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DEPARTMENT OF HEALTH AND HUMAN

SERVICES FISCAL YEAR 2009 BUDGET

HEARING

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, FEBRUARY 27, 2008

Serial No. 110–33

Printed for the use of the Committee on the Budget

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/budget/index.html 

(II)

COMMITTEE ON THE BUDGET 

JOHN M. SPRATT, JR., South Carolina, Chairman 

ROSA L. DELAURO, Connecticut, 

CHET EDWARDS, Texas 

JIM COOPER, Tennessee 

THOMAS H. ALLEN, Maine 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

MARION BERRY, Arkansas 

ALLEN BOYD, Florida 

JAMES P. MCGOVERN, Massachusetts 

NIKI TSONGAS, Massachusetts 

ROBERT E. ANDREWS, New Jersey 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

BOB ETHERIDGE, North Carolina 

DARLENE HOOLEY, Oregon 

BRIAN BAIRD, Washington 

DENNIS MOORE, Kansas 

TIMOTHY H. BISHOP, New York 

GWEN MOORE, Wisconsin 

PAUL RYAN, Wisconsin, 

Ranking Minority Member 

J. GRESHAM BARRETT, South Carolina 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

DANIEL E. LUNGREN, California 

MICHAEL K. SIMPSON, Idaho 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

JOHN CAMPBELL, California 

PATRICK J. TIBERI, Ohio 

JON C. PORTER, Nevada 

RODNEY ALEXANDER, Louisiana 

ADRIAN SMITH, Nebraska 

JIM JORDAN, Ohio 

PROFESSIONAL STAFF

THOMAS S. KAHN, Staff Director and Chief Counsel 

AUSTIN SMYTHE, Minority Staff Director 

(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, February 27, 2008 .......................................... 1

Statement of: 

Hon. John M. Spratt, Jr., Chairman, House Committee on the Budget ..... 1

Prepared statement of ............................................................................... 2

Hon. Paul Ryan, ranking minority member, House Committee on the 

Budget ............................................................................................................ 3

Hon. Michael O. Leavitt, Secretary, U.S. Department of Health and 

Human Services ............................................................................................ 5

Prepared statement of ............................................................................... 7

Responses to questions for the record ..................................................... 36

Hon. Bob Etheridge, a Representative in Congress from the State of 

North Carolina, questions submitted .......................................................... 34

Hon. Marcy Kaptur, a Representative in Congress from the State of 

Ohio, questions submitted ............................................................................ 35

Hon. James P. McGovern, a Representative in Congress from the State 

of Massachusetts, questions submitted ....................................................... 35

Hon. Patrick J. Tiberi, a Representative in Congress from the State 

of Ohio, questions submitted ........................................................................ 36

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DEPARTMENT OF HEALTH AND HUMAN 

SERVICES FISCAL YEAR 2009 BUDGET 

WEDNESDAY, FEBRUARY 27, 2008

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to call, at 2:00 p.m., in room 210, 

Cannon House Office Building, Hon. John M. Spratt [Chairman of 

the Committee] presiding. 

Present: Representatives Spratt, Allen, Schwartz, Doggett, Scott, 

Etheridge, Ryan, Garrett, Hensarling, Conaway, Smith, and Jordan. 

Chairman SPRATT. This hearing is on the 2009 budget request 

for the Department of Health and Human Services. This hearing 

gives us an opportunity for members to explore the President’s 

budget request for HHS in greater detail. I would like to thank 

Secretary Leavitt for appearing before the Committee today and 

not only that, for accommodating our schedule change so that he 

could be at the hearing. We appreciate your coming again and look 

forward to your testimony. 

The HHS budget should be considered in the broader context of 

the President’s 2009 budget which continues its same policies as 

the previous years, but with more dramatic affects. To help pay for 

the nearly $2 trillion in tax cuts over the next ten years, the budget cuts Medicare by $556 billion over ten years, more than double 

the cuts included in last year’s budget. It also assumes legislative 

and regulatory cuts to Medicaid totaling $81 billion over the same 

period of ten years. These cuts will harm State’s ability to serve the 

uninsured, at the same time they are experiencing budget shortfalls due to their own circumstances. 

The budget for HHS also cuts or freezes vitally important public 

health programs that are essential to increasing access for the 

under served or making advances in medical research that lead to 

improvements in health. The budget includes cuts to several safety 

net programs which are vital to supporting struggling working families, such as, LIHEAP, the low-income energy assistance program 

and SSBG, the Social Services Block Grant. These cuts will harm 

millions at the worst possible time just when our economy is on the 

edge of recession; just when employment is declining and Americans are depending most on these programs. 

We recognize the long-term challenges facing the budget. It is 

important, however, to keep in mind that this Administration has 

aggravated those challenges through it’s policies, mainly large tax 

cuts resulting in the largest tax deficits in history. These deficits 

2

have led to a moratorium of debt that prevents resources. A mountain of debt, excuse me, I wish it was a moratorium. A mountain 

of debt that prevents resources from being used for other priorities. 

It is also worth noting that while the Administration has focused 

a great deal of time and energy on privatizing Social Security, that 

the President signed into law the Medicare Modernization Act of 

2003 which created an even larger unfunded obligation than that 

of Social Security. As we consider the problems facing the federal 

budget, we should keep in mind that Medicare and Medicaid are 

experiencing the same challenges facing the health care sector, notably the rise in excess cost growth. 

Cutting Medicare and Medicaid to meet budget targets alone 

without addressing the underlying structural causes of excess 

spending growth, we fear will only lead either to shifting cost to 

other sectors or to putting beneficiaries at risk. Earlier this month 

Congress received the Administration’s Medicare proposal to address the trustees Medicare funding warning. We are eager to 

learn more about this proposal and whether or not it would result 

in cost shifts and actually address the issue of cost growth in the 

health care delivery sector. 

The challenges ahead of us are tremendous, and we appreciate 

Secretary Leavitt’s presence to help us understand the Administration’s views and his own views on these particular issues. But before turning to the Secretary for his testimony, I want to recognize 

the Ranking Member Mr. Ryan for any comments that he may care 

to make. Mr. Ryan. 

[The prepared statement of Chairman Spratt follows:]

PREPARED STATEMENT OF HON. JOHN M. SPRATT, JR., CHAIRMAN, HOUSE COMMITTEE

ON THE BUDGET

Good afternoon, and welcome to the House Budget Committee’s hearing on the 

2009 budget request for the Department of Health and Human Services. This hearing provides an opportunity for members to explore the President’s budget request 

for HHS in greater detail. I would like to thank Secretary Leavitt for appearing before the committee today and accommodating our schedule change for this hearing. 

We appreciate you coming and look forward to your testimony. 

The HHS budget should be considered in the broader context of the President’s 

2009 budget, which continues the same policies as previous years but with more 

harmful effects. To help pay for nearly $2 trillion in tax cuts over the next ten 

years, the budget cuts Medicare by $556 billion, more than double the cuts included 

in last year’s budget. It also assumes both legislative and regulatory cuts to Medicaid totaling $81 billion over the same time period. These cuts will harm states’ 

ability to serve the uninsured at the same time they are experiencing budget shortfalls due to the economic slowdown. The HHS budget also cuts or freezes important 

public health programs that are vital to increasing access for the underserved or 

making advances in medical research that lead to improvements in health. As significant, the budget includes cuts to several safety-net programs that are vital to 

supporting struggling working families, such as the Low Income Home Energy Assistance Program (LIHEAP) and the Social Services Block Grant (SSBG). These cuts 

will harm millions at a time when they depend on these programs the most, particularly during this time of economic uncertainty. 

We recognize the long-term challenges facing the budget. It is important, however, 

to keep in mind that this Administration has compounded these challenges through 

policies resulting in the largest deficits in American history. These deficits have led 

to a mountain of debt that prevents resources from being used for other priorities. 

It is also worth noting that while the Administration focused a great deal of time 

and energy on privatizing Social Security the President signed into law the Medicare Modernization Act of 2003, which created an even larger unfunded obligation 

than that of Social Security. As we consider the problems facing the Federal budget, 

we should keep in mind that Medicare and Medicaid are experiencing the same 

3

challenges facing the health care sector, notably the rise in excess cost growth. Cutting Medicare and Medicaid to meet budget targets, without addressing the underlying causes of excess spending growth, will only serve to either shift costs to other 

sectors or to put beneficiaries at risk of losing access to necessary care. Earlier this 

month, Congress received the Administration’s Medicare proposal to address the 

Trustees Medicare funding warning. We are eager to learn more about this proposal 

and whether it would result in cost shifts or actually address the excess cost growth 

of the health care sector. 

The challenges ahead are significant, and we appreciate Secretary Leavitt’s presence to help us understand the Administration’s views on these issues. Before turning to the Secretary for his testimony, I recognize the Ranking Member, Mr. Ryan, 

for any comments he may wish to make.

Mr. RYAN. Thank you very much, Chairman. Welcome back again 

to the Committee, Secretary Leavitt. When you testified to this 

Committee last year, one of the important points you made was 

this: You said that we do not have a health care system in this 

country, that we have a health care sector. It is concept you repeated at the Ways and Means Committee, which I serve on, just 

recently as well. And you said that health care should be, ‘‘* * * 

a private market where consumers chose, where insurance plans 

compete, and where innovation drives the quality of health care up 

and may drive the cost down.’’ And that principle as I understand 

it, underlies much of the Administration’s approach to health care 

including the President’s health tax proposal. 

This is important, because it goes right to the heart of the health 

care debate. If there are problems with health care they do not, 

they have not come about not because the market has failed, but 

because of distortions imposed upon it over the decades. Those who 

think they can fix health care with more government spending and 

intervention, I believe, are headed in the wrong direction, and consumers and patients will suffer for it. 

Let me just cite two examples, both of are which are relevant to 

the budget we are considering. First is health insurance. Most people in America who have health insurance get it from their employers or the government, that is from third parties. And this is mainly because of an accident of tax law that goes back to World War 

II when there were wage and price controls. What is odd is that 

we don’t expect somebody else to chose our cars or refrigerators or 

our clothes for us, but with something as important as health insurance we do. It is no wonder some people get frustrated about 

their coverage or feel in danger of losing it. They are not calling 

the shots. 

Second is government spending. About 35 percent of the $2 trillion we spend on all health care nationally comes from two government programs; Medicare and Medicaid. When government pours 

that much money into any sector it is going to affect prices and distort the practice of medicine. In other words, one of the reasons 

health care costs are rising so rapidly is a huge amount of spending 

and distortion and control that the government pumps into it. 

These programs also affect the benefits and pricing of private 

health insurance because they create benchmarks that commercial 

insurers fall back on too. The point is this: The key to both controlling health care cost and expanding coverage lies in removing the 

distortions in the market. That means several things including 

ownership. Health insurance should be owned by the people who 

use it. And we can accomplish this by shifting the current tax benVerDate 0ct 09 2002 14:18 Jun 24, 2008 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-33\41121.TXT HBUD1 PsN: DICK
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efit from employers to individuals and families so we are not discriminating against people who get it from their jobs only. 

We can debate whether there should be a deduction or a credit 

or what have you, but the point is that it should be changed to personal ownership so you can move job to job with your health care. 

Transparency. One of the big problems in health care is prices 

are opaque. In Milwaukee, I have done the research, you can pay 

anywhere from $47,000 to $100,000 for bypass surgery. Anywhere 

from $600 to $5,000 for an MRI and the same procedure at the 

same hospital, but most patients and sometimes even doctors don’t 

even know this. 

Entitlement reform. Something that is missing from nearly every 

major health care reform plan being discussed is that they don’t include fundamental fixes in reforms to Medicare and Medicaid. As 

I indicated before, unless we reform those programs and moderate 

their unsustainable spending growth, they will continue adding to 

medical inflation and health care reform itself will fail. 

The President’s budget does address these issues. If you would 

pull up chart number 1, please.

Mr. RYAN. And it tries to foster a truer, more efficient marketplace. We may not agree with every specific proposal that the 

President offers, but he does point in an important direction that 

we ought to consider. 

I look forward to discussing these issues here with you today and 

I also look forward to discussing the Medicare trigger. But before 

I conclude, let me simply say this: We are going to be marking up 

the budget resolution here next week. And if the budget resolution 

that comes to the floor does not include any reforms to the Medicare Program to save money, then we will be forced with adding 

the unfunded liability, which is today stands at Medicare at $34 


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5

trillion which is about $300,000 per household, to $45 trillion over 

just five years. That means if Congress neglects it’s responsibility 

and it’s duty to do something to save and rescue Medicare, we will 

add a debt that goes from $34 trillion today to $45 trillion for the 

time when my children need this program. 

It is irresponsible of us to not take this action. So when I hear 

the word cut, the word cuts to Medicare as are in this budget, I 

simply look to the fact that under this President’s budget, they are 

proposing to increase Medicare spending at five percent a year. If 

it goes up five percent from last year to the next year, that is not 

a cut. That is an increase of five percent. 

And with that, I yield. 

Chairman SPRATT. Mr. Secretary, thank you again for coming. 

We have your testimony which was pre-filed and we will make it 

part of the record so that you can summarize as you see fit. 

I might mention that when you were last here and testified last 

year, we talked about program integrity funding and we put in our 

budget resolution, which passed, some substantial additional 

money for that very purpose in order to get at the problem of 

waste, fraud, and abuse in the programs under your jurisdiction. 

Unfortunately, that money was left on the cutting room floor when 

the budget was downsized at the President’s insistence when we 

negotiated the omnibus for this year. 

I would hope that we could do something next year, and we 

would like your testimony, if you could, as to how bad the problems 

are and what can be done with additional program integrity 

money. 

STATEMENT OF HON. MICHAEL O. LEAVITT, SECRETARY, U.S. 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Secretary LEAVITT. Thank you, Mr. Chairman. At our meeting 

last year I recounted experiencing that I had personally had going 

out with Office of Inspector General agents, particularly in Southern Florida where I saw first hand fraud and abuse. I saw office 

buildings full of what were very clearly shell businesses that had 

been established solely for the purpose of defrauding the American 

people and Medicare beneficiaries. 

Essentially they work in the same way. They set these up, they 

get a billing number in the same office building. They are able to 

find someone who can rent them names and lists who can in fact 

then begin to bill enough claims against Medicare that in a course 

of four or five months they can collect and then close down and 

leave. And they do it over and over and over again. 

I think I may have related the story last year where the week 

I was there the Inspector General agents had been able to procure 

access to three or four of the front people, not the people behind 

them, but they were able to get them to empty their bank accounts 

out. And they held checks for $10 million where they had simply 

written checks to clear the accounts out. We are talking about hundreds of millions, billions of dollars. 

You were very gracious last year in this Committee in being able 

to designate about $300 million plus for that purpose. This money 

pays dividends in multiples. I am talking about four, five, six, ten 

times the amount we spend we get back. I am appreciative of the 

6

chance to reinforce that and we hope very much that that could be 

considered in this budget. It just needs to happen. Every year we 

don’t do it, money is going out the door. It continues. 

We have done a number of things in the meantime. We have 

changed or changing we are in the process, for example, requiring 

those who put durable medical equipment out in certain areas have 

to post bonds. We are essentially making everyone re-qualify. We 

are doing everything with the resources that we have and we are 

having some impact, but we need additional resources so we can 

do it other areas. 

I have posted my statement. I won’t review it, other than to just 

say three things: The first is we have this budget is very clearly 

directed at trying to balance the budget, trying to sustain and put 

entitlements into a sustainable place. And to make certain that 

premiums are affordable to beneficiaries. 

I have grave concerns for all of the reasons that have been spoken already by Mr. Ryan. Medicare warnings have just become a 

seasonal thing. They come and they go like the cherry blossoms 

and when they happen we all stop, pause, and say that is a serious 

problem and then move on without taking action. I hope this budget will at least be viewed as a warning. 

Every year, every year, whoever sits in my chair, whoever sits 

in your chair all the money is going to have to deal with this until 

we do. And they will be facing the same kinds of issues that I have 

raised in this budget. I have gone through and done the best I 

could to find ways in which you could make the budget balance. I 

would suggest this is not reform. What this is, is a budget. It is 

a budget just doing the best I can and what I think is a broken 

system. This is a government regulated, price setting, centrally 

planned system and it will always produce choices that won’t reflect a solution. And so I am hopeful that in the course of this that 

the budget well, it will make a lot of people unhappy, at least it 

will raise the one more warning that we have to deal with this. 

Now I recognize that there is a need to come up with a solution. 

And hopefully we will get to talk about solutions. I believe many 

of the same things Mr. Ryan said earlier, and that is the need for 

us to make Medicare more about educated consumers. And when 

we do, I believe, there is a means by which we can begin to turn 

the tide on this and create a true system. 

I know there will be lots of questions and so rather than take 

more of that time, Mr. Chairman, I will just yield whatever time 

I have left back, and lets go to the questions. 

[The prepared statement of Michael O. Leavitt follows:] 

7

Prepared Statement of Hon. Michael O. Leavitt, Secretary,

U.S. Department of Health and Human Services


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Chairman SPRATT. Thank you, Mr. Secretary. One of the issues 

we have dealt with in the past year is Medicare Advantage, which 

was tucked away in the back titles of the Medicare Modernization 

Act, which primarily dealt with the addition of a prescription drug 

benefit to the Medicare Program. 

CBO has told us that the differential on average in payments per 

beneficiary under Medicare Advantage as opposed to traditional fee 

for service Medicare is 13 percent. In other words, this program 

Medicare Advantage, which was intended to be a managed care option for Medicare and to therefore to save money, instead it is costing us more money than traditional fee for service medicare. 

Number one, do you disagree with that? And number two, have 

you seen the particular graph that was published by the CBO 


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which shows that given the differential today and the likely growth 

of this program, because it is better funded, that the cost of providing for care of beneficiaries under this program over tens years 

is likely to be $150 billion more than fee for service beneficiaries? 

Secretary LEAVITT. I am aware. I was not here in 2003, but I am 

aware that the Congress made a decision to expand the program 

on a countrywide basis. And that they established the pricing in a 

way that would accomplish that. I am also aware that they chose 

to have that additional pricing reflected in benefits and that it has 

clearly worked. And that people are happy with it and that they 

are in fact enrolling in large numbers and that we have now accomplished some 20 percent who of the beneficiaries who have chosen it. 

I am also aware that those who enroll not only are they happy 

because of the additional benefits, but because they are having an 

easier time getting a physician. Now do I think it is perfect? No, 

I don’t. But I think it is a very positive move toward the kind of 

thing I spoke of earlier. 

I have indicated in other testimony that I believe there are some 

things we can do to refine it where the actual bidding that goes on 

is done in broader areas and we will begin to see competition drive 

the cost of it not just down to where it is now, but perhaps lower. 

I think we are on the right track we just need to continue to work 

and refine it in ways that will allow the market to work and for 

consumers to have the chose that they——

Chairman SPRATT. Well do you plan in the near term to equalize 

the cost between the two programs or at least to remove this 13 

percent, 14, 15 percent advantage? 

Secretary LEAVITT. I—well, again, I want to acknowledge the fact 

that these additional, this additional amount is going into benefits 

for beneficiaries. I think we can probably concur with that. 

I also believe it does need to be allowed to make certain we have 

a fully implemented national program. I also believe that if in fact 

we were to expand and refine the bidding process that we will see 

a market begin to not only drive it down to where it is equal with 

existing rates, but below. I think we can see it not only come to 

the point that it is equalized, but go below, because I believe that 

is the power of the market that it will unleash. 

Chairman SPRATT. In your quest for program integrity, and I 

commend you for that, have you encountered waste, fraud, and 

abuse in the marketing of Medicare Advantage policies? 

Secretary LEAVITT. Yes, we have. 

Chairman SPRATT. Would you care to elaborate on that? 

Secretary LEAVITT. Well it exists. And we are doing everything 

we can to just like we are in other areas to remedy that. And, unfortunately, when any program of this nature and I am not talking 

just about Medicare Advantage, I am talking about Medicare, we 

have to be vigilant and pursue not just integrity in that area, but 

in every area. 

Chairman SPRATT. About ten years ago as part of the package 

deal that became known as the BBA, the Balanced Budget Act of 

1997, the package included a sustained growth rate factor. The 

problem being that when we bore down on rates we tended to see 

volume increases in the delivery of health care to make up for the 

18

reduction in rates. That has become a problematic ratio these days 

or equation these days so that for three years in a row or at two 

years in a row, we have had to correct it, patch it, one year at a 

time feeling that it would not be fair to administer the kind of cuts 

that it called for to physicians pay in particular. 

We have been waiting on some kind of resolution or correction 

of that particular formula given the fact that it tends to produce 

anomalous results. The Administration has indicated in the past 

that you were working on it, but we have never seen anything. Nobody has seen anything up here and consequently we go from year 

to year to year correcting the problem. What is your solution to the 

sustained growth rate factor? 

Secretary LEAVITT. Well, first of all, let me just to concur with 

you, I think it is a lousy system. And I think it is the anytime you 

have a price setting centrally planned system, you are going to end 

up subsidizing the wrong things and over charging for others. And 

in Medicare we make a couple of thousand decisions that begins to 

drive all the decisions that consumers could make, I think, more 

wisely and more precisely. 

At the root of this problem is the differential pricing where you 

can go to Mr. Ryan’s State in Wisconsin and see a rate that is half 

what it would be in Milwaukee or rather in Miami. You can’t find 

any difference in the outcomes, but what you will see is that the 

minute we begin to reduce the rate they just start performing more 

procedures. There is nothing, there is no competitive or consumer 

pressure to drive those down and, frankly, that is one of the things 

that I believe we have got to unleash in Medicare Advantage is 

that pressure. 

Chairman SPRATT. And part of the problem is that conscientious 

doctors who are not responding by volume increases are nevertheless penalized the same as those who are. 

Secretary LEAVITT. Well I—that is what happens in a price setting, centrally planned, government regulated system. And we need 

to change it. 

Chairman SPRATT. Well what is the change then? Surely, you are 

not talking about privatizing Medicare completely just to get at 

that particular problem? 

Secretary LEAVITT. No, but I, frankly, if we could begin to see 

part ‘‘A’’ and ‘‘B’’ look a lot more like ‘‘D’’ we would begin to see 

the impact we have seen on ‘‘D.’’ I mean on ‘‘D’’ we started off believing the actuarial—I mean you have got—there were estimates 

all over the place, but if you figure where it was finally adopted 

at $37 we are now delivering it for $25. We announced last week, 

I think, a $247 billion reduction in the original estimate. 

Now there are lots of things that go into that, but everyone I 

know including the government actuaries and any economist that 

you will find will tell you that a big part of that was competition. 

We adopted regional competitive environments where in order to 

get business people had to offer the least possible rate and they 

had to offer the best possible service. And people had a choice. And 

we have now seen quality go up and the cost go down. 

And so I am—I fundamentally believe that the way we ultimately begin to get at this cost escalation and the way we begin 

to convert it to a systemic or to a system is that we adopt the same 

19

strategy in part ‘‘A’’ and ‘‘B’’ that we have in ‘‘D.’’ And that ‘‘D’’ remains a government regulated but market driven system. 

Chairman SPRATT. Well given the situation now, has HHS with 

Medpack tried to devise, develop a better formula than the formula 

now in place for the sample growth rate? 

Secretary LEAVITT. Well, we welcome the opportunity to work 

with Congress. It is obviously going to take legislation to do that. 

If it was just up to HHS I would have come up with something, 

but at this point it is a matter of legislation and we look forward 

to working in whatever way. We have got to fix it. We just keep 

patching it from year to year, I mean from six month to six 

months. We don’t even make a year these days. 

So I don’t I am not here today to say I have got the formula in 

my pocket, but it is something worth working on. 

Chairman SPRATT. Okay. Thank you very much. Mr. Ryan. 

Mr. RYAN. I am going to deviate from what I was actually going 

to ask, because I thought that line of questioning was quite interesting. 

Let me go down this path of looking at ways in which we can 

reform Medicare to save Medicare. And you showed us the example, Mr. Secretary, of part ‘‘D’’ and how the choice in competition 

within part ‘‘D’’ actually drove down the projected price. 

And let me make sure I just understood what you just said. You 

are saying that the cost of the program has come in $247 billion 

lower than the estimate of the program was? 

Secretary LEAVITT. If that is the wrong number, it may be $240. 

Mr. RYAN. No, I think that is right. I just——

Secretary LEAVITT. Maybe $243. 

Mr. RYAN. Okay. So about a 40 percent reduction? 

Secretary LEAVITT. Yes. It is a 40 percent reduction. 

Mr. RYAN. A 40 percent reduction. 

Secretary LEAVITT. And it might be pointed out that we have enrolled 93 percent of those who are eligible in about a year and a 

half. And 86 percent of them are happy and the 14 percent who are 

not, have a recourse. They go off and find a plan that they like and 

they do. They change plans when they are not happy. 

Mr. RYAN. Because they are not stuck with the government monopoly. They have choices. 

Secretary LEAVITT. Well and we have created a generation of 

very astute consumers. I can tell you that they have—you know 

there was scepticism when we started into this, and frankly, a little, people were a little grumpy about it, but they like it now a lot 

because they have choice. And they have information. And they 

have driven the quality up and the cost down. 

Mr. RYAN. I think that just from a Wisconsin perspective, I held 

a bunch of these sign up fairs in 2004 with your predecessor and 

there was a lot of concern, a lot of angst, a lot of just confusion. 

And we don’t see nearly that amount that we did back then. And 

so it is encouraging to see that a market driven idea which gives 

the individual choices has actually drive competition, brought cost 

down, improved quality choice and satisfaction. 

I think it is not a huge stretch to say that if we try that idea 

somewhere else in government it may produce the same results. 

That is something that is kind of novel, I think, around here but 

20

something we ought to take a look at. And this kind of goes to the 

heart of the health care debate we are having today. 

You mentioned sector versus system. I think it would be roughly 

the same as saying that we really have a health care market rather 

than a health care system. And if we systematize health care as 

some will propose, in your opinion will that make the market more 

or less efficient? How will that affect patients if we systematize the 

rest of the health care market in that direction rather than injecting some of these market reforms that involve giving patient more 

power and choice? 

Secretary LEAVITT. We just know at every in every—at every 

point it is deployed that when consumers have information about 

quality, when they have information about cost, and they have 

choice the cost goes down and the quality goes up. We have seen 

it in nursing homes. We have been able to provide people with information about nursing homes and one thing we find is that when 

we publish information about the quality and the cost and there is 

a comparison, we see the quality go up and the cost go down. 

Mr. RYAN. One thing that I would like to make an attempt to do, 

I will reach across the aisle with my democratic friends in the majority. An area that I think we ought to be able to have some consensus on. There is a bill I had with Senator Clinton on this issue 

and that is the issue of transparency. 

We just had the 45 percent trigger triggered. The Minority Leader, the Majority Leader just introduced the bill as required by the 

law which you sent up the means testing on part ‘‘D,’’ I understand 

that is going to be controversial and I don’t know where that is 

going to go. Medical liability, I understand that is controversial. I 

don’t know where that is going to go. But there is a third, I think 

people are looking at me telling me where it is going to go. But 

there is a third element to it which is this transparency aspect. 

This transparency policy that you produced. The first two I think 

we all know those save money. You know means testing or income 

relating—sorry—and medical liability. We know that saves money. 

Can you explain to us how and why this transparency initiative, 

number one, what exactly is it and how and why that can help us 

save money. And I would like to simply say, humbly, that this is 

something republicans and democrats ought to agree on. That we 

ought to be able to work together on this. So if you could just go 

into that, I would appreciate that, Secretary. 

Secretary LEAVITT. Let me just add that in every system that I 

know of that is a large socialized system outside the United States 

that most poignant political issue right now is how can we create 

more choice and also some sense of consumer pressure. And so this 

is not just something that is about those of us who believe it ought 

to be conducted in a private way. 

There are four cornerstones in my mind to how you create competition based on value. The first is electronic medical records. We 

have to connect the system. The second is measures of quality. We 

have to know what quality is in a way that has been agreed upon 

by the medical family. The third is to have price groupings where 

ordinary people can understand how much it cost. And then fourth 

we have got to structure the system so everyone has a motivation 

to drive quality up and cost down. 

21

Now we are making substantial progress in the area of electronic 

medical records being able to create standards. We need to drive 

adoption, but we also need to continue to drive the standards issue. 

On quality, we have the medical family now working together to 

develop standards. Actually, I have been in South Carolina and 

Wisconsin working with local collaboratives that are working to develop measures of quality. We are now getting to the point that 

those are standardized. 

Mr. RYAN. Can I ask you, right there? This is an issue that is 

difficult to get your hands around, quality, because of risk adjusting and other things. What you will eventually get into these conversations with lets just say replacing a hip and the American College of Orthopedics will say, ‘‘Well, you know, replacing Jim’s hip 

or my hip or John’s hip is different. You can’t measure the quality 

of these procedures because it is apples to oranges to bananas.’’ 

Where is the industry able to get an accurate measurement of quality? Number one. 

Number two: Do you believe we are getting through a lot of the 

resistance that we have received lately from the provider community on being willing to submit their data to standard quality 

metrics? 

Secretary LEAVITT. The American Medical Association and many 

of the and most, maybe I should say all of the professional societies 

that we are working with that define quality have been extraordinarily helpful. We have formed the Ambulatory Quality Alliance 

which includes not just the physicians and speciality associations, 

but also the hospitals, the large payers, the insurance companies 

and CMS and other government agencies. And we are collaboratively now getting down to the hard job of defining what quality 

is. 

Now, frankly, we are not very good at it yet, but we are getting 

better and we are getting more and more measures and we are beginning to see this happen. In various places around the country 

now you can literally get a copy of or you can get a table that will 

show how many procedures a particular physician performed. How 

many of them were done at a particular hospital. How many hospital bourne infections that hospital had. Next month Medicare will 

begin to publish a table on the internet where you can take any 

hospital in the country on any procedure and determine how much 

a hospital charged, how much they charged Statewide, and how 

much the national average and what the patient satisfaction was. 

We are beginning to know how to do this. 

Now we are not at the point we have to be, but when you begin 

to put those into place, this system can in fact be formed. What we 

have now is a sector. We have got to systemize it and when we do 

quality will go up and cost will go down. 

Mr. RYAN. Charged. Is that just Medicare charges? 

Secretary LEAVITT. Actually, the system at CMS is, however, 

there are other systems that are beginning to develop. We are 

weaving a network of what we call chartered values exchanges. We 

now have 14 of them. I expect by the time we get to the end of the 

year we will have 30. These are local collaboratives that are using 

the same standards of quality and the same standards of health information technology to begin to weave into place this system. 

22

Mr. RYAN. And price standards? 

Secretary LEAVITT. And price standards. 

Mr. RYAN. Okay. Well I could go on and on and on. I don’t want 

to abuse my time. I appreciate it. Who is first over here? Okay. 

Thank you. 

Mr. ALLEN [presiding]. Thank you, Mr. Secretary for being here. 

I have a comment. I would like to, given more time, get into this 

philosophical discussion, but I have something more specific I want 

to deal with. But I did just want to say this: My blood pressure 

goes up when I read in your description in your testimony that 

there are two competing philosophies about the role government 

should play in health care. One is a Washington-run, governmentowned plan where government makes the choices, sets the prices, 

and then taxes people to pay the bills. I don’t believe that is a system that, frankly, any of us really expect and want. 

Secretary LEAVITT. It is the one——

Mr. ALLEN. The other is supported by the Administration is a 

private market where consumers chose where insurance plans can 

compete and where innovation drives the quality of health care up 

and may drive the cost down. 

Now, we are all for electronic medical records. We are all for 

measures of quality. But based on my experience, talking with my 

constituents back home, I simply do not believe that price and 

quality transparency is going to, across the whole range of consumers who are looking for health care, is going to drive them to 

this miraculous, higher quality, less efficient system. And I didn’t 

really want to get too deep into that. 

But let me come to what it looks like to me. It looks to me as 

if the Administration is simply cutting budgets and letting the 

States deal with the consequences. The States and all the different 

people and individuals who are involved. For example, this new the 

new Medicaid regulations at the Administration has issued. The 

regulations include changes to targeted case management, rehabilitation, and school-based administration and transportation services. 

Taken together these seven new regulations result in cuts of 

more than $12 billion over the next five years. Now in Maine a lot 

of this is a direct cost increase to the States. In Maine Governor 

Baldacci’s Office has informed us that these new rules could cost 

the State of Maine $45 million in the next 16 months. That is one 

quarter of the deficit that the Governor and the Legislature are 

struggling with. 

I want to focus on the TCM rule, which is scheduled to go into 

affect on March 3. Just six days from now. That rule would limit 

the period of coverage for case management services for people 

transitioning from institutions to the community. It would disproportionately affect individuals with disabilities and mental illness, low-income seniors, and children in foster care. 

I have heard from dozens of providers in Maine, including Day 

One, a substance abuse treatment center; Pen Bay Health Care; 

Mid Coast Mental Health Center, as well as families with foster 

children who could have their services cut if this rule goes into affect. 

23

Mr. Secretary, very simply there is a lot of opposition to this rule 

on the Senate side, there is opposition in the House. You are hearing from the governors of their opposition. Will you delay implementation of this rule? 

Secretary LEAVITT. Mr. Allen, Medicaid is a partnership with the 

federal government and the States. We are all serving the same 

people. It is a dispute, however, between the partners. And I suspect there is nobody in this room that is in a better position to understand both perspectives than me. I was a governor for 11 years. 

I think I understand where the States are coming from on this. I 

have heard from many of them. 

But if I could just put this in unvarnished terms, I would like 

to. There are a number of areas that we have issued rules where 

we believe that States are using ambiguities in the regulation to 

unfairly increase our share. And let me explain to you how this 

works and I know you may know this, but this is driven by consultants who get paid a contingency fee by being able to find any area 

in the law where there is the breath of some kind of ambiguity. 

And they have no incentive but to push, push, push, push, push the 

limits of what should and could be paid for by Medicaid. We have 

to push back by becoming explicit in eliminating those ambiguities 

as they happen. And when they do, it is then represented as 

though we are pushing costs off on to the States. 

I am trying to be a steward of the federal position here and I 

need to be able to push back on occasion when these fee based, contingency consultants find new ways and they have no incentive to 

do anything else because they get paid. And I need support here, 

not criticism. 

Mr. ALLEN. Well—yeah. But what—but isn’t true that you are 

changing rules some of which have been in place for a considerable 

number of years. And that the States and the providers and the 

agencies have come to expect. And you know you may it is not exactly pushing back on something that has just happened recently, 

from my understanding. 

Secretary LEAVITT. Well, lets just take the targeted case management——

Mr. ALLEN. Yes. 

Secretary LEAVITT [continuing]. As an example. You don’t have 

to believe me on this, believe GAO. The GAO report itself I mean 

like two examples. One State, I won’t name the States unless you 

ask me to, hired a contingency fee based consultants. They had $17 

million in federal reimbursements according to GAO. They in their 

audit they concluded that $12 million of the $17 million weren’t 

really eligible but they were pushing the system. Another one had 

$76 million, three different programs in non-health care agencies. 

I mean I will give you an example. This is one that is often cited, 

schools. I mean none of us disagree with the fact that if there is 

someone at a school that could be enrolled in Medicaid we ought 

to have somebody there to help them. Well in reality what they do 

is they will have a person at the school whose job it is to enroll 

somebody, but a large percentage of their duties are actually other 

school duties, but Medicaid pays the entire bill. 

24

Now, if I am a governor and my county is dealing with me in 

that way, I would not like that, and I don’t think the governors 

would either. 

Mr. ALLEN. Well let me just my time is up. I don’t really want 

to extend it, except to make this point: This grows out of the fact 

that Medicaid is in fact a partnership. And so what we have is the 

two partners quarreling over who will pay which bill. But the bottom line is that when you pull back on what you have been funding 

in the past and then you are leaving you are simply moving that 

burden to the State or to the agencies and you are leaving behind 

the people you want to help. 

I could just as easy, in contrast to the argument you made earlier, I could just as easily make the argument that our system is 

so complicated, so entwined that we have spent a lot of time, particularly in the private sector and not just the public sector, arguing over who pays the bill and which bills they pay. We have got 

so much excess bureaucracy built into what, I think you had defined as competition that there may be a piece of the problem that 

we are really struggling with as a country. 

And I——

Secretary LEAVITT. I wouldn’t argue that point, because I think 

you are right. 

Mr. ALLEN. I think I better go on or—I know we do. We do. I 

will withhold and recognize Mr. Garrett. 

Mr. GARRETT. I thank you. And I thank the Chairman. Thank 

you. Thank you, Mr. Secretary. 

And to begin I guess I will just follow along some of the line the 

questioning that was here. During this presidential election, you 

know, we here so much talk about new medical plans out there, 

whether we should have a universal health care plan in this country and what the benefits of that would be. And so much of the attack always is saying that the current system isn’t working to the 

degree that the American public wants it to. And that the current 

system is a market based system and that is what we need to move 

away from. This goes with some of the argument to a more government controlled central plan. 

But help me out with some of the numbers. If you were to take 

all the people in the country right now who are in Medicare and 

in Medicaid and other government programs and in the VA and 

you combine them altogether, what percentage do they make? 

What percentage of the American public right now is really getting 

their health care under a government health care system? 

Secretary LEAVITT. Well under Medicaid and Medicare combined 

it would be under 30. 

Mr. GARRETT. Yes. And then if you—and as a percentage then 

out of the population? 

Secretary LEAVITT. Under 30 percent. It would be under 30 percent. Is that what you are asking me? 

Mr. GARRETT. Under 30 percent? 

Secretary LEAVITT. Yes. 

Mr. GARRETT. And then you add veterans on top of that? 

Secretary LEAVITT. You can get public expenditures if you include all public expenditures——

Mr. GARRETT. Right. 

25

Secretary LEAVITT [continuing]. Indian health, State, federal employees, you can get up to about 39 percent. 

Mr. GARRETT. Yeah. About 40 percent. And then on top of that 

you have the fact that most Americans, if I am not mistaken, you 

can correct if I am wrong, don’t buy their own health insurance 

they get it through their employer. So if we really talk about a free 

market based system where I, the patient, have a patient directed 

health care system, my understanding it is in just the high double 

digit like 15 some odd percent. 

Secretary LEAVITT. It is a very small percentage. 

Mr. GARRETT. So the assertion on the other side sometimes that 

we are in a market based system and that is not working for us 

and we need to move towards the government control system, the 

facts really don’t support that. We are really already in a government dominated system, isn’t that correct? 

Secretary LEAVITT. And in order for even those who are employed 

and have employer based insurance to be part of that market they 

have to have information about the quality and the cost so they can 

make judgements on value. That is what is absent now is that none 

of us have information about what quality is or what cost is and 

the result is we essentially don’t make decisions and the market 

just continues to go up because we pay on volume——

Mr. GARRETT. Right. 

Secretary LEAVITT [continuing]. Not on value. 

Mr. GARRETT. Right. And so to go along the lines of Mr. Ryan 

here, is if you really want to have a patients directed system or a 

doctor/patient directed system the decision making factor has to be 

follow the money which would be with the patient then as opposed 

to the government? 

Secretary LEAVITT. That is my view. 

Mr. GARRETT. Okay. On another unrelated note with regard to 

SCHIP. At the end of last year Congress passed and the President 

signed legislation that extended SCHIP through March of ’09. And 

at that time provided an additional $800 million in funding to 

cover the so called shortfall States, New Jersey being one of them. 

Those States that would not have had adequate funding to cover 

their eligible SCHIP populations. 

There was a lot of debate on that. Both Congress and the President rejected proposals to greatly expand SCHIP Program beyond 

its original intent back then. And yet in the President’s budget request now he proposes an additional $2.2 billion in SCHIP spending for fiscal 2009 and $19.7 almost $20 billion over the next five 

years. 

This is a huge increase over his request of just last year. And 

some of us were standing with the President on his number last 

year saying that that was the right number. A year goes by and 

now we are looking at a $20 billion increase at this point. 

So my first question is, what happened over that time? And what 

do you say to those of us who are standing with that number? 

Secretary LEAVITT. Well, first of all, thank you. And then second 

of all, let me reconcile it for you. First of all, the President’s number last year was just under $10. We had $5 and then we had $4.8, 

I believe, of money that had was still in the previous allocations. 

26

The number this year is $19.7, I believe. It is about $10 billion difference. 

What we have attempted—the most important change is for us 

to drop one year and add a more expensive year, which if we are 

working to develop a policy to fund the policy that is what we 

would need to do, because we have got a new period. 

The second is we have more updated information about the number of children. What we have attempted to do is to take the policy 

that the Congress passed and put into place a budget that reflects 

that policy. And the budget numbers reconcile. 

Mr. GARRETT. And that is not what the numbers were what the 

President was trying to do last year when we were throwing out 

those other numbers then? 

Secretary LEAVITT. Well, again, we have better numbers this 

year than we do last year. And we added on a more expensive year 

and dropped the less expensive year. 

Mr. GARRETT. One last question in my last 12 seconds is this: Is 

that also in the President’s proposal is to provide additional funds 

to provide greater dollars to the States for outreach purposes to try 

to bring in the uninsured kids. A report that the HHS came up 

with shows around 689,000 uninsured children with incomes under 

the $200,000 level were eligible, but not enrolled in SCHIP. 

I guess my question here is, we are already providing an incentive to the States because it is a two to one matching for the States 

as far the SCHIP Program. That seems to me to be a substantial 

incentive already for States to do it. Here if you divide the numbers 

up it is around $450 million over the period of time off the pack 

of paper it comes down around $100 or $200 per child that you are 

going to try to bring in. 

Aren’t we already giving enough incentives to them? Isn’t this 

the States responsibilities to bring them in? And finally, isn’t it ultimately the parents responsibility when we already have a federal 

program to provide free health care to their children that they 

should be have some responsibility and not the other tax payers to 

give them additional funds to bull into a system? 

Secretary LEAVITT. Yes. Yes. And yes. And may I just say our 

goal here is to identify those children who are under 200 percent 

of the poverty level, do our best to enroll them first. And we felt 

there was a need for us to aggressively do that. I think that was 

the will of and the policy of Congress and we attempted in this 

budget to reflect that. 

Mr. GARRETT. Okay. Thank you. 

Chairman SPRATT [presiding]. Ms. Schwartz. 

Ms. SCHWARTZ. Thank you, Mr. Chairman. And I appreciate the 

opportunity to ask some questions. I had a chance to do that, I 

guess, a week or so ago at Ways and Means and then did submit 

some questions for you, so you may know the direction that if you 

have had a chance to see them, you may know the direction I am 

going to go in. 

And I think I am going to try and find a place where we agree. 

Okay? We are always looking for bipartisan cooperation here. So I 

really want to talk about the fact that budgets I do believe are 

moral documents and there is a great deal of concern about health 

care and health care costs and how we contain them. I do think we 

27

should start with a goal and I would define the goal very differently than Mr. Ryan does, but I define the goal that under Medicare in particular we are going to try and get quality health care 

needed by seniors in this country in the most cost effective way 

possible. 

And I agree with you that cuts, particularly across the board 

cuts, not targeted, not directed, but across the board cuts in Medicare particularly to our hospitals, for example, are not reform. And 

I agree with you. You just said that and I really do agree with it. 

But where we do agree, at least rhetorically, is that there are ways 

that we could make the Medicare system, of payment system, really encourage quality, demand, accountability, and to be able to better assure quality. And we—there are several ways of doing that 

and you have talked about some of them and certainly so have I. 

Electronic medical records. 

Secretary LEAVITT. Yes. 

Ms. SCHWARTZ. Comparative effectiveness data and distribution 

of that data. Some of the data you are talking about, but really 

using that in a very effective way. Encouraging e-Prescribing, 

which I obviously have a bill on and I would like to see happen. 

But in fact in the budget, the budget does not reflect those priorities, nor have been the statements from the Administration to encourage that. So we included some of this language, for example, 

in the legislation that we didn’t finally pass, the CHAMP Act. It 

didn’t, we didn’t hear from the Administration saying, ‘‘Good idea. 

Lets do that that part of it.’’

And the fact is that in your budget, in the President’s budget, 

comparative effectiveness research and the agency for Health, Research, Quality is actually cut. So instead of moving in the direction of saying, ‘‘Okay. We are not going to just randomly, arbitrarily cut reimbursement, we are going to actually be smart about 

this. We are going to use technology. We are going to make some 

investments.’’

So instead of saying to our hospitals, ‘‘We are going to help you 

do electronic medical records. We are going to help you do e-Prescribing. We are going to reduce errors, demand transparency and 

accountability. Disseminate the most up to date information possible. Share with you quality at a neighboring hospital you may not 

know about. And really make it more efficient, more effective, and 

higher quality.’’ And yet your budget actually cuts those areas. 

So I ask it as a question I would like to see these things happen. 

I think we have an opportunity to do it through Medicare. I think 

it can be a huge driver towards quality and efficiency and savings, 

both of lives and of dollars. And then we can save those dollars. 

That is reform. That is changing the system for the better. It gets 

health care that we need to people without saying to our hospitals 

and there are hospitals in my district. They are saying back to me, 

‘‘Congresswoman Schwartz, you are telling us we should do electronic medical records. We should encourage these things, but in 

fact under medicare we are getting cut. We have no idea how we 

are going to make up those millions of dollars.’’

So can you explain how the rhetoric does not match this budget 

and does not make the kind of investments that truly can make a 

difference in both lives and dollars. 

28

Secretary LEAVITT. First, may I say I am pleased about the 

things we agree on. 

Ms. SCHWARTZ. Okay. 

Secretary LEAVITT. Second, lets talk about comparative effectiveness. As I recall, this is a big budget, but as I recall the reduction 

was $9 million. 

Ms. SCHWARTZ. Correct. 

Secretary LEAVITT. We spend that much at CMS on comparative 

effectiveness in a week. The fact that that particular line item 

might have been reduced is likely because we were doing it a lot 

in CMS and we are doing a lot of it in FDA. So to say that one 

item was reduced a little and then assume that we don’t believe 

in that as a tenant would not be correct. We have a strong belief 

in quality and finding ways to do it. 

May I address the larger issue you raised? 

Ms. SCHWARTZ. Yes. But do follow up on how you could speak to 

what else you are moving on. I mean I understand we just have 

this report from the GAO about some of the work that is being 

done by CMS. It is moving too slowly, basically, according to them. 

And——

Secretary LEAVITT. I would concur with that. Nothing happens 

fast enough. 

Ms. SCHWARTZ [continuing]. That we need to move much more 

quickly and much more aggressively to make this happen. 

Secretary LEAVITT. Well if we can sign up for more aggressive, 

I am there. So much of this would be driven faster if consumers 

had information about what was quality. And where we ought to 

be investing is in how we can bring together a system that includes 

the four cornerstones I have spoken of earlier. Our time is up, but 

this is an engagement I hope we will have on the next——

Ms. SCHWARTZ. Yes. And I know that my time is up, but let me 

just say this is one that I think we do have to move beyond the 

rederick. And it is, well it isn’t only tools for consumers, but really 

is also tools for health care providers and hospitals. In Pennsylvania, and you know Pennsylvania some good work on this with 

the Health Care Cost Containment Council and the Patient Safety 

Authority and some of the work we are really doing. It is a way 

for hospitals to look at each other, because really if you are having 

a heart attack and you are in an ambulance, it is not when you 

call the Health Care Cost Containment Council and say, ‘‘Would 

you send me that brochure so I can compare which hospital to go 

to.’’

It really is the hospitals who are actually saying, ‘‘Wait a minute, 

I don’t want to be tenth on the list, I want to be first on the list 

for quality and efficiency.’’ So it is to just say lets wait until we can 

get it to the consumers is actually just too far down the line. We 

really have to use Medicare and use the power of your office and 

ours, you know, to move this much, much more quickly. And to not 

just have the same discussion next year and the year after, because 

then what we are doing is slashing quality and that is not what 

we want to do, because we are just cutting services arbitrarily 

rather than where we really know it would not make a difference. 

And thanks. 

29

Secretary LEAVITT. Mr. Chairman, would you indulge a 60-second 

response? In a three month period, starting last month until two 

months from now, I will be in 40 different metropolitan medical 

markets, meeting with their medical family, where we have discovered many, I would say more than 100 different groups and communities working to crack the code on quality. And we are working 

to bring them together and to harmonize standards, not just with 

quality but an electronic medical records, all of which is aimed directly at this. 

Government has a role and it is—and we are working to move 

this as rapidly as possible. There are some natural barriers to this 

that we don’t have time to talk about today. 

Amen. Could you write me down as being for that. 

Chairman SPRATT. Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. Mr. Secretary, 11 

years as a governor, however many years as Secretary of HHS, 

have you had any experience at all in which an organization you 

are dealing with, either a State agency or one of your subordinate 

agencies but then they bill it, that you decided would get less 

money than they thought they were going to get or actually less 

money than they got the year before where they thought that was 

a good idea? 

Secretary LEAVITT. No, sir, I have not. 

Mr. CONAWAY. Me either. 

Secretary LEAVITT. At least seldom. 

Mr. CONAWAY. Yeah. I have never come across that yet where 

that, you know, a legitimate cut which is less money or reduction 

in the rate of growth wasn’t seen as the end of the earth. 

We use the word reform in this arena, tolerance, spending, others, and that is a kind, gentle word that has no meaning. I think 

we have to begin to use the word renegotiate. You are attempting 

a renegotiation with the States and Medicaid in this arena where 

they have stretched the original intent of the rules to gain the system in effect with professionals. And whether it is the group, you 

know, nursing homes or in this instance some other things that you 

mention, you know, those renegotiations are going to have involve 

people getting less money than they thought they were going to get 

or less money than the rate of increase. 

And so I just don’t think you can have your cake and eat it too 

in this arena. They are going to have to be as a result of a renegotiations folks are going to get less money. In that regard, can you 

talk to us any detail that you want on this, it is like the proposal, 

$113 billion reduction over five years on reimbursements, the premium reform proposal, other kinds of things where you are showing the savings in this entitlement arena on the budget. Just, you 

know, cuts like that are very dry on the paper. How can what do 

we expect to actually happen with respect——

Secretary LEAVITT. Well let’s——

Mr. CONAWAY [continuing]. As they deal with this? 

Secretary LEAVITT. Lets go back to this issue of our relationship 

with the States, which you know, I have spent a big part of my career thinking the way they are and so I guess it is appropriate that 

I am now having to deal on the other side of this negotiation. But 

it has become clear to me that they are, in some cases, driven by 

30

these fee contingency fee consultants who have little to lose from 

just pushing as far as they can knowing that it may take us years 

absent this kind of a rule change to beat them back through court. 

I mean, for example, States we routinely pay public hospitals a 

little extra money for a legitimate reason. So States have, through 

their consultants, have figured out that if you appoint a lot of hospitals as public hospitals you get a little extra money a lot of 

places. And then they sweep that money up and they put it into 

their general budget. And that is the money that they use to pay 

their match. 

So they are taking our money and paying our match which we 

match again. Now that is a very clever approach, but it is wrong. 

And it isn’t a true partnership. And what I am looking for is a 

partnership where they put up money and we put up real money. 

Now I understand the need for them to, when I say the need, I understand why they do that. But if I am running a program with 

integrity, I have to push back, otherwise we have no negotiation 

here. We have no integrity in our partnership. 

And so as I said, I have been I am not surprised by the criticism. 

I am not surprised by the lobbying campaign. I am not surprised 

by the fact that we end up with every medical constituency who 

gets that money and every school district that gets that money and 

every rehab program that gets that money are somehow coming 

back saying, ‘‘You are cutting services.’’ Well the reality is we are 

cutting off their staff person who is also doing other things that we 

are picking up. 

And it has been driven by consultants who get paid a portion of 

it. And there is a lot of criticism of this. But this is good program 

management that we are doing. And it is saving $18 billion that 

can go to medical costs for poor people. And that is what it ought 

to be in. 

Mr. CONAWAY. Thank you, Mr. Secretary. I will yield back. 

Thank you. 

Chairman SPRATT. Mr. Doggett. 

Mr. DOGGETT. Mr. Secretary, I would like to explore just how 

good that program management is and the issue of waste, fraud 

and abuse and just continue the discussion that you and I had two 

weeks ago this afternoon in the Ways and Means Health Subcommittee. 

Just to be fair to you, let me just go back and quote to you my 

last question to you and your last answer to me. And it was, ‘‘I 

asked last June and again in October, we have submitted it in 

writing, we have asked it orally, to tell us what happened to the 

$100 million that you wasted in paying private insurance companies for retroactive coverage for low-income beneficiaries that they 

were never told about until too late to take advantage of it. I still 

don’t have an answer. The Health Subcommittee doesn’t have an 

answer to it’s written questions. Do you think before you come to 

testify before the Budget Committee this week or next, because we 

thought it was going to be much earlier the day. When I get a 

chance to ask you about this again that you could please bring us 

these answers that have been due since last summer?’’

And your answer, Secretary Leavitt, was, ‘‘That seems like it 

would be a smart thing to do.’’

31

And my question to you today is, have you done what you said 

would be the smart thing to do and brought the answers to these 

eight month old questions? 

Secretary LEAVITT. I do not have them with me today. I don’t 

know the status of them. 

Mr. DOGGETT. Well, it is incredible. But so is some of your other 

testimony. 

Secretary LEAVITT. They were, Mr. Doggett, provided. 

Mr. DOGGETT. Let me ask you about——

Secretary LEAVITT. Just so that——

Mr. DOGGETT. No, sir, they have not been provided to my office 

as of the beginning of this hearing. If they have been provided it 

is while you have been testifying. 

Secretary LEAVITT. Well, that is not the information I have. 

Mr. DOGGETT. Let me ask you about the $150 billion of waste 

that Chairman Spratt asked you about and the two reasons that 

you told him not to worry, that we would spend $150 billion in the 

Medicare Advantage Program. 

First of all, this is not a new program. And we have seen year 

after year, promises like you made today that eventually this was 

going to save money and year after year we have wasted money on 

it. We know have the Congressional Budget Office telling us we are 

about to waste another $150 billion. 

And the two explanations why Chairman Spratt and this Committee shouldn’t worry about it that you gave were, first of all, that 

you know if we refine the bidding process it will all go away and 

it will become a real bargain. I asked you about that two weeks ago 

whether you or any of our republican colleagues in any of these 

Committees had ever offered a single legislative proposal to do 

that. Have you done that in the intervening two weeks? 

Secretary LEAVITT. Mr. Doggett, as I told you last year, this program is now three years old and we are at a point where we ought 

to be looking at some serious——

Mr. DOGGETT. Yes, sir. 

Secretary LEAVITT [continuing]. Refinements. 

Mr. DOGGETT. Fortunately——

Secretary LEAVITT. And——

Mr. DOGGETT [continuing]. In less than a year this Administration won’t be here. 

Secretary LEAVITT. Perhaps I could finish my answer, Mr. 

Doggett. 

Mr. DOGGETT. Well you haven’t answered. If you will answer, I 

will let you finish. But the question was have in the last two weeks 

come up with the legislative proposals that this Administration 

couldn’t come up with in the last seven years? And isn’t the answer 

just simply, no, we haven’t done anything? 

Secretary LEAVITT. We have not advanced proposals. 

Mr. DOGGETT. Thank you for your answer. 

Secretary LEAVITT. But it is time for us——

Mr. DOGGETT. Thank you for your answer. 

Secretary LEAVITT [continuing]. To be working with the Congress 

to do so. 

Mr. DOGGETT. It is past time. We can agree——

Secretary LEAVITT. And we are very willing to do so. 

32

Mr. DOGGETT. We can agree on that. 

Secretary LEAVITT. We are very willing to do so. 

Mr. DOGGETT. Now the second——

Secretary LEAVITT. Medicare Advantage is a good thing. It provides——

Mr. DOGGETT. I understand——

Secretary LEAVITT [continuing]. Important benefits. 

Mr. DOGGETT [continuing]. You have a——

Secretary LEAVITT. And that is where that money went——

Mr. DOGGETT [continuing]. Strong——

Secretary LEAVITT [continuing]. Was to benefits. 

Mr. DOGGETT. And that is my second question. I am glad you 

touched on that, because that is exactly where I was going. 

Secretary LEAVITT. Good. 

Mr. DOGGETT. The second excuse that you give to Mr. Spratt 

about why we shouldn’t worry about this wasted $150 billion is 

well the benefits all go to the beneficiaries, what you were just telling me. And the question that I have for you, sir, is why has your 

Department refused to require these private insurance companies 

to notify us of exactly what benefits went where instead of just giving us a little anecdotal evidence. We don’t know whether these 

benefits have been used. We don’t know if these benefits have been 

effective. We don’t know if these benefits have been worth a fraction of the $150 billion that we are about to expend on them. Why 

does the Department refuse to obtain that information? 

Secretary LEAVITT. Congressman, your colleagues in the Congress made a decision that they wanted Medicare Advantage as a 

choice for people to be a national plan. And they have accomplished 

that in the way that I have described. And it has been a very successful program. 

Now in terms of your question——

Mr. DOGGETT. Yes, sir, in terms of my question. 

Secretary LEAVITT [continuing]. I am not exactly sure what you 

are asking. And I would be happy to respond if you want to put 

it to me in writing so that I can go to my——

Mr. DOGGETT. Well I am not sure you are going to be in office 

long enough——

Secretary LEAVITT [continuing]. Go to the people who manage the 

program and ask. 

Mr. DOGGETT [continuing]. To answer to it if it is at the same 

speed as the little $100 million question that I asked you last year 

that you won’t provide us. 

Do I understand also, Mr. Secretary, that an answer to Chairman Spratt and the problem that our health care providers, particularly our physicians have all over this country, about how we 

change the formula under which they are paid that you have no 

legislation and no ideas how to fix that other than this ideological 

commitment to privatize Medicare? 

Secretary LEAVITT. That is, first of all, no small matter. 

Mr. DOGGETT. But you don’t have a proposal on how we can provide for a reform of that? 

Secretary LEAVITT. I put forward a proposal with respect to that 

in the Trigger legislation. And I would also suggest to you that 

while that may not in fact be scoreable in your terms, it will save 

33

money. And I would also suggest to you that it that the solution 

to the problem of the SGR fix is something that Congress has to 

fix. I don’t have the capacity to do that. 

Mr. DOGGETT. Finally, Mr. Secretary, you are aware of the Government Accountability Office report a bipartisan request from 

Senator Colburn and Senator Carper on improper payments that 

federal executive branch agencies made last year. Your Department 

had five of the 14 reports of improper payment. And on two of them 

you could not even provide a report estimate of when you could tell 

us how much had been improperly paid. 

That was Medicare Advantage and the Medicare prescription 

drug benefit. Since that came out almost a month ago, do you have 

any estimate now of when you could estimate how much was wasted on these two programs? 

Secretary LEAVITT. That is not information I have. 

Mr. DOGGETT. Thank you, sir. 

Chairman SPRATT. Mr. Etheridge. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. Mr. Secretary, I have 

a number of questions. I won’t read them, I am going to submit 

them for the record and ask if you will please to respond in writing 

so that we won’t—we have got several votes coming up and it will 

take an extended period of time and not keep you here. 

Secretary LEAVITT. I would be happy to respond. 

Mr. ETHERIDGE. Thank you. 

Chairman SPRATT. Mr. Scott. 

Mr. SCOTT. I had one quick question, if I could. And that is if 

Medicare could provide the services generally provided under Medicare Advantage for less than the subsidy that we are providing, 

could we do it better ourselves than this private thing where we 

have to pay a rebate? 

And if you are not prepared to answer that, you can answer——

Secretary LEAVITT. Well I have no way of being able to respond 

to it in an authoritative way, but I do know this: That whenever 

we have provided people with choices in a broad enough area, competition has not driven it up, the quality up and the cost down. 

And I have no reason to believe that that wouldn’t happen here too. 

Mr. SCOTT. That means you could not provide it cheaper? We 

have to pay a rebate right now. 

Secretary LEAVITT. I am not sure—would you restate your question? I may have answered the wrong question. 

Mr. SCOTT. Medicare Advantage we provide a rebate to help the 

private industries provide the Medicare Advantage. And my question is if we just did it ourselves like we do Medicare, couldn’t we 

do it cheaper? 

Secretary LEAVITT. The Congress made a decision to provide enhanced fee for service reimbursement in specific areas so that those 

who would like to have a Medicare Advantage product could. It was 

done always with the anticipation that once the program was well 

in place that adjustments could and should be made in order to 

bring the reimbursement down not just to the levels equal, but 

with the anticipation that in some ways it would be some areas it 

would be below and hence less expensive. 

Mr. SCOTT. Okay. Thank you. Thank you, Mr. Chairman. 

Chairman SPRATT. Thank you, Mr. Scott. 

34

Mr. Secretary, thank you very much for coming. 

Secretary LEAVITT. Thank you. 

Chairman SPRATT. We will conclude the hearing with this round 

of questions, because we have got four votes coming up on—three 

or four votes coming up on the floor. We don’t want to impose upon 

your time further, but we appreciate your forbearance and your 

forthright answers to our questions. 

Secretary LEAVITT. Thank you. 

Chairman SPRATT. Thank you. I ask unanimous consent that 

members who did not have the opportunity to ask questions of our 

witness be allowed seven days to submit questions for the record. 

Without objection, so ordered. 

[Questions for the record submitted by Mr. Etheridge follow:]

QUESTIONS FOR THE RECORD SUBMITTED BY MR. ETHERIDGE

1. Mr. Secretary, I understand that you are here to discuss the HHS Budget Request, but I also know that you are a Social Security Trustee and that policies recommended in your budget would affect this important safety net. 

a. The President has proposed a health care tax plan that would reduce taxable 

income for some low-income workers. This would—in the short term—reduce payroll 

taxes, but would present a problem when the same workers apply for Social Security 

at retirement. These low-income workers rely heavily on Social Security for retirement income, but the President’s plan would reduce their credited earnings and 

therefore their payments under Social Security. Has the Administration done any 

analysis of the long-term implications of the Health Care tax proposal for low- and 

middle-income workers once they reach retirement? Would they be at higher risk 

of elderly poverty under these plans? 

b. Does the President’s Social Security privatization plan fix Social Security? If 

not, what are the long term prospects for Social Security solvency, and what is the 

President doing to address the issue? Won’t workers be at risk of lower Social Security payments under the President’s plan? Social Security was designed to be a rock 

solid guarantee workers can count on, not a risky gamble by Wall Street bankers. 

2. The President continues to propose cuts to Medicare and Medicaid that would 

be devastating to our citizens who depend on the services these public health-care 

safety nets. These cuts were a bad idea when the President proposed them last year, 

and the greater cuts in this year’s budget are an even worse idea this year when 

states are already facing financial challenges from the economy. 

a. How do you expect states to absorb a $47 billion cut to Medicaid over ten years 

given the challenges they will face? 

b. How do you think the cuts to Medicaid will impact the number of uninsured 

Americans? 

c. Do you think that the cuts to Medicaid will be shifted to providers who serve 

the low-income families who depend on them, or will Medicare beneficiaries have 

to pay more out of their pocket? 

3. Most the savings in your budget proposal come from cutting payments to hospitals and several other service providers by setting annual payment updates permanently below the level of medical inflation. 

a. Is it your opinion that this will motivate providers to be more efficient? Are 

you concerned that this will instead lead providers to opt out of Medicare and Medicaid entirely, or force them to go out of business as many have, especially in rural 

areas? 

b. One of the biggest cuts in the budget is a three-year freeze on hospital payment 

rates. Many hospitals already lose money on Medicare. Do you believe that hospitals 

are overcharging the government for health services? Are you concerned that costs 

will increasingly be shifted to other payers, or that hospitals will be forced to cut 

corners in ways that could harm patients? 

4. Under current law, doctors will experience a Medicare payment rate cut of 10 

percent in June and an additional 5 percent in 2009. Especially in rural areas, medical clinics are closing because they can’t afford current payment rates—additional 

cuts will be devastating. Every year since 2003, Congress has passed—and the 

President has signed—one-year fixes to prevent physician rate cuts from going into 

effect. 

35

a. Why isn’t the Administration exercising leadership on this issue and presenting 

ideas for making the physician payment system sustainable for physicians as well 

as for the budget? 

b. Has HHS done any analysis to determine whether these types of cuts can be 

maintained indefinitely without eventually driving providers out of the Medicare 

business and harming beneficiaries’ access to services? 

c. Is the Adminstration doing anything to control the costs of managed care? Why 

are the physicians bearing the burden of the Administration’s budget mess?

[Questions for the record submitted by Ms. Kaptur follow:]

QUESTIONS FOR THE RECORD SUBMITTED BY MS. KAPTUR

1. Mr. Secretary, in December, President Bush signed a bill containing a provision 

to make research results from the National Institutes of Health available to the 

public. Congress too has expressed the importance of this provision. Can you please 

update me on what HHS is doing to support the policy and to ensure that it goes 

into effect without delay? 

2. Mr. Secretary, in an Agriculture Appropriations subcommittee hearing held 

earlier today, the FDA indicated that this budget will not cover their inspection 

needs. While the GAO identified that it will take 13 years to complete the backlog 

of inspections at foreign drug facilities, your budget only asks for three new inspectors. How can you chair an interagency taskforce on food safety and still believe 

that this budget will protect us? 

3. In Ohio, the budget shortfall for its upcoming fiscal year (beginning July 1) is predicted to be as much as $1.9 billion. Unfortunately, this challenge is not unique 

to Ohio, as more than two dozen states are facing a shortfall. In addition, economic 

indicators are reflecting significant financial strain on our nation’s families: median 

household income is on the decline, foreclosures are on the rise, and nearly 5 million 

more people are living in poverty than there were in 2000. Knowing this, why would 

the President suggest major cuts for important social safety net programs, such as 

the Social Services Block Grant and the Child Care Development Block Grant? 

4. Mr. Secretary, nearly two-thirds of America’s hospitals lost money treating 

Medicare patients in 2006. Both Medicare and Medicaid hospital margins are negative. Why has the Administration called for drastic cuts to Medicare and Medicaid 

over the next five fiscal years, limiting hospitals’ efforts to serve some of its most 

vulnerable patients?

[Questions for the record submitted by Mr. McGovern follow:]

QUESTIONS FOR THE RECORD SUBMITTED BY MR. MCGOVERN

Question 1: As it has for the past several years, the president’s FY 2009 budget proposal cuts the CDC dramatically. Funding for CDC was $6.049 billion for FY 

2008 enacted, and the FY 2009 budget request is $5.618 billion. This means CDC 

core programs are cut by $431.9 million—a reduction of 7.67%. 

When taking inflation into account, the reductions are compounded even further. In FY 2005, the CDC’s core programs were funded at $6.3 billion—an amount equal 

to $6.8 billion in today’s inflation-adjusted dollars, according to the Bureau of Labor 

Statistics’ consumer price index. Therefore, the budget request for FY 2009 core programs is more than one billion dollars below the CDC’s FY 2005 funding, simply 

taking inflation into account. Such reductions dramatically decrease the purchasing 

power of CDC programs and have serious, negative repercussions on America’s public health programs. 

On April 20, 2007, Dr. Julie Gerberding, Director of the CDC, presented a ‘‘professional judgment budget’’ at the request of House Appropriations Committee Chairman David Obey. According to her professional judgment, CDC’s core programs required $6.9 billion in funding for FY 2008—more than $1 billion above the current 

FY 2009 proposed amount. 

In addition, the Administration’s budget eliminated CDC’s Preventive Health and 

Health Services Block Grant. As the founder and Co-Chair of the Congressional 

Study Group on Public Health, I find this unacceptable. Of the $97 million eliminated for these programs, $2.7 million is projected to be cut from Massachusetts 

public health programs. How do you expect states and the CDC to complete its public health mission with these types of eliminations? 

Do you, Secretary Leavitt, believe the CDC can sustain a 7.5% reduction in funding and services without damaging the nation’s ability to fight disease outbreaks, 

global viruses, unintentional injuries, and address critical public health trends (e.g. 

obesity, diabetes, etc.)? Would you, Secretary Leavitt, support Congressional efforts 

to restore and add more funding to this critical agency? 

36

And finally, Mr. Secretary, if you do stand in support of these reductions, given 

that the CDC sends nearly 70% of the funds it receives out to state and local health 

departments, I would like to receive from you in writing how you believe states and 

localities will need to address the impact your proposed cut will have on our local 

communities. 

Question 2: 

1) According to a study by The Commonwealth Fund, Massachusetts ranks highest in the nation on coverage and quality—a result of which we are very proud. Our 

new health law is an important part of our achieving success, and we appreciate 

your support in approving our waiver. However, I don’t understand your support for 

these types of state waivers, and your support for a budget that would cut approximately $3.2 billion from our Massachusetts hospitals, home health and skilled nursing statewide providers over the next five years. The loss of these dollars seriously 

undercuts the ability of Massachusetts’ providers to take on the reforms necessary 

under the new health law. How do you explain the ‘‘disconnect’’ between your support for state health reforms, and the very sizable reductions you propose to Medicaid dollars for the states, and Medicare reimbursements for providers? 

ADDITIONAL QUESTION BY CONGRESSMAN MCGOVERN

Mr. Secretary, I am concerned that the National Institutes of Health do not appear to be sufficiently prioritizing research that would develop imaging technologies 

for prostate cancer detection and treatment comparable to what women currently 

have for breast cancer detection. I am advised that only a few million dollars were 

spent last year on this kind of research, even though prostate cancer is an epidemic 

in our nation and affects one in six American men generally with a disproportionately high mortality rate for African-American men. The National Cancer Institutefunded studies show the frequent ineffectiveness of PSA tests and digital rectal 

exams, which lead to unnecessary and costly biopsies and surgeries and to unnecessary psychological and physiological complications for millions of American men. 

One estimate is that digital imaging for prostate cancer detection and treatment 

could save several billion dollars a year by reducing the number of unnecessary biopsies and surgeries and related hospitalization costs. Women have mammograms, 

but men don’t have a ‘‘Manogram.’’ What does your Department plan to do in Fiscal 

Year 2009 to get us closer to the day when imaging technologies will be developed, 

manufactured, and accessible to the men in our communities?

[Questions for the record submitted by Mr. Tiberi follow:]

QUESTIONS FOR THE RECORD SUBMITTED BY MR. TIBERI

Mr. Secretary, Medicare covers a number of prostate cancer treatments. Recently, 

a report from the Agency for Healthcare Research and Quality (AHRQ) has brought 

to our attention the lack of comparative effectiveness data for prostate cancer. Of 

the eight prostate cancer treatments, no one treatment emerged as the best option 

for prolonging life or minimizing side effects. However, Medicare’s reimbursement 

of these various treatments dramatically varies. One treatment in particular is reimbursed at 3-4 times the rate of all the other treatments when considering total 

episode care costs. Has anyone in your Department examined the discrepancy in reimbursement, especially considering the lack of comparative effectiveness data? And 

if so, what is HHS doing to create incentives or disincentives, for physicians, hospitals, and Medicare beneficiaries to choose one treatment vs. another?

[Secretary Leavitt’s responses to questions submitted follow:]

HHS’ RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD

BOB ETHERIDGE

1. Question. Mr. Secretary, I understand that you are here to discuss the HHS 

Budget Request, but I also know that you are a Social Security Trustee and that 

policies recommended in your budget would affect this important safety net. 

a.) The President has proposed a health care tax plan that would reduce taxable 

income for some low-income workers. This would—in the short term-reduce pay roll 

taxes, but would present a problem when the same workers apply for Social Security 

at retirement. These low-income workers rely heavily on Social Security for retirement income, but the President’s plan would reduce their credited earnings and 

therefore their payments under Social Security. Has the Administration done any 

analysis of the long-term implications of the Health Care tax proposal for low and 

37

middle income workers once they reach retirement? Would they be at higher risk 

of elderly poverty under these plans? 

Response: Under current law, the portion of compensation an individual receives 

in the form of employer-provided health insurance is not included in taxable income 

for the purposes of either income or payroll taxes. Insurance premiums for individually purchased coverage, on the other hand, are paid with after-tax dollars. SDHI 

would change the tax treatment of both employer-provided and individually purchased health coverage in a manner that puts both insurance types on an equal 

footing. For both types of insurance, taxable income would include the insurance 

premium and would allow a deduction that is initially $15,000 in 2009 and that 

would be indexed to the CPI in later years. As shown in Table 1, compared to current law, income subject to income and payroll taxes would increase by the cost of 

the insurance premium (for employer-provided plans) but fall by the deduction for 

those with employer insurance and for those with individually purchased coverage. 

A low-income worker with employer insurance would likely see a decrease in taxable wages in the near term when the insurance premium is less than the deduction. But because medical insurance premiums will almost certainly rise more rapidly than the deduction amount (which increases with the general level of prices), 

within ten years or so workers would likely see an increase in taxable income relative to current law. Except for older workers near to retirement, lifetime wages 

subject to Social Security taxes would likely increase, which would cause Social Security benefits to increase. 

A low-income worker purchasing coverage on their own would generally have 

lower Social Security wages in all years under the proposal, although the proposal 

would allow them the option of rejecting the deduction for Social Security purposes. 

Taking the deduction for Social Security purposes would cause Social Security benefits to be smaller, but would put a low-wage worker purchasing their own health 

insurance on an equal footing with an otherwise similar low-wage worker with employer-provided insurance.

b.) Question. Does the President’s Social Security privatization plan fix Social Security? If not, what are the long term prospects for Social Security solvency, and 

what is the President doing to address the issue? Won’t workers be at risk of lower 

Social Security payments under the President’s plan? Social Security was designed 

to be a rock solid guarantee workers can count on. 

Note: If he claims that most people won’t experience a benefit cut because payroll 

taxes will eventually rise relative to current law because of health care inflation: 

c.) Question. Does that mean the President now endorses long term tax increases 

to extend Social Security solvency? 

Response: The President believes that the fiscal health of Social Security is a vital, 

shared bipartisan responsibility. As the Social Security Trustees’ report has noted 

for several years, the Social Security program is not on a financially sustainable 

path under current law. The President has repeatedly called for legislation to 

strengthen Social Security’s finances permanently, has offered specific ideas for 

doing so, and has declared his willingness to consider alternative proposals. 

The President has supported personal accounts in Social Security, but has not 

supported ‘‘privatization.’’ Under the President’s proposal, Social Security would continue to be administered by the Social Security Administration, as it always has 

been. The personal accounts themselves would be voluntary; those who prefer to remain wholly under the existing administrative structure and to receive the benefits 

that it can provide, would be able to do so. Even the proposed personal accounts 


afrtbl.eps
38

would not be ‘‘privatized’’ but would be administered in a structure much like the 

federal Thrift Savings Plan, which currently adds to the retirement security of employees of the federal government. 

The risk of benefit reductions exists in proportion to the amount of further delay 

until Social Security is financially strengthened. As the President’s proposal shows, 

if we were to act today, we could fully provide promised benefits for today’s seniors, 

without raising taxes, while delivering to future beneficiaries levels of benefits that 

are higher in inflation-adjusted terms. No one would have a benefit ‘‘cut’’ relative 

to current levels. If Congress continues to delay action, however, then by the end 

of the next two presidential terms, that will no longer be the case: at that point, 

legislators will face tough choices between raising taxes and cutting benefits below 

the rate of inflation. 

2. Question. The President continues to propose cuts to Medicare and Medicaid 

that would be devastating to our citizens who depend on the services these public 

health-care safety nets. These cuts were a bad idea when the President proposed 

them last year, and the great cuts in this year’s budget are an even worse idea this 

year when the states are already facing financial challenges form the economy. 

a.) Question. How do you expect states to absorb a $47 billion cut to Medicaid over 

ten years given the challenge they will face? 

b.) Question. How do you think the cuts to Medicaid will impact the number of 

uninsured Americans? 

c.) Question. Do you think that the cuts to Medicaid will be shifted to providers 

who serve the low-income families who depend on them, or will Medicare beneficiaries have to pay more out of their pocket? 

Response: I am deeply troubled that you view the Administration as undermining 

the healthcare safety net. The Administration shares your concern in protecting the 

Medicare and Medicaid programs so that they are available for those who need it. 

The FY 2009 President’s Budget seeks to promote fiscal responsibility so that the 

long-term sustainability of Medicare, Medicaid, and the State Children’s Health Insurance Program can be ensured. 

I can appreciate that Medicaid is one of the largest programs in State budgets. 

As Medicaid competes for resources at the State level against all the other demands, 

an erosion of confidence in the integrity of the Medicaid program is harmful for both 

Medicaid and for the people who rely on it. The administrative actions we initiated 

last year will provide greater stability in the program and equity among the States. 

Each of the rules was vitally important to ensure: the integrity of the Medicaid program; that Medicaid beneficiaries are receiving the services for which Medicaid is 

paying; that those services are effective in improving the health outcomes of individuals with Medicaid; and that taxpayers are receiving the full value of their dollars 

that are spent through Medicaid. The Medicaid proposals in the FY 2009 President’s 

Budget further this progress and enhance access and continuity of coverage by improving program integrity, increasing State flexibility, and promoting cost-effective 

management of Medicaid dollars. 

3. Question. Most the savings in your budget proposal come from cutting payments to hospitals and several other service providers by setting annual payments 

updates permanently below the level of medical inflation. 

a.) Is it your opinion that this will motivate providers to be more efficient? Are 

you concerned that this will instead lead provider to opt out of Medicare and Medicaid entirely, or force them to go out of business as many have, especially in rural 

areas. 

Response: While this Budget proposes a total of $183 billion in savings to the 

Medicare program over five years, it is important to recognize these numbers in context. Over the next five years, Medicare benefits spending will total $2.8 trillion. 

The budget proposals only slightly reduce average annual growth in Medicare 

spending; under this budget Medicare spending will still grow 5 % from FY 2009 

to FY 2013, which is a higher growth rate than both the average medical inflation 

and CPI projections for this time period. In addition, encouraging providers to be 

more efficient saves beneficiary out-of-pocket costs of $6.2 billion over five years. 

The proposed $18 billion in savings for Medicaid are a fraction of the $1.3 trillion 

in total outlays from FY 2009 to FY 2013. Under this budget, Medicaid spending 

will still grow by 7.1 % during the next five years. 

b.) Question. One of the biggest cuts in the budget is a three-year freeze on hospital payment rates. Many hospitals already lose money on Medicare. Do you believe 

that hospitals are overcharging the government for health services? Are you concerned that costs will increasingly be shifted to other payers, or that hospitals will 

be forced to cut corners in other ways that could harm patients? 

Response: It is true that Medicare hospital savings in the Budget are the largest 

for any provider type, but hospitals are also the largest category of Medicare spendVerDate 0ct 09 2002 14:18 Jun 24, 2008 Jkt 000000 PO 00000 Frm 00043 Fmt 6621 Sfmt 6621 J:\DOCS\HEARINGS\110TH\110-33\41121.TXT HBUD1 PsN: DICK
39

ing. In fact, other providers will see a similar percentage reduction to their current 

spending levels. Despite average negative profit margins, hospitals (inpatient and 

outpatient) continue to have significant access to capital to expand their services. 

Hospital (inpatient and outpatient) construction spending has grown 191% between 

1999 and 2007, with $32.6 billion spent on construction in 2007 alone. 

4. Question. Under current law, doctors will experience a Medicare payment rate 

cut of 10% in June and an additional 5% in 2009. Especially in rural areas, medical 

clinics are closing because they can’t afford current payment rates—additional cuts 

will be devastating. Every year since 2003, Congress has passed—and the President 

has signed—one-year fixes to prevent physician rate cuts from going into effect. 

a.) Question. Why isn’t the Administration exercising leadership on this issue and 

presenting ideas for making the physician payment system sustainable for physicians as well as for the budget? 

Response: Creating some stability in Medicare physician payment levels is important in order to ensure beneficiary access to care. But at the same time, we need 

to ensure that we are getting the most appropriate value for our expenditures, that 

quality of care is of the highest levels, and that the fee-for-service payment system 

doesn’t create incentives to generate excess volume and intensity of services. 

We do not have a magic bullet to deal with the Medicare physician payment issue. 

However, we are working on some important elements that could be building blocks 

that ultimately are part of a revised Medicare physician payment system. We have 

been implementing the Physician Quality Reporting Initiative (PQRI), which creates 

payment incentives for eligible professionals, who satisfactorily report quality measures. We are very interested in building on the success of our Physician Group Practice demonstration and incorporating a mechanism for physician group practices to 

report and perform on quality measures. We are implementing the medical home 

demonstration project and are interested in the potential for the model to change 

how care is furnished to and coordinated for Medicare beneficiaries. We are very interested in creating financial incentives to encourage physicians to implement electronic health record systems. We have been working to develop meaningful, actionable, and fair measures of physician resource use to initially be used for confidential 

feedback reporting to physicians about the comparative costs of their care. As in 

other payment systems, value-based purchasing and transparency initiatives give 

consumers access to data that can improve their healthcare choices. We are exploring issues involved with posting the names of physicians who successfully report 

PQRI measures on the CMS website. 

b.) Question. Has HHS done any analysis to determine whether these types of 

cuts can be maintained indefinitely without eventually driving providers out of the 

Medicare business and harming beneficiaries’ access to services? 

Response: We have not done the specific analysis requested. In light of Medicare’s 

longer-term financing challenges, as documented clearly in recent Trustees Reports, 

our single most important goal is to encourage continued improvement in the efficiency and quality of health care delivered to Medicare beneficiaries, while preserving access to services in a way that is fiscally responsible. Our ability to fulfill 

the goal of access depends, of course, on continued active participation of physicians 

in Medicare. Currently, nearly 95 percent of eligible physicians and other practitioners are Medicare participating providers, up from approximately 90 percent in 

2004

c.) Question. Is the Administration doing anything to control the costs of managed 

care? Why are the physicians bearing the burden of the Administration’s budget 

mess? 

Response: Regarding the cost of managed care in Medicare Advantage, Congress 

established current payment levels to ensure that the MA option was available all 

across the country, including in rural areas. While it is true that MA plans in most 

regions are being paid more than the FFS rates, the vast proportion of the extra 

amounts are required to go directly to beneficiaries in the form of reduced cost sharing or extra benefits. Because of these policies, beneficiaries in all parts of the country have access to at least one Medicare Advantage plan. The Administration continues to support policies that will ensure all beneficiaries across the country have 

access to these plans. 

Medicare Advantage (MA) rates are tied to fee-for-service rates, therefore, the proposals to reduce spending in traditional Medicare will also reduce MA payments. 

Nearly 25 of the proposed Medicare savings in the Budget will be borne by managed 

care plans. 

40

JAMES MCGOVERN

1. Question. As it has for the past several years, the president’s FY 2009 budget proposal cuts the CDC dramatically. Funding for CDC was $6.049 billion for FY 

2008 enacted, and the FY 2009 budget request is $5.618 billion. This means CDC 

core programs are cut by $431.9 million—a reduction of 7.67%. 

When taking inflation into account, the reductions are compounded even further. In FY 2005, the CDC’s core programs were funded at $6.3 billion—an amount equal 

to $6.8 billion in today’s inflation-adjusted dollars, according to the Bureau of Labor 

Statistics’ consumer price index. Therefore, the budget request for FY 2009 core programs is more than one billion dollars below the CDC’s FY 2005 funding, simply 

taking inflation into account. Such reductions dramatically decrease the purchasing 

power of CDC programs and have serious, negative repercussions on America’s public health programs. 

On April 20, 2007, Dr. Julie Gerberding, Director of the CDC, presented a ‘‘professional judgment budget’’ at the request of House Appropriations Committee Chairman David Obey. According to her professional judgment, CDC’s core programs required $6.9 billion in funding for FY 2008—more than $1 billion above the current 

FY 2009 proposed amount. 

In addition, the Administration’s budget eliminated CDC’s Preventive Health and 

Health Services Block Grant. As the founder and Co-Chair of the Congressional 

Study Group on Public Health, I find this unacceptable. Of the $97 million eliminated for these programs, $2.7 million is projected to be cut from Massachusetts 

public health programs. How do you expect states and the CDC to complete its public health mission with these types of eliminations? 

Do you, Secretary Leavitt, believe the CDC can sustain a 7.5% reduction in funding and services without damaging the nation’s ability to fight disease outbreaks, 

global viruses, unintentional injuries, and address critical public health trends (e.g. 

obesity, diabetes, etc.)? Would you, Secretary Leavitt, support Congressional efforts 

to restore and add more funding to this critical agency? 

And finally, Mr. Secretary, if you do stand in support of these reductions, given 

that the CDC sends nearly 70% of the funds it receives out to state and local health 

departments, I would like to receive from you in writing how you believe states and 

localities will need to address the impact your proposed cut will have on our local 

communities. 

Response: The Preventive Health and Health Services Block Grant (PHHSBG) has 

served as a flexible resource supporting state and local prevention efforts. CDC has 

funded 61 grantees, including all 50 States, the District of Columbia, 8 Pacific Island territories, and 2 Native American Indian tribes. Because of the difficulty in 

establishing consistent measures for a flexible program like PHHSBG, there are 

limited national outcome data on a consistent set of measures across all states. 

PHHSBG was created more than two decades ago as a means to consolidate multiple categorical grants in place at the time. Since its creation, a number of categorical grants have emerged that address some of the same public health issues. In the 

main areas covered by the PHHSBG, CDC categorical programs are now funded at 

$800 million a year. As a nation, we face difficult decisions in prioritizing how we 

use the scarce resources available to meet the overwhelming needs in health as well 

as other areas. As CDC strives to improve efficiency and effectiveness, existing programs will continue to be available to address many public health issues traditionally covered by the Block Grant. 

2. Question. According to a study by The Commonwealth Fund, Massachusetts 

ranks highest in the nation on coverage and quality—a result of which we are very 

proud. Our new health law is an important part of our achieving success, and we 

appreciate your support in approving our waiver. However, I don’t understand your 

support for these types of state waivers, and your support for a budget that would 

cut approximately $3.2 billion from our Massachusetts hospitals, home health and 

skilled nursing statewide providers over the next five years. The loss of these dollars 

seriously undercuts the ability of Massachusetts’ providers to take on the reforms 

necessary under the new health law. How do you explain the ‘‘disconnect’’ between 

your support for state health reforms, and the very sizable reductions you propose 

to Medicaid dollars for the states, and Medicare reimbursements for providers? 

Response: The FY 2009 Budget proposes to reform and transform the health care 

system by allowing States the opportunity to craft innovative solutions to provide 

people access to affordable insurance. The Budget complements existing State efforts with policies that would expand the use of high risk insurance pools and subsidize the purchase of private insurance for low-income individuals. 

While the Budget proposes a total of $183 billion in savings to the Medicare program over five years, it is important to recognize these numbers in context. Over 

41

the next five years, Medicare benefits spending will total $2.8 trillion. The budget 

proposals only slightly reduce average annual growth in Medicare spending; under 

this budget Medicare spending will still grow 5 % from FY 2009 to FY 2013, which 

is a higher growth rate than both the average medical inflation and CPI projections 

for this time period. In addition, encouraging providers to be more efficient saves 

beneficiary out-of-pocket costs of $6.2 billion over five years. 

The proposed $18 billion in savings for Medicaid programs are also a fraction of 

the $1.3 trillion in total outlays from FY 2009 to FY 2013. Under this budget, Medicaid spending will still grow by 7.1 % during the next five years. 

It is true that Medicare hospital savings in the Budget are the largest for any 

provider type, but hospitals are also the largest category of Medicare spending. In 

fact, other providers will see a similar percentage reduction to their current spending levels. Despite average negative profit margins, hospitals (inpatient and outpatient) continue to have significant access to capital to expand their services. Hospital (inpatient and outpatient) construction spending has grown 191% between 

1999 and 2007, with $32.6 billion spent on construction in 2007 alone. 

The home health proposal is consistent with the Medicare Payment Advisory 

Commission’s (MedPAC) recommendation during the January 2008 meeting that 

home health agencies receive a 0% update in 2009. MedPAC estimates that Medicare margins for home health agencies averaged 15.4% in 2006 and will reach approximately 11.4% in 2008. Further, MedPAC analysis shows that the number of 

home health agencies continues to grow, as does the volume of services provided. 

At the same time, quality of care is improving, and cost growth remains low. A 0% 

update for 2009 through 2013 would encourage program efficiency without affecting 

the ability of home health agencies to furnish high quality care to Medicare beneficiaries. 

Spending on SNFs continues to increase, with an increasing volume of services 

provided, and beneficiaries having few problems accessing SNF care. The proposed 

0% update for FY 2009-2011 would encourage program efficiency without affecting 

the ability of SNFs to furnish high quality care to Medicare beneficiaries. This proposal is consistent with recommendations made by MedPAC for 2009 and builds 

upon these recommendations for future years. MedPAC estimates SNF Medicare 

margins averaging 11.4 % in FY 2008. This proposal would also strengthen the longterm financial security of Medicare, which is critical to stability in access as well 

as quality. 

3. Question. Mr. Secretary, I am concerned that the National Institutes of Health 

do not appear to be sufficiently prioritizing research that would develop imaging 

technologies for prostate cancer detection and treatment comparable to what women 

currently have for breast cancer detection. I am advised that only a few million dollars were spent last year on this kind of research, even though prostate cancer is 

an epidemic in our nation and affects one in six American men generally with a disproportionately high mortality rate for African-American men. The National Cancer 

Institute-funded studies show the frequent ineffectiveness of PSA tests and digital 

rectal exams, which lead to unnecessary and costly biopsies and surgeries and to 

unnecessary psychological and physiological complications for millions of American 

men. One estimate is that digital imaging for prostate cancer detection and treatment could save several billion dollars a year by reducing the number of unnecessary biopsies and surgeries and related hospitalization costs. Women have mammograms, but men don’t have a ‘‘Manogram.’’ What does your Department plan to do 

in Fiscal Year 2009 to get us closer to the day when imaging technologies will be 

developed, manufactured, and accessible to the men in our communities? 

Response: To identify prostate cancer at an earlier stage through specialized and 

targeted imaging, screening and detection methods, the National Cancer Institute 

(NCI) is funding numerous grants and other research initiatives. These efforts aim 

to develop tools including in-vivo models (animal and human) for molecular imaging 

and analysis; imaging tracers; in-vivo image-guided therapy using multi-modal imaging approaches; imaging methods to provide metabolic assessment of the presence 

and extent of human prostate cancer; and combinations of imaging with emergent 

technologies such as nanotechnology, genomics, proteomics and high-throughput 

screening. 

Novel imaging techniques and therapies being explored include: advanced 

ultrasound devices, portable imaging devices to detect prostate cancer, nuclear magnetic resonance (NMR) imaging, superconducting quantum interference device 

(SQUID) imaging, gene-based imaging and therapy to target metastatic prostate 

cancer, morphologic, metabolic and functional prostate imaging, metabolic imaging 

using 3-D magnetic resonance spectroscopic imaging (MRSI), PET imaging using oncogenic approaches, and advanced quantitative image analysis techniques. ImageVerDate 0ct 09 2002 14:18 Jun 24, 2008 Jkt 000000 PO 00000 Frm 00046 Fmt 6621 Sfmt 6621 J:\DOCS\HEARINGS\110TH\110-33\41121.TXT HBUD1 PsN: DICK
42

guided cancer therapy is a rapidly evolving area that may provide more effective 

and efficient treatment methods through minimally invasive techniques. 

With the advent of a better understanding of cell and biological processes at a molecular level coupled with the development of new biological reagents and probes, 

and recent developments and improvements in imaging technology, it is appropriate 

to focus attention on bringing together these advances. The NCI is facilitating preclinical and clinical multi-disciplinary research on cellular and molecular imaging 

related to cancer through In vivo Molecular Imaging Centers (IMIC) supported by 

Specialized Programs of Research Excellence (SPOREs) grants. 

NCI also works with The American College of Radiology Imaging Network 

(ACRIN), the cooperative group which serves as a multi-institutional platform for 

conducting phase II and III clinical trials in screening, diagnosis, staging, response 

to therapy and image-guided therapy. A clinical trial studying 134 participants with 

biopsy-proven prostate adenocarcinoma evaluated the accuracy of combined magnetic resonance imaging (MRI) and magnetic resonance spectroscopic imaging 

(MRSI) performed at 7 institutions in the localization of prostate cancer and its incremental benefit on diagnostic accuracy when compared to MRI alone, and found 

no overall improvement in accuracy. The NCI-sponsored Development of Clinical 

Imaging Drugs & Enhancers (DCIDE) program competitively expedites and facilitates the development of promising investigational imaging enhancers (contrast 

agents) or molecular probes from the laboratory to Investigational New Drug (IND) 

status. 

In addition to developing new imaging technologies, NCI is also aware that new 

tools and techniques for prostate cancer detection need to be made available to patients in their local communities. NCI efforts are underway to address racial disparities in prostate cancer incidence and mortality rates. The Southern Community 

Cohort Study (SCCS), which expects to enroll 90,000 participants in 12 states, is 

examining why prostate cancer rates are higher in African American men. 

MARCY KAPTUR

1. Question. Mr. Secretary, in December, President Bush signed a bill containing 

a provision to make research results from the National Institutes of Health available to the public. Congress too has expressed the importance of this provision. Can 

you please update me on what HHS is doing to support the policy and to ensure 

that it goes into effect without delay? 

Response: NIH implemented Division G, Title II, Section 218 of Public Law 110-

161 on January 11, 2008 (http://grants.nih.gov/grants/guide/notice-files/NOT-OD08-033.html). As of April 7, 2008, applicable manuscripts arising from NIH funds 

must be submitted to 

PubMed Central upon acceptance for publication. As of May 25, 2008, NIH applications, proposals, and progress reports must include the PMC reference number 

when citing a manuscript that falls under the Public Access Policy. NIH has developed a website (http://publicaccess.nih.gov/) with training materials and frequently 

asked questions. In addition, NIH is in the midst of a communications effort that 

includes in-person trainings, news articles, and other outreach efforts. Finally, NIH 

sought formal comments on the Public Access Policy and its implementation. It also 

held an open meeting for stakeholders on March 20, 2008, and issued a 60-day Request for Information later in March 2008. All comments collected are publicly available at publicaccess.nih.gov/comments.htm. 

2. Question. Mr. Secretary, in an Agriculture Appropriations subcommittee hearing held earlier today, the FDA indicated that this budget will not cover their inspection needs. While the GAO identified that it will take 13 years to complete the 

backlog of inspections at foreign drug facilities, your budget only asks for three new 

inspectors. How can you chair an interagency taskforce on food safety and still believe that this budget will protect us?’

Response: FDA has developed a comprehensive Food Protection Plan to address 

the changes in food sources, production, and consumption in response to today’s 

challenges. The Food Protection Plan presents a robust strategy to protect the nation’s food supply from unintentional contamination and deliberate attack. The 

President’s Budget for FDA requests an increase of $42.2 million for FDA’s implementation of the Plan’s risk based strategies to ensure the safety of domestic and 

imported food and feed. In addition, the budget supports establishing an FDA presence overseas in China and in other countries, provides for over 1,000 additional inspections and 20,000 additional import field exams, enhances emergency response 

capabilities, and develops new tools to detect and quickly identify risk signals and 

expand FDA’s risk based surveillance. 

43

3. Question. In Ohio, the budget shortfall for its upcoming fiscal year (beginning 

July 1) is predicted to be as much as $1.9 billion. Unfortunately, this challenge is 

not unique to Ohio, as more than two dozen states are facing a shortfall. In addition, economic indicators are reflecting significant financial strain on our nation’s 

families: median household income is on the decline, foreclosures are on the rise, 

and nearly 5 million more people are living in poverty than there were in 2000. 

Knowing this, why would the President suggest major cuts for important social safety net programs, such as the Social Services Block Grant and the Child Care Development Block Grant? 

Response: The President’s FY 2009 budget maintains significant investments in 

programs that provide critical services to children and families while at the same 

time taking a responsible approach to deficit reduction. 

In fact, the budget request includes increases in funding for key investments in 

programs serving children and families, such as the Adoption Incentives Program 

(request of $19.7 million is over $15 million more than the FY 2008 enacted level), 

the Mentoring Children of Prisoners program (request of $50 million is $1.4 million 

more than the FY 2008 enacted level), and Head Start (request of $7 billion is $149 

million more than the FY 2008 enacted level). 

The Administration recognizes the importance of child care and has recommended 

continued funding of the CCDBG at $2.1 billion. In addition, Federal and State 

funding for child care is at an all time high and has increased more than threefold 

between 1996 and 2008, from approximately $3.6 billion to $12 billion. This includes 

the increase in Federal child care funding enacted by the Deficit Reduction Act of 

2005 (DRA), which totals $1.8 billion in new funding through FY 2010 when factoring in State matching funds. Also, States have numerous funding streams that 

can be used for child care, and they have maximum flexibility to maintain coverage 

for needy families. By design, the Child Care and Development Fund (CCDF) block 

grant is not the only source of Federal support for child care. For instance, States 

may transfer up to 30% of their TANF funds to CCDF, or spend TANF directly on 

child care without limit. 

Finally, it is important to understand that there are a number of other programs 

including Head Start, State funded Pre-K, and the 21st Century Community Learning Centers, that are providing quality care for children who otherwise might be in 

need of child care services during the hours they attend those programs. 

At the same time, however, the Administration is committed to deficit reduction 

and consequently the budget targets resources to those programs with measurable 

outcomes and applies funding reductions to programs that have failed to demonstrate results, like the Social Services Block Grant. 

4. Question. Mr. Secretary, nearly two-thirds of America’s hospitals lost money 

treating Medicare patients in 2006. Both Medicare and Medicaid hospital margins 

are negative. Why has the Administration called for drastic cuts to Medicare and 

Medicaid over the next five fiscal years, limiting hospitals’ efforts to serve some of 

its most vulnerable patients? 

Response: It is true that Medicare hospital savings in the Budget are the largest 

for any provider type, but hospitals are also the largest category of Medicare spending. In fact, other providers will see a similar percentage reduction to their current 

spending levels. 

Despite average negative profit margins, hospitals (inpatient and outpatient) continue to have significant access to capital to expand their services. Hospital (inpatient and outpatient) construction spending has grown 191% between 1999 and 

2007, with $32.6 billion spent on construction in 2007 alone. 

In addition, while this Budget proposes a total of $183 billion in savings to the 

Medicare program over five years, it is important to recognize these numbers in context. Over the next five years, Medicare benefits spending will total $2.8 trillion. 

The budget proposals only slightly reduce average annual growth in Medicare 

spending; under this budget Medicare spending will still grow 5 % over FY 2009 

to FY 2013, which is a higher growth rate than both the average medical inflation 

and CPI projections for this time period. 

The proposed $18 billion in savings for Medicaid are a fraction of the $1.3 trillion 

in total outlays from FY 2009 to FY 2013. Under this budget, Medicaid spending 

will still grow by 7.1 % over the next five years. 

PATRICK TIBERI

1. Question. Mr. Secretary, Medicare covers a number of prostate cancer treatments. Recently, a report from the Agency for Healthcare Research and Quality 

(AHRQ) has brought to our attention the lack of comparative effectiveness data for 

prostate cancer. Of the eight prostate cancer treatments, no one treatment emerged 

44

as the best option for prolonging life or minimizing side effects. However, Medicare’s 

reimbursement of these various treatments dramatically varies. One treatment in 

particular is reimbursed at 3-4 times the rate of all the other treatments when considering total episode care costs. Has anyone in your Department examined the discrepancy in reimbursement, especially considering the lack of comparative effectiveness data? And if so, what is HHS doing to create incentives or disincentives, for 

physicians, hospitals, and Medicare beneficiaries to choose one treatment vs. another? 

Response: There are a number of treatment options for prostate cancer depending 

upon the beneficiary’s individual clinical situation, physician input and beneficiary 

preferences. These options can be delivered in any number of settings, and the costs 

associated with delivering these treatment options can vary based on the complexity 

of the procedure and the patient’s individual clinical circumstances. We have not examined the total episode care costs for the different prostate cancer treatments in 

the different settings in which these treatments are furnished. 

As with Medicare payment for all services, Medicare pays for different prostate 

cancer treatments under different payment systems depending on the site in which 

the services are furnished. Payment rates are established under each Medicare payment system generally based on the relative costs or typical resources involved in 

furnishing services.

[Whereupon, at 3:15 p.m., the Committee was adjourned.]

Æ