sounds to me like Mr. Pollack is saying that there

should be a standard part of Medicare.

And that to me means that if it is like physician services or other

services, that it is not voluntary.

Mr. POLLACK. Well, Part B is voluntary and——

Mr. GREENWOOD. Is to further describe the gentleman’s proposal.

Would yours in fact be voluntary or would it be a requirement that

everyone that participates in Medicare pay this premium whether

they already have coverage from their employer or not?

Mr. POLLACK. I think the likelihood is that it would be voluntary.

I do not think it is feasibly probably politically to enact a plan that

was not voluntary.

Mr. GREENWOOD. In all due respect, Mr. Pollack, you spend a lot

more time criticizing the proposals that are on the table than you

have proposing something yourself. And continued in all due respect, that is the easy part of this process.

The easy part of this process is knocking other people’s ideas; the

hard part of the process is coming up with something that we can

afford and that makes sense, and I have not seen that in your testimony.

Do you believe that the pharmaceutical industry ought to be nationalized, or do you think it ought to remain in the private sector?

Mr. POLLACK. No, I think the pharmaceutical industry should be

in the private sector.

Mr. GREENWOOD. Okay, if you were running——

Mr. POLLACK. Even, even in the private sector——

120

Mr. GREENWOOD. Okay, thank you for answering the question.

Let me just get to where I want to go here.

If you were running a private sector pharmaceutical company,

would you forego marketing, advertising and administration and

profits, or any of those?

Mr. POLLACK. Of course not, and I am not saying they should.

I am saying, however, that when the industry keeps on asserting

research and development is going to go down the tubes if we do

something to moderate prices, I suggest to you that that is very

misleading——

Mr. GREENWOOD. Well let me——

Mr. POLLACK. [continuing] because there are much larger pots of

money, including marketing, advertising, administration and profits that dwarf the amount of money that is spent on research and

development.

And to say that when we moderate prices, the only thing that is

going to happen is that we are going to limit research and development is absurd.

Mr. GREENWOOD. Well, the reality is that if you were running a

company, whether you were making pharmaceuticals or whether

you are making widgets, you cannot survive if you do not have

marketing, and you cannot compete if your marketing isn’t robust.

You cannot survive if you do not have administration unless management’s going to work for free. You cannot survive if you do not

have profits because nobody is going to invest in your company.

So research is the one thing that then becomes dispensable because that is the one thing that is not necessary to survive. You

can survive into the future without research, but you cannot survive without those other costs.

Mr. POLLACK. Au contraire, I do not believe that for a moment.

First, I am not suggesting at all that we should do away with

marketing and do away with advertising, and I am not saying

there should be x-amount spent on it or y-amount on profits. That

is not the point I am making.

But what I am saying is that when the industry tells us the only

thing that is going to give is research and development, that is

plain nonsense, and it is in the industry’s interest to undertake research and development.

It does not do this merely for altruism. The reason it undertakes

research and development is it brings new products to market for

which they can make a profit.

Mr. GREENWOOD. Of course.

Mr. POLLACK. It is in the interest of any company to do research

and development, but to say if we moderate prices, that the only

thing that is going to be harmed is research and development, is

a wild exaggeration.

Mr. GREENWOOD. I would love to respond but my time has expired.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Pallone?

Mr. PALLONE. Thank you, Mr. Chairman.

I wanted to ask Mr. Pollack a question but I, to me, I think you

have been quite clear in basically suggesting that, you know, something like the President’s proposal that is part of the Medicare proVerDate 11-MAY-2000 08:19 Dec 13, 2000 Jkt 066324 PO 00000 Frm 00124 Fmt 6633 Sfmt 6602 E:\HEARINGS\65804 pfrm01 PsN: 65804
121

gram that is universal, that you know is affordable, that has some

kind of effort to deal with the price discrimination issue is certainly, you know, one way to go. And that you have been concerned

about, you know, this Thomas, I call it the Thomas proposal, the

Republican proposal is not accomplishing those goals.

And what I wanted to ask Mr. Pollack is that, you know, I try

to get down to specifics and give an example if we could maybe contrast the Thomas proposal with the President’s with an example.

And I am going to give you an example of a widow living at 150

percent of poverty who has diabetes, hypertension, high cholesterol,

no supplemental drug coverage. Drug costs for medication to treat

these illnesses consume over 18 percent of her income.

What kind of prescription drug benefit does she need?

And, you know, keep in mind the two options, the Thomas versus

the President’s.

Mr. POLLACK. Well clearly the proposal we have been talking

about this morning does not provide a subsidy for that individual.

The way the plan is structured, as I understand it, is that it provides a subsidy up to 133 percent of poverty, and then it phases

down, and it phases completely out at 150 percent.

So this widow is provided with no subsidy whatsoever. And so

she is going to have to bear the brunt of those costs.

Under the administration’s proposal, there would be a subsidy in

effect for everybody and so this individual would get assistance.

There would be a significant contrast.

Mr. PALLONE. I mean, I think that is the bottom line is how this

is going to apply to individuals, but thank you.

I wanted to ask Mr. Kahn, and I may have misunderstood what

you said, but let me see if I can clarify it.

You said that the private drug insurance option is essentially unworkable, and you said how you were pleased with Thomas having

the possible fall back on a government program, and then you

talked about how Medicare+Choice needs more dollars, particularly

for drug coverage.

Are you basically saying to us that, I mean, I do not know what

this fall back is because that is been very unclear to me.

But I mean you do not really want to see the private insurance

with the fall back? Wouldn’t it make more sense to have some kind

of a, you know, Medicare program along the lines of what the

President suggests to begin with rather than have this private insurance with the fall back?

Mr. KAHN. The President’s plan presumes that Medicare+Choice

will continue on into the future. Medicare+Choice offers a comprehensive benefit. We are only talking about a piece of that benefit when we are talking about pharmaceuticals.

So presumably whether it’s the fall back or whether it’s the

President’s plan, there will be money in there to subsidize the coverage in the Medicare+Choice plan for pharmaceuticals.

Mr. PALLONE. And there is in fact. But I guess what I am trying

to pinpoint is, you know, I think you were saying clearly that the

private drug insurance option is unworkable.

I mean, it does not seem to me to make sense to say, okay, we

will try that and if it does not happen, you know, we will fall back

on the government.

122

I mean, it would seem to me to make more sense if you really

believe that the private insurance is unworkable, is simply do

something like the President rather than hope that somehow, you

know, we are going to fall back on something that is undefined at

this point.

Mr. KAHN. Well my member companies have not chosen to endorse any of the universal plans. That is one of the reasons, when

the chairman asked the question, I answered positively about our

member companies’ feeling about helping the low income elderly

through the block grant.

But I guess my answer to you is that either the fall back or the

President’s plan, if it is universal, it answers your problem of making sure there is something for all Medicare beneficiaries, depending on how it is structured.

Mr. PALLONE. Well, let me just say this one more thing, because

I think my time is up.

In the Thomas plan, what we are told is that, you know, there

is a subsidy of like 30 to 35 percent. Do you feel that if there was

a larger subsidy that, you know, private drug insurance options

would be workable?

Is it just a question of the level of subsidy, or you just think the

idea is unworkable?

Mr. KAHN. I think the idea is unworkable. I mean, let’s say in

Part B right now, you have a 75 percent subsidy and you have 98

percent compliance with a voluntary program. But it is a universal

program and also the premiums are collected, and also the premiums are collected with your social security check.

So there is a sort of big hammer there to make sure those premiums are collected.

I guess we have our doubts, both on the administrative side, the

risk selection side, and just the cost containment side of providing

any kind of drug-only benefit in any form, drug-only. I need to

stress that because Medicare+Choice and comprehensive benefits

are fundamentally different than a drug-only benefit.

Mr. PALLONE. Thank you.

Mr. BILIRAKIS. Mr. Burr to inquire.

Mr. BURR. Thank you, Mr. Chairman.

Craig, let me say to you I hope you will be happy when this bill

is finalized to read that we do understand the importance of pharmacists, but more importantly, we have written in language that

will address the medication management/disease management

function that many druggists around the country currently perform. And it is a very important part of the overall health care system today.

It is going to be up to plans to determine some reimbursement,

but hopefully there is a framework that has thought through everybody who plays a role in this.

Mr. Pollack, let me go to you, because you were very specific on

the 150 percent of poverty and that there not be a means test. And

I do not think anybody’s portrayed it as one.

The President’s plan cuts off at 150 percent of poverty. Does that

make you objectionable to the President’s plan?

Mr. POLLACK. No. What the President does——

Mr. BURR. The President’s cuts off——

123

Mr. POLLACK. No, no. No, no. What the President does is very

different than this proposal. So let’s be——

Mr. BURR. Mr. Pollack, you have not read our plan.

Mr. POLLACK. I have read what you have issued. You do not have

a bill.

Mr. BURR. Well, then to make a statement that you just

made,——

Mr. POLLACK. Sir, I can only go by what you have released so far.

Mr. BURR. The President subsidizes everybody’s premium, correct?

Mr. POLLACK. Correct.

Mr. BURR. He has 150 percent cutoff of poverty on where additional subsidies go.

Mr. POLLACK. That is correct.

Mr. BURR. And if Ms. DeParle is correct that we use, instead of

a subsidy to the premium, we use our subsidy to buy down the

high risk, and by her statement, our subsidy might be a little bit

larger, but we go to the same 150 percent of poverty. We are just

using the subsidy not for the premium but to buy down the high

risk.

Now where is the difference?

Mr. POLLACK. I think there is a significant difference.

First of all, the subsidy that is provided in effect goes directly to

the beneficiary, and so it in effect pays for 50 percent of the cost

of that benefit.

Mr. BURR. Long term is more important?

Mr. POLLACK. Pardon me?

Mr. BURR. Ms. DeParle said that predictability was one of the

primary objectives, and I think Ms. Davenport, you know, she

speaks for the groups that are out there, the human face behind

this issue.

Do these people want to know there is a point they could reach

in an illness in a given year and not have any financial exposure?

Ms. DAVENPORT-ENNIS. Yes. I am delighted to answer that question. Absolutely the patients that contact us will say often, is there

a vehicle for insurance for me that is going to tell me how much

I need to pay, how much will be my co-pay, where will my stop loss

be, what happens to me if I have cancer or need a heart transplant

and have a catastrophic event that I need coverage for, and what

is it going to cost me when I am 65, 70, and 75?

I brought with me today two stories of two Americans. One is a

woman in Nicholasville, Kentucky, 68 years old. Her total income

per month is $830. She is a widow. She has throat cancer. She

needs to take eight maintenance medications for this cancer to

keep her in remission. The total cost of that medicine per month

is $600 a month.

She does not have $600. When she called us to help, she had

been 8 months with buying two medicines a month, and each

month, she would switch to another two medicines.

And the reality was——

Mr. BURR. And the reality is that Part B probably has gone up

because of some medical need in the meantime.

Ms. DAVENPORT-ENNIS. Absolutely. And then what we did was

we assisted her in an application process to get her into what is

124

referred to as SLMB program through Medicaid, which she is now

paying a $45 a month premium for but she can get the medicine

and she can have the care.

Mr. BURR. Hopefully, she will have some options that might be

less than $45.

Ms. DAVENPORT-ENNIS. Absolutely.

Mr. BURR. Let me go on to one last thing for you, and that is

the issue of self-injectable drugs. I am sure that you have watched

HCFA, who had drugs that they reimbursed on, and because technology now allowed those drugs to be self-injectable, HCFA has determined they are no longer reimbursable.

What comfort level would you have with that experience at

HCFA, at putting them in charge of determining the coverage determinations of a new prescription drug benefit for 38 million

Americans?

Ms. DAVENPORT-ENNIS. I think for our organization, and perhaps

we are joined I know by other professional organizations in the

country, the physicians and the nurses, we feel that the medical

decision has to be made by the physician, by the treating physician.

And if the treating physician determines that a medication can be

self-administered, is appropriate for that patient, we still want to

see a vehicle for reimbursement for that American consumer to

have.

Our experience with HCFA, as we have seen program memoranda that have changed from State-to-State and medical directorto-medical director, is one of inconsistency. And inconsistency is a

simple word for us to say today but it is not a simple process to

reverse when it impacts an entire State at a time when you have

to go through process to change it.

So to answer your question summarily, we would be very troubled if we added another area of responsibility to an agency that

at this point we feel has very good intentions is overburdened, is

understaffed, and we feel the issue of administering a prescription

drug benefit program is a complicated program that needs a fresh

approach, high energy, and complete attention to the details that

will be part of that process.

Mr. BURR. I thank you.

Mr. Chairman, let me also point out, for the purposes of the

members because I know Ms. Eshoo and others, we have worked

aggressively for a number of years to try to change a policy at

HCFA relating to immunosuppressant drugs, drugs that are needed to be taken by every person who gets an organ transplant for

their entire life.

Medicare’s policy still is that we pay for 3 years. Now we will pay

for an additional organ transplant when they reject it because they

cannot afford the continuation of the drugs. It is ludicrous for us

to believe that we can have example after example after example

and not consider a new entity to do nothing but——

Ms. ESHOO. Would the gentleman just yield for a moment?

Mr. BURR. I have no time.

Mr. BILIRAKIS. The gentleman’s time has expired and it is now

the gentlelady’s turn.

Ms. ESHOO. It is now my time. Thank you, Mr. Chairman.

125

The reason I was asking you to yield was to point out that Congress put what you just described in place as law on the books. And

that is why we are trying, as Members of Congress, to change that.

But that is not HCFA, okay?

I mean, what is fair is fair.

Mr. BURR. Regarding the injectable drugs, though, you would

agree that it was HCFA?

Ms. ESHOO. Exactly. Exactly.

Thank you to every single one of the panelists. I think whether

members agree or disagree with different parts of what you have

said, I think you are just absolutely terrific.

I think if all of the members of this subcommittee, both sides of

aisle, and all of you could stay in this room for the next 48 or 60

hours, we would really come up with something because we have

got the expertise here in front of us. So thank you very much.

I want to go to something that I think has been touched on but

perhaps members do not have the clearest of understanding about,

and that is the whole issue of risk.

Now there are different ideas, i.e., proposals. The Thomas proposal, although it is not in writing, again I spent a lot of time at

Ways and Means yesterday listening, and what I believe is the case

with the Thomas proposal which will be in legislation is that the

risk is assigned to insurers.

Now to Mr. Kahn, you were saying, and I think you have caused

some people considerable heartburn, but nonetheless, you have

said, look, we will not and cannot design a vehicle freestanding for

drug-only insurance.

But the Thomas plan assumes that the risk will be assumed at

least partially by insurers.

Can anyone tell me who these insurers are, and how you assign

this risk?

And I think that it is an important question. You are touching

on some of it, and others have in different ways. Medicare, human

beings, are called beneficiaries.

So are they going to assume the risk, are we, as a Nation,

through a system going to assume the risk, or is there a vehicle

that is going to assume the risk?

Who and what is this vehicle?

So in designing a plan, members, especially of this subcommittee

because we have a huge responsibility here, or maybe we do not,

maybe it will be ripped out of the subcommittee and just be

dragged to the floor, which has happened before too, but I mean

I want to be respectful of this.

Who can answer this question for us, not just for me, but for us?

Does anyone want to take a stab at it? Maybe Mr. Kahn should

start.

Mr. KAHN. Well if there is a fallback, or if there is a government,

a broad program, then the risk is spread and the taxpayers are

paying part of it and the beneficiaries, through whatever premiums

you charge, are paying the other part, and then they are paying

whatever the copayment is, the cost sharing. So that is where the

risk is being spread.

Ms. ESHOO. I will just jump in. I mean, it is some advertising

for my legislation. We encourage PBMs to bring the price down.

126

Now, I believe in the Thomas approach, they are required to do

that.

Mr. KAHN. You really need to separate the role of the PBMs,

they are the mediators.

Ms. ESHOO. Right.

Mr. KAHN. And they can contain the base cost and possibly the

growth over time.

Ms. ESHOO. Yes.

Mr. KAHN. I do not want to speak for them but I do not think

they are waiting here to accept 100 or even 50 percent of the risk.

Ms. ESHOO. No, they are not. It is not the way they work. That

is not why they work well, either.

Mr. KAHN. But the dilemma here is that you have many people

who use no drugs and many people who use drugs in a very predictable way because they have a chronic illness or because of their

situation.

Ms. ESHOO. Right.

Mr. KAHN. And so those who have a predictable use will want

to buy the coverage and those who do not will be less likely to.

Ms. ESHOO. Um-hmm.

Mr. KAHN. So the selection is obvious. So then you have got a

product, one product, so you cannot manage across a whole comprehensive benefit package.

Ms. ESHOO. But does everybody understand this answer, though?

I do not know if the Members do. But again, what I am trying to

do, as you are, each one of you, I guess, is to highlight the areas

that we have to be really very concerned about.

Well, there is a vinyl wrap around this thing, and we have got

to know what the words mean. I would much rather be up front

and say, as a Nation, we are going to assign the risk collectively

to ourselves.

And most frankly, Members, if you are not willing to assign dollars to this, then you are not for a prescription drug benefit because you cannot do this on the skinny. You cannot be skinflints

and say we are for it. It will not work.

So I do not know if anyone else wants to—Karen, do you want

to take a stab at this risk business?

Ms. IGNAGNI. Thank you, Ms. Eshoo. I appreciate the opportunity.

I am not talking about a specific proposal now. We too are looking forward to seeing all the proposals and analyzing them. But

just in terms of the issue of risk and how you go forth, one option

that has been discussed by a number of members very well on the

panel has been the issue of government program risk pooling.

Another way that is often adopted in the private sector and

sometimes it works well and sometimes it does not, quite frankly,

but there are opportunities I think to build on it, which is the option of risk pooling.

So to the extent you are taking catastrophic costs and aggregating them and trying to distribute those costs across a broad population and subsidizing from that, that is one strategy to think

about.

127

Ms. ESHOO. I know what pooling, and risk-pooling, and that is,

but if we are going to design a benefit, I think the question that

needs to be answered legislatively is: who takes on the risk?

Ms. IGNAGNI. Well, and I think that is one of the issues that the

committee is going to need to zero in on as you look at details of

proposals.

However, what we have seen is that there are ways to distribute

risk other than one particular approach, and I think that that will

be part of the art of crafting the right proposal.

Ms. ESHOO. Or, you know, in cruder language, who is left holding

the bag. And so, you know, we will have a revolution in this country if in fact there is something that is designed and marketed to

be one thing, and then turns out to be something else. It’s all going

to come back on us.

Mr. BILIRAKIS. It would not be the first time, though, would it?

Ms. ESHOO. Mr. Chairman, I think probably my time is up——

Mr. BILIRAKIS. Yes, it is.

Ms. ESHOO. [continuing] but I would ask unanimous consent to

insert these letters relative to this issue in the record.

Mr. BILIRAKIS. Without objection, that is the case.

Doctor Ganske to——

Ms. ESHOO. Thank you very much. And thank you to all the panelists. I think you are terrific.

[The letters follow:]

ALZA CORPORATION

June 6, 2000

The Honorable ANNA ESHOO

205 Cannon House Office Building

Washington, DC 20015

DEAR ANNA: I was delighted to hear of your newly-introduced plan for a Medicare

Drug Benefit. While some of your colleagues in the Congress have done little more

than play politics by proposing all sorts of plans that simply can’t pass and wrongly

cast our industry as the ‘‘bad guy,’’ your plan directly addresses both the needs of

the uninsured and the necessity to protect pharmaceutical research and development.

We believe that your proposal, by relying on robust competition by pharmaceutical

benefit managers, will allow Medicare to offer a generous and realistic drug benefit

to American seniors without busting the budget. Your proposal to use the OPM to

administer parts of the plan (rather than HCFA) takes due notice of the expertise

developed by that agency in administering the PBM-based government employee

health plans. Your innovative ‘‘stop loss’’ provision insures that seniors who require

ofttimes expensive new biotech technologies will not be left without necessary treatments.

Finally, your explicit exclusion of government-imposed price controls insures that

our industry will continue to have the financial resources and investment necessary

to bring new and innovative treatments to market in the future.

As with your key roles in FDA reform and passage of the Biomaterials bill, you

have once again shown an extraordinary commitment to help our industry save

lives, cure disease and end pain. ALZA and the millions of patients we serve thank

you.

Sincerely,

ERNEST MARIO,

Chairman and CEO, ALZA Corporation

128

GENETECH, INC.

June 7, 2000

The Honorable ANNA ESHOO

U.S. House of Representatives

205 Cannon House Office Building

Washington, DC 20515

DEAR REPRESENTATIVE ESHOO: On behalf of Genentech, Inc., I am pleased to write

in support of your bill, the ‘‘Medicare Prescription Drug Security Act of 2000,’’ which

guarantees seniors much needed coverage of outpatient prescription drugs.

Genentech supports enactment of a Medicare prescription drug benefit this year,

and your proposal creates a real opportunity for a bipartisan compromise to be

reached on this critical issue.

Specifically, we are encouraged by your proposal’s competitive approach to delivering prescription drugs to seniors. By rejecting government price controls and relying instead on competing pharmaceutical benefit managers to negotiate on behalf

of seniors, your plan most effectively ensures seniors access to affordable prescription drugs while also preserving and encouraging vital investment in biomedical research. In addition, placing administration of the new drug benefit to the Office of

Personnel Management (OPM) is an important step forward in providing Medicare

benefits to seniors through a more competitive approach, and away from the bureaucratic approach that has burdened seniors for decades. Finally, the stop-loss benefit

included in your proposal is critical to addressing the needs of seniors who require

treatments for often serious and life-threatening illnesses.

Your consistent commitment to policies that encourage innovation and the development of new lifesaving technologies has directly benefited the lives of countless

patients. We appreciate your leadership and encourage you to continue in your effort to enacting a Medicare prescription drug benefit for seniors this Congress.

Sincerely,

ARTHUR LEVINSON

Chairman and Chief Executive Officer

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION

June 6, 2000

The Honorable ANNA ESHOO

United States House of Representatives

205 Cannon House Office Building

Washington, DC 20515

DEAR REPRESENTATIVE ESHOO: The Pharmaceutical Care Management Association

(PCMA) recently adopted the enclosed Medicare Prescription Drug Policy Statement.

PCMA and its members are committed to providing quality, cost effective pharmaceutical care to the Nation’s elderly. Within the PCMA Policy Statement are the

guiding principles which PCMA and its members believe will advance pharmaceutical care for Medicare beneficiaries, as they have for the over 150 million lives

currently receiving prescription drug benefits through PCMA members.

PCMA applauds your leadership in introducing the ‘‘Medicare Prescription Drug

Act of 2000.’’ This bill represents a major step forward in the Congress’ important

deliberations on prescription drug benefit for Medicare beneficiaries.

Your proposed bill creates a competitive system, through which drug costs would

effectively be managed without unnecessary or burdensome regulation. This bill provides seniors with access to safe, affordable, prescription drugs and improved pharmaceutical care by relying on pharmacy’ benefit managers (PBMs)—organizations

whose proven expertise in managing pharmaceutical care allows seniors to obtain

the most drug benefit for their money. It also promises a generous benefit that protects beneficiaries from large out-of-pocket expenditures.

Enacting a prescription drug benefit that relies on competitive principles is in the

best interests of Medicare beneficiaries, and should be the first order of business for

this Congress. We look forward to working with you and your staff as well as other

members who support the role of PBMs in competitive based models.

If you have any questions, please do not hesitate to contact me at (703) 920-8480,

ext. 110,

Sincerely,

PATRICK B. DONOHO

Vice President, Government Affairs and Public Policy

Enclosure: PCMA Medicare Prescription Drug Coverage Policy Statement

129

130

131

132

Mr. BILIRAKIS. Dr. Ganske?

Mr. GANSKE. Thank you, Mr. Chairman.

I am having a good time at this. It is much more fun to sit in

front of you than behind you at the Ways and Means hearing, to

actually face you.

I also think that there is a likelihood that this will probably be

the last time this committee looks at this issue. It is my understanding that in Ways and Means on Monday or sometime next

week, this issue will be rammed through the committee. Republicans will march lock-step, vote for a bill, and it will come to the

floor, and I think that that is unfortunate on this issue.

Because there are a lot of issues in the details that we need to

know about. There have been rumors, for instance, that there

would be a provision in this bill that would allow private employers

to opt out of their current promises on prescription drug benefits

for retirees at some ‘‘buyout.’’ Who knows what that will be? Who

knows how much the taxpayer will be taking on for that provision?

When you talk about a government fall back program, if there

are no private programs, would there be a government fall back

program if, for instance, a Medicare beneficiary did not like either

of the two private plans?

What would that government program be?

How do you compare apples to apples in terms of benefits. We

are going over a whole bunch of issues today that need to be answered.

Ms. Ignagni and Mr. Kahn, you will be happy to know that I am

not going to ask you any questions about managed care today, patient protection, patient protection at all.

I am not even going to ask you how much the Republican leadership had to lean on you to mute your criticism of the, ‘‘plans’’ as

has been reported in the press.

I do however want to address the essential problem which many

of you have addressed, and that is that when you look at the current program, and you look at those Medigap policies that do offer

prescription drugs as has been so aptly described by Mr. Pollack,

because only the beneficiaries that need it sign up for it, who have

big expenses, then you end up with very high premiums and this

gets to Mr. Kahn’s and Ms. Ignagni’s point about adverse risk selection.

Now you can cure that by requiring all Medicare beneficiaries to

be in the program. However, as Mr. Pollack aptly pointed out, that

is very difficult politically.

And we are really looking, I think, at a political logjam on this.

So I want to go to then the other chart that Mr. Pollack pointed

out and that was, you know, for that widow living on $12,500 a

year, and my question ties in with the chairman’s question.

Now he proposes a block grant which would somehow go back to

the State. I propose additional funding to go into expansion of

QMBY SLMBY with a spend down.

So for instance, you could go for some specified percentage above

those programs so that if a person has additional pharmacy expenses, they deduct that from their income, and then they get into

the programs.

133

And I honestly think then that if you add a prescription drug

benefit to those programs, that you will see a much increased participation because seniors will really like it, and that will take care

of some of the objections that Mr. Pollack has.

I think that, you know, where we are at this year, I do not see

the QMBY program as welfare. I see this as assistance to people

who are above the Medicaid program, assistance with their premiums and assistance with their copayments.

Now you could say, well, maybe we should not do anything on

that right now because that could take some steam out of a more

comprehensive benefit later on. We see that argument frequently

with bills on the Hill.

Don’t put a little benefit on there because it could prevent overall

reform. I think we are going to be facing overall reform regardless.

But I do see that for this widow here, that would be a significant

help.

My question to you is this. Okay?

We have been talking about Medicare recipients a lot. This is a

very informed group. I think we ought to be looking at the high

cost of drugs for everyone.

If you address that issue and you help the QMBY SLMBYs, then

you are going to be helping those Medicare beneficiaries who are

above them with their prescription drug prices just as you would

be helping everyone else with their prescription drug prices.

So my question is this:

What else can we do on this prescription drug cost problem that

would help not just Medicare beneficiaries but everyone?

Do you have any suggestions for us on this?

There are some proposals out there in Congress, as you know

about. Maybe we could start with Ms. Ignagni.

That is my question.

Ms. IGNAGNI. Thank you, Dr. Ganske.

I will be very quick because I am sure my colleagues want to

interact on this question as well.

I think that you have raised a very important point. Remember,

and you know well that the increase in expenditures are, roughly,

according to the researchers, one-third price, two-thirds use.

What we have tried to do in our managed care programs is create formularies, create a range of strategies to in fact allocate resources as broadly as possible. And what we face in the context of

patient protection discussion is a continuous chipping away and

sometimes direct assault at many of the strategies that we have

used.

And by the way, as we look at the President’s proposal, we know

he is talking about similar kinds of strategies to get costs under

control. So I think both our proposals contemplate that.

We think we can build on that. But you really need to look both

at the use side and whether or not there is pressure to go forward

with me-too drugs when other drugs can substitute. How do we encourage generics and how do we get our hands around this issue

without necessarily and unilaterally agreeing on one solution that

is probably going to be limiting in what can ultimately come out

of it.

134

So I think you are right, that this carries over to patient protection and a number of the strategies that have been proposed would

do a very good job of continuing to get costs under control, but it

would be harder to do.

Mr. BILIRAKIS. The gentleman’s time has expired.

Mr. GANSKE. Mr. Chairman, could we hear from the rest of the

panel on that?

Mr. BILIRAKIS. If the rest take that much time, we are, no, I do

not think we ought to give the rest of the panel the opportunity.

Mr. GANSKE. Are we going to have another round, Mr. Chairman?

Mr. BILIRAKIS. I am not contemplating another round. We have

been here since 10 o’clock this morning.

Mr. GANSKE. Could I have a yes or question or answer on——

Mr. BILIRAKIS. By all means if it is a yes or no question.

Mr. GANSKE. A Yes or no question? Okay, here is my question:

Should we repeal the advertising portion of the FDA reform bill?

Mr. KAHN. Yes.

Mr. GANSKE. Mr. Kahn says yes.

Can we go down the line?

Ms. FEDER. Can’t comment.

Mr. GANSKE. No answer.

Mr. DONOHO. Don’t have a position.

Mr. POLLACK. Yes.

Ms. DAVENPORT-ENNIS. I am not thoroughly versed on the issue

so I cannot give you a good answer. I will be happy to get back to

you with it.

Mr. GANSKE. Mr. Fuller, did I hear from you?

Ms. FULLER. We have not taken a position.

Mr. GANSKE. Karen?

Ms. IGNAGNI. Our members have not taken a position on this. I

think that if you begin to do it in one sector, you are under pressure to do it in others, and the question is, is that the right strategy. But I do not want to preempt our members, they have not

taken a position.

Mr. GANSKE. Thank you, Mr. Chairman.

Mr. BILIRAKIS. That was a very good question, by the way.

Mr. GANSKE. Thank you, Mr. Chairman.

Mr. BILIRAKIS. Mr. Stupak?

Mr. STUPAK. Thank you, Mr. Chairman.

In my opening statement, I showed this chart from my district

where we have different prices for the same drug with Zocore,

whether you are the Federal Supply Service, major wholesaler,

chain store independent, average retail, average wholesale price.

Would any of the plans before Congress right now would stop

this price discrimination?

Karen?

Ms. IGNAGNI. I do not know the answer to that.

Mr. STUPAK. Mr. Fuller?

Ms. FULLER. I do not think so.

Mr. STUPAK. Mr. Kahn?

Mr. KAHN. No, they would not stop it but they would get some

people better prices.

Mr. STUPAK. Okay. Dr. Feder?

135

Ms. FEDER. They would provide—the President’s plan, for example, would provide people for a specified premium, subsidized premium, drugs they could count on with known cost sharing. It would

be very different from that situation.

Mr. STUPAK. Mr. Donoho?

Mr. DONOHO. I think my colleague, Chip Kahn, said it best; no,

it will just change the market in terms of who is available to which

price.

Mr. STUPAK. Mr. Pollack?

Mr. POLLACK. The administration’s plan would do a great deal to

reduce those disparities.

Mr. STUPAK. Ms. Davenport-Ennis?

Ms. DAVENPORT-ENNIS. Yes. And because once again we have not

had an opportunity to review all the plans, our constituents have

not taken a position.

Mr. STUPAK. So the only way to get these prices down to get

them somewhat reasonable so we do not have 134 percent difference is who has really the clout at the table, so to speak, when

they negotiate on behalf of uninsured seniors? Right, basically?

Ms. DAVENPORT-ENNIS. Yes.

Mr. STUPAK. Yes, yes?

Ms. DAVENPORT-ENNIS. That is a very big factor.

Mr. STUPAK. Okay. Let me ask a more specific question then to

Dr. Feder.

AAHP testified that many seniors who would not otherwise have

access to drug coverage, either because they do not have retiree

coverage or drugs, they just cannot afford them, cannot buy them,

so if they cannot afford a Medigap policy that covers drugs, are

able to get drug benefits through their Medicare+Choice plan,

couldn’t we use that model as a way to get drug coverage to all seniors?

There has been some instability in that Medicare+Choice market,

but couldn’t we provide extra funding so that more plans could get

back to the market and provide drugs?

Ms. FEDER. I think we certainly can provide, through Medicare

and through Medicare+Choice plans, we can provide prescription

drug coverage. But the way to do that is to incorporate it into the

core benefit of Medicare and then have the plans offer that benefit.

The way we are doing it now, and if I am hearing you correctly,

just put some extra money in the plans, it is available in some

places and not available in others.

Mr. STUPAK. With that in mind. But it sounded like the——

Ms. FEDER. Correct. In some places——

Mr. STUPAK. [continuing] like it worked.

Ms. FEDER. [continuing] but it is a function of where the plans

find that given a given level of payment, they can profitably offer

that benefit.

And as we have worked over the last several years to constrain

Medicare costs and eliminate the deficit, we have constrained both

fee-for-service and Medicare+Choice payments and we are finding

that there is not as much room in this extra payment to offer this

benefit.

It is not the way to do it because it does not guarantee the availability of that benefit every place. It should not rest on whether a

136

plan wants to be there, whether they find it profitable. That is not

the way to do it.

Mr. STUPAK. Karen?

Ms. IGNAGNI. I appreciate the question, and I believe we have a

track record that can be built on and with additional resources,

that is a major start at moving in this direction.

But I do not want to mislead you about the need for additional

resources now on the basic side before we get to additional. But it

is a model that can be built on.

Mr. STUPAK. I do not totally reject the model, and if we had some

more resources maybe we can get there, but how do you overcome

what I see—and maybe I am using the wrong words—instability in

the private market insurance? I still see a cherry picking going on.

In my district, they probably do not even offer it. I am sure if

I was 70 years old and I started having a battle with cancer, I am

sure I am going to be dropped because I get too expensive.

Ms. IGNAGNI. Well actually, Mr. Stupak, as you know, one of the

accomplishments of our programs actually is to do a better job

managing chronic illness.

The existence of prescription drugs in most of the

Medicare+Choice programs has actually recruited in not only the

lower income, and the HCFA data confirmed that absolutely, but

the people with the highest health care costs, because of our ability

to coordinate their care and offer them more and that is I think

a model that can in fact be built on.

And in the rural areas is one of the major barriers—our health

plans would very much like to serve the rural community—has

been the unwillingness of single health care systems who do not

have any competition to actually contract with our plans. So we

need to talk about that as we think about going forward.

We would love to be participating in your area and other areas

where we have not had the opportunity.

Mr. STUPAK. Did you want to add something further, Dr. Feder?

Ms. FEDER. Just that I think it is critical that if you do not define the benefit, you are leaving too much discretion to plans. What

you need to do is define the benefit and then have a payment

mechanism that plans can know what it is that they are supposed

to bid on or offer and proceed that way.

Ms. IGNAGNI. And we would agree with that. We agree with the

defined benefit for purposes of bidding.

Mr. KAHN. And it is also important to point out that the pharmaceutical benefits that are generally offered now by health plans

under Medicare+Choice are not as generous as all these different

plans anticipate. So there has got to be more funding to get those

drugs at a level that these different bills anticipate.

Mr. STUPAK. So we have got to have someone with clout negotiating and we have got to have a defined plan, if that is what I am

hearing you say.

Mr. KAHN. The plans can do the negotiation or work through

PBMs. The question is the money.

Mr. STUPAK. Okay.

Ms. FEDER. And the defined benefit, as you said.

Mr. STUPAK. Defined benefit, yes, you have got to have a defined

benefit.

137

Thank you, Mr. Chairman.

Mr. BILIRAKIS. I thank the gentleman.

Mr. Bryant?

Mr. BRYANT. Thank you, Mr. Chairman, and panel, it has been

a long day so far.

Mr. BILIRAKIS. Amen.

Mr. BRYANT. Let me just take you back on a couple of questions

my friend from Michigan led us into.

Mr. Donoho, you have been quiet here for awhile. Let me ask you

a question directly.

In your statement, you indicate that the drug benefit should be

administered through the private sector, and also that competition

among private sector PBMs would deliver significant cost savings

and spur innovation.

In light of this issue of the cost that we have been talking about,

the high cost of drugs, would you expand on your statement?

Mr. DONOHO. Well it has been our experience in the private sector anyway that the competition has spurred the cost savings. If

you talk about decisions directly, let’s take on drug costs, it is the

competition within a PBM in terms of formulary development, after

you have done your P&T analysis, you have looked at, you have

covered all your classes of product and you find out that there are

two competing products in the marketplace today, then you can go

back and get a reduced reimbursement.

The question I think in my opening statement was. has the Federal Government, our concern in terms of the Federal Government

operating a program is the fact of do they have the will to put that

kind of hard decision on the table?

Because the hard decision on the table then is to say to somebody, listen, this product—if you have competing plans—you can

have choice. But if you have the hard decision of saying I am not

going to cover this particular product, and then you have got no

choice to seniors, then you have got a different kind of kettle of

fish.

And you have got to have a prior authorization like our plans do.

But the question then becomes, and that is the way you get leverage to negotiate. It is not based on volume.

Let me make sure that you understand that. It is based on market share. If you can move market share for drug manufacturers,

they will negotiate on price. That has been our experience.

Mr. BRYANT. Okay, thank you.

Let me jump to another issue very quickly in terms of those of

us that, in this whole concept, are also concerned with consumer

protections.

The bipartisan bill that we are talking about today primarily,

would indicate that in that for the first time we create an Office

of Beneficiary Assistance within this MBA, this outside of HCFA

agency that will administer this, it is an Office of Beneficiary Assistance. And its purpose is to provide educational materials to the

beneficiaries about the entire Medicare program.

And within the Office of Beneficiary Assistance, there will be a

Medicare ombudsman whose sole purpose is to assist beneficiaries

when they are having trouble with claims and appeals, getting access to care, and generally need help or answers to questions.

138

Such a one-stop central Beneficiary Assistance-oriented office

does not currently exist within the HCFA. And for those reasons,

I think again, particularly the panelists on the end that are from

citizens groups and family groups and so forth, that also should be

of interest there.

Ms. Ignagni, on the end, a question.

I think we have talked about this a little bit, but let me clearly

get your response to this in terms of the criticism of this bipartisan

bill in building in flexibility that would allow health plans to provide a standard benefit or a benefit that has an actuarial equivalent.

That criticism is that that would encourage health plans to develop proposals only to attract the healthy beneficiaries, cherry

picking. How do you respond to that particular issue?

Ms. IGNAGNI. Well first of all I think as I understand the proposal, and I appreciate the question, it is to have a floor benefit.

There would be a clearly set out benefit.

The concept of actuarial equivalence would then allow us to do

better than the floor, which is what we do now in Medicare+Choice,

as you know.

We have a floor set of Medicare benefits. We meet that floor. But

because we are more efficient at disease management, coordination

of care, et cetera, we can, for the same dollar value, offer beneficiaries more, which is why it is such a travesty that 3 weeks before the date in which we have to notify HCFA of what plans will

be forced out of this program who are serving 6.2 million people,

that we are not moving to do something about that.

And we have taken heart that this committee in fact has made

that a major part of its agenda over the years. So the idea that actuarial equivalence would somehow mean that there would be no

baseline benefit is not something that I understand this proposal

before you—and we are all looking for the details—to be.

So I think what we all are saying on this panel is that we agree

with the concept of a floor. That is where you start. We in the

health plan community can do better than that.

For beneficiaries, we would like to be able to be given the opportunity to do better than that for beneficiaries.

Mr. BRYANT. Just following up on that, I am curious if you have

an opinion about our move from the administration of this from

HCFA over to an outside agency that we establish. Do you think

this would help health plans participating in the

Medicare+Choice——

Ms. IGNAGNI. Two-and-a-half years ago——

Mr. BRYANT. [continuing] of this on Medicare+Choice, as you

know.

Ms. IGNAGNI. Two-and-a-half years ago there was a reorganization at HCFA which I believe, based on what we have seen from

the Administrator recently, is an acknowledgment of what much of

what our members have said for 21⁄2 years, that that reorganization has not worked.

The Administrator, herself, and to her credit, has begun to a]

recognize it, and b] put in place some strategies to respond to that.

139

The concept here is whether you set up a new agency within

HHS or whether you aggregate the responsibilities of HCFA differently.

We have to do things differently than the way we are doing it

now. We have instability. We have no predictability with respect to

the regulatory environment. We have 900 pages of regulatory compliance that we started with. But then virtually every 2 weeks

there has been a policy letter with which we have to comply with.

And I am pleased that the Administrator has recognized this.

She is moving in a particular direction. I think there are many options. And for us the most important thing is to aggregate these responsibilities and somehow make progress on the conflict within

HCFA which is purchaser/regulator /competitor. How are we going

to sort that out?

There was a model that worked well in the past. We are beginning to go back to that model. I think that is a very big and important step forward.

Mr. BRYANT. I thank the panel and yield back.

Mr. BILIRAKIS. Mr. Barrett, the current Ranking Member, to inquire.

Mr. BARRETT. Thank you, Mr. Chairman.

Mr. Kahn, notwithstanding the red tinge in your beard, I do not

think of you as a flaming radical.

And it strikes me almost as counterintuitive that you are here

today representing the insurance industry, and yet telling us that

your industry feels that this approach that is being advanced has

some problems to it.

And it strikes me as, again, just odd, although I must admit that

my feelings run the same way.

Can you talk a little bit more, just about the adverse selection

issue you see out there that I have got to believe you think is a

fatal flaw to this proposal, or you would not be so up front about

it.

Mr. KAHN. Let me say that I believe that in the case of drug-only

policies and the fact that 35 percent of Medicare beneficiaries have

no coverage and another number have sort of mixed coverage, you

would assume that if this was a good product, it would be there.

And it is not.

I mean there are not companies seeking to do it. And actually

those companies that have supplemental policies, the HI&J, a lot

of companies have left that and there are a few companies left in

it, but they are not enthusiastic about that coverage because they

end up paying actually there the highest prices just like the beneficiaries who have no coverage.

But I think part of the adverse selection issue goes down to

this—that you have got some people that do not use any drugs, a

very large number that use between $500 and $2500 worth of

drugs which can be significant on somebody’s budget, particularly

if you are just living on Social Security or a little bit extra above

Social Security, but at the same time that is not enough money to

call it catastrophic.

And the fact is only 4 percent of expenditures for drugs is over

4 percent.

140

Actually, one of the interesting things here for the elderly is that

drugs are different from all other kinds of health expenditures.

In all the areas of health, when you look at the total, most of the

spending is done by few people. The trouble with drugs is it is done

by many people and it is frequently predictable, and that is why

we do not think you could sell an affordable policy.

At the same time, there is another factor, and I will just take—

I wish I had copies of this chart to pass around—the HCFA actuaries projected drug costs in March 1999, and they thought that by

2007 they would grow to about $170 billion.

Six months later they decided, no, they were wrong. Looking at

the market, you know, seven or 8 years out, they would be at $223

billion.

Now the point I make is that when an actuary looks at numbers

like that, and that kind of volatility, you know, if he is stuck or

she is stuck with the recommendation for a premium you know, on

399, and an insurance commissioner or whoever says that is the

premium, then when they go back and say, well, wait a second, we

miscalculated because there is a new report now that says, you

know, 6 months later, that we were wrong, they are going to be

stuck. And that is how the actuaries look at this.

I mean, this is just not an individual benefit that we can provide

insurance for.

Mr. BARRETT. Ms. Davenport-Ennis talked about your patients or

your clients and say a person with cancer or a person with a disability, I am going to ask each of you just a yes or no question.

Do you think that there is a private insurance company out there

that would sell a drug-only policy to a person with cancer and that

person say at 200 percent of poverty, could afford it?

Ms. Ignagni?

Ms. IGNAGNI. Our plans would do it in the context of

Medicare+Choice.

Mr. BARRETT. No, that was not my question. My question was a

drug-only policy.

Ms. IGNAGNI. It depends what the rules are.

Mr. BARRETT. What do you mean it depends what the rules are?

Ms. IGNAGNI. Well we have not seen the proposal. We are looking

forward to seeing the proposal.

Mr. BARRETT. Okay, but I think we understand what we are

talking about here. It would be a private company.

Ms. IGNAGNI. Let me give you an example.

Mr. BARRETT. I do not want an example.

Ms. IGNAGNI. Okay. Well, if you want to understand the answer,

I need to give you an example.

Mr. BARRETT. I will go on to Mr. Fuller.

Mr. Fuller?

Ms. FULLER. I mean I really have to yield to the people of the

insurance. I do not, I do not know.

Mr. BARRETT. Intuitively, what do you think? You are a businessman.

Mr. FULLER. Doubtful.

Mr. BARRETT. Doubtful.

Mr. FULLER. I cannot speak for all companies, but at least my

own, I doubt the would offer the policy in the first place.

141

Mr. BARRETT. Dr. Feder?

Ms. FEDER. I would defer to Chip Kahn.

Mr. BARRETT. Okay. That is the last time we will ever see that.

Mr. KAHN. I would not know how to answer that question. I do

not know.

Mr. BARRETT. Well intuitively, as a businessman, would you sell

this product? Do you think you could make money selling a drugonly insurance policy to a 68-year-old woman making $20,000 a

year who has breast cancer?

Mr. KAHN. Intuitively, maybe, but probably not.

Mr. BARRETT. Mr. Pollack?

Mr. POLLACK. It may be possible. I would not take the odds with

me to Las Vegas.

Ms. DAVENPORT-ENNIS. And I guess that as a 10-year survivor

and one who does not have to take medications to deal with my

former diagnosis, I would not be able to answer you as a specialist.

I would only be able to say that if you bet the odds on me, you

would have done all right in selling the policy. But I cannot answer

the question for the community.

Mr. KAHN. Mr. Barrett, excuse me, but I really think you asked

the wrong question. Because the question is, are there enough people who are well but concerned that they might have a risk that

would buy the policy so that you could sell it to the 68-year-old who

already has——

Mr. BARRETT. But why would I buy the policy if I were well?

Ms. IGNAGNI. Because you are at risk.

Mr. KAHN. Because in our society, people buy insurance every

day for a lot of reasons. And my point is that if you could get

enough people to buy insurance in this case, you could insure the

risk. Our concern is that those people who are well now, because

of the cost and the payoff year, are not likely to buy it.

Mr. GANSKE. Would the gentleman yield?

Mr. BARRETT. I know my time has run out, but let me follow up

on that then. If this bill became law tomorrow, a 40-year-old man,

40-year-old woman, would they buy this policy? Of course not. Of

course not.

Mr. KAHN. I would say a 65-year-old who was perfectly well

would probably not buy it. And that is the problem.

Mr. GANSKE. Would the chairman entertain a question, the Acting Chairman?

Mr. BURR [presiding]. The Chair would recognize the gentleman

for 1 minute.

Mr. GANSKE. Thank you. Maybe the Chair could help us on this,

because this is one of the details of the plan that we do not know

about. And that is will everybody, when they turn 65, be given one

chance to enter this, or will you have an annual chance to get into

this program?

Because most people, if they have an annual chance, and they

have no prescription costs, will not but they may think well, maybe

I will need some prescription drugs in September or August. I can

just eat those costs until January 1 comes up, and then, since I

need the drugs, then I will get into the plan.

Can the Chair answer my question? Is there an annual up for

this or is this a one-time offer——

142

Mr. BURR. Well the Chair——

Mr. GANSKE. [continuing] or is this a detail being worked out?

Mr. BURR. The Chair is not on today’s panel but I would be

happy to turn that over to Mr. Kahn.

Mr. KAHN. I have not seen the bill. This is an important question. I mean——

Mr. BURR. It is an important question, and the gentleman’s time

has expired.

Mr. BARRETT. Thank you, Mr. Chairman.

Mr. BURR. The Chair would announce to the members that we

are going to do a second round.

Has the gentleman from Ohio gone yet?

Mr. STRICKLAND. No, I have not.

Mr. BURR. Then the Chair would recognize Mr. Strickland for 5

minutes. I apologize.

Mr. STRICKLAND. Thank you.

This is a fascinating hearing. I am glad we are having it and I

think if we have kept our eyes open and our ears open and listened, we have probably learned a lot.

I would just like to say, Mr. Fuller, you make a statement in

your testimony that you think the highly efficient community pharmacy infrastructure needs to be protected and I feel the same way.

Are you familiar, sir, with Mr. Allen’s bill? And if so, would you

tell me what you think of that bill and why you either think it is

a good idea or bad idea?

Ms. FULLER. First, I thank you for sharing the concern about

community pharmacy, and I also appreciate the comment that Mr.

Burr made earlier that some of the provisions that we have talked

about are in fact being incorporated into the—excuse me, that the

chairman made earlier—are in fact being incorporated into the legislation.

I am familiar with the Allen bill. I probably am not going to satisfy you. We have not taken a position on it. Our companies have

not taken a position on it. We are concerned about a number of elements in it.

Any kind of price control mechanism philosophically is of concern

to us, no matter who it applies to, because it at some point is going

to trickle down to the pharmacy and be enforced. So we are concerned about that. We have not taken a position on it though.

Mr. STRICKLAND. Okay, thank you.

I continuously hear comments from seniors who are concerned

about the cost and I think the cost is something that we ought to

be concerned about as well.

And we know that, as Mr. Pollack has said in his testimony, that

tax dollars are used to promote research, and that research leads

to new pharmaceuticals, and those pharmaceuticals are sold to consumers, to American consumers and to foreign consumers.

And I do not think there is any really debate about the fact that

foreign consumers of pharmaceutical medications pay significantly

less than American consumers.

And you are here because you are experts, and I would just like

your personal opinion. You do not have to even speak for the agency or association or university you are with, but I would like your

personal opinion:

143

Do you think the government should be concerned about that

and should try to find some way to keep American consumers from

experiencing this kind of price discrimination, given the fact that

so many of these pharmaceuticals are developed with American tax

dollars in part.

Ms. IGNAGNI. I do, Mr. Strickland, and I think that there are

other ways, however, in addition to price controls, that one can get

at that issue.

Mr. STRICKLAND. Okay.

Ms. FULLER. I think we have to be concerned about it, and certainly we are seeing seniors every day that are going across the

border to get drugs. There’s proposals to allow drugs to be purchased internationally and brought here. There are concerns there.

So I think it is going to have to be examined pretty carefully. I

would add that there are also very noticeable differences in the

availability of certain drugs and medicines, both generic as well as

branded drugs in these countries that control prices. And so there

are some offsets here that you would also have to take into consideration when you look at the overall issue.

Mr. STRICKLAND. Okay. Mr. Kahn?

Mr. KAHN. I think there needs to be a complete reevaluation—

I am not an expert in trade law—but of our trade law because it

would be good to put some pressure on the rest of the world. Because it does not make any sense for us to pay the basic price and

everybody else to pay the price at the margin.

Ms. FEDER. I guess I would look at it from the opposite perspective. I think the reason it is this way is because everybody else in

the world provides everybody in their country health insurance and

decides what essentially they are willing to pay. And we do not do

that in this country. There are many ways for us to consider beginning to lower what we are willing to pay and I think that is what

we ought to be doing.

Mr. DONOHO. I think we have to be concerned about price controls and, being an American, I think I would turn around and say

maybe we should look at designing a system to take better advantage of competition within the system.

And if you look at what we have done in price controls to date,

like in Title 19, Medicaid, what has the impact been on like our

people’s business, since you have a best price, can we negotiate

down below best price without impact on the Medicaid program?

I mean, we have got competition in the market. How do you design a system to take advantage of that competition, I think is the

answer we would give.

Mr. POLLACK. Mr. Strickland, I would say that we need to do

something not just because there are inequities from one country

to another. This is an affordability crisis for a lot of people, and

that is why we need to do something.

I do not think we need price controls. I think we need to give the

Medicare Program the same kind of leveraging authority that other

institutions have. Hospitals, HMOs, others, they use their

leveraging authority to get prices down. We should do the same

thing for seniors through the Medicare program.

Ms. DAVENPORT-ENNIS. And certainly I would agree that for our

constituents there is not a patient that we deal with when we get

144

into debt crisis resolution as a result of their diagnosis that the

cost of all health care does not become problematic for them, including the costs of pharmaceutical agents.

As we look at many discussions in which we talk about what the

pharmaceutical agents are sold for abroad, what they are sold for

in America, there are three conclusions that we come back to routinely.

Why is that happening? What are the pressures that we can put

in place in this country to look thoughtfully at why is there such

a wide variation from this country to another country?

And what can we do to empower the individual consumer in

America, and particularly the senior consumer, to negotiate for the

most attractive prices available to them in purchasing the agents

that they need.

We are not a part of the pricing structure for the pharmaceutical

industry, therefore we do not have any concept of how those figures

are originally introduced to the market. And I think, as a fair piece

of the evaluation, that that would also have to be looked at as a

Nation.

Mr. STRICKLAND. Mr. Chairman, can I make a concluding sentence?

Mr. BURR. The gentleman may.

Mr. STRICKLAND. We hear about the world economy and the fact

that we are a part of it, but as long as other nations have controls

and our Nation does not have some control, it is inevitable, it

seems to me, that the American consumer is going to subsidize the

foreign consumer.

Thank you.

Mr. BURR. The gentleman’s time has expired.

The Chair would recognize the gentleman from Iowa, Dr. Ganske

for 5 minutes.

Mr. GANSKE. Thank you, Mr. Chairman.

I want to try to get a handle on the Medicare HMOs. So Ms.

Ignagni, you can help me on this because there have been a lot of

reports about the Medicare HMOs dropping out of the market because you have not received a large enough update increase.

Are we seeing Medicare HMOs drop out of markets where their

AAPCC is say above 450?

Ms. IGNAGNI. We have. And we may, as July 1 approaches. And

I think that one of the things that we are working very hard on

and are looking forward to working with this committee on is trying to avoid that, stabilizing this program, and continuing to allow

this to be a choice for people because they can receive so many benefits. These are people on very fixed incomes with limited means.

Mr. GANSKE. And this is even despite the fact that Medicare

HMOs are increasing their deductibles and copayments for their

prescription drug coverage?

Ms. IGNAGNI. Yes, sir.

Mr. GANSKE. Now just so everyone is clear, a Medicare HMO is

paid on a monthly basis per enrollee an amount determined by a

formula called the AAPCC, adjusted per capita cost something.

How much additional funds do you need for a prescription benefit,

do you think, for your Medicare HMOs to continue to be able to

offer prescription drug coverage?

145

Ms. IGNAGNI. First of all, sir, I think the first thing we need is

to stabilize the program before we get to additional benefits. There

is a great deal of unfinished business to fulfill that promise that

was made to people in 1997 that they would have a choice.

One of the most effective strategies there is to impose a safety

net so that the purchasing power of the Medicare+Choice capitation

or reimbursement to the plan is actually keeping pace with what

the costs of purchasing health care from the academic teaching centers, from the physicians in that community, et cetera, are.

What we have is a major problem because we have lost that relationship.

Mr. GANSKE. So you would like to see an increase across the

board?

Ms. IGNAGNI. Across the board.

Mr. GANSKE. Across the board. So for instance, there are some

counties where the payment for a senior citizen could be as much

as $750. What you are saying is that in order to stabilize your drug

benefit programs, even for those in those areas, they need a higher

increase in their adjustment?

Ms. IGNAGNI. Yes.

Mr. GANSKE. Is that right?

Ms. IGNAGNI. Yes. Well yes and no.

One, No. 1, we have to stabilize those programs across the country and there are a range of strategies to do that. We have to deal

with the particular problems of the blend counties making sure

that that is funded irrespective of what happens on budget neutrality, et cetera, No. 1.

The floor issue, No. 2. We have to have a better risk adjustment

system than we do now. The one we have on the table does not

work, is not encouraging disease management or the kinds of strategies we have employed so well.

Once you do that—and that can be done and it can be done this

year——

Mr. GANSKE. But you are telling me——

Ms. IGNAGNI. Once you do that, then you need to do something

additional for the prescription drug question.

Mr. GANSKE. You are telling me though that you are seeing

Medicare HMOs drop out of AAPCC areas that are significantly

above $450.

And we heard in Ways and Means yesterday that they are talking about raising the AAPCC to a floor of $475. Now that is only

about $50 higher than what it currently is in Des Moines, Iowa

where there really are not any plans being offered.

How high would you have to get that AAPCC to see HMOs move

into more rural areas where there have been lower AAPCCs, because we know in the rural areas we have a disproportionately

number of very elderly that have a higher percentage of prescription drug costs——

Ms. IGNAGNI. Yes. That’s right.

Mr. GANSKE. [continuing] than in some of the more urban areas.

I mean, do you have any ideas what levels we would be looking

at?

Ms. IGNAGNI. I do, actually. I think it has, in many cases, Dr.

Ganske, and I know that you know this because we have had some

146

discussions about it, that this issue about presence of

Medicare+Choice in rural areas, in many cases has little to do with

payment.

It has much more to do with whether a provider system, often

with no competition, is actually willing to negotiate with a health

plan.

In a number of situations, because there is not a competition in

the market in the provider community, individual systems are unwilling to contract.

Mr. GANSKE. I understand there are other factors that enter into

it.

Ms. IGNAGNI. Yes.

Mr. GANSKE. But it would appear to me that on the face that one

would have to significantly increase that floor above what I hear

is currently being proposed. I think you are looking at something

more in the range of $600 or $650.

Ms. IGNAGNI. I think if we think that the way to solve the

Medicare+Choice systemic challenge now is to only increase the

payment in rural areas, then I think we are kidding ourselves. And

I think we will let a number of beneficiaries down.

There is more that needs to be done, and I would be happy to

spend some time with you on some of the specifics because what

I am excited about is people are beginning to talk very specifically

about that.

Mr. GANSKE. Yesterday——

Mr. BURR. The gentleman’s——

Mr. GANSKE. One additional question?

Mr. BURR. Very quickly.

Mr. GANSKE. Yesterday, Mr. McDermott asked Chairman Thomas a question about well, you know, if studies have shown that payments to Medicare HMOs have actually cost more than what they

would have, and you are familiar with some of those studies, why

is it that Republicans want to move all Medicare beneficiaries into

HMOs?

And Mr. Thomas said this, and I would like your response to

this. He said:

Well, that only tells half the story. In other words, he agreed

with the initial premise, and then he said, we would like to see

competitive HMOs.

Is it your position that you would like to see the majority of

Medicare beneficiaries in Medicare HMOs?

Ms. IGNAGNI. I think that we offer opportunities for Medicare

beneficiaries. Right now, in the here-and-now, and I could not responsibly answer any other way, we have to build capacity to accommodate all beneficiaries. So I do not want to mislead you about

that, so I would not make that promise.

But what I can actually tell you is the systems that we have

have done a better job in managing the chronic care challenges of

people who are over 65, and the literature is beginning now to support that.

So we have coordinated care. We have early intervention. But

what we have done is created a promise that has not been funded.

So we need to do the second step, which is to fund the promise so

that more and more seniors can take advantage.

147

And there is no lack of interest. There is a great deal of interest.

But now, because plans have been forced out, seniors in fact are

faced with situations where, in many markets, there is not a plan

or likely to be no plan in the future. And that is not what we promised in 1997, and that is not what people indicated they wanted.

We have the highest degree of satisfaction in the Medicare population in our health plans because of the comprehensiveness and

the breadth of the intervention here. And we want to be able to

partner with the best physicians and best facilities around the

country to continue to do this job.

Mr. GANSKE. You are an effective spokeswoman. I would point

out that sometimes patients, when they get sick, decide to leave

Medicare HMOs and then go into fee-for-service, and there may be

some adverse risk selection.

But I appreciate the Chair’s indulgence.

Mr. BURR. I thank the gentleman for his question.

The Chair would recognize Mr. Deutsch.

Mr. DEUTSCH. Thank you, Mr. Chairman.

Ms. Ignagni, if I could follow up a little bit on some of the questions that Dr. Ganske was talking about, from your perspective

why is it important to stabilize the Medicare+Choice program if we

are going to eventually have a prescription drug coverage for all

Medicare beneficiaries, even who are not in Medicare HMOs?

Ms. IGNAGNI. Because I think we can build on this model and we

can do better.

So to the extent that you establish a floor benefit package, that

however you construct the proposal, whether you look at the bipartisan proposal and where everyone’s looking for the details, and we

are looking for them as well and we will be looking to analyze

them, or the President’s proposal or the Democrat’s proposal that

we have seen thus far, I think there is a broad scale recognition

that once you establish a floor, because of the nature of coordinated

care systems, we can do more for seniors, and we are looking forward to doing that.

But we cannot build on that track record unless we stabilize the

existing program.

Mr. DEUTSCH. You know, it is interesting. In my district, I have

both an urban setting, a traditional health care urban setting, and

as you are aware also, Monroe County, the Keys is actually technically a rural health system because Monroe Key West, the closest

regional hospital, is over 100 miles away.

The only HMO service in Monroe County has left. And so you

have a phenomenon for 80,000 people in my district, 20,000 plus

Medicare beneficiaries, who if they have high prescription drugs,

have no choice, have no option.

Where in the urban part of my district, even though some people

have left the market, there is still a competitive HMO market.

And in fact, one of the phenomenon is people using fake addresses to actually get prescription drug coverage because they cannot

get HMO coverage. And the only way they can get the prescription

drug coverage is by using a neighbor, a friend, a relative’s address

in a county that has an HMO that services—which is illegal, and

I do not know the enforcement side of it or now much enforcement

is going on, but it sort of talks about the problem.

148

In terms of just seeing how many people join HMOs because of

that need, do you have any feel or any empirical data in terms of

that marking tool, that coverage for prescription drugs, what does

it mean?

Ms. IGNAGNI. Yes. We know that a number of beneficiaries have

joined our plans because of the existence of prescription drugs. So

the tenor of your question is absolutely right.

However, we also know, and I think the next point is not often

recognized or not recognized enough, that people on fixed incomes

value the cost containment protection, No. 1, the cost sharing protection, I am sorry.

The second is that they value, an element of what we provide is

this notion of catastrophic coverage which, as we have heard this

morning, was embarked upon in the traditional Medicare program,

and then ultimately that was repealed.

We continue to offer not only cost-sharing protection, but catastrophic coverage and that is a very, very strong value for individuals on a limited income.

Mr. DEUTSCH. Let me, I guess—because we had our 5 minutes

on an introduction—really sort of follow up and it is really not a

question, but it may be a rhetorical question—but I think one of

the interesting things about prescription drug coverage, and it is

really sort of fascinating talking to constituents, not just Medicare

constituents but people whose parents are on Medicare, but also I

think what is also really interesting is talking to physicians who

are not participating in HMOs. How supportive they are of prescription drug coverage.

Because I think physicians who I have talked to literally see people leaving their practice because of HMO coverage because they

have someone who is a middle class senior who is spending $500

a month on prescriptions, and that person, even though they do not

want to leave their cardiologist there, whoever, effectively do not

have a choice and have to join an HMO to get the prescription drug

coverage.

And they know that if there was prescription drug coverage

under Medicare, that is a person who they see, who they talk to,

who they know is a patient who would not leave.

And it is kind of a strange phenomena. You know, if anything,

we keep trying to shift this pendulum where it is an even choice,

where consumers really have a choice and it is level. And in some

cases, maybe the incentive to join an HMO has gotten too high.

The reimbursement might have been too high. The extra benefits,

health care benefits, everything else, might be too much, and then

we have leveled it, and maybe now it is the other way. So this can

kind of level back.

And one of the interesting things I guess that maybe you can

share as well, and if anyone else on the panel, let me just open this

up as well to anyone else who wants to respond, but one of the

issues that we have talked about in prescription drugs is the actual

potential cost savings of providing prescription drug coverage.

Because avoiding adverse health consequences because people do

not take it, from the HMO perspective, where you are basically indemnifying the person, do you have empirical evidence to sort of

talk about your savings——

149

Ms. IGNAGNI. Yes.

Mr. DEUTSCH. [continuing] about people getting the drugs regardless of their costs which is effectively the way the HMOs can

do that.

Ms. IGNAGNI. Yes. Because the existence of prescription drugs allows us to do the early intervention to prevent the catastrophic illness down the road. There is no question about that.

Mr. DEUTSCH. Does anyone else want to respond to that?

Mr. DONOHO. To give you a real life example, one of the issues

with the elderly is hypertension. If you look at hypertension in a

managed benefit, hypertension compliance is about—on noncompliance is about 49 percent.

If you look at that, about a third of them—this is a study done

by one of our members—if you look, a third of those require hospitalization. The average hospitalization is at $15,000 a year.

So if you can increase compliance, if you can maintain people on

hypertension, look at the money that you are saving. It is just one

simple study.

Mr. KAHN. I guess I think that we are looking at Medicare from

the standpoint of drugs because of the discussion today. And I

think that you tend to get a little bit perverted.

I think from the standpoint of the beneficiary, you are describing

how they join HMOs because in a sense they get a deal and that

is why they give up fee-for-service.

I think we have to—and I cannot say it is this year or next

year—but there is a point in the future where in a sense

Medicare+Choice is not the problem, fee-for-service Medicare is the

problem. Because whether it is home health, skilled nursing facilities, out-patient hospital department, I spent 13 years working on

payment policy and I can tell you, it is about over.

The way HCFA applies the rules that Congress passed is such

that it is going to be very hard for the infrastructure through this

old fee-for-service system to be sustained.

And I do not know what the crisis is in—you know, obviously in

the skilled nursing facility area you can make the argument that

there are a lot of people that came in and abused Medicare for

years, a lot of providers, and, you know, you can see what the stock

market is doing to them today. You know, half of them are in bankruptcy.

But the point is that from an infrastructure standpoint to serve

the beneficiary, I think that the fee-for-service system is extremely

sick, and that if we let the managed care infrastructure fade, which

it is about to do, I think we are going to have some real organizational problems in terms of getting services to beneficiaries.

And this is a serious problem. There are a lot of physicians now

that do not like to take fee-for-service Medicare because of the way

Medicare pays.

Ms. FEDER. Mr. Deutsch, I cannot let that one stand. I deferred

once to Chip. I cannot do it again.

It seems to me that there is an on-going issue in managing the

Medicare program which I think is intrinsic to managing a health

insurance program which is trying to balance what we want to pay

and the access to quality care that we desire.

150

And it is true that in the last few years, we have adopted some

new prospective payment systems that need work, and I think will

continue to need work, but to say that the fee-for-service system is

sick when it continues to guarantee millions of Medicare beneficiaries access to care and has simultaneously been able to slow

its cost growth so that we have extended the life of the trust fund

to 2025, does not make any sense to me.

I think, on the contrary, it really is that there were claims made

for managed care and what it could deliver and I do not think we

have seen delivery on those claims of performance.

My view is that we should not have a situation, as I said before

to Mr. Stupak, when you talk about having a level playing field,

we need that core benefit, and we need to have people not moving

in and out of fee-for-service and managed care because they can get

extra benefits one place and not another.

We need to have a core benefit, make it a reasonable price or a

reasonable system of paying for that core benefit in fee-for-service

and outside, and then enable beneficiaries to choose.

Mr. BURR. I thank the gentleman from Florida. He got 9 minutes.

I really did have a goal when I got in the seat to try to get these

witnesses out by 3:30. You have had an extremely long day. I will

not ask you questions, but I will summarize the questions that I

would have asked with my own answers, if that is okay.

We have got a huge challenge. I think that is evident by the

varying degrees of answers, but more importantly the questions

that still remain unanswered and that means that we have to go

into new ground and to plow that ground.

Illness is not predictable.

Illness is not predictable if you are young.

Illness is not predictable if you are old.

It puts a unique challenge on us to provide not only the coverage

for those who are at risk, whether it is because of the financial

point in the sand that was set, or because of a current health problem, but we are also challenged to produce a product that really resembles more a life insurance product, a product that assures individuals who have the means to pay today for drug costs, that they

are protected against the drug costs of tomorrow. But more importantly against the terminal illness that might strike and that the

resources might not be there for an unpredictable outflow of

money.

So the challenge for us is to make that predictable, to bring some

parameters to the process and to respond to not only those who

choose between food and drugs, but to try to design a program that

fits the needs of the long-term security and predictability that has

been expressed by many of you.

One of the other most difficult things is to integrate a new program into a system that has had a difficult time at making any

new coverage decisions.

I think every member of this subcommittee at some point in any

given month has dealt with a manufacturer of a medical device of

a pharmaceutical, a member of a patients’ groups who seeks to try

to accelerate the coverage decisions at HCFA.

151

Because technology changes with such a fast pace today, HCFA,

for whatever reason, is unable to make those coverage determinations in a fashion that we would all want for the quality of care

of the patient.

And I think that that is one thing that has contributed to many

of us looking outside of HCFA, to create a new entity whose sole

focus it is to administer the Medicare prescription drug benefit regardless of how it is configured.

I would say that in the proposal that hopefully will be out next

week, we would also create a new responsibility within the benefit

administration, Medicare Benefit Administration, which would be a

Medicare ombudsman.

One place for everybody to go, whether it is for an appeals process, a coverage determination, somewhere that you can go that covers not only what HCFA’s got responsibility for but hopefully the

new drug entity and the administration of that.

Somebody mentioned earlier stock prices or Wall Street. Believe

it or not, that is a consideration in this plan too. We understand

that our hopes at bringing down drug costs and meeting the challenges of a doubling of the population under Medicare in many

cases can only be met through new technological breakthroughs

and non-invasive medical devices and pharmaceuticals that actually do cure things that today we treat and maintain in a very expensive way.

We are confident that we have to continue a commitment, not

only a public commitment to the NIH for research, but we have to

make sure that the incentive exists in the system for private sector

companies to continue their research and development to find those

breakthroughs.

Without that, the future will be predictable. And I think, Chip,

you alluded to a deterioration in one part of the system. That we

are talking about is a deterioration of the entire system.

I remember 31⁄2 years ago when I landed in the Czech Republic

and had an opportunity fresh into a new democracy to sit down

with their minister of health. They had a hybrid Soviet system that

they had continued over from their independence.

I also had an opportunity to go back last year on the day that

the minister of health was headed to the government to drop off

their new health care plan. It very much resembled a hybrid of our

managed care system, but the question was why.

And they went through a very detailed statement about the lack

of money. They cut reimbursements to try to save money. And

when they cut reimbursements, doctors began to leave. And when

doctors begin to leave, hospitals begin to close and all of a sudden

they had a quality of care issue that they realized they created because they tried to treat it in the wrong way.

We understand that we need our entire system to be strengthened. If I had my choice, it would be comprehensive reform. It

would be something that mirrors more what the Medicare Commission, which I think put partisanship aside and addressed some very

long-term needs of our health care system for seniors. Unfortunately, I do not believe that that is possible to reach this year, but

I believe it will continue to be our goal to make sure that we reach

it in the not-too-distant future.

152

I hope that the stand alone drug effort is a step in the right direction. It is not a solution to the problem, but I do not believe it

is a step in the wrong direction.

Clearly, we did not expect to find consensus today and clearly

every member will leave with additional questions that I hope will

find answers as we move through whatever markup process, whatever floor activity process we go through, but I am confident of one

thing: that this subcommittee, both Republican and Democrat, is

engaged in this issue and is willing to learn.

For those who feel shorted from today’s opportunity to testify,

please take the opportunity to go see those Members and educate

them further. It will contribute to a much more accurate debate as

we move to House activities.

Let me once again thank all of you for your willingness to be

here today. This hearing is now adjourned.

[Whereupon, at 3:37 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF JAMES L. MARTIN, PRESIDENT, 60 PLUS ASSOCIATION

Mr. Chairman, on behalf of the 60 Plus Association, I commend you and the Subcommittee on Health and Environment of the House Commerce Committee for holding this hearing on a topic very important for all seniors, a prescription drug benefit

under Medicare.

The 60 Plus Association is a national, nonpartisan senior citizens advocacy group

with 500,000 members nationwide, an average of 1,000 per Congressional District.

We are supported by the voluntary contributions of our members. We have never

in the past nor presently receive federal grants or contracts and we have a policy

that we do not seek or would we accept federal grants or contracts.

As senior citizens are living longer and healthier lives, the issue of prescription

drugs becomes a major issue for their health and their budget. Years ago seniors

lived into their 60s and 70s; now we have seniors living beyond those years, with

an increasing population in their 80s, 90s, and even 100 years and beyond. The rational TV weather forecaster, Willard Scott, has a growing number of individuals

each year from whom to select to honor on their 100th birthday.

I am not here to endorse any specific piece of legislation but mainly to highlight

important principles, which should be included in any prescription drug plan.

First of all, we are very concerned with the proposal pushed by President Bill

Clinton. The president’s plan is a big government, ‘‘one size fits all’’ proposal that

will enlarge government, promises much but delivers little, places decision-making

in the hands of federal bureaucrats, and will do little to meet the diverse needs of

our senior citizens. The proposal may have great political appeal in this election

year but little common sense appeal to those of us who have studied it. A closer

study of the proposal demonstrates that it is a bad program for senior citizens and

for the American taxpayer. If we believe we have problems with financing Social Security and Medicare, let us adopt this Clinton proposal and we will have an even

bigger financial disaster down the road.

We at the 60 Plus Association are pleased that a bipartisan group is working in

the House and the Senate to put forward a proposal, which will really help seniors.

We believe that the essential features of any successful proposal must be a rejection of a big government role and especially one that will lead to price-fixing or price

controls by the federal government. Throughout history, price controls have led inexorably to rationing. That’s the major reason the Canadian health system is considered by 80 percent of seniors to be in a state of crisis. Rationing leads to long lines

in emergency rooms and prompted the Canadian Minister of Health to travel to the

United States a few years ago for treatment of his heart ailment.

The United States has one of the greatest pharmaceutical industries in the world.

Billions are being spent to develop new drugs, many of which help our seniors live

a life with less pain, a higher quality, a longer life, and assist in avoiding surgery.

Price controls, especially from an entity with the power of the federal government,

could bring such research progress to screeching halt. We would be killing the goose

that lays the golden egg. Seniors in order to receive a lower price on a drug today

would be risking the opportunity for pharmaceuticals to develop other significant

153

drugs which may help them not only in years ahead but other seniors in future

years.

Speaking of the American pharmaceutical industry, it is often used as a whipping

boy. For those who participate in this approach, I would like to cite an article, which

appeared in Parade magazine, September 12, 1998 authored by former House and

Senate member Paul Simon. He noted that a heart scan had revealed that he was

headed for a heart attack or stroke, even though he had not the usual symptoms

of a heart problem such as chest pain or shortness of breath. He underwent a sixway heart bypass operation. He noted that the heart scan developed by research

was responsible for him being alive today. He added ‘‘Pharmaceutical companies do

an excellent job in research’’ and noted that they had increased their spending from

$2 billion in 1980 to $20 billion in 1998. Senator Simon attributed his survival to

the research performed by pharmaceuticals.

Seniors are a diverse group. We believe assistance should be provided to those

seniors, namely low-income seniors, who need such assistance. We oppose any program that will encourage companies or other health plans to drop their current prescription drug coverage for seniors, a clear and distinct possibility under the Clinton

plan. We will be risking some of the great benefits in our current health system for

a real shot in the dark by a very risky federal health initiative.

And finally, we should consider the element of choice. We must give seniors this

option, and not pass the entire decision-making and funding process on to federal

bureaucrats. Seniors must be able to make their voices heard and their decisions

known in the marketplace. Seniors will lose this voice if it stifled by a federal bureaucracy under the control of a plan, which has great political appeal (such as the

president’s) but dire consequences for the financial health of our country and the

best interests of our senior citizens.

I urge the House Commerce Committee to adopt a bipartisan plan, which will

really help seniors, and not penalize them with new government entitlement programs of dubious benefits, costly mandates, and excessive regulations. Thank you.