```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

    ADMINISTRATION'S PRINCIPLES TO STRENGTHEN AND MODERNIZE MEDICARE

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 19, 2001

                               __________

                           Serial No. 107-39

                               __________

         Printed for the use of the Committee on Ways and Means

                   U.S. GOVERNMENT PRINTING OFFICE
74-872                     WASHINGTON : 2001

For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone (202) 512�091800  Fax: (202) 512�092250
              Mail: Stop SSOP, Washington, DC 20402�090001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________
                                                                   Page
Advisory of July 12, 2001, announcing the hearing................     2

                               WITNESSES

U.S. Department of Health and Human Services, Hon. Tommy G. 
  Thompson, Secretary............................................     7

                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement...............    60
Alliance to Improve Medicare, statement and attachment...........    62
National Association of Chain Drug Stores, Alexandria, VA, 
  statement and attachments......................................    66

 
    ADMINISTRATION'S PRINCIPLES TO STRENGTHEN AND MODERNIZE MEDICARE

                              ----------                              

                        THURSDAY, JULY 19, 2001

                          House of Representatives,
                                Committee on Ways and Means
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:30 a.m., in 
room 1100 Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE,
July 12, 2001
FC-9

                   Thomas Announces a Hearing on the

               Administration's Principles to Strengthen

                         and Modernize Medicare

    Congressman Bill Thomas (R-CA), Chairman, Committee on Ways and 
Means, today announced that the Committee will hold a hearing on the 
Administration's Principles to Strengthen and Modernize Medicare. The 
hearing will take place on Thursday, July 19, 2001, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
The witness will be the Honorable Tommy Thompson, Secretary of the U.S. 
Department of Health and Human Services. However, any individual or 
organization not scheduled for an oral appearance may submit a written 
statement for consideration by the Committee and for inclusion in the 
printed record of the hearing.
      

BACKGROUND:

      
    On July 12, 2001, President George W. Bush unveiled a set of 
principles to guide Congress in its work to strengthen and improve 
Medicare, while adding a prescription drug benefit to the program. The 
hearing will examine the Administration's Medicare modernization 
principles in greater detail.
      
    In announcing the hearing, Chairman Thomas stated: ``The President 
has shown courage in tackling the challenges of this complex and vital 
program. His leadership will provide momentum in developing bipartisan 
solutions to Medicare's growing shortfall, and help modernize the aging 
Medicare program with the inclusion of 21st century prescription drug 
and preventative care benefits.''
      

FOCUS OF THE HEARING:

      
    Over the past several months, the Health Subcommittee has held a 
series of hearings on various aspects of the Medicare program in need 
of improvement. In those hearings, the Subcommittee has examined the 
need to add a prescription drug benefit to Medicare, challenges to 
long-term program solvency, opportunities to modernize the fee-for-
service benefit package, ways to enhance private--sector options for 
beneficiaries, and regulatory barriers confronting providers.
      
    The full Committee hearing will give the Administration an 
opportunity to present its recommendations for solving the challenges 
facing the Medicare program.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
August 2, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Committee, room 1102 Longworth House Office Building, by 
close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and new releases are available on 
the Worldwide Web at ``http://waysandmeans.house.gov''.

      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                

    Chairman Thomas. If our guests can find seats, please, and 
our Members.
    Thirty-six years after its inception, the Medicare Program 
is woven into the fabric of lives of almost 40 million American 
seniors and people with long-term disabilities. They have 
placed their trust in Congress and the administration to ensure 
a system of accessible and affordable health care that 
continues to address their needs.
    Medicare stands under a lengthening shadow of rising costs 
and antiquated processes. The problems confronting it are real. 
If we do not act now, combined Medicare spending will quadruple 
as a percentage of the economy by 2075. Most of us will not be 
here at that time, but we have children and grandchildren who 
will be counting on Medicare.
    Modern technology offers the prospect of a longer and 
richer life through phenomenal advances, primarily in 
prescription drugs. Almost 400 new drugs have been developed in 
the past 10 years. Access to these drugs must form a 
fundamental part of the structure of Medicare. I say must form 
a fundamental part of the structure of Medicare because it does 
not today. This has to be achieved in a way that protects the 
program's long-term financial viability while making it more 
responsive to beneficiaries and providers that serve our 
seniors and disabled. Given these responsibilities, simply 
adding an expensive new outpatient prescription drug benefit to 
the program cannot be the answer.
    President Bush has established a broad and coherent 
framework for crafting a modern Medicare Program. His 
principles offer hope and reassurance to seniors and the 
disabled in critical aspects of their lives. They reflect 
President Bush's administration's powerful commitment to 
quality health care.
    I am delighted to once again welcome Secretary Tommy 
Thompson who joins us today to discuss these principles and how 
we can work together to revitalize the critical program that is 
before us.
    Nine hearings on how best to improve and streamline the 
vast Medicare Program have been held this year either by the 
full Committee or the House Subcommittee under the leadership 
of Chairwoman Nancy Johnson.
    Mr. Secretary, you have begun to lay the groundwork. Since 
we last saw you, you have tackled some key problems at the 
often criticized and formerly named Health Care Financing 
Administration (HCFA) with the help of its new administrator, 
Tom Scully, who I believe joins us here today. I know you will 
ensure that its successor, the new Centers for Medicare and 
Medicaid Services, or CMS, gets off to a strong start with a 
renewed commitment to service and quality of care.
    Not every change needed to improve Medicare requires 
legislation. Under your existing administrative authority you 
have taken initial steps to strengthen the program and to 
implement many of the administrative reforms suggested in a 
bipartisan letter from House Subcommittee Chairwoman Nancy 
Johnson and its Ranking Member, Pete Stark, which I believe was 
sent to you in the middle of May. I hope more will be done to 
fully implement their comprehensive and detailed 
recommendations.
    I know that working together we can coordinate structural 
improvements that can be achieved administratively, with, of 
course, more fundamental reforms that will require 
congressional involvement.
    We all know we have a big job ahead of us. Mr. Secretary, I 
look forward to working with you and with the President and 
with my colleagues in getting the job done this year.
    And with that, I would recognize the Ranking Member, the 
gentleman from New York, my friend Mr. Rangel.
    [The opening statement of Chairman Thomas follows:]
 Opening Statement of the Hon. Bill Thomas, a Representative from the 
     State of California, and Chairman, Committee on Ways and Means
    Thirty six years after its inception, the Medicare program is woven 
into the fabric of the lives of almost 40 million American seniors and 
people with long-term disabilities. They have placed their trust in 
Congress and the Administration to ensure a system of accessible and 
affordable health care that continues to address their needs.
    Medicare stands under a lengthening shadow of rising costs and 
antiquated processes. The problems confronting it are real. If we do 
not act now, combined Medicare spending will quadruple by 2075. Most of 
us will be dead and gone by then, but we have children and 
grandchildren who will be counting on Medicare.
    Modern technology offers the prospect of a longer and richer life 
through phenomenal advances in prescription drugs. Almost 400 new drugs 
have been developed in the past ten years. Access to these drugs must 
form a fundamental part of the structure of Medicare. But this must be 
achieved in a way that protects the program's long-term financial 
viability while making it more responsive to beneficiaries and the 
providers that serve them.
    Given these responsibilities, simply adding an expensive new 
outpatient prescription drug benefit to the program is not the answer.
    President Bush has established a broad and coherent framework for 
crafting a modern Medicare program. His principles offer hope and 
reassurance to seniors and the disabled in critical aspects of their 
lives. They reflect his Administration's powerful commitment to quality 
health care.
    I am delighted to once again welcome Tommy Thompson, Secretary of 
Health and Human Services, who joins us today to discuss those 
principles and how we can work together to revitalize this critical 
program for our nation's seniors and disabled citizens.
    Nine hearings on how best to improve and streamline the vast 
Medicare program have been held this year by either Ways and Means or 
its Health Subcommittee, illustrating the dedication we share with the 
Administration to providing quality health care to future generations.
    Mr. Secretary, you have already begun to lay the groundwork. Since 
we last saw you, you have tackled some key problems at the often 
criticized and formerly named Health Care Financing Administration, or 
HCFA, making Medicare more responsive to its beneficiaries and 
providers. With the help of its new Administrator, Thomas Scully, who 
joins you here today, I know you will ensure that its successor, the 
new Centers for Medicare and Medicaid Services, or CMS, gets off to a 
strong start, with a renewed commitment to service and quality of care.
    Not every change needed to improve Medicare requires legislation. 
Under your existing administrative authority, you have taken initial 
steps to strengthen the program and to implement many of the 
administrative reforms suggested in a bipartisan letter from Health 
Subcommittee Chairwoman Nancy Johnson and its Ranking Member, Pete 
Stark, on May 14. I hope more will be done to fully implement their 
comprehensive and detailed recommendations.
    Working together, we can coordinate structural improvements that 
can be achieved administratively with more fundamental reforms that 
require Congressional involvement.
    We have a big job ahead of us. I look forward to working with you, 
Mr. Secretary, with the President, and with my colleagues on Ways and 
Means, to get the job done this year.

                                

    Mr. Rangel. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for once again coming before us. I want to apologize 
if you see Members leaving. Unfortunately, the leadership has 
scheduled a very, very important bill, the charitable choice 
bill. It's one of the main points that the President has made 
in his speeches. A large part of that includes tax provisions, 
and it is embarrassing that we would have you here at the same 
time that many of us, from time to time, will not only have to 
go to the floor to vote, but to explain our position on the 
bill. But as you well know, being a well-seasoned politician, 
that this is not an affront to you, but the problems that we 
face in trying to get a legislative schedule on the floor as 
well as in our Committee.
    As relates to the job that is before you, let me be candid. 
There have been no campaign promises that were made by 
President Bush, or then-Governor Bush, that I did not support. 
He amazed me as to how he ``out-gored'' Gore on the question of 
reforming Medicare, prescription drugs, patients' bill of 
rights, and so I just was wondering how we would be working 
together toward those goals.
    Now, so far we have principles, and that is good because 
the budget being the way it is, you do not have to pay for the 
principles. But sooner or later, we know that it's going to 
cost. That is where the rubber hits the road, dealing with the 
details, as the Chairman has pointed out. Of course, as 
Chairwoman Nancy Johnson and my colleague, Pete Stark, to whom 
at this time with the Chair's permission, I would like to 
yield.
    Mr. Stark. I thank the Chairman for yielding and join in 
welcoming Governor Thompson. The President's Medicare 
principles, Mr. Secretary, remind me of, as they do my Ranking 
Member, that campaign talking points are not really a genuine 
effort to lead us to anything productive. An old saw, they are 
all hat and no cattle. They raise more questions than they 
answer, and they merely hint at what is to come. And from what 
I can tell, that is not very pretty for Medicare beneficiaries.
    We still don't know if the President has a plan to add 
prescription drug benefits to Medicare and what the plan would 
be, unless it's just simply these discount cards, and they 
leave much to be desired. We still don't know what the 
President supports in order to fulfill his promises. Is he 
willing to guarantee benefits at least as good as those offered 
today to current beneficiaries for the foreseeable future? Is 
he willing to show the same commitment to America's Medicare 
beneficiaries as he has shown to wealthy Americans who 
benefited from the recent tax cuts?
    The only policies he has unveiled is this drug discount 
card program; as I call it, the Buck Rogers Rocket Ranger 
discount plan. And if these cards were the answer we wouldn't 
have the current outcry for real Medicare coverage that we have 
today. The little bit of research that is out there shows that 
these cards often provide little or no discount.
    I had a letter from the Kansas insurance commissioner that 
I would like to insert in the record. I won't read the letter, 
but she states her concerns with the discount programs that 
operate in Kansas. Quoting her, she says, the most common 
complaint is that while the literature touts the discounts 
upwardly of 40 to 60 percent, the discount is considerably 
less, often less than 10 percent, and closes her letter with 
the adage that what sounds too good to be true remains too good 
to be true.
    The Bush discount card is a placebo, at best. And I guess I 
have to warn you, Mr. Secretary, today I am petitioning the 
court to intervene as a plaintiff in the lawsuit filed by the 
National Association of Chain Drugstores and the National 
Community Pharmacists Association against yourself and Mr. 
Scully. The lawsuit contends, and I agree, that the program is 
illegal. It was created in secret and did not consult with the 
Congress, as all too often does not happen, at least with the 
Democrats. We are never advised of what is going on in the 
Medicare issue, and that is no way to begin bipartisanship.
    And I'm sorry that--I promise if we take your deposition, I 
won't do it during muskie season, unless you would like to do 
it up in northern Wisconsin when they are biting and I will 
come there to take your deposition. But I look forward to your 
other testimony and our discussion today, and thank you for 
being with us.
    Secretary Thompson. Thank you.
    Chairman Thomas. Well, Mr. Secretary, with those opening 
remarks, welcome to the Committee once again. Any written 
statement you have will be made a part of the record, and we 
invite you to address the Committee in terms of the concerns 
you have in front of you, in any way you see fit. And with 
that, welcome.
    [The opening statement of Mr. Ramstad follows:]
 Opening Statement of the Hon. Jim Ramstad, a Representative from the 
                           State of Minnesota
    Mr. Chairman, thank you for holding this important hearing on the 
Administration's principles for strengthening and modernizing Medicare.
    The eight principles outlined by the Administration provide an 
excellent framework for common-sense and compassionate improvements to 
the Medicare system.
    Representing a state penalized by the unfair and unjust Medicare 
managed care reimbursement formula, I know firsthand the difficulties 
that seniors face when irrational federal government decisions deny 
them the choices they deserve.
    And as one who represents an area with literally hundreds of 
medical technology companies, I also know firsthand the damage to small 
businesses, their employees and seniors when the federal system 
irrationally delays or denies coverage of their innovative products. I 
understand the dilemma facing seniors when they are denied life-saving 
and life-improving technology, and I've authored legislation to ensure 
that seniors have access through Medicare to crucial new technologies.
    That's why I'm so encouraged by the Administration's leadership on 
making Medicare make sense and better serve our nation's seniors.
    I am grateful to Secretary Thompson for appearing today to lay out 
the Administration's principles, and I look forward to working with him 
and my colleagues to bring this 1965-era program into the 21st Century.
    Thank you, Mr. Chairman.

                                

   STATEMENT OF THE HON. TOMMY G. THOMPSON, SECRETARY, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Secretary Thompson. Thank you very much, Chairman Thomas.
    Chairman Thomas. Mr. Secretary, I will tell you that these 
microphones are very unidirectional, and so if you will get 
fairly close to it and talk directly into it. We are going to 
change the sound system soon.
    Secretary Thompson. Thank you. Thank you, Chairman Thomas, 
Congressman Rangel, Congressman Stark, and Chairperson--
Chairwoman Nancy Johnson, and all the other members of this 
Committee. Thank you for this opportunity to testify before you 
today.
    I am very pleased to be here to discuss President Bush's 
framework for modernizing and improving the Medicare Program 
and to talk to you about some very exciting initiatives now 
underway.
    Medicare has provided health care security for millions of 
Americans for more than 35 years, yet Medicare's benefit 
package has often remained rooted in the 1960s. For example, 
outpatient prescription drugs, an increasingly essential part 
of effective health care, are not included in the package. 
Coverage for preventive services have lagged behind 
developments in private insurance plans. Medicare's current 
cost-sharing structure does not include protections for the 
sickest beneficiaries with the highest medical costs. Put 
simply, it is past time to modernize and improve the Medicare 
system.
    That is why the President has worked so hard with Members 
of Congress from both parties to develop a framework to guide 
legislative reform efforts to strengthen and improve the 
Medicare program and to keep the Medicare benefit secure. Since 
I last testified before this Committee, I have moved my office 
to the Centers for Medicare and Medicaid Services, or CMS, what 
was formerly called HCFA, Health Care Financing Administration. 
I spent a week out in Baltimore, learning and listening and 
developing initiatives. I met many dedicated professionals. But 
I also found a system that needs fundamental changes in it to 
provide the health care that seniors and disabled citizens need 
and which Congress expects us to do.
    The President passionately shares that view. Last week it 
was my privilege to join him as he described the principles 
that he believes should underlie any effective modernization 
effort. We want to improve Medicare at every level, both in the 
functioning of its programs and the quality of its benefits. 
But there are many things that can be done now, even before we 
tackle the larger issue of comprehensive modernization of the 
system. President Bush and I are moving forward with 
significant changes that will help ensure that Medicare better 
serves seniors, both today and in the future.
    First we appointed Tom Scully and Reuben King Shaw to be 
the number one and number two people at CMS. First, we are 
advancing constructive regulatory relief to enable physicians, 
nurses and other care givers to spend more time with patients, 
which has always been a criticism that they spend too much time 
on paperwork. As you know, I am taking aggressive steps to 
bring a culture of responsiveness to the whole Department of 
Health and Human Services (HHS). Nowhere is this culture more 
needed than at CMS, which I heard from all of you; from both 
political parties. This is the Department's largest agency and 
was the problem child. But it also provides health benefits to 
more than 70 million Americans.
    And to get the ball rolling, I have instructed CMS to hold 
listening sessions out in the field, just like each of you 
holds town-hall type meetings to better understand what your 
constituents are thinking. CMS officials need to hear from the 
people affected by their programs, including seniors, Medicaid 
recipients, the disabled, the physicians and health care 
providers.
    We are also creating seven private sector health insurance 
working groups to suggest improvements to the way that CMS 
interacts with physicians, health care providers and 
beneficiaries.
    We are also forming a group of in-house experts from the 
wide array of Medicare program areas within HHS. I am asking 
them to think innovatively about how we can reduce 
administrative burdens and simplify our rules and regulations. 
We are already taking some major steps, but CMS will eliminate 
unnecessary data that has been demanded of hospitals and 
skilled nursing facilities in their Medicare cost reports. We 
are going to eliminate those report requirements as soon as we 
can after September 30th, 2001, when they expire in the law. 
This is going to shrink the cost reporting by about 10 percent, 
something that hospitals have written to each of you 
complaining about.
    We are also doing away with redundant questionnaires and 
getting rid of time-consuming cost calculations that we have 
demanded of nursing facilities by over 50 percent. We are also 
doing away with the repetitive questioning on third-party 
beneficiary cost reports.
    I also want to announce a change in the development of the 
new evaluation and management guidelines that doctors use to 
bill Medicare. Physicians found the first sets of guidelines 
from 1995 and 1997 cumbersome, and we have now been working 
with a contractor to improve them. But we also want to work 
with the physicians and the hospitals to identify constructive 
solutions. And we want to work with Medicare+Choice plans, many 
of which have complained about Medicare complexity. We want 
them to participate in Medicare in order to give seniors the 
same kind of choices that they enjoyed before retiring.
    For example, we are taking steps to speed up our review of 
the plan marketing materials. In addition to implementing the 
congressionally mandated. Much shorter 10-day turnaround, we 
are considering the use of other steps to streamline the 
process for those managed care organizations with good track 
records of following the rules.
    Let me give a final example of the kind of initiative we 
are undertaking. As administrator Tom Scully has indicated 
previously in his response to recommendations from Nancy--
Congressman Nancy Johnson and Representative Stark--we need to 
review the patient antidumping requirements. We have directed 
CMS to go back and revise these regulations, redefine what a 
hospital is so that they protect patients without creating the 
unnecessary burden on the hospitals or physicians.
    But in addition to streamlining the rules, we can also 
reduce costs. The President and I believe we must act now to 
provide immediate assistance to seniors who currently have to 
pay for prescription drugs. So beginning this fall, on October 
1, Medicare beneficiaries will be able to choose among 
Medicare-endorsed prescription discount cards offered by 
competing drug discount card programs. Seniors compose 
virtually the only population in the country that still pays 
full price for drugs. And under the administration plan, 
Medicare-approved drug discount cards will create market 
pressures that will allow seniors to benefit from drug 
manufacturing rebates and some things they cannot now receive 
in the discount card markets and, as a result, seniors will be 
able to get discounts immediately this year up to 25 percent 
off of retail drug prices. That is real money, real savings in 
seniors' pockets. And all beneficiaries will be permitted to 
enroll in one program beginning on or after November 1, about 3 
months from now, with discounts beginning in January 2000.
    Medicare prescription discount cards would have a one-time 
enrollment fee no greater than $25. And this would be a one-
time fee to cover the enrollment costs. Some plans have 
indicated that they do not intend to charge any fee at all. 
Plans would be required to enroll all seniors who wish to 
participate and would have to provide a discount on at least 
one brand and/or generic prescription drug in each therapeutic 
category. They would have to offer a comprehensive national or 
regional network of retail pharmacies. And all plans would be 
required to offer customer service to participating 
beneficiaries, including a toll free telephone help line, and 
Medicare would endorse all discount card applicants that meet 
the qualifying criteria.
    But let me be clear, ladies and gentlemen of the Committee. 
While the discount drug card offers immediate tangible and 
immediate help to seniors, it is not a substitute for a 
comprehensive prescription drug benefit, and this is only the 
first step. Ultimately, we must work together on a broader 
initiative to strengthen Medicare, to modernize its structure, 
and to make it more adaptable to the real-world needs of 
ordinary people.
    And that is why the President last week explained his eight 
core principles that should be at the heart of any 
comprehensive effort to improve and strengthen Medicare. And 
here's an outline of those priorities.
    First, all seniors should have the option of a subsidized 
prescription drug benefit as part of modernized Medicare. Every 
senior. About 27 percent of senior beneficiaries have no 
prescription drug insurance today, and must pay for drugs 
entirely out of their own pockets or go without needed 
medication. That is unacceptable, and it will change under the 
President's leadership.
    Second, modernized Medicare should provide better coverage 
for preventive care, serious illness, and catastrophic 
diseases. Medicare's preventive benefits should have zero 
copayments--zero copayments--and should be excluded from the 
deductible. Medicare's traditional plan should have a single 
index deductible for Parts A and B, provide a true cost 
protection for high-cost illness, and take other steps to 
protect seniors from high expenses for all kinds of health 
care.
    Third, today's beneficiaries and those approaching 
retirement should have the option of keeping the traditional 
plan, with no changes, no higher premiums, no changes in cost 
sharing or supplemental coverage, period.
    Fourth, Medicare should provide better health insurance 
options like those available to all Federal employees. Plans 
should be able to provide Medicare-required benefits at a 
competitive price, and beneficiaries who choose less costly 
options should be able to keep most of the savings, even if 
that means that they may pay no premium at all.
    Fifth, Medicare legislation should strengthen, then, the 
program's long-term financial security. Between now and 2030 
the number of Medicare recipients is expected to increase 
rapidly from 40 million to 77 million. Medicare relies 
primarily on payroll and income taxes to finance its benefits. 
But the significant increase in retirees means that there will 
be fewer workers to help sustain the Medicare Program. In order 
to support good planning for the entire program, Medicare's 
separate trust funds should be unified to provide a clear and 
meaningful measure of Medicare's overall financial security 
that is not vulnerable to accounting gimmicks. Financial 
security cannot be achieved simply by increasing reliance on 
unspecified financing sources.
    Sixth, the management of Medicare should be streamlined so 
that Medicare can provide better care for seniors. For example, 
Medicare should be allowed to use competitive bidding tools to 
improve quality and reduce the cost.
    Seventh, Medicare's rules and procedures which we have 
already started should be updated and streamlined. Instances of 
fraud and abuse should be substantially reduced, I believe.
    Finally, Medicare should encourage high-quality care for 
all seniors. Medicare must support efforts by plans and 
providers to improve care through more collaborative programs 
that use protected data on quality and safety. Medicare should 
help seniors get better care through improved information on 
quality and Medicare should revise its payment system to reward 
better performance and encourage investments that improve 
quality of care without increasing budgetary costs.
    These are the commitments that President Bush and his 
administration are making to improve Medicare for every senior. 
Doing so is not only a political duty, it is a public trust, 
one I know that we all want on a bipartisan basis to discharge 
faithfully and effectively.
    Thank you, Mr. Chairman and Members. I will be glad to 
answer your questions.
    [The prepared statement of Secretary Thompson follows:]

Statement of the Hon. Tommy G. Thompson, Secretary, U.S. Department of 
                       Health and Human Services

    Chairman Thomas, Congressman Rangel, and distinguished Committee 
members, thank you for this opportunity to testify before the Committee 
today. I am pleased to be here to discuss President Bush's framework 
for modernizing and improving the Medicare program to prepare it for 
the challenges we face in the coming decades. The President's framework 
builds on many of the ideas developed by Members of this Committee and 
other Members of Congress who have long been working to bring the 
Medicare program up to date, including a prescription drug benefit. The 
President is committed to working with Congress on a bipartisan basis 
to enact these principles into law, to help today's seniors and 
tomorrow's seniors get the coverage they need, and to help keep 
Medicare's promised benefits secure. I will also describe some 
additional administrative steps that reflect the President's 
principles, as well as proposals developed by your Committee on a 
bipartisan basis. These steps reflect our commitment to take action now 
to support your bipartisan interest in strengthening the Medicare 
program.
    Medicare has provided health care security for millions of 
Americans for over thirty-five years. When Medicare was created in 
1965, the benefit package was similar to most private health insurance 
packages of the time. Since then, medicine has changed profoundly and 
the health insurance options available to most Americans have changed 
along with it. Yet Medicare's benefit package has in many ways remained 
rooted in the 1960s. As you all know, outpatient prescription drugs, an 
increasingly essential part of effective health care, are not included 
in the benefit package. Coverage for preventive services has also 
lagged behind developments in private insurance plans. Additionally, 
Medicare's current cost sharing structure does not include protections 
for the sickest beneficiaries with the highest medical costs. For 
example, individuals who need hospital care face deductibles of almost 
$800 for each hospital stay, as well as additional cost-sharing 
requirements (see chart 1). While private health insurance plans 
generally include stop-loss limits to provide protection against very 
high medical expenses, Medicare has no such protections. And, as we all 
know, even Medicare's current benefits are not secure for the 
retirement of the Baby Boom.

                                CHART 1

                                MEDICARE DOES NOT PROTECT AGAINST SERIOUS ILLNESS
----------------------------------------------------------------------------------------------------------------
                                                                 Beneficiary Pays:
                                 -------------------------------------------------------------------------------
                                       Days 1-60          Days 61-90          Days 91-150        Over 150 days
----------------------------------------------------------------------------------------------------------------
Medicare........................  $792 payment per    $198 per day......  $396 per day......  All costs
                                   hospital spell.
Standard Blue Cross/Blue Shield   $100 payment per    $0 per day........  $0 per day........  $0 per day
 Plan for Federal Employees.       hospital
                                   admission.
----------------------------------------------------------------------------------------------------------------

          The President's Framework for Strengthening Medicare

    In order to ensure that Medicare will meet the needs of the 
estimated 77 million Americans who will be beneficiaries of the program 
by 2030, Medicare must be strengthened and improved. The President has 
worked with members of Congress from both parties to develop a 
framework to guide legislative reform efforts to modernize the Medicare 
program and to keep Medicare's benefits secure.
    We believe that reform should be guided by the following set of 
eight principles:

1. All seniors should have the option of a subsidized prescription drug 
        benefit as part of modernized Medicare.
    Nearly 90 percent of Medicare beneficiaries use at least one 
prescription drug per year. Yet about 27 percent of beneficiaries have 
no prescription drug insurance and must pay for drugs entirely out of 
their own pocket or go without needed medications. A recent study found 
that Medicare beneficiaries without drug coverage used 8 fewer 
prescriptions per year than those with coverage; for lower income 
seniors the gap in utilization was even greater. Low income seniors 
without coverage used 14 fewer prescriptions per year than those with 
coverage. While one might hope that the seniors with lower prescription 
drug costs are simply choosing not to obtain prescription drug 
coverage, giving seniors quality private-sector prescription drug 
benefits not only protects them from the risk of high prescription drug 
expenses, but also helps make all prescription drugs more affordable 
through innovative tools to reduce their drug costs--by negotiating 
volume discounts and helping seniors choose the best treatment for them 
while avoiding adverse drug interactions.
    Medicare's subsidized drug benefit should protect seniors against 
high drug expenses and should give seniors with limited means the 
additional assistance they need. Seniors should have the opportunity to 
choose among plans that use the tools widely available in private drug 
plans to lower costs and improve quality of care. The drug benefit 
should encourage the continuation of the effective, voluntary coverage 
now available to many seniors through retiree health plans and private 
health plans. Today, almost 30 percent of Medicare beneficiaries have 
employer-provided retiree health coverage, and we must help ensure that 
employers continue to offer this voluntary benefit. The new drug 
benefit should also be available through Medigap plans and as a stand-
alone drug plan for seniors who prefer these choices. When Medicare 
implements the drug benefit, states should not face maintenance of 
effort requirements for their own drug programs outside of Medicaid.

2. Modernized Medicare should provide better coverage for preventive 
        care and serious illness.
    Medicare has been slow to cover proven treatments for preventing 
illnesses and saving lives. Coverage often comes long after preventive 
treatments are widely available in private insurance plans. For 
example, mammograms were first shown to save lives in the early 1980s 
by identifying breast cancer that could be treated at an earlier, more 
curable stage--but Medicare did not cover the recommended annual 
mammograms until 1998. This Committee understands the value of Medicare 
preventive benefits and has crafted important legislation in 1997 and 
again in 2000 to expand preventive benefits for Medicare beneficiaries.
    The development of new technologies and new treatments for the most 
serious illnesses, such as intensive life support for patients with 
major heart attacks, makes it possible for more seniors to survive 
potentially fatal illnesses. Unfortunately, Medicare beneficiaries who 
are sickest often pay the most for their health care costs--exactly the 
opposite of the way that logical insurance plans work. For example, 
beneficiaries who incur costs of $25,000 or more are on average 
responsible for over $5,100 in cost-sharing due to Medicare's 
deductibles, copayments, and coverage limits. With modern technology, 
such costs are not that uncommon: The cost for treating a patient with 
heart disease who needs an implantable defibrillator exceeds $35,000. 
Patients treated in hospital outpatient departments face copayments 
that may reach 57 percent of the total payment. So, a typical senior in 
need of breast reconstruction after a mastectomy would pay coinsurance 
of $764, or nearly half of the $1,563 total payment. For patients with 
multiple hospital outpatient visits and procedures, the costs can stack 
up. To protect beneficiaries when they need help the most, private 
insurance plans generally include ``stop-loss'' limits. Stop-loss 
limits provide guaranteed protection against very high medical 
expenses. Despite its important coverage gaps, Medicare has no stop-
loss protection.
    We believe that Medicare's existing coverage should be improved so 
that its benefits provide better protection when serious illnesses 
occur and provide better coverage to help prevent serious illnesses. 
These changes should not reduce the overall value of Medicare's 
existing benefits. Medicare's preventive benefits should have zero 
copayments and should be excluded from the deductible; Medicare's 
traditional plan should have a single indexed deductible for Parts A 
and B to provide better protection from high expenses for all types of 
health care; and Medicare should provide better coverage for serious 
illnesses, through lower copayments for hospitalizations, better 
coverage for very long acute hospital stays, simplified cost sharing 
for skilled nursing facility stays, and true stop-loss protection 
against very high expenses for Medicare-covered services.

3. Today's beneficiaries and those approaching retirement should have 
        the option of keeping the traditional plan with no changes.
    Many people in Medicare today, and others who are approaching 
retirement, have good supplemental coverage for prescription drugs and 
other medical expenses. If they wish to continue in the traditional 
Medicare plan with no changes in their premiums, benefits, or 
supplemental coverage, they should be able to do so.

4. Medicare should provide better health insurance options, like those 
        available to all Federal employees.
    Medicare has lagged behind in providing reliable health insurance 
benefit options for beneficiaries that best meet their own 
circumstances and preferences. The Federal government, many state 
governments, and most large private employers help their employees get 
the care that is best suited to their needs by offering them several 
health care plans, along with useful information to help them choose 
the best one for their budget and needs. Medicare has failed to provide 
America's seniors with the same kind of reliable health care options 
that every Federal employee has received for decades--a fact which is 
particularly evident right here in the Washington area (See chart 2). 
For many beneficiaries, particularly those in rural areas, Medicare 
offers only one health insurance plan--it is strictly one-size-fits-
all. Previous legislation to address this problem, including the 
establishment of the Medicare+Choice program, has not had the intended 
effect of providing more reliable health insurance options for all 
Medicare beneficiaries.

                                CHART 2

             FEDERAL EMPLOYEE PROGRAM PROVIDES MORE OPTIONS
[GRAPHIC] [TIFF OMITTED] T4872A.001

    Plans should be able to bid to provide Medicare's required benefits 
at a competitive price, and beneficiaries who choose less costly 
options should be able to keep most of the savings--so that a 
beneficiary may pay no premium at all. In areas where a significant 
share of seniors choose to get their benefits through private plans, 
the government's share of Medicare costs should eventually reflect the 
average cost of providing Medicare's required benefits in the private 
plans as well as the government plan. Low-income seniors should 
continue to receive more comprehensive support for their premiums and 
health care costs.

5. Medicare legislation should strengthen the program's long-term 
        financial security.
    Medicare faces substantial financial challenges in the not-too-
distant future (see Chart 3). Between now and 2030 the number of 
Medicare beneficiaries and older is expected to increase rapidly from 
40 million to 77 million. Since Medicare relies primarily on payroll 
and income taxes to finance its benefits, this increase means that the 
payroll taxes of fewer workers per beneficiary will be available to 
support Medicare's covered benefits. Expenses will further rise because 
health care costs are expected to increase.

                                CHART 3

              BABY BOOMER RETIREMENT WILL STRAIN MEDICARE
[GRAPHIC] [TIFF OMITTED] T4872B.001

    Legislation should strengthen Medicare's ability to plan for and 
provide its benefit entitlement in the years ahead, thereby improving 
the program's long-term financial security. To support good planning 
for the entire program, Medicare's separate trust funds should be 
unified to provide a straightforward and meaningful measure of 
Medicare's overall financial security that is not vulnerable to 
accounting gimmicks. Financial security cannot be achieved simply by 
increasing reliance on unspecified financing sources.

6. The management of the government Medicare plan should be 
        strengthened so that it can provide better care for seniors.
    Medicare needs more modern, competitive management tools: the 
traditional Medicare program has not been able to use competitive 
approaches to help keep its costs down. Its fee-for-service contracting 
requirements are outdated, so providers must work with a complex claims 
processing system that makes it more difficult to serve patients 
effectively. Contracting reform should be implemented to improve 
efficiency and performance. In addition, Medicare should be allowed to 
use competitive bidding tools to improve quality and reduce costs for 
durable medical equipment, prosthetics and orthotics, and clinical lab 
services--provided that the government plan is not allowed to create 
new price controls and that seniors continue to have choices.
    Medicare needs more modern medical management tools: traditional 
Medicare does not provide efficient integrated services for many 
seniors who need support for managing their illnesses, particularly in 
the case of chronic disease. Beneficiaries who wish to participate in 
innovative programs such as disease management should be able to do so. 
Finally, Medicare's process for covering new technologies should be 
streamlined.

7. Medicare's regulations and administrative procedures should be 
        updated and streamlined, while the instances of fraud and abuse 
        should be reduced.
    Medicare is a complex system of ever-changing rules and regulations 
that affect 40 million beneficiaries and over one million physicians 
and other health care providers who serve them. Patients and providers 
face variable and inconsistent policy interpretations from various 
contractors and from different offices with overlapping jurisdictions 
within the Federal government itself. Rules may vary across areas and 
over time.
    Complexity, variability, constant changes, and the existence of 
some rules that are just not workable all contribute to the need to 
reduce regulatory and administrative burdens in Medicare. Needed relief 
in regulation and oversight should be implemented and I will discuss 
some new initiatives later in my testimony. This will allow providers 
to spend more time and effort on patient care and less on paperwork 
while continuing to ensure the integrity of Medicare funds.
8. Medicare should encourage high-quality health care for all seniors.
    Medicare's most important goal should be to enable seniors and 
disabled Americans to get the high quality error-free health care they 
deserve. Currently, there are too many instances where beneficiaries 
fail to get recommended treatments, and there are too many instances of 
beneficiaries being hurt by medical errors.
    Medicare should support efforts by plans and providers to improve 
care through more collaborative programs that use protected data on 
quality and safety. Medicare should help seniors get better care 
through improved information on quality. Medicare should revise its 
payment system to reward better performance and encourage investments 
that improve quality of care without increasing budgetary costs. 
Medicare's risk adjustment system for private plans should reward 
health plans for treating the toughest cases and finding innovative 
ways to provide care and reduce complications for chronically ill, high 
cost patients. Medicare should address the additional challenges facing 
rural health care providers in delivering high-quality care.

TAKING ACTION NOW

    These are the principles that the President wants to see embodied 
in legislation to strengthen and improve Medicare. To help seniors and 
pave the way for these future improvements, we are also committed to 
taking the steps we can administratively--in many cases, to take 
advantage of flexibility that Congress has wisely provided in the past. 
I would like to discuss two main areas of administrative action. First, 
I want to talk about our initiative to give all Medicare beneficiaries 
access to the kind of discounts that a competitive system can provide 
them--the system that is incorporated in all of the major Medicare drug 
benefit proposals pending before Congress. Second, I want to talk about 
our efforts to provide regulatory relief--so that fraud and abuse of 
the Medicare program can be reduced even as doctors gain more time to 
spend with their patients.
    Medicare Rx Discount Card--While the Administration believes that 
the addition of a Medicare prescription drug benefit should be included 
within an integrated modernization of the Medicare program, we intend 
to act now to provide immediate assistance to Medicare beneficiaries 
currently without prescription drug coverage. Because beneficiaries 
without coverage often have no source of bargaining power, they often 
pay higher retail prices for their medications. Beginning this fall, 
Medicare beneficiaries will be able to choose among Medicare-endorsed 
Rx discount cards, offered by competing drug discount card programs. 
These cards will provide a mechanism for beneficiaries to gain access 
to the effective tools widely used by private health insurance plans to 
negotiate lower drugs prices and provide higher-quality pharmaceutical 
care. Discount cards are currently available in the marketplace through 
a variety of sources, including pharmacy benefit managers (PBMs), some 
Medigap insurers, and retail drugstores. People with Medicare would be 
able to use the cards when they buy prescriptions to get discounts of 
perhaps between 10-25 percent off retail prices.
    All beneficiaries will be permitted to enroll in one program 
beginning on or after November 1, 2001 with discounts beginning in 
January 2002. Medicare-endorsed discount card programs will conduct 
marketing and enrollment activities, aided by support from the Centers 
for Medicare & Medicaid Services (CMS). Enrollment is limited to 
Medicare beneficiaries and beneficiaries will be permitted to enroll in 
only one Medicare discount card program at a time.
    We believe this initiative will provide a number of additional 
benefits for seniors that many of them do not enjoy now:

           First, we believe that providing comparative 
        information to the elderly and disabled about actual drug 
        prices will spur greater competition and lower prices than we 
        see today.
           Second, we believe these cards will create market 
        pressures that will allow Medicare beneficiaries to benefit 
        from drug manufacturers' rebates--something most seniors cannot 
        obtain currently in the discount card market now.
           Third, we believe these competitive pressures will 
        lead to other innovations that improve quality and patient 
        safety--like broader availability of the computer programs to 
        identify adverse drug interactions, and better advice on how 
        seniors can meet their prescription drug needs at a more 
        affordable cost.

    Medicare Rx Discount Cards would have to meet several 
qualifications to receive Medicare endorsement:

           Plan sponsors could charge an enrollment fee no 
        greater than 25 dollars. This would be a one-time fee to cover 
        enrollment costs. Some plans may not charge any fee.
           Plans would be required to enroll all beneficiaries 
        who wish to participate.
           Plans would have to provide a discount on at least 
        one brand and/or generic prescription drug in each therapeutic 
        class.
           Plans would have to offer a broad national or 
        regional network of retail pharmacies.
           Plans would be required to offer customer service to 
        participating beneficiaries, including a toll-free telephone 
        help line.
           All discount card applicants that meet the 
        qualifying criteria would be endorsed by Medicare.

    Regulatory Relief--As you know, I am taking aggressive steps to 
bring a culture of responsiveness to all of HHS. The Center for 
Medicare and Medicaid Services (CMS) is one of the Department's largest 
agencies, providing health benefits to more than 70 million Americans. 
This year alone the Medicare, Medicaid, and SCHIP programs will pay an 
estimated $476 billion in benefits, and each year Medicare alone 
processes nearly one billion claims from over one million physicians 
and other health care providers.
    Medicare and Medicaid are wonderful programs, but they are huge and 
they are complex. Their rules generate many of the concerns that our 
constituents bring to your attention and mine. Of course, there is a 
genuine need for rules and regulations. But rules should exist to help, 
not hinder, our efforts to assist people, and help control costs and 
ensure quality. When regulations, mandates, and paperwork obscure or 
even thwart the help providers are trying to give, those rules need to 
be changed. Our constituents, the Americans who depend on Medicare and 
Medicaid, the physicians and other health care providers who care for 
them, and the American taxpayers who fund the program deserve better. 
And so, I am working with the Office of the Assistant Secretary for 
Planning and Evaluation and CMS to reform the way Medicare works, 
making it simpler and easier for everyone involved, as well as 
simplifying other departmental regulations. We are dedicating ourselves 
to listening closely to Americans' concerns, learning how we can do a 
better job of meeting their needs, and serving them in the best way we 
can.
    As I announced last month at Northwestern University Hospital, I am 
doing a top to bottom review of the agencies and looking for 
opportunities to streamline regulations without increasing costs or 
compromising quality. To this end, I am calling for a new regulatory 
reform initiative to look for regulations that prevent hospitals, 
physicians and other health care providers from helping people in the 
most effective way possible. This initiative will determine what rules 
need to be better explained, what rules need to be streamlined and what 
rules need to be cut altogether while still providing beneficiaries 
with high quality care and protecting the interests of taxpayers. And 
to implement this initiative, I have developed a three-pronged approach 
that will get us on the right track, to listening, to learning, and 
then to administering all federal health care programs as effectively 
as possible.
    Under the first prong of my plan, we are going to start listening 
more to the public. This spring, I actually moved my office to CMS 
headquarters in Baltimore for a week to get acquainted with the inner 
workings of the Agency. I learned a lot, and at the end of the week I 
had an amazing listening session with actual Medicare beneficiaries and 
others to hear what they had to say about Medicare--talk about learning 
a lot!
    While people really like Medicare and Medicaid, they have a lot of 
suggestions for improving them. We need to do more of this type of 
listening. And so I am directing CMS to start holding more listening 
sessions out in the field, away from Washington, DC and away from 
Baltimore, and out in the areas where people have to live and work 
under the rules we develop. These people may not have such easy access 
to policymakers to share their good ideas and concerns. Most of you in 
Congress have these kinds of listening sessions with your local 
constituents on a regular basis. I did this all the time as Governor of 
Wisconsin, and I can't begin to explain how useful it was. I want our 
people in CMS to hear from local seniors, the disabled, large and small 
providers, State workers, and the people who deal with Medicare and 
Medicaid in the real world. I want to get their input so we can run 
these programs in ways that make sense for real Americans in everyday 
life. We hear from some of these people now, but I want to get input 
from many, many more.
    Some of the people who we hear from the most are the individual and 
institutional providers who are dealing with our rules every day. They 
are the ones caring for our beneficiaries, and they are the ones 
filling out many of the forms, trying to understand the rules, and 
working to do the things they spent years training to do--making people 
healthy. And so the second prong of my approach will focus specifically 
on their expertise. I am going to convene seven health sector 
workgroups to suggest ways that we can improve their interactions with 
CMS and the Medicare program to reduce regulatory complexities and 
burdens. For example, the American Hospital Association recently 
released a report, ``Patients or Paperwork: The Regulatory Burden 
Facing Hospitals.'' It found that the regulatory burden means that 
every hour spent providing actual patient care generates at least 30 
minutes--and sometimes an hour--of paperwork. We need to do more to 
address burdens like this to improve our operation of Medicare, so that 
health care professionals can spend more time delivering the care for 
which they were trained, and so that beneficiaries can spend more time 
with their doctors and other providers--not in waiting rooms.
    I want to hear from the broad range of providers, from those in 
rural offices and inner city clinics to the suburban health centers and 
urban hospitals. I want to hear from the large hospital systems and the 
small, two doctor practices and the solo providers. I want input from 
folks like medical equipment providers, group practice managers, 
physician assistants, and nurses--for example, we have an emerging 
health care professional (particularly nurses) shortage crisis in parts 
of America today, and I want to hear good ideas for how to fix it. 
These professionals who are in the field every day can give us good 
ideas that improve our management of these vitally important programs. 
This type of input is good for our beneficiaries not only because 
regulatory reform will allow physicians and providers to spend more 
time caring for beneficiaries, but also because it will encourage 
physicians and providers to remain in the Medicare program. To ensure 
that CMS responds to these ideas and comments, a senior level staff 
person has been assigned to each provider industry.
    In no way will we diminish our interest in fighting waste fraud and 
abuse. The vast majority of providers are only interested in delivering 
needed care, but for the small percentage of people who take advantage 
of the system, we will continue our aggressive efforts to protect the 
funds that taxpayers have entrusted to our use.
    Like the physicians, providers, and beneficiaries who live and work 
with Medicare every day, the Department's staff have dealt with the 
system for years, and they have suggestions about how we can operate 
the Medicare program more simply and effectively. They certainly have 
heard from all of you and from many, many providers about what could be 
fixed. To examine these important concerns, I am forming a group of in-
house experts from the wide array of Medicare's program areas, and I am 
asking them to think innovatively about new ways of doing business, 
reducing administrative burdens, and simplifying our rules and 
regulations. Today, providers are forced to spend more time keeping up 
with the latest rules and interpretations rather than keeping up with 
providing patient care. And frankly, the complexity of the program 
makes it difficult for those of us who administer it to keep up. It is 
difficult to educate beneficiaries and our business partners when there 
is so much complex information to explain. And it is hard to 
appropriately target fraud and abuse without unfairly burdening the 
vast majority of honest physicians and other providers. This group of 
experts will develop ways that we can reduce burden on providers 
without increasing Federal costs or undermining quality of care, 
eliminate complexity wherever possible, and make Medicare and Medicaid 
more ``user-friendly'' for everyone involved.
    These outreach efforts will allow us to hear from all of these 
different segments of people who deal with Medicare and Medicaid, from 
the beneficiaries and the public at large to the physicians and 
providers to the Department's employees. We are going to listen to 
them, and we are going to learn how we can do a better job. But 
listening is not enough. Getting together and generating great 
solutions is not enough. So we are going to take action. We are going 
to use all of this wonderful input, and we are going to improve the way 
we do business and make Medicare and Medicaid easier for everyone 
involved with them. I have already started by taking some bold steps 
based on feedback we have received from the public:

Improvements for Hospitals and Skilled Nursing Facilities

    I am eliminating unnecessary data that has been demanded of 
hospitals and skilled nursing facilities in their Medicare Cost 
Reports. There is a statutory requirement that, for payment, hospitals 
report their overhead for old capital costs and new capital costs. We 
will eliminate these reporting requirements for most hospitals as soon 
as we can after September 30, 2001, when they expire in law. This will 
shrink the cost report by about 10 percent. This is not enough, but it 
is a start, and we plan to do more.
    There also is a questionnaire, called form 339, that providers 
currently have to fill out with their cost report. It requires 
information on office expenses, deferred compensation, and other data 
not required in the cost report. This seems kind of crazy to me, to 
have to do an extensive report and then to have yet a different 
questionnaire on top of the report. And I understand that some of the 
questions on this form request information we do not even need from 
some providers. So we are going to eliminate a number of them, and we 
are going to fold the ones we do need into the cost report. This will 
give us one form, not two, to collect only the information we need, not 
the information we don't need. While providers will still have to 
answer some of these questions for the report, at least there will be 
less of them, and the report and the questions will all be in one 
place. This is one example of the little things about working with 
Medicare that drive providers crazy, and we are working hard to make it 
better.
    Similarly, under the law we have been paying skilled nursing 
facilities by blending cost-based and prospective payment systems. This 
has required providers to collect a lot of data and perform extensive 
calculations on the cost reports. Starting this month, the law requires 
all of these facilities to be paid 100 percent prospectively. That 
means we no longer need all of those calculations. We will therefore 
look to simplify cost reporting for SNFs.
    At the same time we are working to eliminate unnecessary 
requirements, we have new requirements to contend with. For example, 
the BBRA requires hospitals to report some new data on their cost 
reports for periods beginning on and after October 1, 2001. So we have 
to continue to search for ways to make the work simpler where we can. 
We have established regulatory reform workgroups to further review 
these and other regulatory reporting requirements to determine what 
further improvements we can make. And I will hope to hear from many 
other people and to work with this Committee and Congress to get even 
more ideas on making these cost reports more sensible and easier to 
complete.

Improvements for Physicians

    Another bold step that I want to announce today is a change in our 
development of the new Evaluation and Management (E&M) guidelines that 
physicians use to bill Medicare for their doctor visits. We know that 
physicians' primary work is to provide clinical care, not 
documentation. We have been working on a third version of these 
guidelines, which are based on the AMA's Current Procedural Terminology 
(CPT) that physicians use to bill insurance companies. Physicians found 
the first two sets of guidelines, developed in1995 and 1997, 
cumbersome. We agree, and have been working with a contractor, Aspen 
Systems, to improve them, but physicians have continued to express 
concern that these guidelines are hindering, not helping, the delivery 
of appropriate patient care.
    We had hoped that this current effort would be a way to reduce 
burdens on physicians, but it appears it needs another look. So I have 
directed Aspen Systems to stop their work on this current draft while 
we reassess and re-tune our effort. Additionally, I am turning to the 
physician community to help design constructive solutions. After six 
years of confusion, I think it makes sense to try to step back and 
assess what we are trying to achieve. We need to go back and re-examine 
the actual codes for billing doctor visits. For the system to work, the 
codes for billing these visits need to be simple and unambiguous. I 
look forward to working with the AMA and other physician groups to 
simplify the codes and make them as understandable as possible.

Improvements for Medicare+Choice Plans

    In addition to working with physicians, we also want to work with 
our Medicare+Choice plans. Many of these plans have complained about 
the complexity of the program, and justifiably so. We want to 
facilitate participation of high-quality plans in Medicare to give 
beneficiaries more stable choices like the ones many Americans enjoy 
before retiring. For example, we are taking steps to speed up our 
review of plan marketing materials to ensure that seniors have timely 
and accurate information. In addition to implementing the 
Congressionally mandated, much shorter 10 day turnaround, for this 
fall's contracting cycle we intend to streamline the process of 
reviewing marketing materials. Following the fall contracting cycle, 
CMS will examine the success of this process with the hope that it can 
be expanded to possibly include other marketing materials throughout 
the contract year. We also will consider performing targeted reviews of 
marketing materials only for those managed care organizations that have 
solid track records, including histories of complying with CMS 
requirements. We are exploring authorities and flexibilities to focus 
on monitoring and oversight of those plans that need the most 
attention. Additionally, we also hope to streamline the way plans 
report the financial risks that they impose on their participating 
physicians. Currently, these annual reporting requirements are 
extremely detailed and complex, and we want to find less burdensome 
alternatives for reporting this information. We also intend to clarify 
requirements that plans provide marketing information about competing 
plans in their area.
    As in systems that have been successful at providing reliable, 
high-quality plan choices, like the Federal Employees' system, the 
Medicare program should take the responsibility to provide reliable, 
unbiased information for seniors on their coverage options and patient 
rights. To help us provide the information that seniors need, we will 
conduct a $35 million education and advertising campaign this fall.
    All these ideas build on the valuable bipartisan suggestions of 
this committee for improving the Medicare program, contained in a 
useful set of recommendations to CMS Administrator Scully from 
subcommittee Chairman Johnson and Representative Stark. I would like to 
elaborate further on some of your specific ideas.
    One such area that really needs another look relates to the patient 
anti-dumping requirements. These requirements were intended to ensure 
that patients in emergencies, including women in active labor, were not 
turned away from hospital emergency rooms because of lack of insurance. 
While the law in this area is well intentioned, we understand that 
providers view the current regulations as burdensome. I have directed 
CMS to go back and revise these regulations and make any necessary 
changes to ensure they protect patients without creating unnecessary 
burdens on the hospitals or physicians.
    Another idea is contractor reform. As you know, the Administration 
has presented a specific legislative proposal to enable Medicare to 
process claims in a more responsive and efficient way.
    We are also implementing your ideas for ``frequently asked 
question'' support for beneficiaries, for using on-line tools to 
improve the efficiency of Medicare+Choice enrollment and other program 
activities.
    We will continue to work with you to do more. I think you will 
find, as I have said many times before, the excuse for doing things 
because ``that's the way we've always done it'' isn't going to work 
anymore. I am committed to changing things. I am confident that our new 
approach will go a long way toward making Medicare and Medicaid more 
user-friendly. I am genuinely excited about the progress we are going 
to make, and I am confident that we can build on these steps to enact 
the legislation to improve Medicare that is overdue.
Conclusion
    While we regard the Medicare Rx Discount Card and our regulatory 
relief efforts as an important first step to provide immediate 
assistance to Medicare beneficiaries and to improve the program for 
them, I want to reiterate the importance that the Administration 
attaches to the need for broader Medicare improvements, based on the 
President's eight principles that I have outlined here. The discount 
card is only a first step, not a substitute for comprehensive 
prescription drug benefit combined with other needed legislative 
reforms. I stand ready to continue to work with you in a bipartisan 
fashion to strengthen the Medicare program, modernize the benefit 
package, strengthen its financial underpinnings, and provide access to 
high quality, innovative treatments for our nation's seniors and 
disabled populations now and in the future.

                                

    Chairman Thomas. I thank you very much, Mr. Secretary.
    As was indicated in the opening remarks of some of my 
colleagues, the idea of moving administratively, apparently, is 
something that my colleagues are not as familiar with as they 
should have been. To me it's ironic that for the 8 years of the 
previous administration, and especially in the last 3 or 4, and 
the intense discussion about trying to provide prescription 
drugs to seniors, and especially those who are forced to pay 
retail as seniors, had to be played out in the legislative 
arena exclusively and which, without the passage of 
legislation, nothing could be done for seniors is just 
amazingly false; because as you have indicated, this 
administration focused on actually doing something about the 
problem rather than running on the problem for political 
purposes, and has already moved administratively to provide, 
admittedly, a modest reduction in the price for seniors, and 
you have done it administratively. I want to compliment you on 
that.
    In the last Congress we attempted to move legislatively a 
prescription drug program. We were required in that legislation 
to attempt to change the structure of the Health Care Financing 
Administration through legislation to create a structure that 
would negotiate prices for prescription drugs and for 
Medicare+Choice prices.
    Now, the benefit of a competitive negotiated model in 
prescription drugs, the Congressional Budget Office (CBO) 
indicated to us, was a double or triple savings over a single-
model non-negotiated plan which was, of course, the 
administration's.
    So my focus would be one, thank you for the rapid 
administrative move to provide an initial reduction in costs to 
seniors; but, have you, one, administratively structured the 
former Health Care Financing Administration--now the Centers 
for Medicare Services--to create a structure that would allow 
competitive bidding? And does the President's plan envision a 
competitive prescription drug program which would get those 
savings through placing some of the plans at risk and forcing a 
competitive model?
    I repeat, all that was required to be done legislatively in 
the previous administration. How much of this can be done 
administratively from your side, Mr. Secretary?
    Secretary Thompson. We are looking at all of those things, 
Mr. Chairman. We are moving as rapidly as we possibly can to 
provide the competition to provide for improvements, 
simplifying the rules and the regulations so that 
Medicare+Choice can stay in the market, which has been a 
difficulty. And we are doing the same thing in the area of 
hospitals and providers and we will continue to do so. We think 
that all of the things we have done so far are within the 
confines of our ability to get that done, and we will continue 
to do so. We will continue to come back to this Committee and 
to other Members of the House and the Senate in order to share 
with you our concerns if we run into problems, but also share 
with you our results and what we intend to do.
    Chairman Thomas. It's ironic that the reward for moving 
rapidly in an administrative manner is to be sued. I look 
forward to working with you. I hope you continue to advance the 
administrative changes. And when you have run the string out, 
it will be our goal to provide you with additional 
opportunities to continue to make changes administratively, 
and, where necessary, work with you cooperatively to do the 
required legislative changes, so that instead of a hope and a 
promise, we can actually deliver a modernized Medicare, with 
prescription drugs for all seniors and disabled under Medicare. 
I thank you very much.
    The gentleman from New York.
    Secretary Thompson. Thank you Mr. Chairman.
    Mr. Rangel. Thank you Mr. Chairman. I partially agree with 
the Chairman in terms of supporting the administrative 
initiatives that the President has expressed. But I am just a 
little too old to wait for that string to run out before we 
provide a legislative solution.
    The only problem I had with the President's announcement of 
the principles was that it appeared as though this was a major 
initiative. The problem, Mr. Secretary, is that any time 
someone starts talking about giving assistance for prescription 
drugs, older people and people with less income and fixed 
income really believe that we have taken care of the problem. 
They don't distinguish between the President and the Congress. 
They want help.
    And so this is relief and we should laud it. But we have to 
make certain that we don't give the impression that we resolved 
the problem. And I don't think you have either. And so Mr. 
Thomas is a lot younger than me, he can wait for these strings 
to run out. But I am certain that the President, when he was 
campaigning, wasn't talking about these strings running out. He 
said together he will work with the Congress and provide 
quality care and, at the same time, that it would be fiscally 
responsible.
    Now, in your testimony, you talk about the soundness of the 
Medicare system, and one of those principles is strengthening 
the program's long-term financial security. The Part B--strike 
that. The Medicare Hospital Insurance Trust Fund, in your 
opinion, what is it's fiscal position?
    Secretary Thompson. Part A are you talking about?
    Mr. Rangel. Part A.
    Secretary Thompson. Part A is running a surplus at the 
present time, and Part B is running a deficit.
    Mr. Rangel. Now, Part A has never been in better shape in 
57 years, and it is solvent to 2029, and we have to monitor 
that very carefully. How can Part B, just for purposes of 
understanding, how can they be running a deficit when it is not 
an entitlement? It is supported by general revenues. And I 
don't know any other program that goes before the 
Appropriations Committee that we can say, as citizens or as 
lawmakers, that is in a deficit.
    Chairman Thomas. Will the gentleman yield briefly?
    Mr. Rangel. I hate to do that because I always see you, but 
I very seldom have a chance----
    Chairman Thomas. I don't want to interrupt the gentleman's 
rhythm. But I don't know whether he misspoke when he said that 
Medicare was not an entitlement. Medicare is an entitlement, 
and I believe the record would show----
    Mr. Rangel. Well, I misspoke.
    Chairman Thomas. Thank you.
    Secretary Thompson. Part B is also financed by premiums.
    Chairman Thomas. I just want to make sure that no one 
listening to us believes that this Committee is not an 
entitlement.
    Mr. Rangel. Medicare Part B is an entitlement. I want to 
know if it is funded in part by general revenues, how can we 
say it has a deficit? That is what I want. I apologize, because 
I thought that you were going to get involved in that. But you 
are right. And my question is if Part B is in part funded by 
general revenues, which we have to go to the Appropriations 
Committee to get, how can we say now it runs in a deficit?
    Secretary Thompson. As you know, Congressman, in 1997, Part 
A was in less good financial shape.
    Mr. Rangel. Yes.
    Secretary Thompson. And this Congress passed legislation 
that transferred home health to Part B. And that solidified 
Part A to be more financially secure up to 2029 with that 
change. Part B, when you include Part B and Part A together, 
which this administration believes is the right thing to do 
and--and now this can be debatable. But we feel as an 
administration, in order to put Medicare on a sound fiscal 
footing, you have to look not only at Part A and Part B in 
separate avenues, you have to look at it as a total package. 
And when you look at a total package, the amount of 
expenditures for the operation of Part B exceeds the income by 
approximately $700 million. And Part A exceeds the outgoes by 
about $500 million. And so there is a deficit when you combine 
A and Part B.
    Mr. Rangel. Now, you are kind of changing the accounting 
rules in order to reach that conclusion. So rather than 
challenge what you would like to do in combining Part A and 
Part B for determining its fiscal standing, it would seem to me 
that the only way to bring Part B into balance is that you 
would consider either reducing provider benefits, reducing the 
beneficiaries' benefits, or increasing the payroll taxes. Now, 
the President has ruled out the latter, and I don't see--if we 
are not going to the Appropriations Committee, how do you 
intend to bring about this fiscal balance with part B?
    Secretary Thompson. We think--and we have looked at it in 
many different ways, Congressman--that with the eight 
principles that I have outlined and which the President 
articulated last Thursday, and by combining part A and B, that 
we put it on a financially secure footing. And we will be able 
to do it with the principles, with working with you, and with 
working with the other Members of the House and Senate.
    Mr. Rangel. OK. You have already disregarded the payroll 
increases, right?
    Secretary Thompson. That is correct.
    Mr. Rangel. Have you disregarded reduction in benefits?
    Secretary Thompson. Yes, we have.
    Mr. Rangel. Have you disregarded reducing the provider's 
obligations?
    Secretary Thompson. We have--we are making changes. We are 
streamlining them and making them more efficient, Congressman.
    Mr. Rangel. Thank you.
    Chairman Thomas. The gentleman from Illinois wish to 
inquire?
    Mr. Crane. Thank you Mr. Chairman.
    Mr. Secretary, in your testimony this morning you state, 
quote, Medicare should help seniors get better care through 
improved information on quality. Medicare should revise its 
payment system to reward better performance and encourage 
investments that improve the quality of care without increasing 
budgetary costs.
    And I think we are all supportive of increasing the quality 
of care for all beneficiaries, but could you please elaborate 
on how this administration would revise its payment system 
without increasing budgetary cost to reward performance? And I 
am particularly interested in what the quality indicators might 
be and how they might be applied.
    Secretary Thompson. Well, there are many ways in which we 
expect to do that, Congressman. First off, in adding more 
preventive health coverage; being able to get to seniors 
sooner; more diagnostic treatments; better nutrition and so on, 
which we hope to be able to put into new proposals to 
strengthen Medicare, would reduce the amount of cost.
    Number two, we expect to find ways to automate and put in 
place new technologies to make the administration of hospitals 
and clinics more efficient; therefore, being able to reduce the 
cost.
    Number three, we are trying to find ways to simplify the 
rules and regulations in the contracting out, in allowing us 
more flexibility to contract, which would reduce the cost.
    And fifth and finally, we hope with the new technology, we 
would be able to reduce doctors' mistakes and be able to 
improve the quality.
    All of these things are under review. A lot of these things 
are under Committee study right now, and we are expecting to 
make a lot of suggestions to this Committee to other Members to 
accomplish just what we have pointed out in our principles, and 
hope to work with you on a bipartisan basis to develop a 
proposal that will strengthen all of the things that I have 
mentioned.
    Mr. Crane. Thank you, Mr. Secretary. I yield back the 
balance of my time.
    Chairman Thomas. Thank the gentleman. The gentleman from 
Florida wish to inquire?
    Mr. Shaw. Yeah. Mr. Secretary, it is interesting because I 
had turned to the same part of your statement that Mr. Crane 
just read from, talking about better performance and 
encouraging investments to improve the quality of care. One of 
those matters we introduced last year and was passed and it has 
to do with digital mammography. Mr. Kleczka and I worked 
together to have that included so that the fee structure for 
mammography would reflect this added technology. Obviously, 
that is an added cost initially. But from the answer that you 
just gave to Mr. Crane, you certainly acknowledge that better 
and earlier diagnosis of these things can, in the long run, 
actually give us some tremendous savings.
    Early diagnosis, particularly in the area of cancer and 
breast cancer, is tremendously important. It can have the--it 
can make the difference between a lumpectomy and a mastectomy. 
It can mean the difference as to what type of after care is 
necessary with some of the very tough areas as chemotherapy and 
radiation and all of those things that follow that.
    So I am very much encouraged by your comments with regard 
to the--with use of the new technology and recognizing that we 
need to really work and get into that.
    Another area that I think we need to take a good hard look 
at is, again, in the area of dealing with women and being sure 
that they have access to the very, very latest. When you get 
into pap smear tests, I think these are very important for 
particularly some women who are considered to be high risk. 
Every other year is not enough. We should work toward putting 
women who are at high risk and allowing them to have that test 
every year.
    I believe under current law that men certainly can have the 
prostate examination every year, and when you get to be a 
certain age, I understand that if you live long enough every 
male will have it.
    Secretary Thompson. That is correct.
    Mr. Shaw. And I think that, even though I understand that 
age doesn't necessarily increase the risk of cervical cancer, 
that we should recognize, though, that some women who are at 
greater risk should have more frequent tests. Would you like to 
comment on that?
    Secretary Thompson. Well, thank you so very much, 
Congressman. Let me just quickly respond to a couple of your 
points. First, in regards to digital mammography and the new 
digital machines, it is one of those breakthrough technologies 
that we need to do more about, and we need to be able to use 
the Medicare system and the hospital system for best practices. 
And what you and Congressman Kleczka have done in regards to 
that, I compliment you.
    And one of the final things I did as Governor of the State 
of Wisconsin before I left to take this job is to purchase two 
new digital mammography machines for the University of 
Wisconsin hospital. And it's the right thing to do.
    With regard to women's health it is so important for us to 
expand women's health in America. Because women, and as head of 
households, purchase--80 percent of the medical dollars are 
spent through their purchases. We have to make sure they are 
well informed and, through a good women's health program at the 
national level and at the State level, I think we can make a 
lot of progress.
    The third and most important that you were mentioning is on 
preventive health. And this Committee has been acknowledged as 
one of those Committees that has been very visionary in looking 
forward to find ways to come up with preventive health 
measures, and I compliment the Committee for doing that. I'm 
trying to develop in the Department a whole new philosophy on 
preventative health. I think it's the most important thing that 
we can do to hold down medical costs in the future, and to 
develop reimbursement systems along encouraging preventative 
health measures. And I can't tell you--this is an item that I 
have a great deal of passion for and I am very pleased that you 
raised it because it is something we badly need, and I am very 
pleased that the President put this in as one of his main 
principles on the redevelopment and strengthening of Medicare 
systems in America.
    Mr. Shaw. I just have one other comment before I yield back 
my time. And it's wonderful to have someone like you who 
recognizes the importance of Governors and States and 
coordination with us at the Federal level. You certainly were 
invaluable in rewriting the welfare laws for this country, 
which has profited so many of the less fortunate and made them 
productive human beings again. And I recall working with you 
and you were very, very appreciative of the fact that we were 
reaching out to the Governors, and there is a world of 
knowledge out there and a world of experience and I am glad to 
see you where you are.
    Thank you, Mr. Secretary, and I yield back.
    Secretary Thompson. Thank you very much, Congressman Shaw.
    Chairman Thomas. Thank the gentleman. Gentleman from 
California, Mr. Stark, wish to inquire?
    Mr. Stark. Thank you Mr. Chairman.
    Mr. Secretary, getting back to this drug card, it's my 
understanding that these applications like the discount card 
program require a clearance under the Paperwork Reduction Act, 
and there is a note on your Web site that the application is 
pending OMB approval; and you're saying the applications are 
due from these drug companies on August 27. That is 45 days. 
But your internal documents suggest that following normal 
procedures, it would take 160 days for the--for you to go 
through the Paperwork Reduction Act process. How is that--how 
do you work that out?
    Secretary Thompson. Well, this----
    Mr. Stark. Are you avoiding the Paperwork Reduction Act?
    Secretary Thompson. No, we are not, Congressman. But what 
we are doing is we are using this as a payment measure, a 
reimbursement thing.
    Mr. Stark. No. I just wondered--any of these plans 
requiring the Paperwork Reduction Act, according to your own 
internal memos, about a minimum of 160 days, and I just 
wondered how you were getting it done in 45 days rather than 
160.
    The other question is that you are required under the 
Federal Advisory Committee Act to publish notices in the 
Federal Register at least 15 days in advance of holding a 
meeting that comments on this. And I am wondering if you or Mr. 
Scully met with any of the pharmaceutical benefits managers 
(PBMs), Merck, or Managed Care LLC, or Express Scripts, or 
Caremark, or WellPoint prior to working out this plan.
    Secretary Thompson. Absolutely not.
    Mr. Stark. You never met with any of them.
    Secretary Thompson. We have not, Congressman. We met with 
them the day that--I believe Tom Scully, you can ask him 
directly. But I believe the administrator, Tom Scully, met with 
them on the day before it was announced. But in regards to 
pulling together the program, it was done internally, 
Congressman.
    Mr. Stark. No lobbyists, no Debra Steelman, no lobbyists 
from Pharma, you never meet with anybody----
    Secretary Thompson. I can only speak for myself. I did not, 
Congressman Stark. This was something that----
    Mr. Stark. You know that would be against the law, don't 
you?
    Secretary Thompson. Yes, I do, and I did not meet with 
them.
    Mr. Stark. We will get Scully later in deposition. I would 
rather, if you want to swear him, I would be glad to bring him 
to the mike.
    Mr. Stark. Mr. Secretary, one of the things you are talking 
about in combining these trust funds is a common deductible. 
How much would you estimate the new deductible would be?
    Secretary Thompson. We have not costed it out, Congressman, 
at this point in time. We want to work with you and other 
Members of this Committee. We have set out the principles. We 
would like to have a unified discussion. But we have not----
    Mr. Stark. Would you agree it should be kept below $100.
    Secretary Thompson. I don't want to make that statement 
today, Congressman.
    Mr. Stark. Because it is estimated that it would be $400, 
and 80 percent of the Medicare beneficiaries use Part B where 
they only pay $100 deductible. Only 20 percent of the Medicare 
beneficiaries use Part A and they got an $800 deductible. So if 
you raise that common deductible above a hundred bucks you are 
basically penalizing four out of five beneficiaries by raising 
their deductible. Are you aware of that?
    Secretary Thompson. I am fully aware of what you are 
saying, Congressman Stark. I would also like to point out what 
we are trying to do, we are trying to strengthen Medicare. We 
are trying to add some additional benefits. We are also trying 
to have one deductible.
    Mr. Stark. How do you do that without putting any more 
money into the program? What kind of magic--I mean, I 
understand this Buck Rogers card here won't save anybody any 
money, but how do you strengthen the program without either 
cutting benefits as the managed care plans do today to make a 
profit, or cutting back the payment to providers, because you 
are not mentioning putting any more revenue in this program? 
You are not suggesting--you are cutting benefits or cutting 
back payments to providers in an effort to privatize the plan, 
to free up the general revenues because you want to--you are 
not talking about a specified source of money for the 
Department of Defense, and yet we are going to fund them every 
year.
    Why should part B have some specified source? Why shouldn't 
we just understand that since 1965 seniors have come to depend 
on Medicare and that the Republican administration wants to 
privatize it, turn it back into an insurance program to benefit 
the American Association of Health Plans and stick it to the 
seniors. That is what your plan does, and that is what these 
principles do, and you know it full well.
    Secretary Thompson. Congressman Stark, I would like to 
respond if I might be able to. You can use your harsh language 
any way you want to try and demonize this plan. I am here to 
tell you that one of the number one things that the President 
said is that every senior should be able to be covered. Every 
senior should have a choice to be able to stay in the plan that 
they want or the newly defined plan. And they will have that 
choice, just like you have a choice, like I have a choice and 
everybody that is covered.
    We did not want to turn this into a partisan thing. I think 
we are coming in front of you and we are here to offer what we 
think is a very constructive suggestion. I would love to be 
able to work with you, and I would love to be able to tell you 
and I am as passionate about helping seniors as you are. And I 
am a Republican and you are a Democrat. And I think we should 
forget about that when we are working on this subject and see 
if we can't come together and come up with a very constructive, 
positive, new, strengthened Medicare with additional benefits. 
And if you are willing to do that, I certainly am, and I think 
we can accomplish both of our objectives.
    Chairman Thomas. The gentleman's time has expired.
    Mr. Stark. The indications so far haven't been that. You 
haven't been forthcoming with us. You have had secret meetings 
that the Democrats haven't been included in, and that is no way 
to start out on a bipartisan basis.
    Secretary Thompson. I have met with many Democrat 
Congressman and Senators. In fact, I am meeting with a lot of 
them this afternoon. Most of the people that I have met with 
have actually been D's rather than R's on this subject.
    Chairman Thomas. The gentlewoman from Connecticut, the 
Chairwoman of the Health Subcommittee, wish to inquire?
    Mrs. Johnson OF CONNECTICUT. Thank you. I would like to 
welcome you, Mr. Secretary, to the Ways and Means Committee and 
thank you for working with us on a lot of administrative 
reforms that frankly are extremely important to the sheer 
survival of the small providers out in the rural areas, the 
small towns, and the neighborhoods of our cities. If we don't 
move aggressively on administrative reform, we will not have 
the delivery system that our seniors need and all other 
Americans depend upon.
    But I also want to commend you on the vision you put before 
us. Now that isn't to say that we all agree on exactly how we 
can get there, and it also isn't to say that we all agree on 
the pace at which we can get there. But not to acknowledge the 
bigness of the vision that is embodied in your testimony and 
that the President is discussing is to weaken ourselves, 
whether we are Democrats or Republicans, because we have had a 
terrible time providing preventative benefits to seniors under 
Medicare under the old system.
    You know it took us 5 years to get mammograms. That is just 
terrible. You know, pap smears last year. It is disgraceful. So 
your focus on preventative health is something we have got to 
take seriously and think through seriously.
    The other thing that you have offered that neither party 
has had the courage to talk about is that a catastrophic level 
prescription drugs is nice but a catastrophic protection 
against all health care costs is frankly what the future is 
going to demand of us in Medicare. And if we can get and--and 
we don't know yet and Mr. Stark doesn't know and I don't know 
to what extent we could offer the seniors of America real 
protection against a catastrophic level of expenses, not just 
prescription drugs, across the board. Because under current 
law, they are exposed to a catastrophic level of nursing home 
expenses and their only salvation is to spend down to poverty 
and Medicaid. So don't think that for a moment Medicare offers 
our seniors health care security. It doesn't. They just don't 
know it. So the idea that we could offer seniors catastrophic 
protection is something we do have an obligation to look at, 
and truthfully we know from the private sector that 
responsibility for first dollar coverage does reduce overall 
costs.
    Now, not all seniors can afford a higher deductible. We 
have an obligation to look at that, just like we have always 
looked at the ability of poor seniors to participate in 
Medicare and we currently cover all the deductibles, all the 
premiums, all the costs for a lot of low income seniors. But 
for us as a Committee not to be even willing to look at and 
entertain the thought that with a higher deductible we might be 
able to provide a level of protection that has never been 
offered under Medicare and that in modern medicine and in 
modern life is becoming more than more essential would be 
irresponsible. Whether we do this through an option and how we 
move there would be irresponsible.
    I don't know how much we can do this year, but I thank you 
for putting on the table a broader vision of health security 
for seniors and a bigger view of prevention. Because if we 
don't get there, to just say to seniors that the old program is 
what you should love and cherish is a totally inadequate 
response, and the problem isn't just prescription drugs.
    So I look forward to working with you and I hope every 
Member of either party or all three parties will keep an open 
mind as we go through this. We may not be able to do all this 
this year. But not to recognize that there is something bigger 
than the Democrats' prescription drug program or our 
prescription drug program would be a crime. And secondly, not 
to recognize that neither our prescription drug bill nor the 
Democrats' prescription drug bill provided one penny of relief 
for seniors for 2 years is also irresponsible. So I have been 
talking with a lot of groups for 2 months about how we could do 
a discount card.
    I am glad to see you using executive authority on behalf of 
all the seniors. The preceding administration used it to use 
unemployment compensation funds for hitherto unprecedented 
uses. So--and they didn't talk to us about that. So you know, I 
am just delighted that you put on the table that seniors can't 
wait for some relief and that we have got to--as important as 
our work is this year we have got to begin to look at 5 years, 
10 years, 15 years, 20 years and the kind of health security 
America's seniors will need.
    I am sorry to have used my questioning time for a 
statement. But in light of Mr. Stark's comments I just think it 
is imperative that we try to lay aside the partisan 
differences. The issues are simply too challenging, and there 
isn't anyone on this Committee who knows the answers. So I urge 
all of us to work together and to work with you, Mr. Secretary.
    Secretary Thompson. Can I make a quick comment, 
Congresswoman Johnson? I couldn't agree with you more. This is 
going to require bipartisan support if we are going to do it. 
And it is a great opportunity for prescription drugs, for 
catastrophic coverage, and my first love, which is preventive 
health, really to look at this sincerely and come up with a 
comprehensive thing.
    You mentioned something that really I would like to quickly 
address, and that is the delivery of health care in America. We 
have a delivery system that is straining. And I think it is 
imperative that we look at this on a bipartisan basis, 
especially trying to develop new technologies for the 
prescribing of drugs, for the interaction of drugs, for 
admissions into hospitals. So much is being done outside of the 
medical delivery system and should be incorporated into the 
medical delivery system that could improve it considerably. I 
would love to work with you on that.
    Chairman Thomas. The gentlewoman's time has expired. The 
gentleman from New York, Mr. Houghton, wish to inquire?
    Mr. Houghton. Thank you, Mr. Chairman. Mr. Secretary, as 
always, it is good to see you. We are lucky to have you, your 
experience and your vision, and we are honored to have you 
right here today.
    I want to go from the macro issues to a more specific 
issue. That has to do with rural America. In rural areas like 
mine in New York we have had trouble at tracking the 
Medicare+Choice plans because reimbursement levels are so low. 
I guess the question I have got very, very specifically is are 
there things we can do different to make sure that the 
competitive system works better in areas with low populations?
    Secretary Thompson. We certainly are looking at this very 
seriously, Congressman. We are looking at the possibilities 
coming up with some demonstration programs and trying to 
develop a combination of the fee for service and the Health 
Maintenance Organizations (HMOs) and trying to develop maybe a 
Preferred Provider Organization (PPO) or some other spinoff 
that would be able to allow these individuals to deliver the 
choices, but be able to make a profit at the same time. We are 
trying to develop many different ways to simplify the forms, 
the rules and the regulations that seems to be a tremendous 
burden on the Medicare+Choice programs, and so we are doing a 
lot of things internally.
    I will be coming to you and to other Members with some of 
the suggestions that we are working on hopefully to prevent 
further erosion of those individuals getting out, but also 
allowing for new companies, new opportunities for more choices 
for people that live in your congressional district and a lot 
of people that live in my State of Wisconsin that have the same 
kind of difficulties that you are articulating here.
    Mr. Houghton. Thank you very much.
    Chairman Thomas. The gentleman from Pennsylvania, Mr. 
Coyne, wish to inquire?
    Mr. Coyne. Thank you, Mr. Chairman. Mr. Secretary, as you 
know, Pennsylvania has a highly effective PACE program, Program 
of All-Inclusive Care for the Elderly, a prescription drug 
program for seniors over 65 and with low income.
    Secretary Thompson. Yes.
    Mr. Coyne. And one of the President's principles is that 
seniors ought to have the option of a subsidized prescription 
drug program benefit as part of modernized Medicare. That is 
his proposal. How do you see a subsidized prescription drug 
program through Medicare affecting State run programs like the 
one I pointed out, the PACE program in Pennsylvania?
    Secretary Thompson. I don't see it having much of an impact 
per se, Congressman. I would look at it as a way in which it 
would allow the seniors better coverage. If the State of 
Pennsylvania doesn't change it, we will not in any way 
adversely impact on the PACE program in Pennsylvania. And so it 
would be an added--I don't know all the details of the PACE 
program, I am familiar with the generalities, but I would think 
that our--depending upon how we come out of Congress, but what 
the President is envisioning and what I am talking about today, 
this would be through the Medicare system and would be in 
addition, an additional resource for your senior citizens in 
Pennsylvania.
    Mr. Coyne. So with a highly effective program like the PACE 
program you would see no negative effects?
    Secretary Thompson. I do not, Congressman. I would see 
nothing but pluses.
    Mr. Coyne. On another subject, is the Federal government 
willing to stand behind the drug discount cards? To what extent 
will the Federal government stand behind them and what sort of 
consumer protections or remedies will be available for the 
benefits and the discounts if the discounts are not delivered? 
How would you remedy anything that would?
    Secretary Thompson. Congressman, we are going to have an 
annual review. We are going to have an annual review so that we 
would be able to find out if there are complaints and we could 
decertify those providers. We are not putting any Federal 
dollars into it. We are giving the Good Housekeeping Seal of 
Approval for Medicare.
    It is giving the block of 40 million people the opportunity 
to join a very vigorous robust PBM that will be able to go in 
and negotiate the best discounts possible. The pharmacist will 
enroll, we will be able to look and supervise them. If they are 
not measuring up, we will be able to suspend that enrollment in 
the future. So there would be an annual review that will take 
into consideration any complaints, any problems that develop. 
That is where we are going to have the control.
    And finally, and one thing that is being overlooked, is we 
are going to a year from now start publishing, start publishing 
the cost of the drugs and the lowest cost. So that your senior 
citizen in Pennsylvania will be able to look at this whole list 
of 100 drugs and find out the prescription and find out the 
other substitutes, the other generic drugs, and be able to pick 
which company is doing the best and then after 6 months could 
choose that company.
    Mr. Coyne. How would you see that working inasmuch as the 
senior citizen or the recipient, the beneficiary would be able 
to get that information? How would that work?
    Secretary Thompson. It is going to be on the Internet. We 
are going to have a 1-800 number, and we are going to have it 
staffed 24 hours a day, 7 days a week in the former HCFA 
office. I fine everybody in my office one buck, so I will have 
to pay myself. Now the Center for Medicare Services. And we are 
also providing and requiring the PBMs to do the same thing. So 
there is many avenues of information that will be given out for 
seniors to receive.
    Mr. Coyne. Thank you. Thank you.
    Chairman Thomas. Thank the gentleman. The gentleman from 
California, Mr. Herger, wish to inquire?
    Mr. Herger. Thank you very much. It is very refreshing to 
have you with us, Mr. Secretary. President Bush's principles 
call for Medicare legislation to, quote, strengthen the 
program's long-term financial security. Given that, absent 
reform, combined Medicare spending will quadruple from 2.25 
percent at growth domestic product today to 8.5 percent of 
gross domestic product, GDP, in 2075, changes are obviously 
needed. Can you tell us more about what the administration is 
recommending with regard to solvency?
    Secretary Thompson. What we are hoping for is that we can 
work with you, Congressman, on a bipartisan basis and fill out 
the details of our principles and be able to bring in some cost 
efficiencies to make sure that the senior is going to be able 
to receive all of their benefits and the coverages. By 
competition and giving them the choice of staying in the same 
fee-for-service program that they now have or a new competitive 
program, we feel that we are going to be able to put this on 
financially secure ground that is going to be able to continue 
Medicare for your children and grandchildren the same as for 
mine.
    Mr. Herger. Well, I thank you very much, and I think what 
is so very important, and you certainly mentioned this earlier 
in your testimony, is that this challenge is not a Republican 
or a Democrat or----
    Secretary Thompson. It isn't.
    Mr. Herger. Conservative or liberal challenge. These 
challenges, the only way we are going to meet them is by all of 
us working together to solve them. Obviously the longer we wait 
it becomes more difficult. So I do thank you and the 
administration for your efforts in this area.
    Secretary Thompson. Thank you very much, Congressman. You 
are absolutely correct, we need to do it on a bipartisan basis. 
There are several things that need to be improved. And working 
together in a bipartisan way, we could really strengthen 
Medicare, make it modern and give seniors the kind of coverage 
that they really are requiring and requesting. And that of 
course is catastrophic coverage. That is preventative coverage 
and it is prescription drug coverage, the three main things, 
and we can do it together and I think we would all feel very 
proud of ourselves if we were able to do that.
    Mr. Herger. Thank you. I yield back.
    Chairman Thomas. Thank the gentleman. The gentleman from 
Louisiana, Mr. McCrery, wish to inquire?
    Mr. McCrery. Thank you, Mr. Chairman. And thank you, Mr. 
Secretary, for sharing your time with us today. I would like to 
elaborate a little on my colleague from California's line of 
questioning with respect to the budget and the impact that 
Medicare will have on future budgets in this country. He said 
accurately that it is predicted that Medicare will grow to 8.5 
percent of our GDP if no changes are made by 2075. Just to put 
it in a little different perspective, CBO has testified before 
this Committee that if no changes are made in Medicare, 
Medicaid and Social Security, by 2075 those three programs will 
consume over 100 percent of the Federal budget if the Federal 
government continues to spends about 18, 19 percent of GDP. So 
you know, it is just incredible to me that this Congress has 
taken this long to join with some administration, any 
administration, and promote meaningful reform of not only 
Medicare but Medicaid and Social Security.
    So I applaud the efforts of this administration to work 
with both sides of the aisle, Democrats and Republicans, on 
common sense reform that not only will preserve Medicare for 
the seniors of today and for me and you and the baby boom 
generation, but for future generations of Americans, both 
seniors and not so seniors.
    I want to quote from the President's principles that you 
outlined. ``When popular alternative plans are established, the 
government's contribution to any one Medicare plan should 
eventually be tied to the average cost of all Medicare plans, 
preventing any one plan from driving up the costs that all 
Americans must pay.''
    Can you expound upon that a little bit and tell us why it 
is important we move to a competitive model?
    Secretary Thompson. Just like everything else. Competition 
and more choices allows for efficiencies to be developed. But I 
want to make sure--you know, everybody is going to say, well, 
that means they are going to do away with the fee-for-service 
program. Absolutely not. The President, that is his number one 
principle outside of prescription drug coverage, is that 
seniors will be able to continue their same fee-for-service 
program if they so desire. But the other programs that are 
going to have a lot of efficiencies built in are going to give 
seniors the same choices they had before they became seniors, 
the same choices that you have as a Congressman, the same 
choices I have and all the employees in the Department of 
Health and Human Services. When you have that kind of 
competition, that kind of choices, you can come up and develop 
the best health insurance program for yourself and your family, 
and that is what we want to do for seniors. We want to 
modernize it so that seniors can choose the best program, and 
if they can save money in the process, so be it, and they can 
pocket that. And if they want to continue on with the same 
Medicare Program that they have now, that is fine.
    But that is the beauty of what the President is pointing 
out. It gives them those choices and building in those 
efficiencies and that competition depending upon what the 
senior wants to do.
    Mr. McCrery. In fact, Mr. Secretary, we know in other areas 
of our economy that competition not only provides more choices 
for our society but it promotes innovation, it promotes 
efficiency and it promotes better pricing for the consumer. And 
isn't that part of the administration's plan, to make sure that 
Medicare along with Social Security and Medicaid doesn't bust 
the budget, so to speak, in the out years, driving cash in the 
general budget from national defense, from highways, roads, 
environmental protection, courts, all the other things that the 
Federal Government must fund?
    Secretary Thompson. That is very true, and that is why the 
President feels so strongly about the need to do it now. 
Everybody is talking about prescription drug benefits, both 
sides of the aisle, in fact all three political parties now, 
and we have an opportunity with that kind of focus to really do 
what is right and develop a strong Medicare system with 
choices, with additional benefits and with one deductible. That 
is going to pay the seniors so many more dividends and put this 
program on a financially secure footing that is going to last. 
And we have this opportunity, and I hope that we work together 
collectively and with bipartisanship to get this job done, and 
I thank you for your comments.
    Mr. McCrery. I applaud your efforts.
    Chairman Thomas. The gentleman from Michigan, Mr. Levin, 
wish to inquire?
    Mr. Levin. Thank you. Welcome, Mr. Secretary. I think your 
passion is laudable. I just want to say the more I hear and 
take at face value these passionate statements about preserving 
Medicare, about a prescription drug cost, about the need for 
prescription drugs, the more concerned I am how we are taking 
away the resources that would be needed. It is inconsistent in 
my judgment to talk with passion, and I believe it, about 
preserving Medicare and a new prescription drug program and 
then passing programs or proposals here that are going to 
obviate the availability of resources for either. And it is 
clear as we continue to pass bills through this Committee and 
pass bills through this Congress that we are taking away the 
resources to carry out the very objects about which you have, I 
think, deep and sincere passion.
    But I don't want to put you on the spot on that. I want to 
instead ask you about some of these principles and what they 
mean. The first principle, one, all seniors should have the 
option of a subsidized prescription drug benefit as part of 
modernized Medicare. Does that mean in Medicare?
    Secretary Thompson. Yes.
    Mr. Levin. And that means a prescription drug benefit in 
Medicare for those who are on fee-for-service as well as other 
options?
    Secretary Thompson. The details have not been worked out 
yet, Congressman, but it is our strong feeling that every 
American should have prescription drug benefits and the 
opportunity to be covered and those in low income should be 
subsidized to make sure that they have it.
    Mr. Levin. But still you are saying as part of that really 
means in a modern Medicare system. So fee-for-service as part 
of that there would be a prescription drug benefit?
    Secretary Thompson. There will be a fee-for-service with 
prescription drug benefits, absolutely.
    Mr. Levin. Okay. Next in that regard I want to ask you, and 
leave a little time for discussion of preventative care, 
principle three is today's beneficiaries and those approaching 
retirement should have the option of keeping the traditional 
plan with no changes. It says those approaching retirement. Is 
the implication of that statement that the present traditional 
plan might not be available in a reformed Medicare for those 
who are not seniors today or not approaching retirement?
    Secretary Thompson. That decision has not been made, 
Congressman.
    Mr. Levin. It is left open by the way you have it worded.
    Secretary Thompson. I know it. We are trying to put out the 
principles and we are trying to work with you on the details to 
come up with that. But the President wants to make sure that 
all seniors that are approaching that age and are in or under 
Medicare right now are going to be able to have their same 
program.
    Mr. Levin. By that guaranty, that principle doesn't 
guarantee the traditional plan for those who are not in those 
two categories?
    Secretary Thompson. We think that the new programs, 
Congressman, are going to be so much superior or that most 
seniors will want to take the best program for themselves.
    Mr. Levin. But you are hedging.
    Secretary Thompson. I don't want to hedge. I am just 
telling you that those decisions have not been made.
    Mr. Levin. So the way the principle is stated, it does not 
assure the present conventional plan for those who are neither 
seniors nor approaching retirement. That is the way the 
principle is written?
    Secretary Thompson. That is the way the principle is 
written. But it is also open-ended to allow for this Committee 
and Members of Congress to change and fill in the details. We 
don't want to be so prescriptive that we would come up here and 
have you criticize us, Congressman--I say that in a very 
laudatory way--that you would criticize us for not giving you 
the opportunity to have input. We want to be able to have the 
principles general enough so that you and all the Members will 
be able to have input so that we can develop a true bipartisan 
proposal.
    Mr. Levin. I just want to emphasize when it is worded that 
way, it sends a clear message that there is an assurance for 
some but not for others. And I know my time is up. So I will 
ask you, if you would, to take another look at the letter that 
Mr. Foley and I sent you about preventive benefits, cholesterol 
and hypertension screening. The response we received to this 
area that you feel so deeply about was a very general response.
    Secretary Thompson. Okay.
    Mr. Levin. Maybe Mr. Foley, if he is here----
    Secretary Thompson. Can you tell me when the letter was? I 
will take a look at it and call you next week about it because 
preventative health is something that we need to do in America.
    Mr. Levin. It was March 8.
    Chairman Thomas. Thank the gentleman. The gentleman from 
Michigan, Mr. Camp, wish to inquire?
    Mr. Camp. Thank you, Mr. Chairman, and, Mr. Secretary, I 
appreciate you being here and I appreciate your testimony. I 
commend you for what you are trying to do. Your written 
testimony I believe is excellent, and the time is now, because 
this issue gets more difficult to resolve as time goes on, as 
you have mentioned. And over the years we have had a lot of 
battles on a lot of issues in this Congress, whether that is 
balancing the budget. Some said we do that and some said we 
couldn't balance the budget and have tax relief, some said we 
couldn't have welfare reform, that that would be a race to the 
bottom. And clearly your optimism and can-do attitude here in 
trying to positively move forward on an issue that is critical 
to our seniors I think is important, and I commend you for 
doing that.
    I think in terms of the focus I am interested in is 
particularly this principle of a modernized Medicare Program 
which will help provide better coverage for seniors and help 
assist with preventative care and serious illness. Could you 
expand on the opportunities there in the President's reform 
proposal, please?
    Secretary Thompson. We look at this system as a way to 
bring in some competition and choices.
    Chairman Thomas. If the Secretary would suspend for just 
one moment. There is a vote on. It is a vote on the rule on 
H.R. 7. The Chair intends to continue the hearing through the 
voting process. So if Members who don't anticipate being called 
rather quickly for questioning would like to go vote and come 
back, we will continue the hearing. Thank you.
    Secretary Thompson. Thank you. And those choices we think 
are going to bring a lot of innovations, as you have indicated. 
We think that the Federal Employees Health Benefit Program is 
one that we would like to incorporate into the Medicare system. 
And as Blue Cross and Blue Shield is required under the law, in 
order to bid on the Federal Employees Benefit Program has to 
have seven programs in every county in America. And I would 
love to see the seniors in America to have seven choices of 
what could be the best program to be developed for that 
individual person, whether it be in Kentucky, whether it be in 
Florida, whether it be in New York or Wisconsin. And I think 
that is what we are really driving at. I think it would 
benefit. I think seniors would respond and say, you know, I had 
those choices before I became 65 and I will have those choices 
again. I really appreciate that opportunity.
    Mr. Camp. I also think in the prescription drug area as you 
testified, 27 percent of seniors don't have prescription drug 
coverage. There has been pretty broad consensus in the 
Congress, I would say an overwhelming majority of 
Representatives and Senators feel that a modernized Medicare 
Program must have a prescription drug component in it, and I 
think that is a critical part. I commend you for having that in 
your plan as well. And even though I appreciate your comments, 
particularly coming from a rural area in Michigan, the idea of 
having the choices available to seniors in every county, and in 
my county I am able to get assistance through the Federal 
health benefit plan and able to get the care for myself and my 
family, I think if we could do that for seniors it would be a 
very positive step forward.
    So I thank you for your testimony and look forward to 
working with you on this. Thank you.
    Chairman Thomas. Thank you. Does the gentleman from 
Minnesota, Mr. Ramstad, wish to inquire?
    Mr. Ramstad. Thank you, Mr. Chairman. Mr. Secretary, always 
good to see my neighbor from Wisconsin. I appreciate the good 
work you are doing. I want to thank you and the President for 
providing Congress with an excellent framework for reforming 
Medicare, including the prescription drug benefit that we know 
is needed.
    As you know, Mr. Secretary, I represent Minnesota's medical 
alley, home to some of the best medical technology companies in 
the world. I have been touting the significant quality and cost 
saving benefits of technology for years, was very encouraged by 
the President's emphasis on strengthening Medicare, as he said, 
to ensure the new generation of medical technology is available 
to seniors, which I think is absolutely critical.
    But I must say, Mr. Secretary, I am concerned that the 
CMS--I have to quit saying HCFA--CMS, the Center for Medicare 
and Medicaid Services, concerned that that there is a proposal 
by CMS to reduce the reimbursement for international 
classification of diseases (ICDs) in the inpatient, ICDs being 
the implantable cardiovascular defibrillators like the one that 
was recently implanted in Vice President Cheney which was, as 
you know, made in Minnesota in fact.
    I believe our seniors deserve the same access to this life 
saving technology as the Vice President received. And recently 
two of my colleagues Ms. Dunn and Mr. Hayworth joined me in 
asking CMS to delay this reduction in reimbursement for ICDs in 
the inpatient setting because they are already notoriously 
underreimbursed. And I am sure you will agree that reducing the 
reimbursement for these life saving devices will limit patient 
access, and that is not the message that either Congress or the 
administration would want to send to the seniors of America.
    Can you tell me today if CMS will delay this change?
    Secretary Thompson. I can't tell you without looking at it, 
Congressman. But I certainly can tell you that I will look at 
it and get back to you the beginning of next week. And I can 
tell you that I will lean heavily on them and I am fairly 
confident that we will come up with the right answer. But I 
would like to point out what you are saying is exactly what 
needs to be done. We have got to get more new technology into 
the health care system. This is something that is going to 
drive down costs, impact patient safety and quality of care, 
and it is going to be in the lines of prevention that is 
important.
    The President believes this. I am passionate about it, as 
you are, and I thank you so very much for bringing it up, 
because it is something that we badly need. And if CMS is 
making a mistake on this I am confident we will change it.
    [The following was subsequently received:]

    In order to ensure that Medicare pays appropriately for 
defibrilator implants, CMS is not delaying this change. I agree that 
Medicare beneficiaries deserve access to life saving technology, and I 
also appreciate your concerns, as well as those of other Members, that 
Medicare pays appropriately for the implantation of defibrillator in an 
inpatient hospital setting. CMS reviewed the most recent data available 
on the relative costs and charges of services performed during an 
inpatient hospital stay, and these data indicated that the cost of 
implanting a defibrillator was lower than the cost of other cardiac 
procedures in Diagnoses Related Groups (DRGs) 104 and 105. As a result, 
CMS separated defibrillator implant cases from other cases involving 
cardiac procedures in those DRGs. This lowers payment rates for 
defibrillaor implant cases, and increases payment for other cardiac 
procedures in DRGs 104 and 105, effective October 1, 2001. CMS will 
continue to examine the costs of cardiac procedures and make future 
adjustments in order to ensure that we continue to pay appropriately 
for these services.

                                

    Mr. Ramstad. I certainly appreciate that can-do spirit and 
your commitment to get back to us on that in such speedy 
fashion. It would be a horrible message to send that the Vice 
President receives this and seniors don't have the same access 
to that life saving technology. And Medicare seniors, as you 
agree, do deserve the same access to technology as the rest of 
us, as those of us who are nonseniors, although I think 
technically I probably qualify now for that status.
    I want to ask you also about the overarching problem with 
respect to managed care reimbursement and the arcane and 
archaic and unconscionable adjusted average per capita cost 
(AAPCC) formula. I have raised this issue with you before, as 
you know. I believe the President's principles of long-term 
financial security for Medicare and high quality health care 
for all seniors are absolutely vital. But I don't think they 
can become a reality until we reform the highly flawed 
reimbursement formula for Medicare managed care. And you know 
we made some improvements at least in statute, but States like 
mine, Minnesota, yours, Wisconsin, Mr. Nussle's, Iowa, and so 
many States that deliver high quality health care but have done 
it in a cost efficient manner are penalized by this arcane, 
ridiculous formula that is counterproductive, that penalizes 
frivolity and waste instead of rewarding States that have 
delivered high quality health care in a cost effective way.
    So I look forward to working with you and my colleagues to 
reform the reimbursement formula. I think we have to scrap the 
current formula so that seniors in all States across America 
have access to quality cost effective care. I assume I can 
count on your commitment to work to bring equity to Medicare 
reimbursement.
    Secretary Thompson. Congressman, all I can tell you is you 
sound like I would be spouting off when I was Governor about 
those formulas.
    Mr. Ramstad. Keep sounding off as Secretary.
    Secretary Thompson. I know exactly what you are talking 
about. I have testified in my former life on that particular 
subject, and we are looking at it and I welcome your assistance 
and your cooperation, and I am confident we can improve it.
    Mr. Ramstad. The final statement, Mr. Chairman, if we can 
do as you suggest, take off the Republican hats, take off our 
Democrat hats, and even our Independent hats, work in a 
bipartisan, pragmatic, common sense way, we can get it done 
this year. We can; don't you agree?
    Secretary Thompson. I really believe we can and I think we 
should.
    Mr. Ramstad. Thank you.
    Chairman Thomas. Mr. Secretary, we have been informed from 
the floor we have two votes consecutively, which means it is 
going to be a while for us to come back. We probably will be 
able to resume at 12:15. Does your schedule permit you to wait 
and then perhaps entertain additional questions from Members?
    Secretary Thompson. Chairman, I have never said no to the 
Ways and Means Committee, even though it will be difficult.
    Chairman Thomas. I appreciate that. We are going to try to 
move through. And therefore, rather than recess at this time I 
will recognize the gentlewoman from Connecticut and she can 
proceed, and if any Members are willing to come back we might 
be able to loop them through. But we are under 5 minutes on 
this vote. Then there will be another vote following.
    I thank the Secretary for his indulgence. The gentlewoman 
from Connecticut.
    Mrs. Johnson OF CONNECTICUT. [Presiding.] I thank the 
Chairman for his courtesy. I voted early so we could try to 
keep this going throughout the votes, but because of the 
consecutive votes we can't do that. But having already voted 
and having used my earlier time to express my opinion on a 
number of issues, I do want to just put on the record the fact 
that this issue, this possibility of merging the A and B 
deductibles, needs to be looked at also from the point of view 
of what would be the consequences of merging the A and B 
systems, because as we look at regulatory reform we are 
beginning to run into the snaky consequences of our past 
actions. And one of our past actions was to move part A costs 
to part B. So now you have, for instance, home health services 
billed under both programs and it is very complicated for the 
providers to know whether they are billing under A or B, and 
this will be a bigger and bigger problem.
    So what I would like to ask you is if would you give us 
some help in looking at what would be the provider impact of 
merging those two systems? What would be the administrative 
savings of merging those two systems? Because Mr. Stark's 
concern with cost is genuine and where the resources are going 
to come from, and of course in the past that has been a big 
reason of why we haven't done a better job of preventative 
health benefits.
    But when you look at the big picture, all the separate 
systems of the A/B services and the administrative structure 
that imposes to me makes little sense. But we need a lot more 
than just that kind of intuitive response. Would you be willing 
to commit the resources to look at what the implications for 
both government accountability and provider capability are of 
merging A and B administratively?
    Secretary Thompson. Congresswoman Johnson, absolutely. It 
needs to be done. In fact, we are already working on that, and 
we will continue to work on it. It needs to be looked at 
seriously. The President believes it is the right thing to do, 
as I do. And we will be looking at the pros and the cons and 
how we could integrate them together, and we will be working 
with you and with other individuals on this Committee to come 
up with the best plan.
    Mrs. Johnson OF CONNECTICUT. It is important to remember 
that no business runs itself this way, separates out one 
portion from another. I see we have been joined by my 
colleague, Mr. Ryan. I will recognize him.
    Mr. Ryan. Thank you, Chairwoman. Secretary Thompson, it is 
great to see you here again. I am always sorry that you didn't 
get the Wisconsin hospitality here in some of the questioning. 
This bitter partisanship is no way to solve a problem as large 
as what we are facing. So I hope that in the future you will be 
met with good bipartisan dialogue.
    I think it is important for people who are watching the 
debate to know that if we don't add any benefit to Medicare, it 
is still going to go bankrupt. As you showed in your charts, 
the baby boomers are coming. And when we nearly double the 
amount of seniors we have in this country, it is going to put a 
lot of pressure on the existing program. It will eventually 
become insolvent in a number of decades, according to the 
trustees. In about 2016--correct me if my number is not right--
we are not going to have enough FICA taxes to cover existing 
benefits. So it seems like you have an incredible challenge 
facing you, which is, one, the benefit structure is not modern 
and we are basically giving people 1965 health care in the year 
2001 with respect to Medicare.
    In Wisconsin, where we come from, the mere fact that people 
have to buy these costly supplementals just to fill in all the 
gaps that Medicare doesn't currently cover, and that doesn't 
even include prescription drugs, is testament to the fact that 
it is an unmodern program, no longer comprehensive, and at the 
same time we are trying to modernize and improve the benefit 
structure like prescription drugs and other important 
principles you have articulated, we have this inventory 
problem. So we have to fix the solvency, get more money in the 
system through price competition, and modernize the benefits, a 
real conflicting agenda.
    So you really have an incredible challenge. I appreciate 
these principles. I just wanted to ask you to clarify something 
because those who detract against comprehensive reform often 
try to say you are going to lose what have you right now. You 
are not going to have the chance of keeping what you have and 
you are going to go on this roller coaster. They often say 
privatization, but privatization would mean no government 
intervention, you are on your own, and that is clearly not the 
case.
    Could you explain just exactly what kind of choices people 
will face under the principles you have outlined?
    Secretary Thompson. Absolutely. First off, let me thank 
you, Congressman Ryan, for your hospitality, your friendliness 
and your job that you are doing for Wisconsin. I appreciate 
that as a person that has watched you for several years now, 
and I am always impressed.
    Second, in regards to your question, people love to have 
choices. People love, you know, to be able to pick and choose. 
And what we are trying to do is we are trying to set up a 
system to say to that senior citizen, who some people like to 
scare, that they are going to somehow lose something, they are 
not going to lose, they are going to get better. It is going to 
be an improved system. And if they want the old system, they 
can have it. But the new system is going to provide coverage 
for prescription drugs. It is going to provide for catastrophic 
diseases which Medicare doesn't provide for. It is going to 
expand preventative coverage. So that a senior can go and 
decide for himself or herself what is the best program for 
them, and it may be better nutrition. It may be more expanded 
drug coverage or it may be a larger deductible.
    But they will have that choice. But to really allay any 
fears that that senior has, they can maintain their existing 
program. But we think most seniors when they compare and say 
this is my existing program but this is better, seniors are 
going to take what is better for them, and that is what we 
want. We want to give them the same choices that you have, 
Congressman, the same choices that I have. And we can pick and 
choose. And let's set it really out there. Seniors are very 
bright people. They know what is going to be the best for them. 
Let's give them the opportunity to have an expanded benefit 
program and let them decide which is the best for them.
    Mr. Ryan. That is what is interesting is because we as 
Members of Congress, you as a Federal Government employee, we 
have a book we get where we have all of these options and 
choices of which plans we want, which are comprehensive. We 
simply want to give seniors that same choice, and in addition 
to keeping what they already have. It kind of goes with the old 
metaphor, in Elroy, Wisconsin, when you were growing up, you 
may have had just one general store that everyone had to go to 
for all their goods.
    Secretary Thompson. That was the Thompson Grocery Store.
    Mr. Ryan. That is right. I thought you were. You were 
monopolists in Elroy. Maybe your forefathers were. You have one 
place to do your shopping for your health care benefits, you 
are beholden to a monopoly. Right now we have a Federal 
Government monopoly for health care for seniors in most places 
in America. What we are trying to do here is give seniors more 
choices so that the individual, the consumer, the senior 
citizen is the center of the health care universe, not the 
government, and so that people compete for their business and 
as people compete for seniors' businesses and try and win over 
their support through their personal choice, we then save 
money. We have more competition, which roots up inefficiencies. 
That is how it seems like we can get to the twin almost 
sometimes seeming exclusive goals of saving Medicare for the 
next generation and the generation after and improving people's 
benefits.
    So when we see some of this partisanship that we have here, 
I am sorry you have to come and experience this but if we can 
push that aside and work as Democrats and Republicans together 
with your leadership, and you have shown in Wisconsin that you 
can do that, you can bring Republicans and Democrats together. 
I am just excited about you being here leading this effort. I 
am excited about your passion. Now the Nation can see the 
passion and the abilities that you have shown for us here in 
Wisconsin that you can bring Democrats and Republicans together 
to save this program. I am just really excited to get going on 
this, and I just thank you for what you are doing. I sure hope 
we can do this this year.
    Secretary Thompson. Congressman, you are so correct. I 
thank you for your very generous comments and I appreciate them 
very much. But everybody in America knows that we have to have 
prescription drug coverage for seniors, and everybody wants to 
do that. I haven't found anybody in Washington that has come up 
to me and said, Secretary, we don't want to have seniors have 
prescription drugs. I have not met that first person. Everybody 
believes that, Democrats, Republicans or Independents. And that 
gives us the catalyst, the opportunity that doesn't come around 
very often in government, to work together like we did in 1965 
when the first program was set up to really modernize, 
strengthen, expand, give people choices and give them the 
opportunity to have the best Medicare system for everyone and 
be able to allow it to be able to be passed down to their 
children and grandchildren.
    As the President pointed out, one of the best cars was the 
1965 Mustang but it didn't have power brakes, it didn't have 
power steering. But it was a great car. Medicare was a great 
health system back in 1965. But in 35 years it has gotten old. 
It needs some modernization. It needs some opportunities. That 
is what we can do together. I think if we did it together, all 
parties, all individuals would look back on this and say it was 
the right thing to do. We stood up, we were counted and we made 
the tough choices, but look what we were able to accomplish.
    Mr. Ryan. Thank you, Mr. Secretary. I also want to thank 
you for acting early, because if you look at the bills that we 
are moving through Congress last session, the prescription drug 
benefit that we talked about, Republicans and Democrats didn't 
kick in for a couple of years. Your early action in trying to 
administer a partial benefit in prescription savings right now 
is the first time to my knowledge that a Cabinet Secretary has 
been able to bring us some solutions and some ideas right away 
so that we can bring in and extend some relief to seniors 
today, not 2 or 3 years from now.
    So we do have another vote. I notice that most of our 
Committee Members aren't back yet, so I think the Committee 
will stand in recess, as directed by the Chairman, until the 
vote concludes. Thank you.
    Secretary Thompson. Thank you, Congressman.
    [Recess.]
    Mr. Ramstad. [Presiding.] The hearing will come to order. 
The Secretary will be back momentarily. Chairman Thomas is 
delayed on the House floor in connection with the pending 
legislation, and so we will resume the questions of the 
gentleman--welcome back, Mr. Secretary. We will resume the 
questions with the gentleman from Maryland.
    Mr. Cardin. Thank you, Mr. Chairman. And Mr. Secretary it 
is a pleasure to have you before our Committee. And I very much 
appreciate your comments on preventive health care because I 
agree with you completely. Mr. Thomas and I, in 1997, co-
authored the Preventive Health Care Package, which you referred 
to as, I think, visionary, and we agree with you. Will you let 
me just alert you to some problems that we are having.
    Part of that 1997 package included, for example, colorectal 
screening, and we're finding that because of the problem in 
getting reimbursement for the office visit, which is necessary 
before you have the colonoscopy, that very few seniors are, in 
fact, taking advantage of this service because the 
reimbursement structure has not kept up with the technology, 
and that is the one of the issues I know that you have 
mentioned.
    So let me just urge you to not only look at ways of 
expanding preventive health care services, but also at those 
coverage services that are not being fully implemented today 
because of administrative problems within the agency. I would 
urge you to look at that and try to find ways that we can make 
these services available to greater numbers of beneficiaries.
    Secretary Thompson. Congressman, if I could, I would 
suggest--and I appreciate that. I would love to have you write 
me or call me with suggestions, because you believe like I do, 
that preventative health care is the way to go in America. And 
we need to do more of it, and we need to get our reimbursement 
formula set up so that preventative health is really considered 
first. And any suggestions you can have I would love to get 
them. I love new ideas, and if you have got a way to do it, I 
would solicit your information as----
    Mr. Cardin. I promise you I will take you up on your offer 
and I will work with you on this.
    Secretary Thompson. I would appreciate it.
    Mr. Cardin. Let me mention another area of health reform 
that you did not mention in your statement, and I would 
encourage you to take a look at it, and that is graduate 
medical education and the way that we reimburse for graduate 
medical education. We have the best quality training facilities 
in the world, and the way that we currently fund graduate 
medical education puts a real burden on the Medicare system 
because Medicare pays the lion's share of the cost of graduate 
medical education, even though the trained medical personnel 
are used by all Americans regardless of age.
    I filed what's known as the ``All-Payer Graduate Medical 
Education Act.'' It created a structure through which all of 
the users of our health care system contribute to the cost of 
graduate medical education. It is supported by the academic 
centers. The academic centers are under tremendous strain right 
now to continue their traditional mission. They receive some 
reimbursement for the cost of training, but they also usually 
treat the largest amount of uncompensated care patients and the 
most difficult patients. And I believe that as part of Medicare 
reform we need to look at a fair way to ensure that graduate 
medical education is adequately funded in this country without 
unduly burdening the Medicare system. I really hope that we can 
work together on that issue as well.
    Secretary Thompson. I thank you for it. I mean, these are 
the kinds of ideas that we need to sit down and discuss in a 
bipartisan fashion and come up with solutions and I--all I can 
say is thank you for offering it, and I will take you up on it 
and I want to work with you.
    Mr. Cardin. Let me lastly mention the EMTALA, the Emergency 
Medical Treatment and Active Labor Act, recommendations that 
you mentioned in your testimony, specifically about the 
hospitals and the definition of a hospital for treating 
emergency patients. We are making progress in this area. I 
think the Patients' Bill of Rights will clarify access to 
emergency care requirements within our HMOs. But it is 
interesting, if you take a look at some of the problems that 
hospitals are facing today, one of the reasons that they are 
under tremendous financial pressure is the large number of 
uncompensated care that they provide. In addition, problems 
with HMO reimbursement have also had an impact on the strength 
of the margins of our hospitals.
    So once again, it comes back to an issue in which Medicare 
is really paying the lion's share of costs of uncompensated 
care costs. It is another area that we need to take a look at 
reforming, particularly as to how we reimburse the HMOs. If 
they are going to use the hospitals that have large amounts of 
uncompensated care, that is one thing, because then they are 
helping to pay for the cost. But if they are not and they are 
still getting the reimbursement under Medicare as if they are 
using them, that is creating inequity within the system.
    So this is another area in which I just urge that we review 
how we pay for uncompensated care within the Medicare system to 
make sure that it is fair for all the users of the system. 
Those are some of the issues in Medicare reform that cry out 
for change and that would make the system far more cost 
effective.
    Secretary Thompson. It certainly would Congressman Cardin. 
And as you know, the EMTLA, the law, the way it is set up, as I 
understand it, is that if a hospital purchased a physician 
clinic, or has a diagnostic building somewhere outside of the 
environs of the hospital, they have to provide for some kind of 
emergency care because it is part of the hospital. And so it is 
very expensive, very time consuming.
    And what we are trying to do, which I announced today, is 
we are redefining what a hospital is so that we are redefining 
what an emergency room is that would be able to take care and 
solve that particular problem. But the rest of the ideas that 
you have, let us work together and let us see if we can't do 
what is right in order to make the administration, as well as 
the delivery of health care much better.
    Mr. Cardin. Thank you, Mr. Secretary. I will follow up with 
letters.
    Secretary Thompson. Please. Thank you I encourage you to do 
so.
    Mr. Ramstad. The gentleman's time has expired.
    Mr. Secretary, just let me say in response to your 
appearance here today, to say that you are a breath of fresh 
air in this town is a gross understatement, and we certainly 
appreciate what you just said and your willingness to work in a 
bipartisan way on these problems on reforming medication is 
very refreshing indeed.
    Next questioning will be by the gentlewoman from the State 
of Washington, Ms. Dunn.
    Ms. Dunn. Thank you very much, Mr. Chairman, and welcome 
Mr. Secretary. It is good to have you before us again, and we 
appreciate your being able to carve out enough time so that we 
can all go through the questioning. I want to just make comment 
on a couple of things we have already heard about. I am 
relieved, as I hear you talk about how we are going to 
communicate with seniors after we put this Medicare reform 
package together. I think there is a lot of fear among folks 
who may not be in the position of easily being able to change 
their ways, and so to take that fear off, to tell them they can 
stay involved in traditional Medicare I think is helpful. But 
also the 1-800 number and some of the other ways that we will 
communicate with them what their choices are and help them out 
in deciding what is best for them, I think that is very 
important.
    And I also want to say to you that I am refreshed by the 
administrative action you have already taken. I want to ask you 
a question on it, but the drug discount card, I think, is going 
to be wonderful. And we have to carve this into a position so 
that we are not putting the onus on prescription drug people or 
pharmacy people alone; that it is a fair burden. But to provide 
something like that to seniors administratively that could have 
been done over the last many years and wasn't, I think that is 
just great.
    I wanted to ask you to comment on the waivers situation, 
because what I am hearing is that under your leadership, we 
have been able to do a lot in allowing States to test out, and 
I think that is a very good way to experiment and decide how 
things are done well. I wonder if you would comment on that.
    Secretary Thompson. You mentioned three subjects I really 
am happy about. What we are trying to do first is information. 
We are trying to hold hearings, just like town hall meetings 
that you hold in your State and in your congressional district 
through the Centers for Medicare Services, not only with 
beneficiaries, but also with providers, so that they understand 
the new rules, we can get the feedback and we can work with 
them in a much more cooperative fashion. And I told all the 
people at Centers for Medicare Services, instead of trying to 
find a way to say no, try to find a way to say yes. If you 
can't say yes, come up with a denial, but explain it so that 
people understand that if they do it a different way they can 
get it. That is number one.
    Number two, in regards to a 1-800 number, we are doing 
that, but we are also going to put out a $35 million publicity 
operation this fall to explain to the seniors, you know, what 
we are offering, to be able to give them an idea all the 
Medicare--we are going to have a 1-800 number and it is going 
to be staffed 24 hours a day, 7 days a week. So your questions 
can be asked. And we think that is going to be very helpful. We 
don't want--you know, it has been--in the past you know you can 
demagogue this issue and you can scare seniors. What we want to 
do is give seniors the opportunity to know what is available, 
and that they are--they are very smart people. They have an 
opportunity to pick and choose what is best for them, and that 
is what we are trying to do.
    In regards to the prescription drug card, we don't want to 
take it out on the pharmacist. We want to be able to go to the 
pharmaceutical companies and with the power of 40 million 
subscribers, you are going to be able to get a good discount 
from the pharmaceutical companies and be able to pass that on 
through the pharmacists to the individual senior citizen. And 
that is what the program is all about.
    Ms. Dunn. Could you, Mr. Secretary, talk about waivers for 
a moment?
    Secretary Thompson. Waivers, when I started, we were 
about--we had about 632 waivers and amendments to State plans 
that were behind. And I made a dedicated decision that we were 
going to clean up the backlog and make prompt decisions. And I 
am happy to be able to report to you, Congresswoman Dunn, that 
as of September 1st, we should be completely cleaned up of all 
the backlog and be able to proceed and be able to make 
responses to State governments within 90 days, so that they can 
move forward.
    I come from that background as you know, and I want to be 
able to give States the flexibility. Your State of Washington, 
you know, your Governor, Gary Locke, has got some innovative 
ideas. They should be able to develop better programs. Let us 
see what works and then let us take what is best from 
Washington and export it to other States and other governmental 
districts and improve the health care system. And that is why 
it is important for us to move rapidly and make quick decisions 
and decisions that require neutrality as far as finances, but 
flexibility to give the States the opportunity to move forward 
with new ideas.
    Ms. Dunn. I appreciate that a lot. I think that is amazing 
because what we have heard is some of those waivers have been 
hanging around since the mid 1980s. And for you, without your 
full cadre of appointed positions completed yet, to be able to 
move so quickly, I think is really a great first impression for 
some of us.
    I want to just follow up with a sort of a question that you 
may not even want to handle, but some of us on this Committee 
also do a lot of tax relief legislation. In 1993 the budget 
increased the base of--for seniors of what can be taxed in 
their Social Security income from 50 percent to 85 percent. 
Seniors now are paying taxes on 85 percent of their Social 
Security income. Those dollars were taken by the then-President 
and put into the Medicare fund so it would be very hard for us 
to get those dollars back to reduce that rate again.
    Is there any way you could see tying a reduction in the 
basis of Social Security funds that are taxed to Medicare as we 
go through this process? Is that a long shot or is that 
something we could think about doing?
    Secretary Thompson. I haven't looked at it. I don't want to 
make a snap decision on it. But I would be more than happy to 
review it and get back to you if that would be permissible.
    Ms. Dunn. It was an idea that came up in the last few days 
and I think it might be something we will want to do. It may be 
too expensive, but we really want to get those dollars that are 
taxed for seniors living on Social Security down as quickly as 
we can. Thanks, Mr. Secretary.
    Secretary Thompson. Thank you so much.
    Mr. Ramstad. The gentlewoman's time has expired. The 
gentleman from Washington State, the good Dr. McDermott.
    Mr. McDermott. Thank you. Mr. Secretary, there has been a 
lot of talk about prevention. The President talked about 
covering physical examinations, periodic physical examinations, 
and the intention--is your intention to put that into the bill? 
Does he support covering periodical physicals?
    Secretary Thompson. Congressman McDermott, the President 
feels very strongly on prevention as I do, as you do. And we 
have not delineated what should be included, what should not be 
included at this point in time. We want to work with you on the 
details. And so I would say from my point of view, yes, it 
would more than likely, and should be included, but it is going 
to have to be something that we work together on what can be 
included and what can't be.
    Mr. McDermott. I have got a bill.
    Secretary Thompson. I know you do. But I don't want to get 
into the----
    Mr. McDermott. All right. Let me just say why I put the 
bill in. We spend a lot of time here trying to decide what new 
technology, we ratchet up all--the latest thing in colonoscopy, 
the latest thing in mammograms, and we want to spend millions 
of dollars, but we never do an evaluation as to whether it 
makes sense to do some of those things. We let the specialties 
drive up some of these things without doing what managed care 
does, which is a gatekeeper who says this is somebody who 
really ought to think about doing this, on more than doing 
that, and I think that that is why a routine physical 
examination is something that would not cost more, and it 
probably would actually save some money because you wouldn't do 
some of the higher price tests. And that is why I include it. 
Let me go to the second thing.
    Secretary Thompson. Can I respond quickly?
    Mr. McDermott. Sure.
    Secretary Thompson. I think you are absolutely correct, 
Congressman. And I think you are going in the right direction. 
But I would like to quickly point out that I believe, and this 
is my own personal opinion, that we are doing a woefully 
inadequate job in the delivery of health care in not using the 
new technology.
    On the physical examination I agree with you, but I have to 
disagree that I think there is so much more that could be done 
for patients' safety, quality of health care, improved 
efficiency, by using new and better technology, and a much more 
reduced paper situation and admissions, on prescribing drugs 
and on the administering of the drugs.
    Mr. McDermott. I don't disagree with that. Now, the next 
question is, you have talked about technological breakthroughs, 
and you know where I am going. If one of the major issues or a 
number of the major issues you deal with in Medicare are things 
like Alzheimer's disease and Parkinson's, and we can go right 
down the list. It seems to me that the issue of stem cell 
research has had a report from every single major scientific 
organization in this country, including yesterday the NIH, 
National Institutes of Health, all saying that we ought to 
pursue embryonic stem cell research.
    Now, I have been watching this issue, first told it was 
going to be decided in June and then it was going to be in 
July, and now we are to the end of August. And I, you know, you 
and I have been in this business long enough to know when the 
fix is in. It is really hard to believe that anybody is going 
to make a decision then. What are you going to know? What is 
the President going to know at the end of August, except for 
the fact that he will have visited with the Pope? What other 
issue will he have gotten any information on this issue that is 
not already out there and understood by a hundred of his 
advisers? What is the delay really about unless it is just 
plain politics?
    Secretary Thompson. It is not. And I want to allay your 
fear of that, Congressman. I have been with the President and 
as you know, I have been very much involved in this subject. 
And----
    Mr. McDermott. And we are supportive of it.
    Secretary Thompson. And I requested NIH to make the report. 
And NIH responded. And I want to tell you, I have been with the 
President. This president is working harder on this issue, 
looking at the pros and the cons. He has some real strong 
feelings, and he wants to make sure when he makes the decision 
that it is the right decision. And he is not looking at 
politics at all in regard to this. I know you may find that 
hard to believe.
    But I have seen this individual. He is very engaged, more 
engaged, listening to more people on this subject, and I am one 
of those individuals that have given him information, and I 
know he is reading it. I know he is discussing it. I know he is 
meeting with people. And I am confident he is going to make a 
decision and it is going to be in the relatively near future.
    Mr. McDermott. Well, let me just say, in your 
communications with him, I hope that you will take this message 
to him. There are two things that are going to happen. One of 
them happened the other day and is going to continue and I 
think escalate. That is leading scientists from USC, San 
Francisco said good-bye, I am not going to waste my time in the 
United States. I am going to Cambridge where they have been 
doing this for years. They have a commission over there that 
judges the ethical issues. They are way down the road ahead of 
us. So that is going to be one of the things that happens 
continually.
    The second thing that is clearly happening from recent 
newspaper reports is the research is going on out there. And 
unless you think the Congress is going to pass a bill that says 
no one can do this research, it is going to go on out there, 
and the government is not going to have a single thing to say 
about it. And I think that the President has an opportunity, if 
he has some strong feelings about it, to get into it in a way 
that cuts off this sort of--people will be cloning whatever 
they want over in Virginia, or in Pennsylvania or wherever. It 
is going to go on because the search for knowledge is not going 
to be stopped by one administration here or there.
    It is a question of what role we are going to play in it in 
terms of whether we further it and try and direct it or put any 
kind of restraints on it. The longer he delays, the more these 
other paths will be taken. And I think that I can't emphasize 
strongly enough, it was not a good decision to have stopped the 
process. But since he has done it, he would be a lot better off 
politically to get out of it as quick as possible. There is 
nothing to lose. He has nothing to lose at this point.
    Secretary Thompson. Thank you, Congressman McDermott.
    Mr. Ramstad. The gentleman's time has expired. We were just 
informed that the Secretary has to leave shortly after 1:00, so 
we are going to have to move right along. I just want to add 
one comment. I just hope the President is listening to you and 
Nancy Reagan on stem cell research.
    The gentleman from Georgia, Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. Thank you Mr. 
Secretary. You know you hear a lot of criticism in this town 
about HMOs. I compare the Medicare Program, the Medicare 
insurance program is just a giant government-run HMO. You have 
pointed out a lot of the inefficiencies of it. A lot of it, I 
think, comes from the fact that the Board of Directors of the 
Medicare insurance, the Members of Congress, and you have seen 
some of the disagreements that we have here today, and some of 
the expressions of those Members of the Board of Directors. I 
plan to share your information on the principles of the 
President's 8 points, principles, with my seniors in the 
district that I represent, and also with the providers. I think 
you have some very good advice there for us to do.
    My question kind of goes back to the Medicare prescription 
discount card. Could you kind of walk us through exactly how 
the new discount card proposal will yield a real savings to the 
Medicare beneficiaries and how do these cards differ from what 
is currently on the market? And what level of savings can our 
beneficiaries expect to receive? How much of those savings will 
come from the pharmaceutical manufacturers, versus the 
pharmacists? I do think there needs to be a sharing in this and 
I believe you have expressed that earlier. But I would like to 
have that reassurance and also a walk-through. I would like to 
say this about our neighborhood pharmacists. I think we have to 
keep them in mind through this whole process.
    The neighborhood pharmacist is probably one of the most 
trusted individuals within the community. They probably answer 
more questions when it comes to the prescription drug than the 
prescriber of the prescription. And I do think too that they 
would probably be a very good outlet for CMS when it comes to 
putting out the information for our seniors because of the 
trust that our seniors do have with our local neighborhood 
pharmacists. So if you could kind of walk us through and how 
one versus the other and how the savings will occur.
    Secretary Thompson. I will certainly try, Congressman 
Collins. And let me point out that the individuals that pay the 
highest amount for drugs are the uninsured, especially the 
uninsured senior, the 27 percent, because they walk into the 
pharmacist and they have nobody to run interference, to do 
their purchasing for them and to get the best price. So they 
are the ones that are paying the highest price. And usually, 
they are the ones that are the least able to afford it. And so 
the prescription drug card is set up so that all of these 
seniors, especially the 27 percent, have got the buying power 
of a State government, of an HMO, of an insurance company, to 
be able to get the best price for that individual. So it is 
going to be the biggest help to the 27 percent of the seniors 
that don't have any coverage whatsoever.
    Now, we set it up so that we wouldn't have one company; we 
are going to have possibly 10 to 12 companies that are going to 
meet the requirements and be able to bid, to be able to use the 
seal from CMS, the seal of good approval. And this gives those 
PBMs the opportunity to go to a pharmacist, but more than that, 
go to a pharmaceutical company and get the best price they 
possibly can. And when you have the purchasing power of the 
potential 40 million Americans, 12.4 percent of the population 
that purchases one third of the drugs in America, you can well 
imagine that you are going to have tremendous purchasing power 
and be able to get the best price from the pharmaceutical 
companies.
    So I believe that those PBMs will be able to get the 
biggest discounts from the pharmaceutical companies. In regards 
to pharmacists, they are going to have to voluntarily enroll. 
It is not a mandatory program. But in order to become a 
licensed PBM, they have to say to CMS that they are going to be 
able to provide coverage for all seniors that they represent. 
And that means in your community, Congressman Collins, as well 
as my community, if we have subscribers, that means they are 
going to have to go and enroll those pharmacists. And those 
pharmacists are going to want, I believe, to be enrolled 
because it is going to increase their traffic considerably and, 
therefore, it should be a benefit to the local pharmacist for 
the added business that it is going to bring in.
    Now, will their prices be lower? Yes. But will they 
increase businesses? Yes. And so I, for one, you know, come 
from a rural area, and the pharmacists are very important and 
we don't want--and we take into consideration. That is why this 
program, I think, is one of those win-win programs. It is 
certainly a win for the seniors. It is certainly going to be, I 
believe, a win for the pharmacists. And it is certainly going 
to be a win for your constituents, and that is why we think it 
is a very viable program, and we think that once this gets up 
and running, it is going to give probably somewhere in the 
neighborhood of 20- to 25-percent reduction.
    Now, is that--that is a wonderful first step. But it is 
only the first step. And that is why we have got to go the next 
bigger step and restructure and give a prescription benefit to 
every senior in America.
    Mr. Ramstad. The gentleman's time has expired.
    Mr. Collins. Thank you, Mr. Secretary. And I am very 
encouraged by the fact that you all are moving the ball 
forward. Thank you very much.
    Mr. Ramstad. The gentleman from Ohio, Mr. Portman.
    Mr. Portman. Thank you, Mr. Chairman. And Governor, thank 
you very much for being here again and providing us with 
refreshing testimony. I want to thank you particularly for your 
personal commitment to reform at what used to be known as HCFA 
and now known as CMS, and for your choice of Tom Scully, who I 
think is a reformer and will do a good job there. The fact that 
you moved your office out there and lived for several days with 
those good folks and tried to figure out some of their problems 
is very impressive, given all that is happening here in 
Washington and all you are involved in. You have got a lot of 
work to do, and I applaud you for what you are doing 
administratively for starters, but also looking, of course, at 
the longer term problems and coming up with these principles.
    I would encourage you to be very aggressive within the 
administration and up here on the Hill to push us on Medicare 
reform. It is a tough issue. It involves some difficult 
political decisions, but nothing is more important over the 
next couple of years as we look at these very difficult fiscal 
realities we face. You mentioned the fact that we will have 
many more folks who will be retired as compared to those 
working. That is true with regard to both Social Security and 
Medicare. The Medicare number is even more troublesome and the 
potential cost increase is even more dramatic, which could have 
a terrible effect, of course, on the seniors I represent and 
around the country. So thank you. Keep pushing us and keep 
pushing the administration.
    With regard to the card, some of the questions I had have 
already been answered. As you probably know, Governor Taft has 
proposed a similar program in Ohio. I think it has tremendous 
benefit to help seniors who find it so difficult to meet their 
prescription drug needs because of the high cost. And I 
understand what you are saying with regard to higher volume and 
potentially lower margins. I just want to echo the comments 
that have been made by my colleagues, Ms. Dunn and Mr. Collins, 
that you seem to be in agreement with, which is that our 
neighborhood pharmacies, many of which were family owned, do 
have a lot of credibility out there.
    They are the ones who often, in these kinds of programs, 
end up taking the hit and get those lower margins, rather than 
some of the manufacturers. And I would hope that through the 
PBM mechanism that you have described that we would see a fair 
distribution of that lower margin as well as higher volume 
which, I agree with you, can end up being a win-win if it is 
properly administered. And I know you will be flexible as this 
program is put in place as well to be sure that we are getting 
good information as to how it is working, to insure that 
seniors are benefiting, but also our mom-and-pop stores and 
pharmacies can continue to provide that good service that they 
do.
    I wondered if you could comment on another issue that has 
arisen in connection with the card, again, which I support. But 
that is with regard to nursing homes. As you know, many of our 
seniors who are in nursing home facilities get very specialized 
care in the area of prescription drug coverage. This is an area 
that involves a lot of intermediary companies that provide this 
care, and it is unclear to me how the prescription drug card 
would relate to those seniors who are in the nursing home 
context. I wonder if you could comment on that or perhaps 
respond in writing.
    Secretary Thompson. Well, first off, the pharmacist within 
the nursing home is going to have to enroll. They are going to 
have to meet certain requirements in order to enroll with the 
PBM. The PBM will have certain things that they offer. They are 
going to have to be willing to sell the drugs at the price that 
was negotiated with the pharmaceutical companies and pass that 
on to the senior resident in the nursing home. And the senior 
is going to have additional choices. They will be able to have 
their choice either to go in-house or go to another pharmacy in 
the community, or apply for the drugs through a mail order.
    So the senior is going to have many choices. And it should 
be one in which it is going to be beneficial to everybody 
involved.
    Mr. Portman. Are you concerned about the disruption of what 
often happens now, which is more of a managed care approach to 
seniors, the unit doses that they use, the drug packaging that 
is done and is very specialized, as you know, and the 24-hour 
emergency delivery services they provide at nursing homes, 
other specialty services? Do you think that this will disrupt 
that kind of managed care approach to drug benefits currently?
    Secretary Thompson. I don't think so, Congressman, but, you 
know, this is really in the embryonic stages. But I don't 
believe that. And I just would like to thank you for you 
leadership on a lot of reform issues. And hopefully this is one 
that we can listen to you for some advice and suggestions on 
how we can improve it.
    Mr. Portman. Absolutely. One other quick question. You 
talked earlier about how this may differ from some existing 
programs. One that has come to my attention, the Readers Digest 
card, apparently that is a program that is popular among some 
seniors in my area. How will this differ from the Readers 
Digest approach?
    Secretary Thompson. Well this is going to be much, much 
broader. I mean, this is going to be----
    Mr. Portman. Bigger discounts because of higher volume?
    Secretary Thompson. Bigger discounts. It is going to be 
broader. It is going to have all seniors, you know, that want 
to really get involved with Medicare, you know, to be able to 
have the seal of good housekeeping approval by CMS. And I would 
just think that the weight of that seal and the support of the 
Federal Government supervising the private sector--the beauty 
of it is the private sector is going to do it. The Federal 
government is not going--it is not going to cost us anything 
except for the time put in to reviewing, whether or not the 
PBMs are doing a good job. And with that kind of partnership, I 
just think it is going to be a tremendous opportunity for 
seniors to get the best discounts possible.
    Mr. Portman. Thank you very much.
    Mr. Ramstad. The gentleman's time has expired. The 
gentleman from Wisconsin, Mr. Kleczka.
    Mr. Kleczka. Thank you, Mr. Ramstad. Mr. Secretary, I think 
this whole drug card business is being overstated, not only in 
the press, but also in your comments today. I think the direct 
answer to Mr. Collins' question as to how this is going to 
affect the local pharmacies. One of two things are going to 
happen. Number one, because of these cards being used by 
Medicare recipients, they are going to be forced to give them 
the discount and it is going to come off of their bottom line. 
It is going to come off the small spread they have from filling 
prescriptions.
    Or the other thing which I think is going to happen, and 
this is probably more realistic, is the bulk of these PBMs are 
going to go to mail order, and so our local pharmacist, the 
pharmacist in Elroy, Wisconsin, is going to get X out of the 
deal, Okay? But this whole benefit, or this whole discount drug 
card is liberalism at its worst. At least the traditional 
liberals, when they come up with a program like this to benefit 
people, they provide some Federal financing or government 
financing for it, Okay?
    But what we are doing now, this administration is promoting 
this program, and it is going to come out of other people's 
hides. All right? These benefit managers, the PBMs, for the 
most part, we have seen they don't necessarily pass off or pass 
on the savings that they get through the volume purchasing. But 
I am aware that four companies that are dealing with the White 
House on this drug discount card now, 90 percent of the 
business they do is all mail order.
    So if we are worried about our local pharmacies, this 
business is going to be gone because if you want to save 10 or 
12 percent you are going to have to mail your scrips down to 
Florida and 5, 6 days later, you are going to get the 
medications back.
    Mr. Secretary, you indicated that in modernizing medicine 
or Medicare, you are really hoping to have some type of a 
bipartisan solution. My question is, has your agency, has HHS 
currently been working with congressional staff on trying to 
develop this proposal to modernize Medicare?
    Secretary Thompson. Yes.
    Mr. Kleczka. Okay. Has any Democratic Members of Congress 
or staff been invited to participate?
    Secretary Thompson. Yes, many.
    Mr. Kleczka. Okay. No one that I am aware of on the 
Committee, Democrats I should say, or their staff had been 
invited. Am I missing something?
    Secretary Thompson. Congressman Kleczka, I would love to 
work with you.
    Mr. Kleczka. Well, I am just saying, have you invited Pete 
Starks' staff, who is the ranking minority Member on the 
Subcommittee?
    Secretary Thompson. I believe--I don't know if--how many--
--
    Mr. Kleczka. See, we keep talking bipartisanship. But now 
in the development of the reform, I am not aware of any 
Democrat Members of Congress or a staff person invited.
    Secretary Thompson. Well, Congressman, that is just not 
true because we have worked considerably on a bipartisan basis.
    Mr. Kleczka. Well could you identify a staff person that 
has been part of this discussion?
    Secretary Thompson. I can't identify a staff person right 
now, but I can tell you that I have met with many Congressmen, 
Democrats and Republicans.
    Mr. Kleczka. No, I am talking about actual discussions on 
putting together this modernized Medicare bill.
    Secretary Thompson. I was not in the meetings, but I have 
instructed them that they meet with both political parties as 
often as they possibly can, and----
    Mr. Kleczka. Could you check with the staff and maybe--I 
keep wanting to call you Governor.
    Secretary Thompson. But I would like to also point out 
about the card. You are under a misinterpretation on one thing, 
Congressman Kleczka, that these PBMs cannot only do mail 
orders. That is prohibited. They also have to enroll the 
pharmacists, so it is not only going to be mail order. It has 
got to be both.
    Mr. Kleczka. And Mr. Pharmacist, even though you have a 
very small margin in writing these or filling these 
prescriptions, we are going to send you a hundred seniors with 
these cards, you are going to have to eat the cost, right?
    Secretary Thompson. No.
    Mr. Kleczka. There is no way they are going to get the 
drugs cheaper from the pharmaceutical company. That is why the 
Drugstore Association now is livid over this thing. It is a 
great liberal proposal, but we are not putting any money where 
our mouth is.
    Secretary Thompson. Congressman, we are hopeful and we 
believe strongly that the large discounts are going to come 
from the pharmaceutical companies, not the pharmacists. That is 
where the big savings are going to be. And yes--we, you are 
absolutely correct. We do not put any Federal dollars into this 
thing. We think the beauty of the program is that it is going 
to be run by the private sector, and we think the pharmacists, 
the local pharmacists in your congressional district and I know 
many of them, are going to benefit from this because they are 
going to get increased individual traffic from the people that 
will be able to purchase drugs now.
    Mr. Kleczka. That is a concern they are sharing with me. 
They, Governor, don't agree with you.
    Secretary Thompson. I know a lot of people don't, but--I 
don't think you can say that, and I know I can't at this point 
in time. I just think that the program is going to work and I 
think that we will have to come back and discuss it in 6 
months, and we will see if you are correct or I am correct.
    Mr. Kleczka. Okay. Thank you very much.
    Mr. Ramstad. The gentleman's time has expired. The 
gentleman from Pennsylvania, Mr. English.
    Mr. English. Thank you, Mr. Secretary. Mr. Secretary, I 
have learned a great deal from your testimony today and I have 
seen you go through a battery of questions and even be accused 
of liberalism, which is something I don't gather you were 
accused of all that often when you were up at Wisconsin, but 
Mr. Kleczka may have a different take on that.
    Mr. Kleczka. Will the gentleman yield?
    Mr. English. No, I would prefer to ask my question. Mr. 
Secretary, we in northwestern Pennsylvania are very pleased 
that you have made it such a high priority to move forward on a 
Medicare prescription drug program to the extent that you are 
able to now create a discount drug card and looking toward--and 
we recognize that your card is just a step toward a 
comprehensive drug program under Medicare.
    One of the issues raised by my colleague from Pennsylvania, 
Mr. Coyne, had to do with States like Pennsylvania that already 
have made the investment in their seniors and created their own 
State drug program. One of the things we learned in last year's 
debate is that in order to accommodate seniors in States like 
that, it is important to have a drug program that is flexible 
enough that you can wrap it around existing benefits.
    Do you view it as a priority to create a program at the 
Federal level that can be integrated with State programs, and 
what issues do you see with that integration?
    Secretary Thompson. Well, I think you have to have a 
program that is going to be--I don't know if ``integration'' is 
the proper word. But you have to be able to have a program that 
is going to work in concert with the State program, Congressman 
English. You have got the Medicaid program. And that, of 
course, is going to pick up in a lot of cases where Medicare 
leaves off. So what we have to do, I don't know if 
integration--but we have to be able to be willing to look at 
the Medicaid program as well. I don't think we can do it all 
this year, but if we could build the Medicare Program in a 
strong fashion and give people a choice, I think it is going to 
benefit the State programs, especially your PACE Program in 
Pennsylvania and your Medicaid program and will strengthen it 
if Medicare is able to do a lot of things.
    For example, if we are able to develop a better prevention 
program and be able to get people before they get really sick, 
that is going to benefit the State dollars. And so all of this 
together, this building one upon the other, is going to be 
helpful for Pennsylvania as it is for the State of Wisconsin.
    Mr. English. One of my other colleagues had expressed a 
concern that actions in Congress or the administration might 
``obviate the availability of resources for Medicare,'' which 
in northwestern Pennsylvania, we would rephrase that as not 
enough money. I am wondering, looking at the budget that the 
President's leadership pushed forward, having made a commitment 
to, as I recall over $300 billion to modernize Medicare, and 
put in place a prescription drug program, which is double the 
investment that the House had contemplated last year in passing 
our bipartisan bill, do you feel, at this point, that the House 
has committed the resources in its budget to modernize 
Medicare?
    Secretary Thompson. I think you have done an excellent job, 
Congressman, and I think it shows how serious this Congress is 
about addressing this problem. And let us hope that we are 
going to be able on a bipartisan basis to do the job that is 
necessary for our seniors across America. And that includes 
prescription drugs. That means a Medicare Program with expanded 
benefits for catastrophic coverage and for prevention, and also 
put it on a financially secure basis so that your children and 
grandchildren are going to be able to have the coverage that 
they deserve.
    Mr. English. And on that point, you have been very 
correctly raising the issue of reform as part of the picture. 
My understanding is that absent reform, combined Medicare 
spending will quadruple from 2.2 percent of GDP to 8.5 percent 
by the year 2075. You are an actuary of this, or I am sorry, a 
trustee?
    Secretary Thompson. Yes, sir.
    Mr. English. Is that accurate? And do you feel that we have 
to fix this all at once?
    Secretary Thompson. That sort of actuarial study has 
certainly shown, but it is even more imminent than 2075 because 
2016, you are going to see a precipitative drop as far as out 
go versus income. And so really, in 2016 there will be some 
built up IOUs from the government that will keep it solvent 
until 2029. But 2016 you start going the other way. And so it 
is important, you know, for people to understand. It is not 
2029. It is not 2075. It is 2016 that really is the date that 
is the most prevalent one to consider.
    Mr. English. Thank you, Mr. Chairman.
    Chairman Thomas. The gentleman's time has expired. The 
Secretary has been here for 3 hours, and he has to leave no 
later than 1:10. So if possible, so that all three of you can 
get your questions in, I will now call on the gentleman from 
Massachusetts.
    Mr. Neal, if you could possibly shorten your time so the 
other two colleagues could also inquire.
    Mr. Neal. Thank you, Mr. Chairman. I just want to 
compliment the Secretary on the appointment of Mr. Scully. I 
think that is an exceptional appointment and I won't be going 
to your deposition, I can tell you that.
    Secretary Thompson. Thank you, Congressman.
    Mr. Neal. Mr. Secretary, yesterday I met with Steve Crosby, 
who is the Secretary of Administration and Finance in the State 
of Massachusetts and they oversee Medicaid and Medicare issues 
for the State. He talked to me about many of the consumer 
issues that are pending in Massachusetts right now, including 
efforts to coordinate drug purchasing for those enrolled in the 
senior pharmacy assistance program, Medicare and Medicaid, 
State workers and the underinsured and the uninsured.
    My question is, how will the administration's discount drug 
plan interact with the State-run plan like the one that is 
being developed in Massachusetts at the moment? And could my 
constituents participate in both this new Federal program and a 
State discount program as well? And will this new Federal 
benefit preempt State initiatives like those being developed in 
Massachusetts? If the Federal discount is better for one drug 
and the State discount is better for another, can my 
constituents participate in both plans and shop for the best 
priced drugs, and if so----
    Secretary Thompson. If they are seniors, yes.
    Mr. Neal. Yes to all three?
    Secretary Thompson. Pardon?
    Mr. Neal. Yes to all three parts of the question?
    Secretary Thompson. If they are a senior, they will be able 
to participate in the State program and the Federal program if 
they so desire. And this program is not going to interfere with 
any State programs like Massachusetts or any other State that 
is developed. But what it intends to do, really, is to help the 
uninsured, the 27 percent of the seniors in America, which is 
approximately 12 million, 10 to 12 million Americans that don't 
have any drug coverage whatsoever. And they are the individuals 
that pay the highest price because they have nobody running 
interference for them, either with the drug companies or the 
pharmacist, to get the best price. And another beauty of this 
card is a year from now we are going to have all of the 
listings, the PBMs have got a list, all of the drugs they are 
selling, both the generic drugs as well as the main drugs.
    Mr. Neal. One last question, and then I will use a point of 
reference. The hospitals where I live are still complaining 
that they are in trouble. Levels of reimbursement they say are 
not adequate. And I know part of it rests with the Balanced 
Budget Act. But the other part of it obviously rests with 
interpretations that you are going to make in an administrative 
capacity. But that is across the State. And those are the best 
hospitals arguably in the world in Massachusetts, and they 
really are all singing from the same hymnal. They need help.
    Secretary Thompson. I am hearing that refrain not only in 
Massachusetts. I heard it when I was in Texas. I heard it and I 
have heard it in Wisconsin.
    Congressman Neal, as you know, the Balanced Budget Act made 
some changes and there have been some improvements since the 
Balanced Budget Act. We are looking at ways, and I would 
appreciate your suggestions on how we might be able to 
restructure and improve the payment structures. But we also, 
under, you know----
    Mr. Neal. Be assured I am going to be on Tom Scully big 
time about this issue.
    Secretary Thompson. Pardon?
    Mr. Neal. Be assured I am going to be on Tom Scully big 
time about this issue.
    Secretary Thompson. He is here right now smiling, I am 
sure, behind me and knows that full well.
    Mr. Neal. Thank you, Mr. Secretary.
    Secretary Thompson. Thank you, Congressman Neal.
    Mr. Ramstad. I thank the gentleman from Massachusetts and I 
join in his comments of praise about Mr. Scully. And I now 
yield to the gentlelady from Florida, Mrs. Thurman.
    Mrs. Thurman. Thank you. And since Mr. Scully is here I 
just want to also tell you, Mr. Thompson, he is very good at 
getting us back on the phone after we have made a phone call. 
So that just adds to whatever everybody else has said. But I 
need to go into a couple of questions.
    You announced a couple of months ago about changing the 
date on the HMO Medicare choice program information going out 
to seniors. I have to tell you that has created a huge issue in 
the district. I mean, absolutely these people are scared. They 
don't understand. They don't know why, and they are calling it 
a disaster. It doesn't make sense. How are we going to get the 
word out?
    But with that in mind, I also have been able to pull your 
budget for the next year, particularly on the area of Medicare 
education program. I wish some of our appropriators were here, 
because it actually has been reduced by about $48.2 million 
over this next year, so when you do that, I don't know how we 
are going to be able to do this educational program and get 
this information out in a timely fashion for some of these 
folks. And I just bring that up because they are very, very 
scared.
    Secretary Thompson. Congresswoman, I understand that. But 
what we are trying to do, and we were faced with a real----
    Mrs. Thurman. I know.
    Secretary Thompson. We were faced with a real dilemma and 
the real dilemma was that a lot of the Medicare-Plus Choice 
HMOs were saying, you know, we don't ---we are going to have to 
pull out. And if we could give a little bit more time in order 
to look at our financing and--we are trying to keep them in. 
And I understand, you know, your constituents and we are trying 
to be very sympathetic to that, and we are trying to figure out 
a way----
    Mrs. Thurman. But I am actually trying to help you here, 
because I want the rest of the Congress to understand that we 
are cutting your budget to do exactly what you are trying to 
get done, and that is to make sure they have the right 
information. And these are people who, in fact, have been 
pulled out last year and only by a fact of getting an incentive 
payment in there were we able to bring back into, so they are 
back in there.
    Secretary Thompson. Thank you for your help.
    Mrs. Thurman. The other thing I am just going to bring up, 
you don't have to answer it right now, is nurses shortage, a 
huge issue across this country, part of the hospital costs that 
are going up. They can't find nurses. We are not doing anything 
about education. I would like to call on your Governors to, in 
fact, start implementing some programs whether it is some kind 
of scholarship aid, whatever, to help in that area.
    Secretary Thompson. I agree with you. I couldn't agree with 
you more.
    Mrs. Thurman. The other thing that I would like to talk to 
you about, and this is a concern to me. And it is actually an 
amendment that I have run a couple of times in this Committee. 
The card is great, but the fact of the matter is I tend to 
agree, at looking at some of these issues, I don't think the 
pharmaceutical companies are going to give us a break. I just 
don't believe it. I mean, they are out there already on this 
patent trying to extend patents so that they can have 
additional time instead of putting in a generic.
    So I don't know how we are going to get them to work. But 
there is a way the Federal government could have done this, and 
that was through the Federal supply program, and in fact, that 
if I just look at like Drugstore.com or Merck Medco, if you 
take the 10 percent and the 25 percent that you gave, I will 
tell you, and I will show you those numbers. But, in fact, the 
Federal supply schedule is still lower than even what this card 
can do and quite frankly it doesn't cost the Federal government 
any money. We are just negotiating in an area that we have 
already negotiated. So I just lay that on the table; something 
to think about.
    Secretary Thompson. Thank you.
    Mrs. Thurman. I think it is something that could be done. 
We do VA contracts already. It is something that we could--
actually cost nothing to the Federal Government and would work.
    The last thing that I am going to say, though, is somebody 
mentioned in this Committee just a little while ago about Blue 
Cross, Blue Shield and all of these, you know, opportunities 
that we might have in providing senior citizens plans. They are 
already leaving. I mean they are not--I don't know how we are 
going to encourage them back. We know for a fact that of the 15 
percent in managed care today we are going to be down to 12 
percent by the end of this year. I mean, that has been kind of 
out there from what I----
    Secretary Thompson. I am afraid you are correct. I hope 
that we can stem the bleeding, but I am afraid you are correct.
    Mrs. Thurman. So, but even when we add these choices, I 
mean, right now already, one of the reasons those folks are 
telling us they are leaving is because we don't give them 
enough money. I mean that is their argument. I am not sure that 
that is the total argument, because I think networking has a 
lot to do with this and providers participating in it.
    So the other issue, especially after all these tax cuts and 
we continue to get these tax bills, and you know, part of our 
administration last year said we need to provide some more 
dollars into Medicare and we needed to save some of that 
surplus money to do that to strengthen, and in fact, do exactly 
some of the kind of things you have said.
    I am very concerned that we are going to do a lot of these 
things and the cost is going to be shifted to the 
beneficiaries, which is what has happened under Medicare Choice 
programs today. But we will talk. Thank you.
    Mr. Ramstad. The gentlelady's time has expired.
    Secretary Thompson. But Congresswoman, I need your help. I 
need your ideas. I need----
    Mrs. Thurman. Call me, because I haven't gotten that phone 
call yet.
    Secretary Thompson. OK.
    Mr. Ramstad. Mr. Secretary, I know your drop dead time for 
leaving----
    Secretary Thompson. You can call me, too.
    Mrs. Thurman. I have.
    Mr. Ramstad. I will set up a conference call for you. I 
know the Secretary's drop dead time for leaving is 1:10, but 
your staff just graciously consented to one more line of 
questioning.
    Mr. Doggett. I have about 5 minutes.
    Mr. Ramstad. So the Chair will recognize the gentleman from 
Texas for the final questioning, Mr. Doggett.
    Mr. Doggett. Mr. Secretary, this week we were reminded once 
again by Phillip Morris that it provides a public service to 
programs like Medicare because its product kills people before 
they consume significant amounts of moneys from programs like 
Medicare. Earlier this month, I requested that you determine 
whether your Department is fully implementing executive order 
13193, concerning our leadership in global tobacco control and 
prevention programs. And I would just want to draw that to your 
attention and not ask you for a full response today.
    Secretary Thompson. Did you write me that?
    Mr. Doggett. Yes, sir. I did. And your Department has 
acknowledged receiving the letter and, in fact, I advised them 
that I would be asking you about it today. But I--it is obvious 
you don't have that information. And I am just asking you to 
give it your attention for a prompt written response.
    Secretary Thompson. OK.
    [The following was subsequently received:]

    The written response referred to by Representative Doggett 
regarding the allocation of funds received by the States under the 
Family Violence Prevention and Services Act is being prepared and will 
be transmitted to each Member of Congress who signed the incoming 
letter.

                                

    Mr. Doggett. Second matter is also one that I am only 
asking for your prompt written response on. And it concerns a 
matter that you will be receiving a bipartisan letter on. 
Earlier this year your Department provided the States a notice 
of the allocation that they would receive under the Family 
Violence Prevention Services Act, a subject I know you are 
personally interested in. Unfortunately, that notice of the 
allocation was in error. It was inaccurate. And by the time 
that the Department corrected this allocation, the Texas 
legislature, in its biannual session, had adjourned. The 
legislature appropriated, based on the inaccurate information 
and we feel now that in Texas, and this is not just Texas, but 
particularly in our State, that there will be hundreds of 
families that will not have the services through these violence 
prevention programs because they----
    Secretary Thompson. Do you know how much money was 
involved?
    Mr. Doggett. Yes, sir. I think what we are asking for is a 
reprogramming of about $615,000. And so I would just ask you 
again if you would take a look at that. You will be receiving 
that letter shortly, and try to get back with us because it is 
very important.
    On to the key matters that you have testified to in my 
remaining seconds. In principle number three, when you use the 
term ``approaching retirement'' in that guarantee, what do you 
believe approaching retirement is, agewise?
    Secretary Thompson. We haven't made a decision.
    Mr. Doggett. I mean, does it include, 50, 55? Can you give 
me a range of what you are talking about?
    Secretary Thompson. I presume all of those.
    Mr. Doggett. That it would include people 50 and above but 
not necessarily below 50?
    Secretary Thompson. We never made a determination. I would 
think 50 probably.
    Mr. Doggett. You--I saw you explain this program the night 
it was announced on the Lehrer News Hour, and you responded to 
questions about the Federal Government's role by saying we 
don't pay any money at all. It is beautiful. And I guess some 
would view it as beautiful and some would view it as a free 
lunch approach. But my question to you is, if it is beautiful, 
and it is free to the Federal government, why are you directing 
it only toward seniors and not to the millions of people in our 
country that are in exactly the same situation, who pay the 
highest prices in the world because they happen to be 
uninsured?
    Secretary Thompson. You raise a valid point. We just want 
to make sure that it is successful. We think it is going to be. 
I know Congressman Kleczka does not believe that it is going to 
be as successful as I do and we will have to come back here 6 
months from now.
    Mr. Doggett. So you are willing to consider that 
alternative.
    Secretary Thompson. Congressman Doggett, I love new ideas. 
And you have got new ideas, whether it is a Democrat or 
Republican, I will try and implement it. And I want to work 
with you.
    Mr. Doggett. I am glad to hear that. And I am going to come 
back to that point. But I want to, in these seconds, to be sure 
that I understand your request for proposal on this, ask that 
under the discount program that they guarantee that the retail 
price or the discount price, whichever is lower, will be 
available with this discount card. Doesn't that, in itself, 
suggest that often the retail price is going to be lower than 
the discount price?
    Secretary Thompson. It presupposes that in some----
    Mr. Doggett. That could happen.
    Secretary Thompson. It could happen, yes. But I would say 
not often.
    Mr. Doggett. You say that you are seeking 10 to 25 percent 
off of retail prices. You don't mandate any pharmaceutical 
company in this country to discount its prices, do you?
    Secretary Thompson. No.
    Mr. Doggett. And indeed, when you talk about----
    Secretary Thompson. Listen, I don't have that power. If you 
want to give me that power, Congressman, I will do it. All I 
can do is--Congressman Kleczka says no, he won't do that. But 
if you want to give me that power, I will exercise it.
    Mr. Doggett. Under this program that you have, are you 
going to provide that any of the discount card providers who 
can't assure a minimum of 10 to 25 percent will be removed from 
the program?
    Secretary Thompson. We will supervise it on an annual 
basis.
    Mr. Doggett. Are you going to set that as the minimum?
    Secretary Thompson. No.
    Mr. Doggett. I mean, you could have a program with 1 
percent, and since I see the red light coming on, let me just 
go back because I think it is an appropriate place to end, and 
an important point.
    I have done a survey in the course of this hearing. Not one 
Democrat on this Committee, not one Member of the Committee 
that has responsibility for Medicare, has been asked to meet 
with you or Mr. Scully. And I think it is great you are over 
here. I appreciate the attitude that you have expressed. But 
the Committee that has jurisdiction, as far as the Democratic 
side, if you really want us engaged, if this is to be a 
bipartisan program, it has to be more than happy talk.
    Thank you, Mr. Chairman.
    Secretary Thompson. Mr. Doggett, it is not happy talk. I am 
on Capitol Hill at least 1 day a week and I will come and see 
you and talk to you.
    Mr. Doggett. You have not seen--you have talked about all 
these meetings with Democrats, with more Democrats than 
Republicans. But you have not, prior to today on any aspect of 
this, talked with a single Democrat on this Committee, and I 
think that is unfortunate and it is similar to some other 
things that have happened with this administration, where there 
is good talk about bipartisanship, but it only means photo 
opportunities, not involvement in decisionmaking.
    Secretary Thompson. If that is the case, and my staff has 
not talked to any of your staff, it is unfortunate. We will try 
and rectify that.
    Mr. Doggett. Thank you very much.
    Mr. Ramstad. The gentleman's time has expired. We want to 
thank you, Mr. Secretary, for appearing before the Committee 
for 3 hours and 19 minutes, for bringing your bipartisan 
leadership to Medicare reform. And also want to thank Mr. 
Scully for being here today and the staff for both of you. 
Thank you for your hard work and for the attitude that you 
bring, the spirit of bipartisanship to this important reform. 
Look forward to working with you. The hearing is adjourned.
    [Whereupon, at 1:20 p.m., the hearing was adjourned.]
    [Submissions for the follow:]
   Statement of the Advanced Medical Technology Association, AdvaMed
    AdvaMed represents over 800 of the world's leading medical 
technology innovators and manufacturers of medical devices, diagnostic 
products and medical information systems. Our members are devoted to 
helping patients lead longer, healthier and more productive lives 
through the development of new lifesaving and life-enhancing 
technologies. AdvaMed is pleased to present this testimony on behalf of 
our member companies and the patients they serve.
    AdvaMed applauds President Bush's Principles for Medicare Reform, 
released on July 12, 2001, which emphasize the importance of 
encouraging high-quality health care for all seniors, better coverage 
of preventive care and treatments for serious illnesses, increased 
patient access to the most modern health care options and improved 
management of the program. Medical technologies are key in helping to 
realize these goals.
Medicare should encourage high-quality health care for all seniors, 
        including better coverage for preventive care and serious 
        illnesses.
    The rapid pace of innovation for diagnosing, treating and curing 
diseases and illnesses continues to drive the high quality of health 
care available to Americans. However, according to the President, 
``Medicare takes way too long to authorize new treatments. We must act 
now to ensure that the next generation of medical technology is readily 
available to America's seniors.''
    The President's statement underscores the importance of reducing 
the current delays of 15 months to five years in Medicare patients' 
access to new technologies. By keeping pace with advances in medical 
technology, Medicare can improve patients' quality of care and put 
Medicare on solid financial ground.
    The Administration can make substantial progress in reducing 
Medicare delays by:

           Properly implementing key technology access reforms 
        in the Benefits Improvement and Protection Act of 2000, 
        including provisions calling for temporary, transitional 
        payments for new technologies in both the inpatient and 
        outpatient settings.
           Creating a Medicare Office of Technology and 
        Innovation to improve the Centers for Medicare and Medicaid 
        Services' (CMS) accountability, openness and coordination in 
        making timely decisions.
           Establishing decision deadlines to improve 
        accountability. For technologies subject to a national coverage 
        decision, CMS should take a total of 6-12 months to set 
        coverage, coding and payment policy and make the technology 
        available to patients.
           Maintaining and strengthening the local Medicare 
        coverage process as an important channel for early patient 
        access to new technologies. CMS should support local decision 
        making processes to ensure the continuation of timely, flexible 
        access to new technology. A wide range of local contractors 
        should continue to work with public stakeholders in creating 
        new medical policies and assign local codes as needed.

Medicare should provide better health insurance options, and the 
        management of the government Medicare plan should be 
        strengthened so that it can provide better care for seniors.
    AdvaMed strongly supports reduced bureaucracy and streamlining, but 
we are concerned that contractor consolidation could impair local 
coverage decision-making for critical new therapies. AdvaMed emphasizes 
the continued importance of local decision making to help ensure the 
prompt and appropriate use of new technologies.
    AdvaMed also supports broader reforms to the Medicare program to 
give consumers the ability to choose among a range of competing health 
plans, as well as the traditional Medicare program. We believe it will 
be critical to ensure a minimum number of competing health plans in 
each geographic area, so consumers who are empowered to choose among 
competing health plans will make sure they have access to the high-
quality, innovative medical technologies and procedures they need.
    However, implementation of the President's plan should not expand 
Medicare purchasing authority prematurely. AdvaMed firmly believes in 
the benefits of market-based competition for providing patients with 
choices for the most current, high quality health care but the way this 
important change is implemented will have profound effects on its 
success. It will be crucial not to implement expanded purchasing 
authority for the Medicare fee-for-service program before a sufficient 
number of competing private plans are available in all major geographic 
areas.
Conclusion
    AdvaMed believes that these reforms, and other important changes 
related to prescription drugs, will help provide Medicare beneficiaries 
with the modern, state-of-the art care that they deserve, within a 
framework of market-based, competitive health plans. At the same time, 
the President's plan would address the solvency of the Medicare trust 
fund--an essential part of any reform proposal.
    The President's proposal provides great opportunities for seniors 
to benefit from the unprecedented advances in innovation happening in 
health care today. We look forward to working with this Committee, the 
Congress and the Administration on ways to improve the quality of care 
available to seniors through Medicare and foster the delivery of 
innovative therapies for patients.

                                

             Statement of the Alliance to Improve Medicare
Introduction
    The Alliance to Improve Medicare (AIM) is the only organization 
focused solely on fundamental, non-partisan modernization of the 
Medicare program to ensure more coverage choices, better benefits 
(including prescription drug benefits), and access to the latest in 
innovative medical practices, treatments and technologies through the 
Medicare system. AIM coalition members include organizations 
representing seniors, hospitals, small and large employers, insurance 
plans and providers, doctors, medical researchers and innovators, and 
others.
    The structure of the traditional Medicare program has changed 
little in more than three decades and, consequently, has not kept pace 
with many of the dramatic improvements in health care delivery. AIM is 
dedicated to achieving comprehensive modernization of the traditional 
Medicare program through policy research and educational programs for 
Members of Congress and their staff, the media, and the American 
public.
    AIM applauds the Bush administration's recognition of the need to 
strengthen and improve the Medicare program to provide high quality 
health care for senior citizens. AIM shares many of the Bush 
Administration's principles for Medicare modernization including 
support for providing more and better coverage options, improving 
coverage of preventive care services, strengthening the program's 
financial foundation, and reducing regulatory burdens on beneficiaries, 
health plans, and providers.
    AIM also supports access to prescription drug coverage provided as 
part of broader modernization. AIM members support an integrated, 
market-based Medicare drug benefit. The discount card program proposed 
by the Bush Administration is a way to assist seniors who need 
prescription drugs in the short-term. AIM urges Congress and the 
Administration to continue work toward a long-term, integrated drug 
benefit for all seniors.
Key Principles for Medicare Modernization
    AIM has identified seven key principles to guide Medicare 
modernization efforts. These principles seek to improve both the 
administration of the Medicare program and the benefits provided to 
program beneficiaries.
    First, AIM supports improvement of health care coverage through 
better coordination of care including health promotion and disease 
prevention efforts. The traditional Medicare program has not kept pace 
with private sector benefits and plans offering preventive health care 
and screening measures such as annual physicals, hearing and vision 
tests, and dental care. Medicare beneficiaries, more so than other 
population age groups, can benefit from these preventive measures which 
can help reduce long-term costs and ensure appropriate, early treatment 
of health problems. Private sector Medicare providers should have the 
flexibility to incorporate these measures as part of basic health care 
services.
    Second, AIM supports improvement of health care coverage through 
increased consumer choice. Medicare beneficiaries should have the 
option to choose from a range of coverage options similar to those 
available to Members of Congress, federal employees and retirees, and 
millions of working Americans under 65 years of age who are covered by 
private plans. The Medicare managed care program, Medicare+Choice, 
seeks to provide these types of coverage options to seniors nationwide. 
Unfortunately, inadequate payments and excessive regulation of private 
sector providers participating in Medicare+Choice have seriously 
constrained the ability to expand coverage areas and have caused 
numerous plans to withdraw from coverage areas where reimbursement was 
inadequate to cover even the costs of basic care.
    Third, AIM supports improving coverage through increased 
competition among all plans and providers in the Medicare program. 
Medicare's managed care option, the Medicare+Choice program, is an 
alternative to and competitor with traditional fee-for-service 
Medicare. The federal government, through the Centers for Medicare and 
Medicaid Services (CMS), currently regulates Medicare+Choice plans 
while also acting as a participant itself through the traditional fee-
for-service program. AIM believes this dual role is anti-competitive. 
Medicare reform and modernization efforts must be evaluated based on 
success in increasing market competition and availability of basic, 
affordable coverage to Medicare beneficiaries, not on increasing CMS's 
regulatory powers and oversight activities.
    Fourth, AIM believes prescription drug coverage should be provided 
to all Medicare beneficiaries as part of comprehensive, market based 
Medicare modernization. The opportunity for reform and modernization is 
presented by the recognized need to cover prescription drug benefits 
for Medicare recipients. Congress and the Administration should take 
this opportunity and not simply layer a new, stand-alone drug program 
onto the traditional Medicare program without addressing the program's 
outdated and inadequate financial and structural systems. The program 
in its current form cannot meet the coming challenges presented by the 
retirement of the baby boom generation which will more than double the 
number of Medicare beneficiaries. Any Medicare reform proposal must 
address the real structural and financial problems of the Medicare 
program.
    Fifth, AIM urges Congress to continue to review and address the 
financial crisis facing health plans and providers. Adequate financing 
is necessary to establish a solid foundation upon which to build a 
better Medicare and ensure the long-term financial integrity and 
solvency of the Medicare program. Health plans, hospitals and doctors 
have been hit hard and patient care has been and will continue to be 
affected. Congress recognized the damage caused by BBA '97 and has 
provided some restorations in payment funding. These small repayments 
represent a good start at addressing the financial crisis caused by the 
cuts. AIM encourages Members to continue to ensure appropriate and 
timely payments for these providers and plans to ensure appropriate 
care for Medicare beneficiaries.
    Sixth, AIM believes that the current rigid and outdated Medicare 
benefit structure and bureaucracy must be replaced. A recent AIM report 
outlined Medicare regulatory burdens on both Medicare beneficiaries and 
on health plans and providers. The report, ``Improving Medicare 
Management for Everyone'', identifies areas of complexity for both 
senior citizens and providers including health plans, hospitals, and 
medical technology innovators. AIM identifies beneficiary concerns 
including the lack of clear information on benefits and eligibility, 
access to prescription drug benefits, and difficulties understanding 
Medicare paperwork. The report also outlines provider regulatory 
burdens including inconsistent Medicare program policies, slow 
responses to provider concerns and inquiries, and an inflexible 
Medicare bureaucracy.
    Finally, AIM believes Medicare administrators must reduce excessive 
program complexity and bureaucracy caused by the more than 110,000 
pages of federal rules, regulations, guidelines and mandates. AIM 
supports the elimination of real fraud and abuse in Medicare but our 
members believe this can be achieved without relying on unnecessarily 
complex and heavy-handed regulation. Providers and plans must not be 
forced to divert resources from patient care in order to respond to 
ever-changing regulations.
Conclusion
    AIM urges the 107th Congress to consider sensible, long-term 
solutions to the problems confronted by the Medicare program and by 
Medicare beneficiaries and we urge Members to work together on a 
bipartisan basis to achieve comprehensive Medicare reform. AIM 
appreciates the opportunity to submit this statement for the hearing 
record and we look forward to working with the Committee as they 
examine options for Medicare.

                                                        AIM Principles for Medicare Modernization
                                                                        July 2001
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Address                                                               Offer Drug
 AIM Principles for Medicare   Financial Crisis  Improve Coverage  Improve Coverage  Improve Coverage  Benefit through   Cover Medical   Reduce Medicare
        Modernization             and Ensure     through Expanded    by Increasing   through More M+C      Medicare       Technologies   Bureaucracy and
                               Financial Future      Benefits       Consumer Choice     Competition     Modernization     More Quickly      Complexity
--------------------------------------------------------------------------------------------------------------------------------------------------------
S. 357                         YES.              NO.               YES.              YES.              YES.             NO.              NO.
                               Redefines         No provisions to  Restructures as   Reforms fee-for-  Offers drug      No provisions    No provisions
(Senator John Breaux (D-LA)     solvency for      improve fee-for-  ``competitive     service and       benefit as       to speed         to reduce
 and Senator Bill Frist (R-     Part A and Part   service           premium           Medicare          part of ``High   approval of      overall
 TN))                           B Trust Funds.    Medicare          system'' to       managed care      Option''         new medical      government
                                (Sec. 101; new    program           encourage plans   programs by       benefits         technologies     regulation of
(Based on National Bi-          SSA Title XXII,   benefits by       to stay in        creating          package          in fee-for-      Medicare
 Partisan Commission on the     Part D)           adding            program and/or    separate          through fee-     service          beneficiaries,
 Future of Medicare)                              preventive        expand            management        for-service      program.         health plans
                                                  benefits.         operating         offices and       and Medicare     Medicare         or providers.
                                                                    areas. Creates    Medicare Board.   managed care     managed care
                                                                    new agency to     (Sec. 101; new    plans.           plans are
                                                                    oversee managed   SSA Title XXII,   Includes         urged to
                                                                    care program.     Part E)           reforms for      quickly cover
                                                                    (Title III)                         both programs.   new
                                                                                                        (Sec. 101; new   technologies.
                                                                                                        SSA Title
                                                                                                        XXII, Part A)
S. 358                         YES.              NO.               YES.              YES.              NO.              NO.              NO.
                               Redefines         No provisions to  Improves and      Establishes       Drug benefit is  No provisions    No provisions
(Senator John Breaux (D-LA)     Medicare          improve fee-for-  strengthens       separate          not              to speed         to reduce
 and Senator Bill Frist (R-     solvency.         service           Medicare          Medicare agency   incorporated     approval and     overall
 TN))                           Requires annual   Medicare          managed care      to run Medicare   into standard    coverage of      government
                                report on trust   program           program through   managed care      benefit          new medical      regulation of
                                fund status.      benefits by       competitive       program and       package.         technologies     Medicare
                                (Title I,         adding            system modeled    drug benefit.                      in fee-for-      beneficiaries,
                                Subtitle B).      preventive        FEHBP. (Title     (Title I,                          service.         health plans
                                                  care.             III)              Subtitle A)                        Medicare         or providers.
                                                                                                                         managed care
                                                                                                                         plans are
                                                                                                                         urged to
                                                                                                                         quickly cover
                                                                                                                         new
                                                                                                                         technologies.
S. 1135                        Somewhat.         YES.              NO.               Somewhat.         NO.              YES.             NO.
                               Proposal would    Fee-for-service   No provisions to  Allows            Drug benefit is  Proposal seeks   No provisions
(Senator Bob Graham (D-FL))     index Part B      and Medicare      improve and       competition for   not              to improve and   to reduce
                                deductible to     managed care      increase          select fee-for-   incorporated     speed coverage   overall
                                inflation and     programs would    consumer          service           into standard    decisions for    government
                                change Part B     include           choices for       contracts.        benefit          new              regulation of
                                monthly premium   preventive        coverage.         (Title I, Sub.    package.         technologies.    Medicare
                                to sliding        benefits.                           D) Allows                          Proposal does    beneficiaries,
                                scale payment     (Title IV)                          competition for                    not address      health plans
                                based on                                              drug benefit                       coding or        or providers.
                                income. (Title                                        contracts.                         payment.
                                V)                                                    (Title III,                        (Title I, Sec.
                                                                                      Sec. 301) No                       101)
                                                                                      provisions to
                                                                                      improve
                                                                                      competition in
                                                                                      Medicare
                                                                                      managed care.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Statement of the National Association of Chain Drug Stores, Alexandria, 
                                Virginia
    Mr. Chairman and Members of the Committee. The National Association 
of Chain Drug Stores (NACDS) appreciates the opportunity to submit this 
statement for the record regarding our perspectives on the Bush 
Administration's principles for Medicare reform. NACDS membership 
consists of over 180 retail chain community pharmacy companies that 
employ over 100,000 pharmacists. The chain community pharmacy industry 
is comprised of more than 33,000 retail community pharmacies, including 
20,000 traditional chain drug stores, 7,800 supermarket pharmacies and 
5,300 mass merchant pharmacies. Chain operated community retail 
pharmacies fill nearly 63% of the more than 3 billion prescriptions 
dispensed annually in the U.S.
    NACDS has reviewed the President's Medicare Reform Principles and 
believes that they are broad enough to be realistic, and indeed, even 
supportable goals for Medicare reform. However, as the community 
pharmacy industry has learned over this past week, the specific 
``details'' are important regarding how these principles will impact 
Medicare beneficiaries. Therefore, it is difficult to make any final 
judgement about how these principles will impact our industry and the 
beneficiaries that we serve.
    For example, the principles talk about better ``prescription drug 
benefit coverage'' and better ``coverage for preventative care and 
serious illness for seniors''. We do not see how these principles could 
be realized through a prescription drug discount card program. Indeed, 
this program seems to defy these principles. We strongly object to this 
program, which was announced last week by the Administration. In fact, 
NACDS and the National Community Pharmacists Association (NCPA) are 
seeking to enjoin the Department of Health and Human Services from 
moving forward with this program because of the economic harm that it 
will inflict on community pharmacy, and the false promise that it 
represents for our nation's Medicare beneficiaries in reducing the cost 
of medications. We have attached to this statement a copy of the 
complaint that NACDS and NCPA filed this week. Found on the NACDS web 
site at http://www.nacds.org/user-documents/DiscountCardLawsuit.pdf.
    In an effort to promote real reform of the Medicare program and the 
establishment of a true, comprehensive pharmacy benefit for seniors, we 
have developed our own principles with seven other national pharmacy 
organizations (see attached).\1\ We intend to use these principles to 
evaluate our support for the various Medicare pharmacy benefit 
proposals that have been introduced and may be marked up by this 
Committee. We appreciate the opportunity to submit this statement for 
the record and look forward to working with the Administration and the 
Congress in developing a reformed Medicare program.
---------------------------------------------------------------------------
    \1\ Document reflects founding members of the Pharmacy Benefits All 
(PBA) Coalition. Other organizations continue to join.
---------------------------------------------------------------------------

                  ``Pharmacy Benefits All'' Coalition

           A Unified Agenda for American Pharmacy--June 2001
              American College of Clinical Pharmacy (ACCP)
               American Pharmaceutical Association (APhA)
           American Society of Consultant Pharmacists (ASCP)
          American Society of Health-System Pharmacists (ASHP)
                     Food Marketing Institute (FMI)
           National Association of Chain Drug Stores (NACDS)
           National Community Pharmacists Association (NCPA)
   National Council of State Pharmacy Association Executives (NCSPAE)

    As policymakers discuss a comprehensive outpatient pharmacy benefit 
for seniors, the ``Pharmacy Benefits All'' Coalition encourages 
Congress and the Bush Administration to carefully consider the views of 
the nation's pharmacists and pharmacies--one of our nation's largest, 
most accessible, and consistently most trusted group of health 
professionals.
Pharmacy Organizations: Who We Represent
    Our organizations represent the spectrum of American pharmacy 
practice--independent and chain community pharmacists and pharmacies; 
hospital and health-system pharmacists; clinical pharmacists in 
academic health centers, medical group practices, and clinics; 
pharmacists practicing in managed care organizations; consultant 
pharmacists in long-term and senior care facilities; home health care 
pharmacists; and virtually every other type of pharmacist and setting 
where patient care and medication use occur. We are unified in our core 
beliefs concerning the development of an outpatient pharmacy benefit 
for seniors.
Outpatient Pharmacy Benefit For Seniors: What We Believe
   Seniors Should Have Access to a ``Pharmacy Benefit''_Not 
        Just a ``Drug Benefit''
    We believe that seniors should have access to a comprehensive 
pharmacy benefit. This includes coverage for the most appropriate 
medication for the senior, as well as the professional services of 
pharmacists and pharmacies that assure effective outcomes from 
medication use.
    Pharmacists can work together with the patient and their physicians 
to help assure that medications are clinically appropriate and cost 
effective. As a result, preventable drug-related problems, such as side 
effects and drug interactions, can be avoided. For these reasons, we 
believe that seniors should have access to a ``pharmacy benefit,'' not 
simply a ``drug benefit.'' In addition to providing the medication, a 
meaningful pharmacy benefit would include important components such as 
collaborative medication therapy management (MTM) services for seniors 
with chronic medical conditions, refill reminders, extended pharmacist 
counseling, and outcomes monitoring and evaluation.
    Some proposals do not meet these important tests. For example, 
``prescription drug discount card'' programs do not provide adequate 
pharmacy coverage for seniors, and represent price controls on 
pharmacies, which are private-sector businesses. Moreover, simply 
providing coverage for medications is only part of the answer to 
assuring that seniors have access to a comprehensive pharmacy benefit. 
Medications are safe and effective only when they are used 
appropriately. Inappropriate medication use leads to hospitalizations, 
emergency room visits, and other unnecessary medical costs for which 
Medicare is already paying a substantial price.
    Seniors recognize that pharmacists are the most qualified health 
professional to provide this level of care and service. Seniors should 
have the choice of and access to the pharmacist and pharmacy that best 
meet their specific health care needs.
   An Outpatient Pharmacy Benefit Should Pay Pharmacists and 
        Pharmacies for the Services that Meet the Special Needs of the 
        Senior Population
    Any outpatient pharmacy benefit must recognize that the nation's 
pharmacists and pharmacies are the individuals and entities that 
actually provide the medications and professional services that are 
essential to assure that medications are optimally used.
    Payment to pharmacists and pharmacies for providing these products 
and services must recognize the important health care needs of the 
senior population, including such services as medication compliance 
packaging, prescription compounding, and patient education and 
counseling. Payments should be reasonable and adequate to cover the 
professional, administrative, and business costs of providing these 
products and services--as well as a reasonable return on investment--in 
all pharmacy practice settings in which the care and services are 
provided.
   Pharmacists and Pharmacies Should Deliver Care to Seniors 
        under the Outpatient Pharmacy Benefit
    Most of the senior outpatient pharmacy proposals introduced to date 
turn the administration, management, and delivery of services over to 
``private sector'' entities sometimes referred to as prescription 
benefits managers (PBMs). For example, under several existing 
proposals, PBM's are charged with ``managing care,'' ``developing drug 
formularies,'' ``increasing generic drug use,'' ``negotiating discounts 
with pharmaceutical manufacturers'', ``placing price controls on 
pharmacies,'' and ``providing medication therapy management programs to 
seniors.''
    PBMs can and do have an important role in performing many of the 
administrative tasks associated with providing the pharmacy benefit to 
seniors. We believe that the nature and scope of ``patient care and 
cost management'' tasks that these proposals would assign to PBMs needs 
further thorough discussion. Pharmacists and pharmacies are the real 
``private sector'' providers of care and service to patients. 
Pharmacists and pharmacies provide services and work with patients at 
their point of care to help assure appropriate medication use and 
accurate dispensing. Senior citizens will ultimately rely on 
pharmacists and pharmacies to achieve the outcomes we all seek for a 
successful outpatient pharmacy benefit.
What We Pledge
    Our organizations are jointly committed, prepared, and able to work 
with the 107th Congress, the Bush Administration, the pharmaceutical 
industry, HCFA, physician organizations, senior advocacy groups, and 
other interested parties to help design an outpatient pharmacy benefit 
for seniors that improves medication use, helps control overall health 
care costs, and enhances the quality of life.
    An outpatient pharmacy benefit for seniors will be the single most 
substantial and important addition to the program since its inception 
35 years ago. We must assure that any new program established provides 
the most cost effective pharmacy benefit to seniors and the Medicare 
program. Seniors, taxpayers, and the public at large deserve nothing 
less than our best effort.
    [An additional attachment is being retained in the Committee 
files.]

                                

```