```

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

                          MODERNIZING MEDICARE

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 26, 2001

                               __________

                           Serial No. 107-53

                               __________

       Printed for the use of the Committee on Energy and Commerce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

                  U.S. GOVERNMENT PRINTING OFFICE
74-847                     WASHINGTON : 2001

____________________________________________________________________________
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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Thompson, Hon. Tommy G., Secretary, Department of Health and 
      Human Services.............................................    22
Material submitted for the record by:
    Advanced Medical Technology Association, prepared statement 
      of.........................................................    60
    National Association of Chain Drug Stores, prepared statement 
      of.........................................................    62

                                 (iii)

 
                          MODERNIZING MEDICARE

                              ----------                              

                        THURSDAY, JULY 26, 2001

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:15 a.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Barton, Upton, 
Greenwood, Burr, Whitfield, Ganske, Wilson, Bryant, Buyer, 
Tauzin (ex officio), Brown, Waxman, Strickland, Barrett, Capps, 
Towns, Pallone, Eshoo, Wynn, Green, and Dingell (ex officio).
    Staff present: Anne Esposito, policy coordinator; Pat 
Morrisey, majority counsel; Nolty Theriot, legislative clerk; 
Karen Folk, minority professional staff; and Bridgett Taylor, 
minority professional staff.
    Mr. Bilirakis. The hearing will come to order. Good 
morning. I now call to order this hearing on modernizing 
Medicare. Today this subcommittee will hear testimony from the 
Secretary of Health and Human Services Tommy Thompson. We were 
all excited by the President's announcement of his framework to 
modernize and strengthen Medicare last week. This framework 
provides valuable guidelines for us to use in developing 
legislation to modernize Medicare and its benefit package.
    During this Congress, our committee has taken a very active 
interest in the Medicare program, to say the least. This year 
alone, we have held eight hearings covering topics such as 
modernizing the program, adding a prescription drug benefit to 
Medicare, and making administrative and programmatic changes to 
improve services and operations.
    One of the first things you did, Mr. Secretary, was to 
change HCFA's name to CMS, Centers for Medicare and Medicaid 
Services, which I sometimes refer to as CM2S. This name change 
will help with morale and the look of the Agency, and I know 
this is only the start of the changes you hope to make.
    As I mentioned, this subcommittee has held several hearings 
this year on ways to modernize the Medicare program and provide 
an updated benefits package, including a prescription drug 
benefit. At hearings we have titled Patients First, we received 
expert testimony on both provider and beneficiary regulatory 
burdens. We examined the advantages in policy and implications 
of merging Parts A and B of the program, we discussed 
innovative ideas and brought forth new information to lay the 
groundwork for a prescription drug benefit, and we explored 
contractor reform issues.
    I am very proud of where this committee has come in the 
past several months. I look forward to working on a bipartisan 
basis with my colleagues to come together around a plan to 
strengthen and modernize Medicare. The success of such a plan 
is also contingent on the support of you, Mr. Secretary, and 
that of the administration, and that is why I am particularly 
pleased with the President's principles for modernizing the 
Medicare program. Like the President, I believe that all 
seniors should have the option of a subsidized prescription 
drug benefit as part of Medicare. I also agree that Medicare 
legislation must ensure the long-term financial viability of 
the program.
    And, finally, I am pleased that both you and the President 
have agreed to take a closer look at Medicare's regulations and 
administrative procedures. I am confident that your 
comprehensive review will identify areas requiring legislative 
action to streamline and reform the Centers for Medicare and 
Medicaid Services, formerly HCFA. I was very grateful that the 
President and the administration have developed a plan to 
provide some temporary immediate and real relief--and I will 
underline ``temporary immediate''--and real relief to our 
seniors struggling with high prescription drug costs. I, of 
course, am referring to the recent announcement that Medicare 
will endorse drug discount cards. This echoes what I have said 
for months, that this administration is not one that sits on 
the sidelines. They will propose and enact solutions now.
    I know that this is not the final solution to the problem 
that our seniors will face in buying their medicines, however, 
it is a good first temporary step. We hope to continue working 
with you, Mr. Secretary, and the President, as the details of 
this plan become more clear in the coming months, and to ensure 
that no one sector of the drug distribution chain is 
responsible for the discounts--and we have talked about that.
    I am also very pleased that the President has recognized 
the importance of preventative care--very, very pleased. I have 
always believed that we should modernize Medicare to ensure 
proper coverage of preventive care and serious illnesses. It is 
unfortunate that Medicare coverage of mammograms, prostate 
cancer screenings, and flu vaccination began only recently. 
While I am pleased that coverage has been initiated, we can and 
must do more to ensure that Medicare's coverage of preventative 
care no longer lags behind that of private health insurance 
plans.
    In closing, I want to again thank you, Mr. Secretary, for 
your time and effort in joining us today to share the 
administration's views on the important issue of Medicare 
reform. I will now recognize the ranking member, Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman, and welcome, Secretary 
Thompson, it is nice to have you again in front of us. I am 
concerned about what the President's principles do not say, and 
I am concerned about what they imply. These principles say the 
President wants to offer at least some beneficiary subsidized 
prescription drug coverage. It is not clear whether seniors 
would need to buy private plans to be eligible for the subsidy, 
but I will get to that in a moment.
    These principles do not say the Federal Government must 
tackle unjustifiably high prescription drug cost as part of its 
commitment to Medicare prescription drug coverage. A laissez 
faire attitude from the administration and from this Congress 
toward unreasonably high prices and the anti-competitive 
behavior on the part of the drug industry squanders billions of 
dollars that could be put toward meaningful prescription drug 
coverage.
    These principles say that Medicare should provide better 
health insurance options like those available to all Federal 
employees. They say all beneficiaries in modernized Medicare 
should have the option of subsidized prescription drug 
coverage. They say modernized Medicare should provide better 
coverage for preventive care and serious illness. They say 
current beneficiaries and those approaching retirement should 
have the option of keeping traditional plans with no changes. 
But these principles imply that private health insurance is a 
better option than traditional Medicare. They imply that the 
current Medicare plan will not be available to future Medicare 
beneficiaries. They imply that enhanced benefits and 
prescription drug coverage would be available to all 
beneficiaries who opt for a private plan.
    I read these principles and then I went back to the Bush-
Cheney campaign Website and read one of the President's 
campaign speeches on ``modernizing Medicare.'' During his 
campaign, the President was prone to using rhetoric we are all 
familiar with, ``Medicare is a one-size-fits-all program, 
Medicare beneficiaries deserve more choices.''
    He was also forthcoming about tying access to subsidized 
coverage for prescription drugs and other new benefits to 
private health plans, and about the fact that seniors, not the 
Federal Government, would pay for the benefit enhancement that 
would make these plans comparable to the Federal plans, to the 
FEHBP plans for Federal employees.
    In a speech he said that under his plan, during his 
campaign, Medicare beneficiaries can ``choose the basic plan 
for no cost at all, or can choose to pay a little more for the 
plan with additional benefits.'' I would like to think that the 
President's principles reflect a turnaround in thinking. I 
would like to think he truly wants to enhance the Medicare 
benefits package for all enrollees regardless of income, 
regardless of whether they choose to stay in the fee-for-
service plan or enroll in an HMO, but his principles don't add 
up.
    You can't simultaneously increase spending and reduce it. 
His principles say he wants to do both. He links prescription 
drug coverage to fundamental changes in Medicare. I think it is 
safer to go with what his principle imply than what he actually 
said. Unfortunately, I think it is safer to assume the 
President is trying to wrap appealing but misleading rhetoric 
around new benefits and choices in choices around Medicare 
privatization because it is simply easier to impose 
privatization on the public that way.
    I think it is safe to say that underlying these principles 
is the desire to see traditional Medicare or as it is portrayed 
in the President's principles, the government Medicare plan, 
wither on the vine.
    When I go home and talk to my constituents about Medicare, 
I hear complaints, but they are rarely about traditional 
Medicare. They are often, almost always, about the +Choice 
program. I think it is fair to say that Medicare beneficiaries 
aren't asking us to make Medicare look more or act more like 
FEHBP, they certainly, certainly are asking us to make +Choice 
plans more reliable, but they are not asking for more choices, 
as many like to say. That is because traditional Medicare 
offers maximum choice--choice of doctor, choice of hospital, 
choice of nursing home, choice of all providers. Those are the 
kinds of choices that actually make a difference to the 
consumers of health, to our constituents. A choice between 2, 
or among 3, or among 50 HMOs affords less choice--in spite of 
what my friends on the other side of the aisle say--affords 
less choice than traditional Medicare.
    My constituents are asking for prescription drug coverage 
delivered through the Medicare program. They are not asking for 
private prescription drug plans. They are not asking for a drug 
card that might save $5--might knock $5 off the $100-plus cost 
of Prilosec--when most seniors without coverage have incomes 
below $15,000 a year. Five or ten dollars in savings is not 
going to cut it.
    I wonder if any of my colleagues, Republicans on that side 
or Democrats on this side, included in their campaigns last 
year a pledge to privatize Medicare, or even mention a desire 
to expand a desire to expand the role of private insurers into 
the Medicare program.
    Many of us in our campaigns talked about strengthening 
Medicare, about preserving Medicare, but few, if any, of us 
talked about privatizing it. The idea of privatizing Medicare, 
of turning as much of the program as possible over to the 
private insurance industry, is an inside-the-Beltway idea being 
spun this way and that as its proponents in Congress and in the 
private sector try to sell it to the public. They may not use 
the word ``privatization,'' but that is what they are doing. 
The idea of privatizing Medicare did not arise as a response to 
the needs or the desires of Medicare beneficiaries. People at 
home are hardly clamoring for privatization of Medicare.
    One of the President's principles, Mr. Secretary, is that 
Medicare should encourage high quality care for all seniors. It 
is the Nation's most popular public program because it doesn't 
just encourage high quality health care for all seniors, as you 
know, it ensures it. Let us work together to build on that 
commitment by adding prescription drug coverage and other 
enhancements to the existing program. Let us work together to 
eliminate waste in spending by combatting fraud and abuse in 
all forms including outrageously high prescription drug costs. 
Let us work together to improve the way, as you have begun, the 
way that CMS functions. But please don't practice ``Medi-
scare,'' telling seniors and the next generation that Medicare 
is in perilous trouble, in need of privatization. Don't ask us 
to exploit seniors' need for prescription drug coverage and 
lower out-of-pocket health care costs to lure them into a 
privatized health care system. They are beneficiaries, their 
families, and every American who invests in and will someday 
benefit from Medicare deserves something better than that. 
Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired. The Chair 
now recognizes the chairman of the full committee, Mr. Tauzin.
    Chairman Tauzin. Thank you, Mr. Chairman, and I 
particularly want to welcome our friend, the Secretary, to this 
hearing, and thank him for coming to share with us the 
administration's views on this most important question that, as 
you know, was ``the'' first priority of this Committee when we 
reorganized this year, and that is improving not only the 
Medicare system, but also the delivery system of the government 
agency that manages the system. And I want to thank you for the 
decisions you have already made, Mr. Secretary, particularly in 
making sure that when Members of this body representing the 
people of this country communicate with your CMS agency now, 
that we are going to get our answers in a reasonable time 
instead of some 12 months delay, I think, that was formerly the 
case with CMS, which was, I think, formerly known as 
``Prince,'' I think, I am not sure what it was known as before.
    But let me tell you when we are really going to be happy on 
this committee. We are really going to be happy when you and I 
and the Chairman and this committee completes our reform of CMS 
so that patients don't have to wait 12 to 18 months to get an 
appeals case heard by a DLJ. We are going to really be happy 
when the DLJ is specifically trained to do Medicare appeals 
instead of just Social Security appeals. We are going to really 
be happy when seniors and patients don't have to wait 2 years 
to get approval on new medical technologies that could be 
saving their lives. We have got some real work to do, and I am 
so pleased that you are onboard to help us help your agency in 
accomplishing those kind of reforms because, as we have titled 
this project, it is Patients First, and when CMS and Medicare 
remembers its mission of taking care of patients instead of 
simply piling up data it doesn't even use, in a warehouse 
somewhere, and not answering phone calls and appeals and 
approving new technologies in a timely fashion, then I think we 
will all be able to rest a bit and know that we have done our 
job. And I want to thank you for committing yourself to this 
Herculean effort.
    Whether we are eligible for Medicare today, or we have 
family members who are eligible, or we will be eligible in a 
couple of years--and by the way, you know who you are and I 
know who I am--we all have a strong interest obviously in 
addressing challenges facing the program.
    You know, we were thinking about 1965 when the program was 
first commenced, and what things looked like then, and how 
medical was provided then, and how insurance programs worked 
then, and we can understand, looking back, why the Medicare 
program was structured the way it was. But if we were given the 
task today of creating a Medicare program out of just thin air, 
just building a new one, no one would build it on the structure 
and design the way it is currently structured and designed.
    No one, for example, would not include a drug benefit in 
the program, recognizing now that drugs and outpatient service 
is becoming such a large part of the health maintenance effort 
for our seniors. No one would divide it into Parts A and B 
coverage because we know insurance programs don't do that 
today. Hospital services and physician services are provided 
together in a common plan. And no one would build it on some 
sort of monopoly delivery of drug benefits, there would be 
competitive deliveries and competitive choices available for 
Americans, just as they are for Members of this body and other 
Federal employees.
    We would probably structure it more like the Federal 
Employee Benefits Plan, where there are, in fact, choices and 
competition and seniors would have the benefit that Federal 
employees have of choosing different options, such as sticking 
with what they have got or choosing something different that 
might be better for them.
    We would designed this plan totally different this year, 
and we would design it keeping in mind that the people we are 
talking about, the patients we are talking about in this case, 
represent the greatest generation of Americans.
    I agree with Rush Limbaugh when he said that, you know, our 
generation is a bunch of wusses compared to that generation. I 
mean, these are the people that sacrificed everything to keep 
the world safe for freedom and democracy. They are the people 
that knew what it was to be an adult at 18, and we are 
struggling to find out in our generation, how to become adults 
at 50 and 60. And these are the patients we are talking about. 
They are the most--I guess the patients are the people we owe 
the most to in our country, and yet we have got a Medicare 
program designed for them on an old, outdated model that 
doesn't take care of the most important needs today in 
prescription drug benefits.
    We have got a huge challenge in front of us, and I say 
again, none of us should rest, Mr. Secretary, until we have a 
new CMS that puts those patients first, that ends some of the 
unnecessary bureaucracy in this system. I don't care whether it 
is 60,000 pages or 130,000 pages of instructions to providers, 
but we ought to simplify that system. We ought to make the 
rules of the road clear for the providers. We ought to make 
easy access to appeals available to patients, and new 
technology approvals on a timely basis, and we ought to make 
sure the program is structured as good, or better, than the 
Federal Employees Health Benefits Program, with as many good 
choices and competition working for seniors as works for the 
rest of us in this society.
    And so I want to thank you for challenging us and 
challenging the whole country to rethink how we plan for and 
provide for health care coverage for our seniors, and for 
working with us to build a better program.
    We can differ on the edges of that debate. We can differ on 
what works better. But I think we all agree that what we have 
got is in desperate need of repair. And the surveys sent out by 
our committee to all the stakeholders makes the case. The more 
people focus on what is wrong with our current program, the 
more they are asking us to work with you to change it, and the 
fact that you have come to Washington and committed to help us 
change it is deeply encouraging, and I thank you for that, sir. 
I yield back the balance of my time.
    [The prepared statement of Hon. W.J. ``Billy'' Tauzin 
follows:]

 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce

    Thank you, Mr. Chairman. I am pleased that today we are discussing 
.9 topic of utmost importance to all Americans--the Medicare Program.
    Whether we are eligible for Medicare today, have family members who 
are eligible, or will be eligible in a couple of years--you know who 
you are--all of us have a strong interest in addressing the current 
challenges facing the program.
    Medicare has provided health care security to millions of 
Americans, seniors and disabled, since 1965. It has been serving us 
well, but we now must work to modernize this program--to bring Medicare 
into the 21st Century--and ensure that it is strengthened financially, 
for the short and the long term.
    The Medicare program simply has not kept up with rapid advances in 
medical care or innovations in health care delivery. Modem medicine has 
undergone many changes since President Johnson signed the Medicare 
program into law over 35 years ago. Yet prescription drug coverage is 
still not included in Medicare's basic benefit package, although it is 
a standard feature in private,, employer-sponsored health plans. Most 
private insurance plans set limits on out-of-pocket expenses-
unfortunately, Medicare doesn't.
    The Energy and Commerce Committee is committed to modernizing the 
Medicare program. To date, we have held hearings on several critical 
issues related to Medicare--all to improve the quality of care seniors 
receive. We've examined the prospect of merging parts A and B of the 
Program, contractor reform, and prescription drug benefits. We've also 
looked at ways to improve the current Center for Medicare and Medicaid 
Services (formerly HCFA) so that Medicare is administered more with 
patients in mind.
    Clearly, a combination of administrative reforms and legislative 
changes are necessary to update Medicare's traditional system so that 
it can effectively meet the needs of the beneficiaries and providers in 
the years to come.
    Today's hearing focuses specifically on the President's framework 
forstrengthening the Medicare program.
    As we'll see, the addition of a prescription drug benefit is a high 
priority, and for good reason. Almost 400 new drugs have been developed 
in the past decade to battle diseases like cancer, heart disease, 
diabetes and arthritis. But Medicare doesn't currently cover outpatient 
prescription drug coverage. Our ``Greatest Generation'' relies on 
Medicare for their health care needs and they don't even have this 
basic benefit. Clearly, our seniors deserve better.
    Advances in medicine have given us the capability to prevent 
sickness, not just treat it. For this reason, I am also pleased that 
preventive health care is another component of the President's Medicare 
principles. The Administration proposal to eliminate co-payments on all 
preventive procedures will go a long way to give our seniors better 
protection against serious illnesses.
    We need immediate bipartisan solutions to the funding problems 
facing the Medicare program. We must forge a bipartisan consensus to 
strengthen Medicare's long-term financial status and to ensure that 
Medicare benefits remain a reality for seniors for a long time to come.
    Mr. Chairman, I thank you again for holding this important hearing, 
and for directing our attention to the problems in the Medicare 
program. I welcome the Secretary and thank him for coming here today to 
answer our many questions about the President's reform agenda.

    Mr. Bilirakis. I thank the gentleman. Mr. Dingell, for an 
opening statement.
    Mr. Dingell. Mr. Chairman, thank you. I thank you for 
convening this hearing on an issue of great importance, and I 
commend you for your interest in this subject.
    Mr. Secretary, welcome, glad to see you here. This is a 
very important subject that we are inquiring into today, and I 
look forward to hearing your comments about the President's 
Principles for Medicare Reform and a Medicare prescription drug 
benefit. I am indeed pleased that the President has sent us a 
set of principles. I would note with regret, however, these 
principles do not provide enough detail to discern much of 
anything about what seniors can expect if they are enacted into 
law.
    The President has been in office for 6 months now. He has 
managed to send details on a tax bill, on a faith-based 
initiative, on an energy policy, but when it comes to seniors 
we have only vague principles. But some of the things we see 
and hear in those vague principles I find very troubling, 
indeed.
    I believe there is one principle that we ought to put 
first, before all others, and that is the wise ``first, do no 
harm.'' We must make sure that whatever Congress does, we 
protect the program that has served our seniors so well for 
many years.
    I would note to you that I was in Congress when we passed 
Medicare because I was one of the authors of it, as was my Dad, 
and I know what seniors did not have before, and I know what 
they have now. I know how important passing Medicare was to 
them. It has gotten a bit out-of-date, but not distressingly 
so. There are changes which could be made which will make it 
better, which won't cost much, and I hope we can work together, 
Mr. Secretary, on those matters.
    I would note that this program is enormously popular with 
our Nation's seniors and, as I have noted, there are gaps in 
Medicare's benefit package and that seniors' out-of-pocket 
expenditures for health care services are, indeed, a heavy 
burden. Seniors are looking to Congress to strengthen and to 
improve the traditional Medicare program by adding preventive 
benefits, to which you wisely alluded in your comments today, 
and also to reduce some cost-sharing requirements, but the 
overwhelming message that I get from seniors as I talk to 
them--and I suspect you did this in your days as Governor--is a 
plea to add a meaningful prescription drug benefit to Medicare, 
and to do so as soon as possible.
    Now, I will say parenthetically, I don't think that seniors 
are sufficiently unsophisticated to not ask for a drug benefit 
that is affordable, that is universal, that is guaranteed, and 
that is a part of our traditional Medicare program. That is 
really, Mr. Secretary, what they want.
    The President has proposed certain temporary administrative 
actions which he says will help seniors without insurance, with 
the high cost of prescription drugs. I must confess myself 
singularly unimpressed with the discount card plan which mimics 
plans already available to seniors, which they have found 
largely unworkable and unrewarding, and which, interestingly 
enough, would have the practical effect of doing several 
things. First, the cards would hurt the pharmacies, and have 
achieved already the almost universal opposition of the 
pharmacies.
    Second, they would, in many instances, in fact, increase 
the cost to seniors of certain prescription pharmaceuticals 
under that plan.
    The third thing they would do is a dead certainty, and that 
is those cards would benefit, protect and enhance the earnings 
of pharmaceutical manufacturers, who seem to, if I read the 
daily financial reports, be doing splendidly.
    The President also states that he is committed to enacting 
a drug benefit for seniors. I hope that he is willing to 
acknowledge that broader Medicare reforms, which involve many 
complex and contentious issues, will take longer than seniors 
should have to wait for a prescription drug benefit.
    The enactment of a prescription drug benefit should not be 
held hostage to a larger reform plan that will take years to 
develop. And I would note to you, Mr. Secretary, I served on 
the Medicare Commission, and I listened to some of the talk of 
some of those people who would reform it and, quite frankly, 
some of the gray hairs in my balding head come from some of the 
statements and some of the plans and some of the goals that 
were expressed during that time.
    The President has also said that he is committed to a 
prescription drug benefit for all seniors, regardless of 
whether they are in Medicare+Choice or the fee-for-service 
plan. Real access means making a drug benefit a part of the 
traditional Medicare program. If his access refers to private 
drug-only insurance plans that seniors may purchase, I note 
that this isn't going to work, and the health insurance 
industry testified before this very subcommittee last year that 
this approach simply would not work.
    Frankly, Mr. Secretary, seniors may not have much 
confidence in private insurance plans given the instability 
that has plagued Medicare+Choice markets in the past few years, 
and the continuing withdrawal of HMOs from that program.
    I think we need to act quickly. I am delighted that you are 
here, and I hope that we can work together to enact a 
prescription drug benefit that is affordable, universal, 
guaranteed, and part of the Medicare program.
    Mr. Secretary and my colleagues, the clock is ticking. 
Thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]

    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    Chairman Bilirakis, thank you for convening this hearing on an 
issue that is of fundamental importance to our nation's seniors, people 
with disabilities, and generations of Americans who expect that 
Medicare will be there to care for them in the future. Secretary 
Thompson, I look forward to hearing your comments about the President's 
principles for Medicare reform and a Medicare prescription drug 
benefit.
    I am pleased to see that the President has sent us a set of 
``principles.'' However, these principles do not provide enough detail 
to discern much of anything about what seniors can expect. The 
President has been in office now for six months. He has managed to send 
details on a tax bill, on a faith-based initiative, on an energy policy 
-but when it comes to seniors, we only have vague principles.
    I have one principle that we should adhere to: first, do no harm. 
We must make sure that whatever Congress does, we protect the program 
that has served our seniors so well for so many years. The traditional 
Medicare program is enormously popular with our nation's seniors. 
However, there are gaps in Medicare's benefit package, and seniors' 
out-of-pocket expenditures for health care services are a heavy burden. 
Seniors are looking to Congress to strengthen and improve the 
traditional Medicare program by adding preventive benefits and reducing 
some of the cost-sharing requirements.
    But the overwhelming message seniors are sending us is the plea to 
add a prescription drug benefit to Medicare--and to do that as soon as 
possible. Seniors are asking for a drug benefit that is affordable, 
universal, guaranteed, and part of the traditional Medicare program.
    The President has proposed certain temporary administrative actions 
that he says will help seniors without insurance with the high cost of 
prescription drugs. I must confess to being singularly unimpressed with 
the discount card plan, which mimics plans already available to 
seniors, and would hurt pharmacies while protecting pharmaceutical 
manufacturers.
    The President also states that he is committed to enacting a drug 
benefit for seniors. I hope that he is willing to acknowledge that 
broader Medicare reforms--which involve many complex and contentious 
issues--may take longer than seniors should have to wait for a 
prescription drug benefit. The enactment of a prescription drug benefit 
should not be held hostage to a larger reform plan that could take 
years to develop.
    The President has also said that he is committed to a prescription 
drug benefit for all seniors, regardless of whether they are in 
Medicare+Choice or the fee-for-service plan. Real access means making a 
drug benefit a part of the traditional Medicare program. If his 
``access'' refers to private, drug-only insurance plans that seniors 
may purchase, I note that the health insurance industry testified 
before this Subcommittee last year that this approach simply would not 
work. And, frankly, seniors may not have much confidence in private 
insurance plans, given the instability that has plagued the 
Medicare+Choice market in the past few years.
    We must act quickly to enact a prescription drug benefit that is 
affordable, universal, guaranteed, and part of the Medicare program.
    The clock is ticking.

    Mr. Bilirakis. I thank the gentleman. Under the rules, the 
Chair exercises its prerogative to limit the remaining opening 
statements to 3 minutes, and I ask the cooperation of the 
members. Mr. Burr is recognized.
    Mr. Burr. Thank you, Mr. Chairman. Welcome, Mr. Secretary. 
As I sat here thinking about this hearing, I could only think 
of my parents who both participate in the Medicare program, and 
my mother, who just several years ago had extensive surgery and 
spent time not only in the hospital, but in skilled nursing, 
and then eventually participated in the home-care benefit.
    The one thing my parents did after that experience was to 
bring their bill for that event to me and ask me to explain it 
to them. For any of you that have ever seen a Medicare bill, it 
is pretty difficult. I found it to be impossible. I turned to 
the then HCFA, now CMS, and said, ``Explain this to me.'' In 
some cases, they couldn't do it.
    I knew then that we had a system that if it was difficult 
for me to understand, it had to be impossible for most seniors 
to understand. My parents are lucky because they carry a 
supplemental from my dad's former employer. It does cover 
deductibles and pharmaceuticals, and they are not faced with 
the problem that many seniors are faced with because many don't 
have it. Not many are faced with decisions between this and 
that.
    As a Member of Congress, I think we have an obligation to 
always do what we think is right. We missed a tremendous 
opportunity last year when this body passed a prescription drug 
bill that ended up going nowhere. It wasn't what we ultimately 
all wanted, but it was a great step in the right direction.
    I want to commend you, Mr. Secretary, and the President and 
this administration, because you have clearly communicated the 
blueprint, the principles of what is the right thing, but you 
have left it up to this body to fill in the blanks, the 
specifics.
    The only way that we can fail is if we miss this 
opportunity again, like we did last year, and not have a bill 
that is enacted into law. We have an opportunity right now to 
accomplish that. We have an opportunity to clear up the 
confusion that exists between A and B, by merging it, by making 
sure that a system that is 30-some-years-old is, in fact, a 
21st Century system.
    We have an opportunity to package a new set of preventative 
care benefits into a system that up until this time ignored 
preventative care because of the cost and couldn't look at a 
potential savings down the road. We have an opportunity to 
restructure the co-pay, the deductible, to make sure that we 
don't charge seniors the most when they enter the hospital than 
any other point in the Medicare system, which is wrong. And, 
most importantly, we have the opportunity for that drug 
benefit, a drug benefit that takes into account where 
technology has gone.
    Mr. Bilirakis. Would the gentleman please finish up?
    Mr. Burr. I would be happy to. Mr. Chairman, I am excited 
about the opportunity. I think even with the differences that 
we will have on many of these points, America is ready for us 
to bring this system up to the 21st Century. I thank you and I 
yield back.
    Mr. Bilirakis. Thank you. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. Mr. Secretary, I am 
pleased to see you and welcome you to our committee. Mr. Burr 
says he is excited. I, too, am excited if we can do something 
constructive. He says you have given us a blueprint. What I am 
troubled about is I think that blueprint is too sparse in the 
details for us to know what the administration really is asking 
from us.
    I don't think it is the duty of Congress or this 
administration to rewrite Medicare as if we are doing it from 
scratch. Medicare is a program upon which millions of people 
rely. It is the only program they have for their health care 
services.
    Mr. Tauzin said this is the greatest generation in the 
history of this country that is relying on Medicare. That is 
why we shouldn't experiment with them. This should not be an 
experiment to see whether if we try different ideas, maybe they 
will work because, if they don't work, we are taking a program 
that people think is pretty good and doing a lot of harm to 
those very people who rely on it. That would happen if they 
can't find private insurance available to them or if they have 
to come up with more money that they can't afford.
    The general statements by the administration I certainly 
applaud. We are all for more preventive services. We are all 
for better management. We all want to see a Medicare system 
that will provide prescription drug coverage. But when you get 
beyond these broad statements, I still don't know what the 
details are. I hope you will be able to help us understand 
those details.
    For example, is the administration asking that we have 
Medicare beneficiaries rely on private insurers to provide them 
with prescription drug coverage, even though the insurance 
industry has said they can't handle such a thing, or are we 
going to have a proposal that will cover everybody in Medicare? 
When we get to the so-called ``modernization'' of Medicare, the 
administration has said current beneficiaries and those 
approaching retirement should have the option of keeping the 
traditional plan, but what about everybody else? And are we 
going to find that the prescription drug option is simply going 
to be a lever to get beneficiaries to go into something other 
than traditional Medicare if they don't want to?
    This raises serious questions about why the President 
hasn't been more specific. We really don't know what kind of 
plan you all favor. It may be because you haven't come to grips 
with the broad outlines or the details, or it may be that you 
are simply unwilling to expose your plan to any detailed 
scrutiny.
    We should work together. I want to work together with the 
administration in this area, but let me just point out, this is 
not like the Federal Health Insurance plans for the government 
employees. With Medicare, we are talking about a population 
that is older and sicker, that don't have the same range of 
income. The risk pool is certainly not the same. We are talking 
about people who need to know that they are going to be 
protected, that they are going to have benefits that will be 
there to pay for their medical bills. We ought not to 
experiment on the greatest generation, leaving them perhaps 
without the promises that have been made to them. Thank you 
very much.
    [The prepared statement of Hon. Henry A. Waxman follows:]

    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California

    Secretary Thompson, I'm pleased to see you here today to elaborate 
for the Subcommittee on the principles announced by the President for 
changes in the Medicare program.
    In my view, those principles provide little real information on the 
kind of changes this Administration has in mind. On the one hand, they 
reflect what we might call universal truths--things that nobody could 
disagree with:

--we're all for high-quality health care.
--we're all for strengthening the management of the program so that it 
        can provide better care, and for reducing fraud and abuse.
--we're all supportive of preventive care.
--and we all agree that seniors need a subsidized prescription drug 
        benefit as part of a modernized Medicare.
    But of course, the devil is in the details. And those are pretty 
scarce.
    It's great to be for better coverage of preventive care, but where 
is the commitment in the budget to pay for it? Should we assume you 
want to reduce the coverage of current benefits--or increase the 
deductible and cost-sharing obligations of the current program--to pay 
for those preventive services? That might not be such a good deal.
    It's also welcome to know that the President endorses a subsidized 
drug benefit for all seniors. But frankly, it's hard to tell what the 
Administration has in mind.
    Could this mean a plan where Medicare beneficiaries have to rely on 
private insurers to provide them prescription drug benefit coverage, 
even though the insurance industry itself said it wouldn't offer such 
plans? Or has the President decided that kind of limited proposal 
wouldn't be acceptable? You can't tell from his principles. But it's 
going to make a big difference to the people who need help.
    Then there's the issue of the so-called modernization of Medicare. 
You say that current beneficiaries and those approaching retirement 
should have the option of keeping the traditional plan. Does that mean 
that there is no commitment to keeping the traditional plan for others? 
Is it your intention to let it wither on the vine, to use the phase of 
one of our former Republican colleagues?
    You indicate that Medicare should provide a variety of health 
insurance options. But is there any commitment to assure that 
beneficiaries would always have the option to pick traditional Medicare 
if they want it, and would they have an assurance that they wouldn't be 
stuck paying higher premiums because the good risks have been siphoned 
off to private plans?
    And for beneficiaries who do chose traditional Medicare--and 
frankly, I think most of them will, do you intend to assure that they 
have access to a guaranteed defined set of drug benefits as part of 
traditional Medicare or not?
    There's a lot of important questions here, and unfortunately the 
President's principles give us--and more importantly, the American 
people--very little indication of what he really supports.
    In fact the only thing you've been specific about is the public 
endorsement of private drug discount cards. And that raises very 
serious questions about putting a Medicare seal of approval on private 
cards that may or may not deliver what they promise to people.
    The studies my staff have done at the Government Reform Committee 
indicate that the savings are nowhere near to what the hype has been. 
In fact, the programs we looked at deliver only a few percentage point 
savings--less of a discount than you could get without any card--or 
paying an enrollment fee--at all.
    All of this raises in my mind some pretty serious questions about 
why the President hasn't been more specific about what his plan is. Is 
it that this Administration really doesn't know what kind of a plan it 
favors, that it hasn't even come to grips with the broad outline, let 
alone the details? Or is it simply that you are unwilling to expose 
your plan to any detailed scrutiny?
    I hope today we can begin to understand better what this 
Administration really intends to do to the Medicare program that 40 
million beneficiaries rely on.
    I hope we can get some clarity on exactly what the commitment is to 
provide a specific and guaranteed prescription drug benefit to all 
Medicare beneficiaries, not as a lever to force them out of traditional 
Medicare, but as an improvement which assures that traditional Medicare 
better meets their health care needs.
    I look forward to your answers today, and many more specifics in 
the future. Thank you.

    Mr. Bilirakis. Thank the gentleman. Mr. Ganske.
    Mr. Ganske. Thank you for being with us, Mr. Secretary. 
Last winter I received letters from a lot of constituents in 
Iowa, who were elderly, their home heating prices were going 
out of sight because we came up against a natural gas shortage 
and the spikes were very significant, and some of those letters 
indicated that people were actually having to make choices 
between keeping their home heated in the winter, in the middle 
of an Iowa winter, and actually paying for their prescription 
drugs. And as my parents are both in Medicare, they have some 
very significant prescription drug costs, I see their bills. I 
get letters from constituents.
    This committee is working on both of these issues. We are 
working on an energy policy and we need to address the 
prescription drug issue.
    One of my concerns about a comprehensive prescription drug 
policy is that it would be very, very expensive. And I 
represent both a major metropolitan area, Des Moines, but also 
southwest Iowa with a lot of small town hospitals, and the 
Medicare reimbursement for those hospitals is a very large 
percentage of their income. They are already really close to 
not having enough money to stay open. If a hospital would close 
in a town like Red Oak or Harlan, that would be terrible in 
terms of the access to medical care, but it would also 
potentially be disastrous for the town and for the economic 
survival of that community.
    And so when we look at adding a benefit like prescription 
drug, we need to also be aware that we are not going to then be 
shifting funds or make it more difficult to provide other 
services that are necessary in Medicare, i.e., that if we give 
a prescription drug benefit, that we are not going to clamp 
down so tightly on the other services that, for instance, we 
could end up losing hospitals in small towns. I mean, it would 
be great to have a better prescription, or ``a'' prescription 
drug program for our seniors, but it wouldn't be so great if 
now they had to drive 125 miles into Des Moines to get to a 
hospital. So this is a balancing act.
    I have proposed that at least in the interim, that we take 
care of the low-income Medicare beneficiaries and the qualified 
Medicare beneficiaries up to 175 percent of poverty, and 
utilize the State Medicaid drug programs, which you are very 
familiar with, but pay for that from the Federal side so that 
you are not imposing an additional financial burden on the 
States. That may be something that we will get a chance to talk 
about a little later.
    Mr. Bilirakis. Would the gentleman please finish up.
    Mr. Ganske. Thank you, Mr. Chairman. I do want to say that 
on June 28 I gave Mr. Scully a copy of a floor speech I gave 
that had 26 suggestions for Center for Medicare Services 
reform. He promised me a prompt reply. I still have not 
received any paper from Mr. Scully on that. And I will provide 
you with a copy also.
    Mr. Bilirakis. The gentleman's time has expired. Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman, for holding this 
hearing. I think it is very important for the members of the 
subcommittee and the Congress as a whole to take a good, hard 
look at some of the ideas put forward by the President for 
reforming Medicare. I want to express my appreciation to the 
President, and to you, Mr. Secretary, for the hard work that 
undoubtedly went into the framework we are reviewing today, but 
I am concerned that this framework is very short on details. 
Certainly, I think we can all agree that there are some places 
where we would like to make changes and improvements in 
Medicare. Often we can even agree on what the problems are, but 
difficulty in reshaping a program like Medicare is almost 
always in the details and the implementation. For instance, the 
President cites the need to have a prescription drug benefit 
for Medicare seniors, but it doesn't say how this should be 
done.
    Would the benefit be under the Medicare program, or would 
it be contracted out to private organizations? What kind of 
cost-sharing mechanisms would there be? Is it going to apply to 
all Medicare beneficiaries, or just some seniors in 
particularly dire straits.
    I think that just about everyone on this dias agrees that 
there should be a drug benefit, but if there is ever going to 
be one, we need to answer the questions above. I am frankly 
disappointed with the one specific proposal this administration 
has put out on prescription drugs--the discount card plan. This 
proposal, because it does not permit Medicare to regulate the 
discounts or have any enforcement role, does nothing to lower 
the overall cost of prescription drugs. Additionally, it is not 
clear what kind of savings this card would yield for seniors.
    One of the strengths of the Medicare benefit is that the 
collective buying power of all the seniors in the program could 
reduce the price of these drugs, but this plan will divide up 
that group and does not explain how the savings will be 
achieved or from whom they will be extracted.
    I am also concerned about what I see as a desire to rely on 
the private insurance companies and their example for their 
reform. The marketplace can and has been a place for a 
wonderful efficiency, but it can also be ruthless in its drive 
for profit, and we cannot allow health care decisions for our 
seniors to be strictly business decisions.
    Government works best when it is harnessing the incredible 
potential of the private sector, but softening some of its 
harsher edges. Today the House should have been debating the 
Patient's Bill of Rights to do just this. Sadly, we have put 
that aside, but we on this subcommittee can at least make sure 
that our seniors are protected under Medicare from the abuses 
of the marketplace.
    It would be a terrible injustice to our seniors to open 
Medicare unshielded to the cruelties of the business world. 
Medicare is a sacred program to many of today's seniors. They 
count on it, and they should be able to do that in the future. 
We as a society have made a pledge to them that they will have 
health care. Prescription drug coverage is part of health care. 
It is, I would add, a cost-effective often a preventive health 
care measure that if it is not followed through with and 
seniors, as many of we know personally, have to choose which of 
their prescriptions they will take, it can be a less expensive 
alternative than being admitted to an acute care facility.
    So, I look forward to working with you, Mr. Secretary, on 
this framework and on what you have to say, and I want to hear 
from you and your panelists. Thank you very much for coming. 
Yield back.
    Mr. Bilirakis. I thank the gentlelady. Mr. Buyer.
    Mr. Buyer. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for being here. This is your second appearance before the 
subcommittee. I would like to applaud the President's 
principles for moving forward with reform for Medicare, and 
also applaud not only the President, but your commitment to a 
viable financially sound program with an added prescription 
drug benefit.
    The President and you, Mr. Secretary, are to be commended 
for being forthcoming about the shortcomings in Medicare and 
for seeking to make improvements in the program. Medicare is 
crucial to the well being of the Nation's 40 million seniors 
and disabled individuals. It is important that we deal honestly 
and forthrightly with our seniors and younger generations about 
the program structure and finances. While Medicare provides 
payment for vital health care services, it also impacts the 
health care practices of nearly every doctor, hospital, and 
skilled nursing facility in the Nation. They often see a side 
of Medicare that the beneficiaries do not see. Providers of 
services see regulations and paperwork and the daunting threat 
that if they inadvertently fall out of line, they could be 
subject to treble damages.
    Reducing the tremendous regulatory burden on providers 
should ease its administration for the provider and the 
government alike. It should also ensure that seniors will 
continue to have access to quality care. This paperwork burden 
is especially acute for many providers in my rural district. 
They don't have the access to the technology or the personnel 
to keep up with the burden, Mr. Secretary. Any efforts that you 
can take to relieve this burden on the providers, especially 
those in rural areas, is welcome.
    I also noticed in your prepared testimony that you 
initiated listening sessions around the country for those who 
deal with the Medicare rules in the real world. I compliment 
for doing that. I would also be happy to welcome those 
listening sessions in Indiana, and if you want to come to one 
of the rural towns and see what that impact is not only in the 
quality of care, but the impact upon the providers, I welcome 
you, and please have your staff be in touch with me. I 
appreciate you being here. Thank you.
    Mr. Bilirakis. Thank the gentleman. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. Let me thank 
you, Mr. Secretary, for being here today. I want to thank you 
for acting on the concerns that I expressed about the advance 
beneficiary notice during your last appearance before this 
committee. As a result of your positive action, health agencies 
will only have to submit the ABN forms once for patients rather 
than continue submissions every 60 days eliminates a major 
paperwork burden, and I want to thank you for that.
    I want to congratulate you, Mr. Secretary, on implementing 
these improvements in such a short timeframe. Your actions 
demonstrate that bureaucracy can be moved in the right 
direction. I hope to be able to continue to work with you on 
regulatory reform issues, like due process for home health and 
hospice agencies.
    As we continue our dialog on Medicare reform, let me thank 
you again for moving so swiftly and, on that note, Mr. 
Chairman, I yield back. Thank you.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. 
Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman, and, Mr. Secretary, 
we are delighted you are with us today. There has been some 
discussion this morning about experimenting with Medicare, and 
I am convinced that there is not any Member of Congress nor 
anyone in the administration that wants to do a lot of 
experimenting to the detriment of senior citizens, but we do 
want to explore new ways to be more effective in delivering 
better health care to our senior citizens, and I believe that 
these fundamentals that have been set out are designed to do 
that.
    While we all agree that a prescription drug benefit is 
vitally important and is probably the most important thing, I 
know there has been some criticism of the administration about 
the discount card, and I notice that you, in your testimony, 
say that the discount card is simply a first step and is not 
meant to be a substitute for a comprehensive drug benefit, and 
that is what we are all working toward.
    Another way that we can help senior citizens--and I know 
that this will be addressed as well--is that providers today 
are quite frustrated as they ask questions of contractors and 
try to determine answers to and speed up their reimbursement, 
and many of them are quite confused about that. And I know that 
trying to streamline the regulations and administrative 
procedures will help address that problem as well.
    I would also just mention one other thing. Lois Capps and 
I, along with others, have introduced legislation to try to 
address the shortage in the nursing area and the pharmaceutical 
area, and hope that you will work with us in that area because 
that is very important also as we try to address the health 
problems of senior citizens. I yield back the balance of my 
time.
    Mr. Bilirakis. The Chair recognizes Mr. Green for 3 
minutes.
    Mr. Green. Thank you, Mr. Chairman for holding the hearing. 
Mr. Secretary, welcome again. The entire committee and I 
appreciate your commitment to addressing our Nation's health 
needs.
    I have reviewed the material from today's hearing. I am 
confident that, as you already hear from our opening 
statements, there will be a spirited debate. And I just want to 
say a few words about the President's proposal on prescription 
drug savings card.
    Under his plan, from the way I see it, Medicare would 
endorse and promote several privately administered discount 
cards. And while this program sounds good on the surface, with 
closer exam it doesn't offer anything that seniors can't do 
now. In fact, in some ways it could actually limit their 
sources. Currently, seniors can receive a discount card through 
AARP, Reader's Digest and other sources. In fact, seniors can 
buy any of these plans based on their individual prescription 
drug needs. Under the President's plan, seniors would be 
limited to one discount card, which bothers me because under 
the free market system they can purchase all of them if they 
want because each card may cover only certain types of 
prescriptions. And as we know, seniors take a variety of 
prescriptions and they have total coverage. And according to 
some estimates, seniors can save more by comparative shopping 
than they could through a prescription card.
    A study by the Government Reform Committee reveals that 
discount cards result in less than 2 percent cost savings below 
the average drugstore.com price, and these savings don't even 
take into account the cost of signing up for the program. The 
proposal would cost $35 million, which would be really a 
commercial for these private prescription discount cards and at 
the taxpayers' expense. And the fact that I am concerned about 
is that we need a prescription drug benefit, and I appreciate 
the President saying this is a first step. But even that first 
step needs to be one that is as effective as we can make it.
    The President's proposal does address the need for 
prescription drug benefit, and there is a lot of good ideas on 
preventative care and streamlining administrative procedures 
that you have in your program, and some are controversial, such 
as the voucher program and other proposals that require a lot 
of time to work out.
    Mr. Chairman, I know we hope to mark up a Medicare reform 
bill in September, but I have some concerns that it might take 
much longer than that for the House and the Senate to really 
work our will. We need a meaningful prescription drug benefit, 
and we need it as soon as possible. And with that, Mr. 
Chairman, I yield back my time.
    Mr. Bilirakis. Mr. Greenwood, for an opening statement.
    Mr. Greenwood. Good morning, Mr. Secretary, welcome. Yield 
back.
    Mr. Bilirakis. Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman. I won't be quite as 
brief as Mr. Greenwood. Thank you for holding this hearing and, 
Mr. Secretary, welcome back to the committee, it is nice to see 
you back here again.
    As I listen to the opening statements of my colleagues and 
reflect on the town hall meetings that I have held on this 
issue in Wisconsin, I think the one thing that we all agree on 
is that the older Americans want us to act, and I appreciate 
the fact that you have come forth with a plan. As Mr. Green and 
others have indicated, there are some concerns with the plan, 
but I think the most important thing is that we have begun the 
dialog in what I think will ultimately be an effective 
resolution to this problem because both Democrats and 
Republicans recognize that this is a real-world problem, that 
people are really affected by this. And it is tough when you 
sit in a hearing or a town hall meeting and listen to an older 
person say that they really can't afford to purchase the drugs 
that they need.
    So, I am pleased that you are here. I look forward to 
hearing your testimony, and because I want us to have an 
effective resolution as fast as possible, I will yield back the 
balance of my time.
    Mr. Bilirakis. Thank the gentleman. Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. I, too, just want to 
welcome the Secretary and look forward to his testimony, and I 
yield back.
    Mr. Bilirakis. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. Mr. Secretary, I 
want to begin by thanking you. When you were here before, I 
shared with you the story about a young woman in my district, 
Patsy Haines, 31 years old, who need a bone marrow transplant 
and was unable to secure that from her insurer. You took that 
to heart. You looked into her situation. You wrote me a long, 
thoughtful letter, and I shared that with her, and I have 
shared that with my constituents.
    Still, the insurance company did not budge, but I have good 
news this morning. Her friends and neighbors, as I said, were 
holding bake sales and community auctions. They were able to 
raise a threshold amount of money, and I was just informed a 
few hours ago that the hospital is willing to accept what they 
have raised as a community to negotiate, and very soon she will 
receive her transplant and we hope that that will save her 
life. But I want to thank you for following through and for 
your obvious concern for her.
    I also want to thank you because when you were here before 
I expressed some frustration with the former HCFA and some 
doubts as to whether or not the Agency would ever be 
manageable. My experience in the few months that you have been 
there has been more positive than in the past. I would like to 
say that Mr. Scully of your staff and I have worked on a matter 
with Representative Thurman, and he has been responsive. He has 
returned phone calls and he has shown concern. So, I want to 
thank you for that.
    You indicated that you were going to the office in 
Baltimore and spend some time yourself, and I think you invited 
any of us who may be interested to go along with you. I was 
unable to do that. If you ever do that in the future, I would 
be most interested in participating.
    In regard to our hearing today, I have read your testimony 
and I have looked over the principles. I have some concerns 
about the principle that said today's beneficiaries and those 
approaching retirement should have the option of keeping the 
traditional plan with no changes, and I have questions about 
that. At what age should we be concerned that those of us will 
find that Medicare won't be around in the traditional sense, 
and I hope in today's hearing we can get some answers, 
especially regarding that particular principle. But most of 
all, I wanted to thank you for your follow-through and your 
concern. I yield back, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman, for holding this 
hearing on the President's Medicare Modernization Principles, 
and I wanted to thank you also for what you said yesterday at 
our meeting about wanting to work with both sides, with the 
Democrats as well.
    I think the most important issues that need to be addressed 
are adding a prescription drug benefit that would cover all 
seniors who want it, and increasing protections while ensuring 
that Medicare remains affordable for all beneficiaries. The 
lack of an affordable prescription drug benefit is without 
question the biggest problem that Medicare faces today, and I 
don't think it can be corrected piecemeal by simply devising a 
plan to cover the poorest seniors, a comprehensive affordable 
drug benefit should be available to all seniors regardless of 
income because 50 percent of Medicare beneficiaries without 
coverage are middle-class seniors. Instead of providing a 
meaningful benefit through Medicare, it seems--and I say it 
seems because I hope I hear differently today from the 
Secretary--but it seems as though President Bush and the 
Republican leadership are preparing to either provide drug 
coverage to only low-income beneficiaries or some type of 
catastrophic coverage, and neither of these will allow 
beneficiaries to receive a comprehensive affordable guaranteed 
benefit.
    In addition, the drug discount card program proposed by the 
President is not an interim solution, in my opinion, to 
providing a comprehensive prescription drug benefit. Many 
companies already provide these cards at little or no expense. 
Drug manufacturing companies are not held accountable, while it 
places the entire burden of any possible savings on hometown 
pharmacies, and it does not require Medicare to pay even a 
portion of the Medicare recipient's cost of prescription drugs.
    When talking about reforming or modernizing Medicare, a 
drug discount card or privatization is not helpful, in my 
opinion, to seniors. We need a comprehensive benefit.
    At a time when seniors can barely afford the prescription 
drugs, Mr. Chairman, I also think it is important to discuss or 
to ensure that health costs to seniors for basic services do 
not increase, and this merging of Parts A and B of the program 
may contribute to a rise in the cost of the Medicare program 
which would be financially detrimental to seniors nationwide. 
If both Parts A and B are combined, it seems clear that most 
seniors would face a higher deductible. The deductible for Part 
A is $776, but only 15 percent of seniors utilize it. The 
deductible for Part B is $100, and an overwhelming 85 percent 
of seniors use it. Combining these two parts and finding a 
deductible that falls in between A and B I think presents a 
majority of beneficiaries with a significantly higher 
deductible, which means that most seniors would have to pay 
more out-of-pocket before their Medicare benefits kick in.
    Again, these are the concerns I have, and I hope that 
rather than focus on these interim solutions in terms of a drug 
discount card, we get right to the heart of the matter which is 
providing a comprehensive benefit for everyone. Thank you, Mr. 
Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for being here and sitting very patiently while we all go 
in and out and come back just in time to make our statements 
and pontifications and so forth. I know this is a regular 
routine that a Secretary has to undergo, but I appreciate again 
your willingness to sit and listen to us and to attend this 
hearing.
    I think there are some very good points that are being made 
by my colleagues and members, and while many of us have to go 
in and out to other hearings, which I am in the process of 
doing today, again, I appreciate your patience with us.
    Let me very quickly, without taking all of my time, go 
through a couple of questions because I want, if I could, you 
to answer these today if you could, and if you don't get it all 
down and can't, if you could late-file your testimony to these 
questions, and they are a little bit more narrowly drawn than 
some of the general comments I have heard being made this 
morning, and concern the issue of U.S. renal care in this 
country and reimbursement in that regard.
    The first one is that the administration's plan speaks of 
Medicare contract reform and also encourages innovative 
programs such as disease management demonstrations. There is no 
better place for these types of reforms that in the End-Stage 
Renal Disease, the ESRD program. Would the administration 
welcome congressional authority to permit CMS to directly 
contract with the ESRD providers so that dialysis and other 
health care services could be provided through a disease 
management model, perhaps even a risk-sharing with CMS in the 
treatment of these patients? That is the first question.
    The second question is, Section 422(c) of BIPA 2000 
directed the HHS Secretary to develop a system which adds an 
expanded number of laboratory test in drugs which are currently 
separately billable under the program, add these into a bundle 
of dialysis services reimbursed under the ESRD composite rate. 
A report on this is due Congress in July of 2002. This new 
payment system seems to be very consistent with the 
administration's interest in reducing bureaucratic complexity 
while improving the quality of care. And my question here is, 
would the administration commit to meeting the statutory 
deadline, July 2002, and would it consider sharing any 
preliminary findings with this subcommittee as soon as such 
findings become available?
    And if you could, when it is appropriate for you to answer 
and respond to us, if you could do that today, and if you can't 
do that today, if you could, again, share your answer to us in 
written form. Thank you, sir, and I would yield back the 
balance of my time.
    Mr. Bilirakis. I thank the gentleman. Ms. Eshoo, for an 
opening statement.
    Ms. Eshoo. Thank you, Mr. Chairman, for having this 
hearing, and I will submit my full statement for the record. I 
want to welcome the Secretary. This is your maiden voyage here, 
and I want to welcome you and wish you well with the 
responsibilities that you shoulder. I look forward to asking 
you some questions and, most importantly, is this the best we 
can do?
    I want to work with you on reforms, I think they are very 
important. I offered legislation last year on prescription drug 
coverage that was really based on a competitive model with 
multiple PBMs, so I look forward to working with you because, 
after all, we are here to work for the American people, and let 
us see how we can push the edges of the envelope out and get 
some good things done.
    So, thank you, Mr. Chairman, and welcome, Mr. Secretary, 
and I wish you well in your position because there are a lot of 
people that are counting on you to make good on the things that 
haven't been done and I think that we all want to accomplish.
    Mr. Bilirakis. I thank the gentlelady. Mr. Barton, for an 
opening statement.
    Mr. Barton. I don't have a formal opening statement, Mr. 
Chairman, I just want to welcome the Secretary. We have talked 
by telephone several times, and you have always been very 
receptive and accommodating, and many of us are supporting Alan 
Slobodan to be General Counsel at the FDA and your people are 
working on that. So, we look forward to your testimony, and 
welcome to the subcommittee.
    Mr. Bilirakis. The Chair thanks the gentleman. Ms. Wilson, 
for an opening statement.
    Ms. Wilson. Thank you, Mr. Chairman. I will forego a formal 
opening statement as well. I want to welcome the Secretary and 
look forward to working with him and, as the chairman knows, 
and other members of the committee, I have worked very hard on 
the discrimination against rural States and small States in 
Medicare+Choice, as well as the modernization of the Medicare 
and Medicare bureaucracy, the HCFA bureaucracy, so that we can 
focus on care to people rather than on compliance with 
regulations that sometimes seemingly have no purpose. And as 
the Secretary also knows, children's mental health is an area 
of keen interest of mine, and whether it is today or at some 
other point, I would like to visit with you on the progress 
being made in that area. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentlelady. I believe that 
completes all the opening statements. The written opening 
statements of all members of the subcommittee are, without 
objection, made a part of the record.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman. I appreciate your efforts in making 
Medicare reform a top priority of this subcommittee, not just today but 
during this Congress.
    Medicare will touch all of our lives at one point or another, and 
for obvious reasons. So it is in everyone's best interest to work 
together to come up with some sound reforms that will improve the 
program for the long term.
    The President's proposal for Medicare reform takes positive steps 
toward strengthening the program, and I am encouraged by what I have 
heard so far.
    His plan places greater emphasis on preventative care services and 
the need for prescription drug coverage. Seniors can also keep their 
existing Medicare coverage without having to make any changes if they 
don't want to.
    I think we are also making some real progress in identifying those 
problem areas within the program that need our attention, like 
contractor reform, improving the appeals process, and streamlining what 
has become a complex bifurcated structure of Part A and Part B 
services.
    I would like to focus my attention on an area of particular 
importance to rural communities across this country, one that perhaps 
stands on the periphery of the reform debate, but one that we must 
address--regulatory relief.
    Providers in my home state of Wyoming are quite honestly screaming 
out with frustration over the constant flood of Medicare regulations 
coming down the pike--a new regulation every five hours I'm told.
    There comes a point when a rural provider with a small practice in 
tiny town U.S.A. simply cannot keep up with the regulations, not for 
any fault of their own, but because they do not possess the resources, 
manpower, or technology to keep up.
    By the same token, when Medicare reimburses rural providers at a 
lower rate that urban providers, it has particularly devastating 
effects on health care services in rural areas.
    I do not profess to fully understand the Medicare reimbursement 
formula used by Medicare, but what I do know is that Wyoming ranks last 
among the lower 48 states when it comes to Medicare payments.
    Not only that, providers in Wyoming have become so paranoid about 
the stringent Medicare coding procedures fearing that at any moment 
they are going to be audited--or worse, charged with fraud and be faced 
with monetary penalties.
    When we add all these things up, we literally force the provider to 
withdraw from Medicare and do you know who suffers the most in the long 
run?--our seniors.
    As we continue to work through this issue, I hope we all keep in 
mind that rural America is the very backbone of this country. If we are 
going to strengthen the Medicare program and allow it to do what it was 
intended to do--provide medical care to all seniors--then we have got 
to ensure the survival of rural health care services.
    I stand ready to work with this subcommittee and this 
Administration on any and all ideas related to regulatory relief--as I 
do in all other areas of Medicare reform.
    With that, Mr. Chairman, I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress 
                       from the State of New York

    Mr. Chairman, I want to thank you for having this hearing and 
continuing to examine different ways to improve Medicare for seniors. 
Let me also thank you Mr. Secretary. I appreciate your efforts in this 
regard and look forward to working with you on this issue. Today we 
will examine the President's framework for Medicare reform. I am 
optimistic that in developing legislation we can work in a bipartisan 
manner to the benefit of our seniors.
    The 89th Congress had the pleasure of designing the Medicare 
program which has endured numerous changes over the years. However, 
this Congress is faced with the most significant challenge since 
Medicare's inception. Not only do we intend to provide a prescription 
drug benefit but we are also undertaking the enormous challenge of 
modernizing the Medicare program as a whole. This Congress is saddled 
with the responsibility of determining what aspects of Medicare have 
been successful, what aspects have failed, what new services should be 
included in a modernization package, and how to do that in a fiscally 
responsible manner. As this and other Committees study different 
modernization models, we must keep in mind that this is a program 
designed for the elderly. It must remain affordable, it must maintain a 
high level of care, and it must allow seniors to live with dignity. To 
do less would be an injustice to the millions of seniors who rely on 
Medicare.
    In reviewing the President's prescription drug discount plan, I am 
a bit concerned about his commitment to implementing real drug coverage 
for all seniors. I have heard talk of providing coverage for low-income 
individuals along with a catastrophic provision. My concern through all 
of this is that middle-income seniors will be left out and the promise 
of coverage will be in the discount card, which clearly is not enough.
    While the discount program may be well intentioned, I think it 
detracts from the real goal of meaningful prescription drug coverage, 
which should be our focus. In fact, the $300 billion that the President 
has set aside for a drug benefit is wholly inadequate. It does not 
allow this Congress to develop a real benefit. The benefit that $300 
billion provides will give seniors some relief, but they will be forced 
to pay a fairly high premium for very little coverage and will still 
have high out-of-pocket expenses. The President's tax cut further 
exacerbates this problem by squandering the surplus when it should have 
been used to provide a real, meaningful prescription drug benefit for 
seniors. I hope that we will examine alternatives to increase the level 
of funding for a Medicare drug benefit.
    I understand the complex changes that the delivery of health care 
has endured over the last 36 years and realize that we need to take a 
good hard look at the Medicare program. Seniors deserve high quality 
care and if changes are needed we need to make them. I look forward to 
hearing your testimony, Mr. Secretary, and working with you and the 
Members of this Committee to develop meaningful legislation that will 
benefit our seniors.

    Mr. Bilirakis. The Chair now will recognize the Secretary. 
Sir, we will set the clock at 10 minutes, but you take as much 
time as you need to communicate your message to the Congress.

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

    Mr. Thompson. Thank you very much, Mr. Chairman, Chairman 
Bilirakis, Congressman Brown, and all the other members of the 
committee. Let me just say at the beginning I was very 
appreciative of the comments that everybody said in the 
committee, and I would like to just point out that this 
administration and my office wants to work with each and every 
one of you. We have a tremendous opportunity to improve 
Medicare, and if we can set aside our differences and work on 
the goal of improving Medicare, I think there are enough good 
ideas out there that everybody can buy into it and accomplish 
something that the American people really want; a strengthened 
Medicare system with a prescription drug benefit for all 
seniors. I was very heartened and encouraged by hearing 
everybody's remarks and appreciate that, and that is what I 
wanted to say up front.
    Distinguished subcommittee members, I thank you very much 
for inviting me to appear before you today. I am very delighted 
to have this opportunity to discuss President Bush's framework 
for strengthening the Medicare program so that it can better 
serve America's seniors and individuals with disabilities.
    As you know, the President's plan for improving and 
strengthening Medicare is based on eight principles, which I 
will discuss in a moment. These principles reflect ideas 
developed over many years of work by many people, including a 
lot of members on this subcommittee, and I thank you for 
working to ensure that Medicare is better and stronger for all 
that need it.
    President Bush's Medicare principles recognize the need to 
improve the current benefit package so that it more effectively 
meets the needs of seniors. The principles also place Medicare 
on a secure financial footing for future generations. The 
President is committed to working with Congress on a bipartisan 
basis to meet these shared goals.
    For 36 years, Medicare has been immensely successful, as 
all of you have pointed out, in helping America's seniors 
achieve the promise of secure access to needed health care. Yet 
as medical practice has improved dramatically in the past 
decades, the Medicare benefit package and delivery system has 
actually not kept pace. When Medicare was created in 1965, the 
benefit package was based on the most popular private health 
insurance packages which were offered at that time. Since then, 
the health insurance options available to most Americans have 
changed as the practice of medicine has changed, but Medicare 
has in many ways remained rooted in the 1960's.
    As you all know, one of the most glaring omissions is the 
lack of prescription drugs in Medicare's benefit package. But 
even when benefits are covered, Medicare's patchwork benefits 
leave serious gaps, as all of you have pointed out, as too many 
seniors discover when they experience serious illnesses. These 
problems are illustrated not only by prescription drugs, but 
also by other types of care such as preventive medicine, which 
I personally believe is one of the biggest failings of 
America's health care system today. And I would welcome any 
ideas you would have that would help me improve that system.
    Additionally, Medicare's current cost-sharing structure 
does not include protections for the most vulnerable 
beneficiaries, those 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, and our private health insurance programs 
do not require that $800 cost-sharing deductible each time we 
go in the hospital. While most private insurance plans also 
include stop-loss limits to protect against very high out-of-
pocket medical expenses, Medicare has no such protections. And 
even the benefits now available to our seniors are not secure. 
The oncoming rush of Baby Boom retirees jeopardizes the ability 
of Medicare to meet its most fundamental obligations.
    The President is not content to wait for comprehensive 
Medicare improvements to strengthen the system, he is taking 
bold and effective action now so that we will be able to begin 
the process of improving every aspect of the way Medicare 
functions.
    We have taken immediate action to give all Medicare 
beneficiaries access to the kind of discounts on drug prices 
that Americans with private health insurance have available to 
them.
    Now, I know some of you question the need and the use and 
the quality of the health card, but these discounts are 
incorporated right now in all the major Medicare drug benefit 
proposals pending before Congress. People with Medicare could 
use these cards right now instead of waiting until we implement 
Medicare, which may be 1, 2, 3 years away; could use these 
cards when they buy prescriptions to get discounts of up to 25 
percent off the retail prices. And I want to point out that we 
had an information meeting this past Monday, and over 100 
individuals representing many companies came and were very 
enthusiastic about the choices and the opportunity and the 
chances to drive down drug prices and to be able to negotiate 
directly with the pharmaceutical companies. The drug discount 
card is only the first step.
    Today I am announcing three other actions that I believe 
will also significantly enhance the way that we provide health 
care in America. First, we are now issuing the final Skilled 
Nursing Facility Prospective Payment System. It includes the 
Skilled Nursing Facilities, commonly referred to as SNF, 
provided by swing-bed hospitals. Our plan supports swing-bed 
hospitals in providing quality care--this is going to help 
rural areas especially--while still maintaining accurate 
Medicare payments. I am working to reduce the burden on swing-
bed hospitals by pushing back the implementation date of the 
new rule until July 1, 2002. This is going to give the swing-
bed facilities time to prepare for their new role.
    We are also reducing the questions from 400 to 100, eight 
pages that have to be filled out to two pages of rules and 
regulations, which is a tremendous reduction, 75 percent.
    Second, I am announcing that CMS will provide new 
techniques to assist States in developing and implementing 
changes to their Medicaid programs. And one of the best ways to 
improve the waiver process is to be able to enable States to 
learn from each other so they know what the best waiver ideas 
are and what is available and what needs to be done.
    I did this when I was Chairman of the National Governors 
Organization starting best practices. I am trying to do the 
same thing through CMS; put it on the Internet and the Websites 
so States will know what is out there, what is available. As 
part of this initiative, CMS will integrate State-to-State 
learning and information-sharing into the waiver application 
process through interactive templates on the Internet. State 
officials and, yes, all Members of Congress, will be able to go 
online and obtain information on how other States have designed 
their waivers. State officials will also be able to interact 
directly with other States that have experience in designing 
innovative waivers and will be able to work with our staff, CMS 
staff, on designing approvable waivers.
    CMS is also issuing a new guide book that highlights the 
way States can better help families, especially those with 
children, who will be able to gain access to and retain 
Medicaid benefits.
    Third, I am announcing several Medicare+Choice 
improvements--for example, provider credentialling for 
Medicare+Choice has been taking place every 2 years, adding 
unneeded regulatory pressure. From now on, it will occur every 
3 years.
    We are also adding a dose of commonsense to the 
requirements that we place on providers that participate in 
Medicare+Choice. For example, CMS will allow new providers to 
participate once their training is complete or while they are 
awaiting official credentialling. And we are revising the 
Medicare+Choice quality improvement requirements to decrease 
the administrative burden, allow increased flexibility, and 
reward high performance. For a full list of all these 
improvements, I have outlined them in my Medicare+Choice 
program and also in the record.
    Improving Medicare+Choice represents the kind of change we 
need if Medicare is going to be able to meet the needs of 
nearly 80 million Americans who will be served by this program 
in 2030. It is also why the President has worked with Members 
of Congress from both parties to develop a framework to guide 
legislative program efforts to modernize the Medicare program 
and to keep the Medicare benefits secure. Let me review them 
with you now.
    First, all seniors--all seniors--should have the option of 
a subsidized prescription drug benefit as part of modernized 
medicine and modernized Medicare. About 27 percent of Medicare 
beneficiaries have no prescription drug insurance and must pay 
for the drugs entirely out of their own pocket, or go without 
needed medication. That is unacceptable to you and to the 
administration, and I hope it will be able to be changed this 
year under your leadership.
    Second, modernized Medicare should provide better coverage 
for preventive care and serious illness. Preventive care is 
something we all have to address if we are going to hold down 
health costs. Medicare's preventive benefits should have zero 
co-payments and should be excluded from the deductible. 
Medicare's traditional plan should have a single indexed 
deductible for Parts A and B, provide cost protection for high-
cost illnesses, and take other steps to protect seniors from 
high expenses.
    Third, today's recipient and those approaching retirement 
should be able to keep the traditional plan with no changes, no 
higher premiums, no changes in cost-sharing or supplemental 
coverage, period, and they should have a period of time to 
switch back to the original plan if they prefer.
    Fourth, Medicare should provide better health insurance 
options like those available to the Federal employees. Plans 
should be able to compete to provide Medicare's required 
benefits, and beneficiaries who would choose less costly 
options should be able to keep most of the savings even if that 
means that they pay no premiums at all.
    Fifth, Medicare legislation should strengthen the program's 
long-term financial security. 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. So, to support 
good planning for the entire program, Medicare's separate trust 
funds should be unified to provide a very 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.
    Sixth, the management of Medicare should be streamlined so 
that Medicare can provide better care for seniors and disabled 
citizens. For example, we really need contracting reform so 
that Medicare can use competitive bidding tools to improve 
quality and reduce costs. A number of recent studies show that 
this could reduce costs upwards to 25 percent.
    Seventh, Medicare's regulations and administrative 
procedures should be updated and streamlined, and instances of 
fraud and abuse should be dramatically reduced if we do our job 
right. Too often, the regulations are complex, variable and 
inconsistent. They need to change, and I want to tell you, they 
will.
    I am directing CMS to hold listening sessions around the 
country, much like the town hall type meetings that many of you 
hold in your districts. And I want to point out that several of 
you have asked us to come into your districts and hold town 
hall meetings, Democrats and Republicans alike, and I 
appreciate that. I don't know if we are going to be able to 
accommodate all of you, the list is getting quite long, but we 
will try to get to as many as possible. But we want to gain the 
input not only from you, but seniors and physicians, 
administrators and nurses, from everyone involved. Their 
recommendations will help form the basis of practical 
commonsense effective regulatory reform.
    Finally, Mr. Chairman and members, Medicare should 
encourage high-quality health care for all seniors. For this 
administration, there is no more important goal than ensuring 
that seniors and disabled Americans get the highest quality, 
and most error-free health care. These are the principles 
around which the President has committed to building consensus 
in Congress to strengthen and improve Medicare. The President 
and I are absolutely committed to working with each of you and 
the entire Congress to make Medicare stronger and better.
    I personally look forward to working with you, with your 
staff, to realize our mutual goal of improving and transforming 
this vital program. I thank you very much for giving me this 
opportunity, and now I look forward to your questions.
    [The prepared statement of Hon. Tommy G. Thompson follows:]

              Prepared Statement of Hon. Tommy G. Thompson

    Chairman Tauzin, Congressman Dingell, and distinguished Committee 
members, thank you for inviting me to appear before the Committee 
today. I am delighted to have the opportunity to discuss President 
Bush's framework for strengthening and improving the Medicare program 
so that it can fulfill the promise of providing health care security 
for America's seniors and people with disabilities in the coming 
decades. This framework is based upon ideas developed over long years 
of dedicated work by many people including many Members of this 
Committee. It recognizes the need to improve the current benefit 
package so that it better meets the needs of seniors including the 
addition of a prescription drugs benefit. It also seeks to place the 
program on a secure financial footing for future generations. The 
President is committed to working with Congress on a bipartisan basis 
to meet these shared goals. To this end, he has put forth eight 
principles that together form the basis of a framework for 
strengthening the Medicare program. Working together we can ensure that 
Medicare keeps it promise not only to today's seniors but also the 
seniors of tomorrow.
    For 36 years, Medicare has been successful in helping America's 
seniors achieve the promise of secure access to needed health care. Yet 
as medical practice has improved dramatically in the past decades, the 
Medicare benefit package and delivery system have not kept pace. When 
Medicare was created in 1965, the benefit package was based on the most 
popular private health insurance packages offered at that time. Since 
then, the health insurance options available to most Americans have 
changed as the practice of medicine has changed but Medicare has in 
many ways remained rooted in the 1960s. As you all know, one of the 
most glaring omissions is the lack of prescription drug coverage in 
Medicare's benefit package. But even when benefits are covered, 
Medicare's patchwork benefits leave serious gaps, as too many seniors 
discover when they experience serious illnesses. These problems are 
illustrated not only by prescription drugs, but also by other types of 
care such as preventive medicine.
    Additionally, Medicare's current cost sharing structure does not 
include protections for the most vulnerable beneficiaries --those 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. While most private health 
insurance plans include stop-loss limits to provide protection against 
very high out of pocket medical expenses, Medicare has no such 
protections. And finally, even the limited benefits now available to 
our seniors are not secure in the coming decades with the retirement of 
the Baby Boom generation.

          THE PRESIDENT'S FRAMEWORK FOR STREGTHENING MEDICARE

    Medicare must be strengthened and improved now if it is to meet the 
needs of the nearly 80 million Americans who will be beneficiaries of 
the program by 2030. 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 Medicare improvement 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.
    Prescription drugs are an essential part of the health care system 
for Medicare beneficiaries. One recent study found that while Medicare 
beneficiaries make up about 14 percent of the population, they 
accounted for 40 percent of prescription drug spending. Yet, over one-
quarter of beneficiaries have no prescription drug insurance and must 
pay for drugs entirely out of their own pocket or go without necessary 
medications. Worse, this financial burden falls heaviest on those least 
able to afford it. Of beneficiaries with incomes below poverty, those 
with drug coverage filled nearly twice as many prescriptions in 1998 as 
those beneficiaries without coverage (29 prescriptions compared to 15). 
A prescription drug benefit will do more than protect beneficiaries 
from the risk of high prescription drug expenses. Quality private-
sector prescription drug benefits also help make prescription drugs 
more affordable through the use of innovate tools to reduce drug costs. 
Private insurance plans usually work with pharmacy benefit managers to 
negotiate volume discounts. They also improve the quality of 
prescription drug use by working with pharmacists and physicians to 
provide individualized information on more effective, and lower-cost, 
drug options. Their computerized support systems can help avoid adverse 
drug interactions, which are far more common in seniors than in any 
other part of the population.
    Medicare's subsidized drug benefit should protect seniors against 
high drug expenses and should give seniors with limited means the 
additional assistance they need. All seniors should have the 
opportunity to choose among quality private plans. Further, the drug 
benefit should be implemented in such a way as to encourage the 
continuation of the effective coverage now available to many seniors 
through retiree health plans and private health plans. While we must 
support these continuing options, we should encourage a multiplicity of 
new choices. The new drug benefit should 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'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 from 
developing. 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 
and the cost sharing required to receive these preventive benefits may 
discourage many from seeking potentially life saving tests. This 
Congress understands the value of Medicare preventive benefits and 
crafted important legislation in 2000 to expand preventive benefits for 
Medicare beneficiaries. Yet gaps remain. For example, colorectal cancer 
is the second leading cause of cancer death and more than 90 percent of 
cases occur among individuals over the age of 50. It is also one of the 
most treatable forms of cancer if it is detected early. However, at the 
present time, less than 40 percent of colorectal cancer cases are 
detected early. While Medicare covers colonoscopy for high-risk 
beneficiaries, the most complete form of screening for this disease, 
coinsurance requirements may pose a barrier to early detection. 
Coinsurance for a colonoscopy can range as high as $130 (assuming the 
beneficiary has already met their Part B deductible). If a beneficiary 
is at average risk for colorectal cancer, a colonoscopy is covered once 
every ten years. For an individual at high risk, the procedure is 
covered once every two years.
    Advances in medical technology have made it possible for more 
seniors to survive illnesses that would have been fatal only a few 
years ago. Unfortunately, the sickest Medicare beneficiaries are likely 
to pay the most for their health care costs--exactly the opposite of 
the way that logical insurance plans should work. For example, Medicare 
copayments related to serious illnesses such as complex chemotherapy 
treatments for cancer may exceed 40 or 50 percent. Indeed, the sickest 
beneficiaries, those who incur over $25,000 in program costs (about 
730,000 individuals in the most recent year for which figures are 
available) averaged more than $5,000 in cost sharing payments alone. 
This figure does not include items and services such as prescription 
drugs that are not covered by the program. Beneficiaries within this 
group include individuals requiring intensive life support following 
major heart attacks or breast reconstruction surgery following a 
mastectomy. In general, for patients with multiple hospital outpatient 
visits and procedures, the costs quickly add up. To protect 
beneficiaries when they need help the most, private insurance plans 
generally include ``stop-loss'' limits. Stop-loss 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 be 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. Beneficiaries who 
opt for the improved Medicare benefits should be allowed one year to 
switch back to the original plan.

4. Medicare should provide better health insurance options, like those 
        available to all Federal employees.
    Medicare beneficiaries do not have access to the same range of 
choices available to most Americans with private health insurance. 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. The contrast is most striking here in our Nation's capital. 
Federal employees and Members of Congress living in the Washington area 
have twelve different health plans to choose from, including a variety 
of fee-for-service plans, and health maintenance organizations (HMOs). 
But their neighbors with Medicare have only two choices--the 
traditional fee-for-service plan and a single HMO. This pattern occurs 
throughout the country. 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. Currently, no senior 
has access to any of the new kinds of private insurance that have 
become popular with other Americans, such as point of service plans 
that give beneficiaries the cost savings of networks of providers along 
with the flexibility of coverage for services from all providers.
    Plans should be allowed to bid to provide Medicare's required 
benefits at a competitive price, and beneficiaries who choose less 
costly plans 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. Beneficiaries should have access to timely and 
comparative information on the quality and total cost of all their 
health care coverage options.

5. Medicare legislation should strengthen the program's long-term 
        financial security.
    Since 1965, Medicare has provided a guarantee of health care 
coverage for more than 90 million seniors and people with long-term 
disabilities. Medicare has made the same promise to millions of 
Americans who are currently contributing their hard-earned dollars 
through payroll and income taxes. These Americans are counting on the 
financial stability and integrity of the Medicare program. But Medicare 
faces substantial financial challenges in the not-too-distant future. 
Within the next thirty years, the number of Medicare beneficiaries is 
expected to nearly double to almost 80 million people. As the number of 
beneficiaries rises, the payroll taxes of fewer workers will be 
available to support the program. Rising health care costs will also 
strain Medicare's resources.
    Careful planning is required to ensure that Medicare continues to 
keep its promises to future generations. We believe that legislation is 
necessary to improve the program's long-term financial security. To 
support good planning for the entire program, Medicare's separate trust 
funds should be merged to provide a straightforward and meaningful 
measure of Medicare's overall financial security that is not vulnerable 
to accounting gimmicks. Only by ensuring reliable data and planning 
ahead can drastic, undesirable changes in Medicare or other Federal 
programs be avoided.

6. The management of the government Medicare plan should be 
        strengthened so that it can provide better care for seniors.
    Medicare's traditional plan is falling short in important respects 
other than its benefits. It has not been able to use competitive 
approaches to keep its costs down. Its contracting requirements are 
outdated, making it more difficult to providers and patients to work 
effectively with a complex claim processing system. And perhaps most 
importantly, traditional Medicare does not provide integrated services 
for many seniors who need support for managing their illnesses, 
particularly in cases of chronic disease.
    Contracting reform should be implemented to improve efficiency and 
performance. Medicare is restricted o using certain insurance companies 
to process certain types of claims. Other businesses have the 
experience and capacity to provide these claims processing services but 
Medicare is prohibited by law from contracting with them. The program 
also cannot reward or penalize a contractor based on their performance. 
Medicare also does not have the authority to use competitive bidding 
tools to improve quality and reduce costs. Enrollees in traditional 
Medicare frequently require use of medical supplies such as hospital 
beds, wheelchairs, and oxygen equipment. Prices for these items are set 
by Medicare and are frequently higher than prices paid by private 
plans. A number of recent studies indicate that the cost of supplies 
could be reduced between 15 and 30 percent if Medicare used the same 
kind of competitive bidding tools that help reduce costs for non-
Medicare patients. However, Medicare should not be allowed to create 
newprice controls and should ensure that seniors continue to have 
choice of suppliers.
    Medicare also needs to reform its medical management tools. Many 
Medicare beneficiaries are among the sickest and most vulnerable 
individuals in our society, often suffering from numerous chronic 
conditions. Unfortunately, Medicare's traditional approach to paying 
only for discrete visits and services has denied many seniors the 
opportunity to take advantage of advances that have been pioneered by 
integrated health plans in coordinating care for complex conditions and 
chronic diseases. Private plans have developed disease management 
programs to improve the quality of care for individuals with specific 
conditions like heart disease, diabetes, asthma, and gastrointestinal 
disorders. These programs have the potential to increase quality of 
care and encourage appropriate health care utilization. While the 
elderly suffer disproportionately from these conditions, few of them 
have access to these innovative programs. We believe that beneficiaries 
who wish to participate in programs such as disease management and 
coordination of care should be able to do so. We also believe that 
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's system of regulations and administrative procedures is 
too complex, too variable and too inconsistent. Needed relief in 
regulation and oversight, including some bipartisan proposals from 
members of Congress, should be implemented. This will allow providers 
to spend more time and effort on patient care and less on paperwork and 
unexpected and complex rule changes. At the same time, we must continue 
to assure the integrity of Medicare's trust funds. Medicare's 
administration should be restructured so that program staff can work 
more effectively with beneficiaries, health care providers, and health 
plans.
    I have already begun to address the issue of regulatory relief. As 
I announced last month in Chicago, I am doing a top to bottom review of 
all Department agencies looking for opportunities to streamline 
regulations to streamline regulations without increasing costs or 
compromising quality. We 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. To 
this end, we will listen to the public most affected by the results of 
our regulations--beneficiaries and providers. I am directing CMS to 
start holding listening sessions around the country, in the areas where 
people have to live and work under the rules we develop. 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. To ensure that CMS responds to these ideas and comments, we will 
assign a senior level staff person to work with each provider industry. 
We will also take advantage of the years of expertise developed by the 
Department's dedicated staff. We will encourage them to think 
creatively about how we can operate the Medicare program more simply 
and effectively without increasing costs or compromising quality.
    We will do more than listen--we will 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. This action has already begun. As I announced last week, I 
am seeking to eliminate 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 just the 
beginning--there will be much more to come.

8. Medicare should encourage high-quality health care for all seniors.
    For this Administration, there is no more important goal than 
ensuring that seniors and disabled Americans get the highest quality, 
error-free health care. Physicians and other health care providers 
unquestionably share this goal. But currently, there are too many 
instances where beneficiaries fail to get recommended treatments. There 
are too many instances where medical errors result in serious 
consequences for seniors.
    The problems of benefit gaps, lack of coverage options, outdated 
management practices, and excessively complex administrative burdens 
undoubtedly contribute to these problems. There is also evidence that a 
range of private sector and public-private initiatives can help 
providers deliver better and safer care. For example, many hospitals 
and other health care institutions have launched collaborative efforts 
to use information related to quality, giving providers and patients 
information they can use without increasing data collection burdens on 
providers.
    Medicare should revise its payment system to ensure that quality is 
rewarded 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, without creating 
added paperwork burdens.

                           TAKING ACTION NOW

    In the context of these eight principles, the President is 
committed to working with Congress to strengthen and improve Medicare. 
We also intend to begin the reform process administratively--to take 
advantage of the flexibility that Congress has already provided to us 
to ease the regulatory burden facing program providers and to provide 
increased services to beneficiaries. As a first step, we are also 
taking immediate action to give all Medicare beneficiaries access to 
the kind of discounts on drug prices that Americans with private health 
insurance have available to them. These discounts are incorporated in 
all of the major Medicare drug benefit proposals pending before 
Congress.
    Medicare RX Discount Card--While Congress debates Medicare reform 
and the creation of a prescription drug benefit, Medicare beneficiaries 
without drug coverage continue to pay the full cost of their 
medications out-of-pocket. Because beneficiaries without coverage have 
no source of bargaining power, they also often pay higher retail prices 
for their prescriptions. Beginning this fall, all Medicare 
beneficiaries will have access to greater bargaining power. 
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 
tools currently 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. Medicare Rx Discount card 
programs may use formularies, patient education, pharmacy networks, and 
other commonly used tools to secure deeper discounts for beneficiaries. 
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.
    We are moving to implement this program quickly Beneficiaries will 
be able to enroll in a program of their choice beginning on or after 
November 1,2001 with discounts scheduled to take effect no later than 
January 2002. Discount card programs endorsed by Medicare will conduct 
marketing and enrollment activities, with support provided by 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.
    To receive endorsement by Medicare, Medicare Rx Discount Cards 
would have to meet a number of qualifications:

 No plan could charge an enrollment fee greater than 25 
        dollars. This would be a one-time fee to cover enrollment 
        costs. Some plans might not charge any fee.
 No plan could deny enrollment to any beneficiary who wished 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.
 Plans would have to participate in and fund a private 
        consortium. The consortium will comply with all federal and 
        state privacy and consumer laws and regulations and perform 
        numerous administrative functions for the program.
 All discount card applicants that meet the qualifying criteria 
        would be endorsed by Medicare.
    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. Because 
        seniors can switch to a card that offers better pries and 
        services, the discount cards will have strong incentives to get 
        the best possible prices.
 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. Combined with 
        existing retail pharmacy discounts, these rebates will help 
        make prescription drugs more affordable to seniors.
 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.
    To make sure that beneficiaries understand the benefits of this 
program, CMS will include information about these cards in its 
extensive education campaign and we expect that the organizations 
endorsed by Medicare to offer Rx discount cards will conduct their own 
marketing campaigns. A primary goal of the initiative is to make sure 
that people with Medicare are fully aware of the program and what it 
offers. The education campaign will also make clear that the Medicare 
endorsed Rx discount card is not a Medicare drug benefit.
    Regulatory Relief--As you know, I am taking aggressive steps to 
bring a culture of responsive to all of HHS. As part of this effort, I 
am taking several steps today that will highlight our commitment to 
improving our responsiveness to our stakeholders.

                    SWING-BED HOSPITAL IMPROVEMENTS

    An important component to strengthening and improving Medicare for 
our seniors and disabled individuals is how we treat our providers in 
Skilled Nursing Facilities. Today, I am happy to announce that we 
issued the final Skilled Nursing Facility Prospective Payment System 
(SNF PPS), and it includes the SNF services provided by hospitals with 
swing beds. I have revised in the initial proposal in several ways that 
minimize paper work burden and support swing-bed hospitals in providing 
quality care white still maintaining the accuracy of Medicare payments.
    Like all other providers under the SNF-PPS, swing-bed hospitals are 
require to submit various data to us in order to bill Medicare. Under 
our initial proposal, swing-bed hospitals would have had to complete 
the full six-page Minimum Data Set (MDS) that nursing homes complete, 
as well as other information. After reviewing comments on the proposed 
rule, I am establishing a unique MDS assessment tool for swing-bed 
hospitals, reducing the number of pages they have to complete from six 
to two. This represents a decrease in the number of data elements from 
approximately 400 to about 100. In addition, CMS will collect only 
those items it needs to pay these providers and analyze the quality of 
patient care in their hospitals. This should make these providers' 
interactions with Medicare simpler and less time-consuming. We are 
looking at the length and complexity of the MDS for all providers who 
use it.
    I also am taking a number of other steps to reduce burden and 
provide education and assistance to hospitals with swing beds. I am 
pushing back the implementation date of this rule, to begin on the 
latest date permitted by the statue--that is, cost reporting periods 
starting on or after July 1, 2002. Additionally, CMS will develop and 
distribute a swing-bed manual that will include instructions on using 
the new MDS, as well as other information. CMS also is planning a 
series of training programs to help hospital staff understand how to 
complete the MDS and transmit materials electronically. In addition, 
CMS has committed to develop customized software that will be available 
free of charge to providers. We will establish Help Desks to respond to 
clinical and technical questions from hospital staff. These initiatives 
will reduce burden for swing-bed hospitals and make it easier for these 
providers to interact with Medicare, and for Medicare to pay them the 
right amount and on time. I am committed to ensuring that we minimize 
the disruption to swing-bed operations and provide needed support to 
these providers during the transition period to the SNF PPS.

                         MEDICAID IMPROVEMENTS

    As you probably know, before I came to HHS, I was governor of 
Wisconsin for 14 years, and I used to have regular discussions with HHS 
trying to push through our Medicaid State waivers. Well, since I 
started here at HHS, we've been making sure that waiver applications 
that come in that are identical to waivers we have already approved for 
other States receive priority review, and we are looking at other ways 
to further improve the waiver application process. Today I am 
announcing that CMS will provide new techniques to assist States in 
developing and implementing changes to their Medicaid programs. And we 
are going to take advantage of the Internet to improve the waiver 
process. I am directing CMS to develop web-based templates for waivers 
and State plan amendments. These online templates will provide States 
with a clear, concise way to ensure they are providing all of the 
information the Agency needs for a State to apply for, and operate, a 
waiver or State plan amendment under Medicaid.
    In addition, I want States to be able to learn from each other, so 
they know which waiver ideas are good ones that we can approve quickly, 
and which are not. As part of this initiative, CMS will integrate 
State-to-State learning and information sharing into the waiver 
application process through interactive templates. State officials will 
be able to go online and click on resource icons to receive more 
information on how other States have designed their waivers. They also 
will be able to interact directly with other States that have 
experience in designing innovative waivers. They also will be able to 
work directly with CMS staff for advice to design approvable waivers.
    Not only is it important that we make it easier for States to apply 
for and operate waivers and State plan amendments, and it is important 
that States know how easy it is to provide Medicaid benefits to the 
people who need them--especially families with children. Toward this 
end, CMS is issuing a new guide, ``Continuing the Progress: that 
highlights ways States can accommodate families with children, 
particularly working families, so they can more easily access and 
retain their Medicaid benefits. Federal law gives States a lot of 
flexibility to do this now. CMS's new guide features successful steps 
some States have taken, so other States might follow their example. For 
example, successful State practices highlighted in the guide include:

 coordinating Medicaid enrollment with the school lunch 
        program;
 using community-based organizations to reach working parents;
 reaching out to Medicaid-eligible families in the community;
 establishing one-stop shopping for public benefits; and
 making it easier for migrant workers, immigrants, and other 
        families to apply for Medicaid.
    Additionally, the guide explains how States can implement Federal 
policy options that allow families with two working parents to be 
eligible for Medicaid or that allow children as well as pregnant women 
to receive on-the-spot Medicaid benefits, through presumptive 
eligibility. Finally, the guide includes tables with comparable, State-
by-State information on the application, enrollment, and renewal 
processes for children in Medicaid and SCHIP. It is not enough simply 
to give States ways to help people, we have to help them understand how 
to accomplish their goals, and we have to help States to share good 
ideas with one another so that we help as many people as possible.

                      MEDICARE+CHOICE IMPROVEMENTS

    Today I am announcing several initiatives to make the 
Medicare+Choice program more consistent with the private sector managed 
care plans and reduce regulatory burden. For example, CMS recently 
announced in a proposed rule that it plans to reduce the frequency of 
the Medicare+Choice provider credentialing process to make 
credentialing requirements consistent with those of States and private 
accreditation organizations. Previously, provider credentialing for 
Medicare+Choice had to happen at least every two years. Now, it will be 
required only once every three years. In addition, we are bringing a 
dose of common sense to the requirements we place on providers to 
participate in Medicare+Choice. We want these requirements to mirror 
those of the States and other credentialing organizations. For example, 
we will allow for pending Drug Enforcement Administration (DEA) numbers 
so physicians can provide care even if their DEA number is not yet 
finalized. In order to align M+C's requirements with those of private 
accrediting organizations, CMS will allow new physicians and health 
care practitioners to participate once their training is complete as 
they await their official credentialing.
    Additionally, in response to concerns raised by Medicare+Choice 
plans, we are committed to thoroughly reexamining the Medicare+Choice 
Quality Improvement requirements, commonly referred to as Quality 
Assessment Performance Improvement (QAPI) projects. These changes will 
decrease administrative burden, as well as allow for increased 
flexibility and reward high performance. Specifically, in judging 
whether a plan's quality improvement is successful CMS has moved to an 
approach that is more consistent with the private sector. Finally, 
plans demonstrating high performance by meeting or exceeding a quality 
standard will be excused from participating in the national quality 
improvement project for that year.

                               CONCLUSION

    While we believe that the Medicare Rx Discount Card is an important 
first step to provide immediate assistance to Medicare beneficiaries 
and to improve the program for them, I want to stress again the 
importance that the importance that the Administration attaches to the 
need for broader Medicare reform. The discount card is not intended as 
a substitute for a comprehensive prescription drug benefit combined 
with other needed legislative reforms. I am committed to working with 
you to strengthen and modernize the Medicare program, improve its 
benefit package, protect its financial future, and increase access to 
high quality, innovative treatments for our nation's seniors and 
disabled populations now and in the future. I hope that the eight 
principles I have outlined here will provide the basis for constructive 
dialogue to meet these goals that we all share.

    Mr. Bilirakis. Thank you very much, Mr. Secretary. We will 
have 5-minute inquiries, but we will have a second round.
    Mr. Secretary, I think it was Mr. Pallone who made the 
comment that we need a comprehensive benefit. I think, for all 
practical purposes, we all said that we need a comprehensive 
benefit, and I would like to think by now it is clear that 
these discount cards are something to cover the time between 
now, and when a comprehensive plan finally goes into effect. 
All of the plans that have been discussed up here over the 
years, the prior administration's plan, the Democratic plan, 
and the Republican plan, take time to be fully implemented, 
which leaves beneficiaries without any help. And so, as I 
understand it--and please correct me if I am wrong--the 
discount card is a temporary thing intended to cover that 
particular implementation gap, is that correct?
    Mr. Thompson. That is absolutely correct. There is 27 
percent of the seniors that don't have any coverage right now, 
and the problem, Mr. Chairman, is these are the individuals 
that pay the highest cost because they don't have anybody 
running interference for them. They go into the drugstore and 
pay the sticker price.
    We think with the card and with the full force of the 
Medicare population, we are going to be able to go to the drug 
companies and be able to get the discounts there and pass them 
on to the beneficiaries.
    Mr. Bilirakis. Can you expand upon that, please, sir? Many 
of us have talked to your staff--who, frankly, have been very, 
very cooperative and very helpful. However, we have been 
hearing from our constituents especially pharmacists, who are 
concerned that the burden of the discounts will 
disproportionately fall on them.
    Mr. Thompson. And I know that is a tremendous concern, and 
I appreciate their concerns, Mr. Chairman, as you do. The 
pharmacists are very important people. They are the front lines 
on health care delivery, and we want to be able to give them as 
much support as we possibly can.
    We think with the size of the Medicare population, that the 
PBMs will be able to go directly to the pharmaceutical 
companies and be able to get the discounts there and pass them 
on to the drugstores, who will then voluntarily enroll and be 
able to have increased customers coming into their pharmacies. 
So, we really think it is going to be a win-win situation.
    And I know there is some criticism and some concern, and 
all I can tell you is we are going to work with them and we are 
going to work with you, and we think this is going to turn out 
to be truly a win situation, especially for the uninsured 
seniors who pay the highest price for their prescriptions.
    Mr. Bilirakis. Did I understand you to say they would go 
directly to the pharmacists? How about the drug manufacturers?
    Mr. Thompson. I said directly to the pharmaceutical 
companies.
    Mr. Bilirakis. Pharmaceutical companies. I guess I missed 
that.
    Mr. Thompson. That is what I said.
    Mr. Bilirakis. That is really the contemplation, that they 
would go directly----
    Mr. Thompson. That is why we are doing this, so that we 
will have a big enough force to be able to go and negotiate 
directly with the pharmaceutical companies.
    Mr. Bilirakis. No portion of that negotiation will take 
place with the pharmacies, it will all be with the drug 
manufacturers?
    Mr. Thompson. That is our intent, Mr. Chairman.
    Mr. Bilirakis. That is your intent. And will you include 
safeguards to be sure that there aren't increases in costs, 
that would then counteract the discount, which means not really 
a lower price?
    Mr. Thompson. The beauty of this is that a year from now 
all the PBMs are going to have to list their drugs, the 100 
most common drugs, and the prices that they will be selling 
them for. And so it is going to be very hard for the companies 
to increase those prices because seniors will be able to 
compare with all the PBMs that are going to be enrolled in this 
program, to be able to make those comparisons. So they are 
going to have a listing. We think the listing is probably going 
to have more of an impact than anything else to drive down the 
cost of prescription drugs for seniors. But as you have said, 
this is the first step, and I want to make sure that everybody 
knows that this is just only the first step--to be able to use 
the full force of the Medicare population hopefully, and we 
believe properly so, to reduce the amount of the drug prices.
    Mr. Bilirakis. To what degree has the administration 
communicated with the PBMs to be sure that they will be 
willing, available, and there will be enough of them to cover 
the waterfront?
    Mr. Thompson. Well, we had the first meeting, and we were 
absolutely surprised that on Monday of this week we had over 
100 individuals representing many different companies, a lot of 
companies we did not even know about, that came in to get 
information, and all of them were looking together. Smaller 
PBMs were looking at joining together into a larger consortium 
so that they would be able to have a larger force. We think 
there is going to be, when we put out these specifications, a 
lot of responses, a lot of bids, and we are fairly confident 
that there is going to be several--I don't want to pick a 
number because I don't know--all I know is the enthusiasm for 
the PBM market has increased much more so than we thought when 
we first announced it.
    Mr. Bilirakis. Good to hear. Thank you very much, sir. Mr. 
Brown.
    Mr. Thompson. I can tell you the five biggest ones have 
already said that they are going to bid on them, and several 
other individuals have indicated they will.
    Mr. Brown. Thank you, Mr. Chairman. One of the President's 
principles, Secretary Thompson, said that seniors should have 
the option of prescription drug benefit as part of modernized 
Medicare. Clarify that, if you would. Does that mean you are 
planning to create a prescription drug benefit within 
traditional Medicare, or must seniors join one of the 
modernized Medicare plans in order to get the prescription drug 
benefit?
    Mr. Thompson. Could you say that again? I am sorry.
    Mr. Brown. You had said the prescription drug benefit 
should--the principle said that seniors should have the option 
of a drug benefit. As you propose to modernize Medicare with 
these principles, does that mean that everyone in Medicare, not 
just those that have taken--that have joined one of the 
modernized Medicare plans?
    Mr. Thompson. We want everybody in Medicare to be able to 
have prescription drug coverage.
    Mr. Brown. So people that stay in traditional Medicare fee-
for-service, under your plans, will have an option for 
prescription drug benefit--will be included with a prescription 
drug benefit?
    Mr. Thompson. That is our understanding, that is our 
position but, of course, this committee and the Ways and Means 
Committee will be the final determiners of that particular 
position.
    Mr. Brown. But that is your position?
    Mr. Thompson. Yes.
    Mr. Brown. Good. I am glad to hear that. Gene Lambrut, 
former Associate Director of the Office of Administration and 
Budget, testified sometime ago in our committee, and said that 
in order to provide Medicare beneficiaries with the same type 
of prescription drug benefit that Federal employees have--and 
you have talked--you have and the President has and people on 
this committee have talked about the positive aspects of FEHBP 
and all the benefits that it offers.
    She said Congress would need to spend $520 billion over 10 
years to provide an equal kind of drug benefit. How do we do 
that? I mean, how can Medicare provide that plan when FEHBP, 
which you want to model some of this on, has to spend that kind 
of money? We have, at most, $300 billion available if Congress 
doesn't spend that even with the tax cut and all. Where are we 
going to go? How are we going to do this?
    Mr. Thompson. I don't know what your figures are based 
upon, Congressman. All I can tell you is that from our 
preliminary costing out of this, we think that we can do it 
within the $300 billion set-aside over 10 years to allow this 
benefit.
    Now, I don't know the statistics or the figures that you 
have, and I haven't compared them to our plan.
    Mr. Brown. And you think you can, even as generous a drug 
benefit as FEHBP--is that what you are modeling it on, that you 
can do as generous a drug benefit? I mean, you have talked 
about the beauties of FEHBP. Can we do a prescription drug 
benefit as generous as that within your Medicare proposals, 
regardless of what her estimate of the cost of FEHBP is?
    Mr. Thompson. Congressman, we didn't make a dollar-for-
dollar accounting or comparison of FEHB and the drug benefits 
and the seven--up to seven plans that they have. We just used 
that as a model, and these are the principles. We would have to 
cost-out the prescription drug proposals, like you are going to 
when you start working on this thing. We think that it is 
available. We think that we can have a very generous drug 
benefit for all seniors, but we do not have a comparison of 
dollars at this point in time.
    Mr. Brown. Well, I am concerned that I hear lots of 
people--the chairman of the full committee and others--talk 
about FEHBP and what a good program it is, and we can do a lot 
of those same things in Medicare, yet FEHBP offers all kind of 
preventive benefits and better cost-sharing, limit on 
catastrophic out-of-pocket expenses, all kinds of other 
benefits that Medicare doesn't, and yet I just wonder how we 
are going to pay for this if we are going to model a lot of 
this on FEHBP.
    Let me go back to the cards. You said it is a first step. 
You want to use the full force of the whole Medicare population 
in order to extract these discounts, if you will, not just from 
pharmacists but from the prescription drug manufacturers.
    I don't understand today, those companies that do those 
cards, I would think today would operate under the same 
principles. Those companies that do those cards want to extract 
the biggest--they are selling these cards, they are marketing 
these cards, whether it is Merck Medco, whether it is AARP or 
anybody else. They want to extract the biggest breaks they can 
get today. They have access to the whole Medicare population. 
They have access to the whole population in society. Where does 
big government come in and get them under your plan to all of a 
sudden get these discounts up to 25 percent, as you say--it 
seems pretty high to me--but how do they get the drug 
manufacturers to do it today--do it in the future, when they 
are not doing it today? What is the difference?
    Mr. Thompson. I think the difference, Congressman, is based 
upon the fact that the Federal Government is going to put the 
good seal of approval on it. It is going to be very well 
publicized, and I think the fact that you are going to list a 
year from now all the 100 drugs from all the pharmaceutical 
companies that are on that particular PBM, and what they are 
charging, and so on. And seniors are smart, they are going to 
make a comparison. And when you have 5, 6, 10, 12 PBMs out 
there, with the Medicare population having all of those drugs 
listed and the cost to them, I think that the seniors are going 
to pick the ones that are going to be the best for them, and 
the pharmaceutical companies are going to say they want that 
business. So they are going to drive down their prices because 
of the cost comparison that is going to be public.
    Mr. Brown. Wouldn't it be a whole lot simpler if rather 
than seniors getting direct mail and telephone solicitations 
from all these companies saying, ``If you buy these drugs at 
this price,'' another one will say, ``These drugs are this 
price,'' that to do something like have you at HHS negotiate on 
behalf of 40 million Medicare beneficiaries to get a better 
price on all drugs, or follow the Canadian model where the 
Canadian Government, on behalf of 30 million people at a cost 
of $2 million office in Canada, negotiates prices with 
prescription drug companies and gets discounts of 50, 60, 70 
percent, wouldn't that be simpler to seniors, and a better 
price only for seniors?
    Mr. Bilirakis. The gentleman's time has expired. The 
question, I guess, started before the 5 minutes was up. Maybe a 
brief response, Mr. Secretary.
    Mr. Thompson. Congressman, we have the opportunity to do 
this immediately, that is the beauty of it. We can set it up 
without any further congressional action, and that is what we 
are doing. In order to do what you are asking would have to 
have some congressional authority----
    Mr. Brown. Would you support it?
    Mr. Thompson. At this point in time? Let us see if this one 
works.
    Mr. Bilirakis. Mr. Burr, to inquire.
    Mr. Burr. Thank you, Mr. Chairman. Again, Mr. Secretary, 
welcome. In the administration's principles, one area that was 
highlighted was an expansion of services to potentially include 
preventative care which has been a difficult discussion in the 
past up here, as it related to Medicare services, that 
expansion into certain areas of preventative care. What do you 
expect that would cost participants in co-payments and/or 
deductibles?
    Mr. Thompson. We would like to be able to have the 
preventive coverage not have any deductibles at all. We think 
the beauty of it is to encourage people to get preventative 
health and start taking care of themselves personally. We think 
it will pay many dividends to the taxpayers in the future by 
driving down health care costs, but also improving the health 
of the individual. And we think the mammograms and the pap 
smears and also the PSAs and all of these things are so 
important. They are in there now, but we need to do more. We 
need to have a better diet, and more exercise. We have an obese 
Nation that is getting fatter and exercising less. We have 
diabetes that is going to be an epidemic if we don't do 
something about it.
    So, if we are not going to face up to the facts that we 
have this problem confronting us, it seems to us the best way 
to address this is through preventive health and encourage 
people to do something about it.
    Mr. Burr. Well, I commend the administration for taking the 
initiative to put it in, and I think that that will have 
overwhelming support from this committee and from this 
Congress.
    Mr. Thompson. Thank you.
    Mr. Burr. Mr. Secretary, throughout the BBA, Congress, I 
think, did a disservice to the long-term care industry. We 
placed in jeopardy reimbursements. The result of that, with 
less predictability in their reimbursements, financial markets 
responded, capital dried up, they were faced with financial 
ruin in many cases.
    The facts are that by 2030, 77 million seniors will 
potentially be in the market for long-term care needs. We are 
in a situation that without predictable and fair 
reimbursements, without some type of action on their workforce 
numbers, without reassurance to the financial markets, we won't 
be prepared for this onslaught of seniors with our long-term 
care facilities.
    Are there proposals, or will there be proposals from the 
administration that specifically address these problems within 
this industry that I think is vital to our future?
    Mr. Thompson. I think, Congressman, you really address 
something that is badly needed in America, and we need, I 
think, three important concepts, big concepts, if we are going 
to improve the delivery of health care. One is long-term care. 
We have really not addressed this as a Nation.
    The second one, and probably the most important one, is 
preventive health which I have already addressed. But the third 
one is the way we deliver health care in America is just wrong. 
You know, grocery stores are more technologically advanced than 
hospitals and clinics. And we need to put some dollars, 
somehow, into advancing the technology in the hospitals to 
reduce down the kind of pharmaceutical mistakes, the kind of 
mistakes that are costing up to 98,000 individuals to lose 
their lives.
    So, those three principles--and you have addressed two of 
them--but if we could address those three, we could improve the 
quality of health care so dramatically in America and we would 
all be very proud of it. I think we would save a lot of money 
in the process.
    Mr. Burr. Well, you have segued me into my next question, 
which is, what has been an inability at CMS to see or to have a 
vision of what was being approved in the way of new 
technologies at the FDA, and the delay that exists which truly 
does affect the quality of care for seniors, in our 
implementation of a code and a reimbursement for those 
procedures within the Medicare system. Can we expect some 
changes in that?
    Mr. Thompson. Mr. Burr, I can guarantee you are going to 
see changes made there because you have addressed the three 
most important things that I believe are needed if we are going 
to really improve the quality of health care. The new 
technology is out there. If we use the new technology that is 
available, we could reduce the number of deaths, the number of 
medical mistakes tremendously in this country, and overall 
improve the quality of care. So, absolutely, the reimbursement 
formulas need to be updated and modernized, as well as 
Medicare. Prevention has to be a part of that, and also the 
approval of new technology, but also a way to get the new 
technologies into clinics, into doctors' offices, and into 
hospitals. It is just, to me, somewhat ridiculous that we still 
are writing out prescriptions that nobody can understand or 
read, and then giving the drugs and not have any kind of check 
on the interaction of different drugs and whether or not the 
drugs have been given.
    Mr. Burr. I thank you.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. Mr. Secretary, I would 
like to get a clear answer on several points. Is the 
administration committed to maintaining traditional Medicare 
with its fee-for-service structure and full choice of 
providers, is it committed to maintaining Medicare as most 
seniors know it, and are you committed to maintaining it not 
only for current beneficiaries and people about to retire, but 
as a permanent part of the program not just for the next 5 or 
10 years, but on a continuing basis?
    Mr. Thompson. I didn't hear the last----
    Mr. Waxman. Not just for the next 5 or 10 years, but on a 
continuing basis.
    Mr. Thompson. Congressman, we believe that if we pass an 
improved Medicare system, that most seniors will want to go 
into the improved system. But, if they don't, they should have 
the opportunity, as you have indicated, to stay in the current 
fee-for-service system. And I have no difficulty with that, and 
that is going to be a decision that this Congress will have to 
make.
    Mr. Waxman. Then let us get to the really key point, are 
you committed to assuring that seniors and disabled 
beneficiaries will not face financial pressures to move out of 
traditional Medicare if this is where they want to stay? In 
other words, will they have to pay relatively higher premium 
amounts just to stay in the traditional program, or not? And I 
ask this because, as you know, this is one of the basic 
criticisms of the so-called Breaux-Frist No. 1 proposal, the 
good risks go to cheaper plans, the average premiums are used 
to set the Federal contribution, the portion of traditional 
Medicare paid by the government falls, and then the beneficiary 
is left paying more just to stay in the traditional program. 
Have you rejected that approach?
    Mr. Thompson. I don't think rejection is the right word 
because what we have is we didn't start there. We didn't 
include it, we didn't reject it, it wasn't part of it. We 
started on our principles off of Breaux-Frist No. 2 where part 
were being included, but that wasn't where we really ended up. 
We ended up in a whole new system and principles that we think 
can be endorsed on a bipartisan basis. And what we are trying 
to do is--as you know, Part B costs are going to go up. We 
don't want to put the cost on any segment of the Medicare 
population. We want to have the fairest system as we possibly 
can.
    Mr. Waxman. Well, we want to be fair. If they just want to 
stay with what they have, what I want to know is, are you 
committed to assuring the seniors and disabled beneficiaries 
that the Federal contribution to the premium for traditional 
Medicare will not be reduced as a portion of the cost for the 
fee-for-service program from what it is today? In other words, 
are we going to assure people who choose traditional Medicare 
that they are not going to face negative financial consequences 
for making that choice and they are not going to have to pay 
more just to keep what they have at the present time?
    Mr. Thompson. Congressman, that is my position, but this 
Congress is the one that is going to make the final position on 
that.
    Mr. Waxman. But your position is to allow people to keep 
traditional Medicare and not have to pay----
    Mr. Thompson. It is our position to allow individuals to 
keep the current----
    Mr. Waxman. And not to have to pay a financial penalty 
because they make that choice.
    Mr. Thompson. That is correct.
    Mr. Waxman. I appreciate that answer, and I agree with you 
on that. Let me ask you a quick question.
    Mr. Thompson. But you also have to understand Part B keeps 
going up on an annual basis, as you fully well know.
    Mr. Waxman. On the Medicare cards, these prescription drug 
discount cards, I have doubts whether you will really get the 
discounts. My staff did a study showing that people can go 
ahead and get these cards now, but they can get drugs at an 
even cheaper price than by using some of the cards. But let us 
say that we have these cards. I am concerned about the privacy 
rights for people who enroll in these programs. Independent of 
the President's plan, there may be a question about whether 
these discount cards will be covered under privacy regulation. 
Is it your view that drug discount cards are covered by the 
recently issued privacy regulations?
    Mr. Thompson. I haven't taken a position. I haven't studied 
it. I would presume absolutely.
    Mr. Waxman. I guess the second question is, the Department 
has said it will require these Medicare-endorsed programs to 
comply with HIPPA, but it is not clear what that means. How is 
the Department going to structure the relationship to ensure 
that individuals who use these programs are given the 
protections of the privacy regulations? You may want to get 
back to me with an answer on this, but I assume you want to 
make sure that we apply those privacy protections if they go 
into these private prescription drug cards.
    Mr. Thompson. I am a full believer that if we pass rules 
for everybody else, we should comply with them ourselves, 
Congressman, and absolutely we will.
    Mr. Waxman. Of course, we pass those rules to apply to 
ourselves. I want them to apply to everyone else when our 
seniors are involved and the government is giving its stamp of 
approval.
    Mr. Thompson. So do I, Congressman.
    Mr. Bilirakis. The gentleman's time has expired.
    Mr. Waxman. Could we leave the record open for elaboration 
on----
    Mr. Thompson. I would be more than happy, if the gentleman 
wants to submit some questions.
    Mr. Bilirakis. Is the gentleman expecting a response from 
the Secretary regarding that question?
    Mr. Waxman. Yes, and I will write a letter to the Secretary 
so we can get an exact answer.
    Mr. Bilirakis. Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman. Mr. Secretary, I want 
to go back to Chairman Bilirakis' questions on the prescription 
drug card for seniors. I watched the President's press 
conference on that, and within 2 hours my telephone was ringing 
with retail pharmacists in my district afraid that those 
discounts were going to come out of their operating margins, 
which are pretty slim.
    Now, I have read all the material that is generally 
available to the Congress and the public on the prescription 
drug discount card, and I want to reinforce what Chairman 
Bilirakis said, and that is I think the committee is all for 
giving seniors lower drug prices, and a prescription drug card 
is a way to do that, but the discounts that are generated need 
to be shared by the manufacturer and the wholesaler, in my 
opinion, and I would assume in the committee's opinion.
    What--I won't say ``guarantees''--but what mechanism is 
built into the program to try to facilitate that the discounts 
come from the manufacturers and the wholesalers as opposed to 
at the retail level?
    Mr. Thompson. Congressman Barton, it is a fact that the 
current discount card companies have not gotten the discounts 
from the manufacturers. They have negotiated with the 
pharmacists, and that is where the pharmacists are very 
concerned. And that has been a failure of the current cards. 
And what we think that we are going to be able to do with 
putting the government supporting this concept, that the 
discounts are going to have to come from the manufacturer, 
pharmaceutical company, and that is where the discounts are 
going to come.
    And the second thing that we are going to ensure is the 
fact that they are going to have to list what the prices are, 
and I can't imagine a drug company that is going to be looking 
at these lists are going to want in any way to have one of 
their drugs at a higher cost than another----
    Mr. Barton. How do we do that?
    Mr. Thompson. That is the insurance that we have. We don't 
have any law to give us, you know, any supervisory power to go 
in and get the discounts ourselves, but we think the 
marketplace itself is going to accomplish this.
    Mr. Barton. Well, why hasn't it done it already, then?
    Mr. Thompson. Because they haven't had the power, they 
haven't had the CMS or----
    Mr. Barton. If we are not going to change the law or an 
Executive Order or some regulation that somehow encourages 
these discounts to come from the manufacturers, if the 
discounts under the current system are coming from the retail 
pharmacists--and, again, we are not changing anything other 
than the President is putting out the idea--what makes the 
President and you think that it is all of a sudden going to 
come from the manufacturers? I am not being argumentative, I am 
on your side, but I am fixing to go home to town meetings, and 
I won't have you by my side to take the arrows when the retail 
pharmacists show up in droves and say, ``You are our 
Congressman, what are you going to do about this?'' And I say, 
``Well, I talked to Secretary Thompson, he assured me that it 
is okay,'' and they say, ``Well, that is great, now how do we 
know''----
    Mr. Thompson. I don't want to be argumentative either, of 
course, but I want to point out that this is a concept that is 
going to allow one card per senior, and is going to increase 
the purchasing power and the negotiating power, and which each 
one of these PBMs are going to have to have at least 2 million 
seniors that are going to be enrolled----
    Mr. Barton. Define the PBM for me. I am more of an energy 
guy than a health care guy, so what is a PBM?
    Mr. Thompson. That is these companies that have these 
discount cards, and they are going to be issuing one card, the 
Pharmacy Benefit Management----
    Mr. Barton. They are in existence today?
    Mr. Thompson. They are in existence, and they have 
indicated at our meeting on Monday that they feel that the 
discounts will be coming out of the manufacturing companies, 
and they think that they will be able to--with the sheer force 
of the negotiating power of the size of the number of people in 
that group, that they will be able to go to the pharmaceutical 
companies and demand reductions.
    And the third thing, the listing of the prices is going to 
have, I think, a tremendous impact on lowering the prices from 
the pharmaceutical manufacturers, and that is--and the 
drugstores, the pharmacists can enroll or they don't have to. 
This is a voluntary thing. But the PBMs are going to have to 
negotiate with the pharmacists in your area so that every 
senior in a particular area has at least one drugstore that is 
enrolled.
    Mr. Barton. Now, one of the President's talking papers--Mr. 
Chairman, could I ask one final question?
    Mr. Bilirakis. Make it quick, please.
    Mr. Barton. It talks about that the retail pharmacists can 
organize their own discount program. Is there anything that we 
need to do in terms of an antitrust exemption to give those 
pharmacists the ability to do that?
    Mr. Thompson. I don't think so, but I am not sure.
    Mr. Barton. Thank you.
    Mr. Bilirakis. Possibly we might ask the Secretary to look 
into that, it certainly is a good question.
    Mr. Barton. Thank you, Mr. Chairman.
    Mr. Bilirakis. Ms. Capps.
    Ms. Capps. Thank you, Secretary Thompson, for the 
opportunity to have a discussion with you. I am not going to 
spend time on what you call a very temporary, perhaps stop-gap 
measure anyway, than what we have been talking about the 
discount cards. I have serious questions about them partly 
because of their enforceability and, also, to use that as a 
segue, the one modernization that I have seen experienced in my 
district with Medicare to include the possibility of 
prescription drug coverage has been the Medicare+Choice 
program, and the new discussion about modernizing Medicare, 
particularly the Breaux-Frist plan, kind of pushes this in the 
direction of involving the private sector even more. And I want 
to have you hear from me about my concerns with the 
Medicare+Choice market as it is reflected in my very rural 
district on the Central Coast of California.
    We have many complaints from seniors about the plan that 
have pulled out because it is not cost-effective for them. They 
can't make the profits that they wanted to. And it is not just 
my district, but in many areas across the country.
    Mr. Thompson. All over America.
    Ms. Capps. So, seniors I represent are very jaundiced about 
the possibility of modernizing Medicare by enticing more 
seniors into more plans such as the Federal Government has for 
its own employees and so forth. That is why I think we are 
continually saying what about the traditional fee-for-service 
Medicare plan? That is what seniors really would like to see 
include prescription drug coverage, the way that would include 
all of them.
    I want to just ask you to comment on the BIFA, the 
Beneficiary Improvement and Protection Act of 2000, in 
increased payments to Medicare+Choice organizations by $11 
billion over 10 years, hoping that they would get a better 
return and come back and they would be more involved in the 
Medicare program.
    In addition, we required these plans to put this extra 
money toward increased benefits or lowering the cost, including 
more preventive measures, as you and I both support. However, 
many seniors are even more disappointed as time goes on, with 
the way these plans have worked out for themselves. And that is 
why I want you to give me some reassurance and talk to me about 
how the prescription drug option the President is considering 
offered by private drug-only insurance companies, how can this 
be an improvement on what many of us would call a dismal 
performance so far?
    Mr. Thompson. Congresswoman Capps, I have got to agree with 
you that Medicare+Choice has had some real difficulties, and I 
think a lot of those difficulties have been brought on by us--
stiff regulations, unable to get a decent return--and I think 
it is important for us to direct our attention to see if we can 
improve it. I think it is important to keep the Medicare+Choice 
companies in the mix and be able to offer the services.
    I think also that if we have more choices and better 
opportunities, your seniors are going to be able to pick what 
is the best insurance coverage for them, and we have to make 
sure it is available. Now, under the FEHB, as you know, every 
county in America has to be covered by at least the choice up 
to seven plans.
    Now, we think that if we pass something like this, that we 
will have that kind of choice throughout America, and rural 
California, as it is in rural Wisconsin, and that is what I 
think you would like to see happen. I know it is what I would 
like to see happen. And I can't stand here, or sit here, and 
tell you that automatically I have a magic wand that is going 
to do that, but that is what I want to work toward to make that 
happen.
    Ms. Capps. Through incentives, because we have added a lot 
of incentives and it hasn't worked. As I speak to you, one of 
the remaining companies is considering to withdraw. They have 
raised their premiums time and time again.
    Mr. Thompson. I know, they have contacted us.
    Ms. Capps. Thank you. You see, we have a jaundiced eye 
toward this as a plan. I haven't seen it work in my district, 
and seniors who worked hard all their lives, choose 
Medicare+Choice so that they can get the prescription benefit, 
that is their major reason for choosing that plan, and then 
those companies leave because they can't make a profit. You 
can't make them stay, this is the private sector. Why would we 
go down this path further?
    Mr. Thompson. Well, I think we go down this path to make 
sure that we do cover them with prescription drugs.
    Ms. Capps. You make them come? You make them stay in my 
district?
    Mr. Thompson. Well, I don't know if that is make it, I 
think that we can certainly set it up so that they want to stay 
and expand. That is what I think is a much better model than 
forcing people to stay because they won't do a good job. And so 
you want the best services for your constituents as I want for 
your constituents, and I think we have to work together to 
accomplish that.
    Mr. Bilirakis. The gentlelady's time has expired. I made 
the announcement earlier that we would have a second round. I 
should have also said subject to the Secretary's time schedule, 
and I understand he has to be gone from here by noon. So, let 
us all cooperate as much as possible, if we would like to even 
touch that second round. Mr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman, and once again 
welcome, Mr. Secretary. I keep wanting to refer to you as 
Governor. I am sure there are a few times when you are dealing 
with some of these contentious issues that you wish that that 
might still be the case.
    Mr. Thompson. I hope you don't ask that question, 
Congressman.
    Mr. Ganske. I won't request a reply to that. Part of the 
problem that I see with the pharmaceutical benefit manager 
plans is that I know they are being bought up by the 
pharmaceutical companies, and I think there is a potential for 
some real conflict of interest in terms of whether they would 
then function in a fair way or in a way that could produce any 
savings.
    I want to, though, focus on--I am just curious, how did the 
State of Wisconsin provide a drug benefit for its Medicaid 
patients.
    Mr. Thompson. We added it sometime ago, Congressman.
    Mr. Ganske. What was the mechanism? I mean, did you do it 
through a managed care plan? Did you just simply provide a card 
for somebody who qualifies for Medicaid to go to a pharmacy, 
and then you added everything up and you got your negotiated 
discount?
    Mr. Thompson. It was through managed care.
    Mr. Ganske. So that in essence the managed care company 
that is providing Medicaid for Wisconsin was then doing the 
negotiations, their negotiations with the pharmaceutical 
companies.
    Mr. Thompson. That is correct.
    Mr. Ganske. Now, you already have a mechanism in place for 
Wisconsin then for your Medicaid beneficiaries, plus you are 
under that situation getting discounts from the pharmaceutical 
companies. What would be wrong with extending that benefit to 
those low-income seniors, the elderly widow who is just above 
your Medicaid level but still is living off her Social Security 
primarily, but maybe has a little bit of property so she can't 
get into Wisconsin Medicaid--what would be wrong with just 
giving her one of those Wisconsin cards and letting her go to 
any pharmacy in Wisconsin and participate in the discount that 
your HMO has already negotiated with the pharmaceutical 
companies? Wouldn't that be a simple way to give this benefit 
to those who need it the most, without creating an additional 
bureaucracy and also having, in effect, a legitimate way to 
negotiate discounts either through HMOs or through the 
mechanism that is already there for other Medicaid programs?
    Mr. Thompson. Congressman, we didn't have that option. We 
wanted to move, and we wanted to get something up right now, 
and we felt that it was important for us to do so, and the 
prescription drug discount was a way in which we could do that, 
and we set it up. And I want to tell you that the kind of 
responses that we are getting has been very encouraging for us 
to believe that this is going to work.
    Mr. Ganske. If Congress, though, would pass a provision 
like this, it would seem to me it would be relatively easy to 
implement it. Now, as a former Governor, I would expect that 
you would hope that if Congress is going to extend this benefit 
above the poverty line, as defined, that since we would be 
prescribing that we would also pay for that. In other words, I 
would suspect that as a former Governor you would probably not 
want to see a cost-share on that additional coverage. Would I 
be correct that that would be sort of what most Governors would 
say?
    Mr. Thompson. If I was still a Governor, I would absolutely 
concur.
    Mr. Ganske. But if you were still a Governor, I think that 
if the Federal Government were offering your State an extension 
of benefit and paying for it entirely from the Federal side, 
wouldn't that be a way that you could then be telling your 
constituents in Wisconsin that we are helping those low-income 
seniors who aren't quite so poor that they are in Medicaid but 
are really struggling, and we have a program in place, we are 
just going to let you participate in that? Wouldn't that be a 
relatively simple way to handle that?
    Mr. Bilirakis. The gentleman's time has expired, but please 
answer the question.
    Mr. Thompson. That is a simple way and it would provide 
some benefits, but that requires congressional action, and this 
program that we were able to put out there did not require 
congressional action, we could get it up and running, and we 
think that we will be able to get those discounts to all 
seniors across America, not only Wisconsin but across America.
    Mr. Ganske. Thank you.
    Mr. Bilirakis. Mr. Strickland, to inquire.
    Mr. Strickland. Mr. Secretary, I have two questions that I 
think are fairly practical and not particularly theoretical. 
One of the President's Medicare principles mentions the need to 
update and streamline Medicare's regulations and administrative 
procedures. And in your testimony before the Ways and Means 
Committee, you discussed reducing the regulatory and the 
administrative burden on providers. However, providers aren't 
the only ones that face regulatory and administrative burdens. 
Seniors face these barriers.
    This subcommittee has heard many times that participation 
rates in the Medicare low-income assistance programs, the 
qualified Medicare beneficiary and the specified low-income 
Medicare beneficiaries programs, the QMB and the SLMB programs, 
that the participation is very low. One of the reasons that 
seniors do not take advantage of these programs is because of 
the fact that seniors have to go to their local Welfare office 
and sign up for either of these programs, something that many 
seniors feel is burdensome and in some cases embarrassing to 
them.
    I believe a much better solution is to allow seniors to 
enroll in these programs at their local Social Security Office. 
And so my question is this: Do you support reducing these 
burdens on seniors, and could you support allowing seniors to 
enroll in these two programs at their local Social Security 
Offices rather than at the Welfare office?
    Mr. Thompson. Let me just say, Congressman, I really 
applaud you. I thank you for new ideas, and that is what I 
really enjoy coming in front of a committee like this and 
finding out that some of the thinking that is going on by you 
and other members of this committee, and I will take it back. I 
can't imagine we would be opposed to it. But let me just point 
out that we are going to put $35 million into a public 
informational campaign starting in October of this year, for 
Medicare seniors across America to be able to find out what 
really is out there and give them the best opportunity to 
really find out what they need and to explain to them in common 
terms what Medicare is all about and the programs available. We 
also are going to set up a hot-line that is going to be open 
24-hours-a-day, 7-days-a-week so that seniors in your 
congressional district as well as seniors all over America are 
going to be able to pick up that 1-800 number and call in for 
information. And we are also going to train librarians in 
respective areas across America to teach seniors how to use the 
Internet, to be able to get information and to be able to 
apply.
    Now, you may have the best idea of allowing seniors to go 
down to the Social Security Office and apply. I can't imagine 
who would be opposed to that, but I would like to be able to 
have just a little opportunity to reflect on that and get back 
to you, but I would think, at first blush, it would very much 
be endorsed.
    Mr. Strickland. Thank you. And I suspect that if you set up 
that 24-hour hot-line, some of us who are Members of Congress 
may be using it from time to time to get answer ourselves.
    Mr. Thompson. It is going to be set up this fall, 
Congressman.
    Mr. Strickland. One other question, Mr. Secretary. Many of 
us are concerned about traditional Medicare and what the future 
holds for traditional Medicare. In the Statement of Principles, 
it indicates that seniors and those near retirement should have 
the option of keeping the traditional plan with no changes. I 
am not sure what that means, but it seems to imply that no new 
benefits will be added to a Medicare fee-for-service system. Is 
that what is meant by that statement, or am I misinterpreting 
the intent?
    Mr. Thompson. Congressman, we have not made a 
determination. We have not got down to the finite details. We 
get criticized if we come in with too many details that tell us 
that we are legislating, and we didn't want to get involved in 
that. We know that this is a very contentious subject, and we 
want to work with you, we want to work with the members of this 
committee to come up with the best program possible.
    We put out these principles. We think that the seniors 
should not be forced into another program. They like the 
current program. They should have that opportunity to do so. 
But in regards to increasing the benefits to that, that has got 
to be a determination by this committee and Congress.
    Mr. Strickland. Thank you, and I yield back my time, Mr. 
Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Whitfield, to 
inquire.
    Mr. Whitfield. Thank you very much. Mr. Secretary, I know 
that Medicare is divided up into regions. It is my 
understanding there are ten regions in the U.S., and there are 
50 contractors that are either fiscal intermediaries or 
carriers, and there seems to be a lack of uniformity in 
decisions made on reimbursement. And, also, there seems to be 
maybe a lack of the ability to determine which contractor is 
doing a really good job and which is not. What are your all's 
suggestions or thoughts on dealing with that issue?
    Mr. Thompson. Thank you for asking that question, 
Congressman, because the way it was set up back in 1965, it was 
set up to such a degree that we are hampered by doing the best 
job possible because the fiscal intermediaries have got to be 
nominated by the health care system in that particular State, 
that particular region, and then it is based upon cost. And we 
have too many fiscal intermediaries, we have too many carriers. 
We should be able to put it out in an RFP, Request for 
Proposal, to get the best technology, the best contractor to be 
able to go in and administer it on a more uniform basis, and 
that is what we would like to do. We can't do that without 
Congress changing the law and allowing us to have performance 
contracts and to be able to limit the number of fiscal 
intermediaries and carriers, and I am asking Congress to give 
us that. I know it is contentious and controversial, but I 
think that the time is right to update the contracting out so 
that we can get the best services and have more uniformity in 
our decisions.
    The second thing we are trying to do is we are going to be 
setting up not only the town hall meetings, but we are going to 
be contacting a lot of the carriers, or all the carriers, all 
the fiscal intermediaries, but a lot of the providers, and 
finding out from them what is working, what are the best 
practices out there, which region is doing the best. I am a big 
believer in taking what is working and adapting that to other 
areas that are not doing quite as well, and that is what we 
intend to do.
    Mr. Whitfield. Well, I am delighted to hear that because I 
have had a lot of town meetings also with providers, and have 
met with Regional Directors of HCFA, now CMS, and we have 
brought in some of these contractors, and it is kind of 
embarrassing how unresponsive they are to consider basic 
questions. So, I think that is an area that definitely needs to 
be addressed, a problem area.
    Mr. Thompson. You are absolutely correct, and there is no 
basis for performance--no basis for performance because 
everything is based upon cost, whatever it costs we pay. What a 
foolish system.
    Mr. Whitfield. Right. Well, I am delighted to hear you are 
going to be pursuing that, and I know many member----
    Mr. Thompson. Can't do it without your help, though, I have 
got to have Congress' help on that.
    Mr. Whitfield. [continuing] many members look forward to 
working with you on that. I yield back my time.
    Mr. Bilirakis. I thank the gentleman so much. Ms. Eshoo, to 
inquire.
    Ms. Eshoo. Thank you, Mr. Chairman, and thank you once 
again, Mr. Secretary, for being here today so that we can start 
this conversation with you. Let me just make a couple of quick 
observations. On this discount card, we all like discounts, you 
know, and I think maybe the older we get, the more we look 
forward to them. It is a tradition, I guess, to be a senior and 
get a discount. But I do have to say, look, anything that we 
can do to ease the burden, how can anyone be against that? But 
I think that some sand has been thrown in the gears here, and 
that is by the pharmacists. You have got some problems, you 
have a bumpy start on this thing. I don't know how it was put 
together. I don't know who was in the room to have it explained 
to, but it seems to me that some of the major players were 
maybe left out, and some of the more obvious people, because 
you have heard members from both sides of the aisle talk about 
this. So, I don't know how you get the genie back in the 
bottle, but you have got a bumpy start on this card business.
    I think that anyone that markets wants lists, and so I 
think it is going to be up to you to satisfy and answer this 
issue on privacy because, if I were in the drug business, I 
would want the list of names of everybody in the country so you 
can keep marketing to them. So, I don't know how you are going 
to satisfy that, but that is up to you to do. You are offering 
this, I think, because it is quick, it is early, it speaks to 
some things that can be done and not be done legislatively. So, 
really, the burden, so to speak, is on you, but I do think some 
sand has been thrown in the gears by the very people that you 
need to do business with or have a conversation with, and that 
is just an observation. I think we agree that it is a bumpy 
start, and you are going to have to repave the road on this 
thing.
    Mr. Thompson. If I could just make a quick comment, it is 
not as bumpy as you would think.
    Ms. Eshoo. Well, I don't know, I am just reading the paper, 
and it is not so good.
    Mr. Thompson. The response has been quite overwhelmingly in 
favor.
    Ms. Eshoo. Really? By whom?
    Mr. Thompson. People.
    Ms. Eshoo. People?
    Mr. Thompson. PBMs, companies that want to get involved. 
Over 100 people came out to a meeting. We expected maybe ten or 
15. A hundred people came to the meeting in Baltimore.
    Ms. Eshoo. Well, I would expect--and I have a lot of 
friends in the PBM community because I have worked with them--
of course they would support this. I mean, it is their 
business. But pharmacists are in the pharmaceutical business, 
dispensing it. I am an observer. I am sitting on this side 
observing and reading. I am not trying to be harsh on you, I am 
just saying that I think it is off to a bumpy start, and I 
think there are members on both sides that would.
    Now, we have got cards, I have just commented on that. 
Reforming Medicare. Everybody is for it until you get close to 
it, and then it starts falling apart. My sense is that--well, 
first of all, let me ask you this question. It started out with 
cards. You have talked about reform, every administration does, 
or the previous one, that is since I came in, and now the new 
administration, and we all acknowledge that there should be 
prescription drug coverage added.
    Are you going to take on reform first and then prescription 
drug coverage? Are you going to do it all together? I know that 
you have put principles out there for Medicare. Are you going 
to add any meat to the bone? Which comes first? I mean, in many 
ways, it is a chicken-and-egg thing, you know, and I think that 
it is just far too important to get these next steps really 
bollixed up early on with the administration.
    I saw opportunities with the previous administration, most 
frankly, squandered because of the way some things were 
handled. That is why I am saying bumpy start on one. Now are 
you going to do reform first and then prescription drug?
    Mr. Thompson. We want to do it all together.
    Ms. Eshoo. You want to do it all together.
    Mr. Thompson. You know, you make a very good analogy 
because what we want to do is we want to work with you. You 
have got some wonderful ideas on both sides of the aisle, and 
if we do it properly, we can come up with a comprehensive 
package that is going to strengthen Medicare, add benefits 
including the drug benefit, and do the job up right, and that 
is one of the reasons we wanted to come up with the principles 
early, so that we could start fleshing them out, start talking 
to you and finding out, you know, your ideas on how we might be 
able to incorporate your ideas as well as other ideas to make 
this program more workable.
    We are very fearful that if we just do the prescription 
drugs, nobody will have the courage or the intestinal fortitude 
to stick in there to do the rest of the hard lifting to get the 
job done. With prescription drugs as part of it, we think we 
can get the whole thing done at the same time.
    Mr. Greenwood [presiding]. The gentlelady's time has 
expired.
    Ms. Eshoo. May I ask for just 30 more seconds, unanimous 
consent?
    Mr. Greenwood. Without objection.
    Ms. Eshoo. Thank you, Mr. Chairman. Mr. Secretary, the 
district that I represent has one of the most distinguished 
medical centers in it, Stanford Medical Center. And when you 
read in the newspapers that the President of Stanford 
University is saying--and I pray, I don't think it will come to 
that--but that they could be forced to sell. Something is wrong 
with our reimbursement system. So, what I want to say to you in 
these reforms, that if, in fact--I mean, you have got to have 
the intestinal fortitude as well to say ``This is what it is 
going to cost.'' It is going to cost something to do these 
things. And it seems to me that is what people are afraid to go 
near.
    If you think there is some little sand in the gears with 
this card business, I mean, you ain't seen nothing yet. So, I 
encourage you to have the intestinal fortitude within the 
administration, to come forward and say, ``You know what, if we 
are going to do this, it is going to cost something, and these 
are the cost factors as well,'' because in order to reform--I 
know we can save on some sides, but we are going to have to 
invest on the other. So, I will work with you on that, but we 
have got a lot of things to fix, we really do.
    Mr. Greenwood. The time of the gentlelady has expired.
    Mr. Thompson. I have the intestinal fortitude, and I 
appreciate that, and I want to work with you as well.
    Ms. Eshoo. Thank you.
    Mr. Greenwood. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Secretary. I want to talk about 
and return to the discussion on Medicare+Choice. I think that 
the work that you are doing, and your staff is doing, and the 
President is doing on modernizing Medicare is first-rate. I am 
looking forward to it. I think we are going to have better 
options for seniors in the future.
    A lot of where we are looking in all of this is modeled 
after Medicare+Choice, building on the Medicare+Choice concept. 
As we all know and as you have acknowledged in your comments 
this morning, the Medicare+Choice program, which started out 
gangbusters--no premiums, prescription benefits, other 
benefits--was very popular with seniors and, as we all know, 
for a number of reasons, one of them micromanagement, poor 
regulatory processes over at the old HCFA, and an irrational 
system for paying plans based on an AAPCC and then raising it 
by small amounts. Rather than keeping up with inflation, it has 
deteriorated.
    Now, the people who we want to move most rapidly into our 
new and improved, modernized Medicare are probably those people 
who have demonstrated in the past the willingness to leave 
traditional fee-for-service and move into something that offers 
them more opportunity.
    I am very worried that the very people who will be looking 
forward to make that first step are going to have a bitter 
taste in their mouths having taken the Medicare+Choice step and 
then been disappointed. So, for that reason, I think it is 
critical that in the immediate future--I am talking about the 
calendar year coming upon us--we do what is necessary to get 
Medicare+Choice back up-to-snuff so that we can, indeed, build 
on it. That means changing the way CMS does its business, but 
it also means money. We are going to have to pay these plans if 
you want them to stay in Congresswoman Capps' district. You are 
going to have to pay them enough.
    My question is, is this administration committed in this 
appropriation cycle, between now and the fall, to put the 
dollars into Medicare+Choice so that it does return as a viable 
option, so seniors will see that we don't disappoint them when 
they leave traditional Medicare fee-for-service?
    Mr. Thompson. I think we have to. It seems to me that the 
Medicare+Choice program has got a lot of support, but it is one 
of reimbursement and being able to stay in business, and we 
want this opportunity for our seniors to be able to have those 
kind of choices. And I want it in my home State, and I know you 
want it in yours, and several other States--the Congresswoman 
from California has just indicated that there is a company 
there that is contemplating whether or not they are going to be 
able to stay in, and that is true across America, and that is 
because they are losing money.
    Mr. Pallone. And we have intentionally moved forward the 
date by which the Medicare+Choice plans have to delineate what 
their benefits will be in the coming calendar year, and what 
their premiums will be, so that we can catch up to the process 
here, but we can't be into late fall without some certainty as 
to how we are going to pay these companies, or they will have 
to retrench further and compound the existing problem.
    Mr. Thompson. Really, it is going to be up to Congress to 
do it, but I hope that Congress does. I support it, and I hope 
that we can get the job done this year.
    Mr. Pallone. We will push for it, and we are going to need 
your support.
    Mr. Thompson. And I hope, Congressman, we can get this done 
in the context of overall reform. I mean, there are so many 
pieces out there.
    Mr. Pallone. Well, the problem is we may or may not get 
this plan of ours signed into law in the next couple of months, 
and we know we have got some heavy lifting here.
    Let me quickly go to another issue that I think is similar 
in that it is an issue. While we don't have prescription drug 
benefit for most pharmaceuticals today, Medicare does pay for a 
lot of them--they tend to be the infused drugs, chemotherapy, 
et cetera--this issue of average wholesale price. You and I 
have talked about it a little bit in my office. We have got a 
problem here. We are spending almost $2 billion a year more 
than we should be spending for these drugs because of an absurd 
and irrational payment system. Seniors are ending up paying 20 
percent co-pay for prices that are 5 and 10 times what the 
doctor is actually paying for those drugs.
    Do you have folks over there in your shop looking hard at 
how we can fix this AWP issue and redesign it so that we take 
care of the oncologist, we take care of the other specialists, 
and pay a fair price but not an absurdly inflated prices for 
these drugs?
    Mr. Thompson. I want to tell you, Congressman, we have the 
CMS staff working on so many different problems, this is one of 
many that we are looking at. We can't address them all, but we 
are trying to systematically go through them and come up with 
solutions. As you know, we have moved mountains already, on 
waivers and changing the name and reducing rules and 
regulations, and we are going to continue doing that throughout 
my term. I made it a point and I have told everybody out there 
that I abhor the status quo, and it is time to move forward and 
make some changes and to find ways to say ``yes'' instead of 
trying to find ways to say ``no.''
    Mr. Pallone. Thank you.
    Mr. Greenwood. I think what we are going to have to do here 
is we are going to have to recess for about----
    Mr. Pallone. Mr. Chairman, I have already voted, so I 
wouldn't mind----
    Mr. Greenwood. The problem is that there is no Republican 
to take the Chair, and I don't trust you that this committee 
for----
    Mr. Pallone. I can't say I blame you for your point of 
view.
    Mr. Greenwood. So we will recess for 5 to 10 minutes until 
the chairman returns.
    [Brief recess]
    Mr. Bilirakis. Mr. Waxman, 2 minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman. Mr. 
Secretary, I want to talk some more about this prescription 
drug plan. My question is whether we are going to give seniors 
quality private sector--in your Ways and Means testimony, you 
said we were going to give seniors private sector insurance 
prescription drug coverage. I want to know exactly what private 
sector prescription drug benefits means because I assume that 
means private drug-only insurance plans. I am interested in 
your explanation as to why you chose this model of providing 
drug benefits to seniors, given the reaction of the Health 
Insurance Association of America last year when Chip Kahn, who 
was representing them at the time, said that a stand-alone 
drug-only insurance policy simply wouldn't work in the real 
world in practice, and he said that there were so many hurdles 
that they didn't think the insurance companies would offer 
these plans. Is that what you are looking at for a drug policy 
for seniors under Medicare?
    Mr. Thompson. Congressman, we think that it will work, and 
I know that there are the skeptics out there that have 
indicated that it would not, but we don't know how else you 
could do it and really make it work. I know Senator Gramm's 
bill has got PBMs doing it, and we certainly would look at 
that, but we think that the private sector is the best way to 
go.
    Mr. Waxman. It is interesting because you compare what you 
would like to see for Medicare to what we have for Federal 
Health Insurance Benefit policies. They don't have stand-alone 
insurance coverage for prescription drugs, it is part of the 
plan, and the same is true for major corporations.
    Mr. Thompson. But, Congressman, that is what I thought I 
said. I am sorry. We do want it to be included as part of the 
package.
    Mr. Waxman. So you are not talking about buying private 
health insurance coverage for stand-alone prescription drug 
benefits?
    Mr. Thompson. No.
    Mr. Waxman. You are talking about making it part of the 
Medicare itself.
    Mr. Thompson. Right.
    Mr. Waxman. Thank you.
    Mr. Bilirakis. I thank the gentleman. Mr. Secretary, just 
very quickly, you know, we have heard concerns and, frankly, we 
all have some concerns on the merging of Parts A and B. Now, I 
know that this is sort of a work-in-progress and I am not sure 
whether the administration has come up with a dollar figure as 
far as the merged deductible is concerned, but could you go 
into that, and then I think what we will probably excuse you at 
that point.
    Mr. Thompson. The President and I feel very strongly that 
if we are going to have a real strengthened Medicare program, 
you have to be really fair and straightforward and not allow 
for shifting of one to another and having different co-pays for 
Part A versus Part B. We think of a unified system.
    If we are going to go into this and strengthen Medicare, 
which I hope that we do, we should be able to combine Part A 
and Part B, and then be able to have a unified Medicare system, 
which everybody thinks we do have. And it is only, you know, 
people that really understand the system that know that we have 
two different entities that are set up, and when you put them 
together there is a deficit of about $643 million, and Part A 
was going to have a deficit in a couple of years until Congress 
moved the home health from Part A to Part B, and we think that 
brings itself to--you know, allows for a lot of financial 
gimmicks, and we feel that it is much more straightforward to 
combine them, have one co-pay, and be able also to have one in 
which you wouldn't be able to shift one program when it is 
going broke, to another program, and that is why we are doing 
it.
    Mr. Bilirakis. How would you respond to the concern that 
only a small percentage of beneficiaries meet the high Part A 
deductible amount, but more are able to meet the limited Part B 
level and a new higher combined deductible could adversely 
affect these beneficiaries.
    Mr. Thompson. Well, we think that we can develop a system 
that is going to allow for a real equitable contribution that 
is fair, and it is going to have to go through this committee, 
but we think overall the--the overall, the objective, is to 
strengthen Medicare, and we think we can strengthen it by 
combining Parts A and B, and we don't think we will accomplish 
the financial security of the system by maintaining two 
separate systems.
    Mr. Bilirakis. Have you determined a deductible figure?
    Mr. Thompson. No, we have not.
    Mr. Bilirakis. You have not.
    Mr. Thompson. We have not.
    Mr. Bilirakis. Anything you wanted to inquire regarding 
that point?
    Mr. Waxman. Well, I was going to ask exactly that question, 
you haven't decided how much.
    Mr. Thompson. No, we have not.
    Mr. Waxman. Because that is going to be a big increase for 
a lot of people because they don't pay the deductible regularly 
for Part A unless they use inpatient services, so now they are 
going to have to pay a lot more money with a combined 
deductible.
    Mr. Thompson. We don't think so. We think we can structure 
a plan that would not increase it very much at all, 
Congressman.
    Mr. Waxman. Mr. Chairman, may I ask unanimous consent to 
put a report into the record on the problems with the 
prescription drug discount cards, prepared by my staff on the 
Government Reform Committee?
    Mr. Bilirakis. I don't see any reason why not. Without 
objection, that will be the case.
    [The information follows.]

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    Mr. Bilirakis. All right. Mr. Secretary, you are always so 
very gracious, and we appreciate your willingness to work with 
us. I don't know whether you have anything else you would like 
to say, but I am about to just adjourn the hearing.
    Mr. Thompson. I would like to, for the record, say that if 
anyone wants to submit questions, we would be more than happy 
to answer them.
    Mr. Bilirakis. Yes. Well, as per usual, that is always the 
case. Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Secretary. As you know, in the 
previous Congress the Republican leadership put up what I call 
an insurance-only drug plan--in other words, basically the idea 
of giving money to the insurance companies to provide insurance 
just for prescription drugs for seniors, and I was very 
critical of that. I didn't think it would work.
    We had an example in Nevada where the State of Nevada did 
something similar and it didn't work and, of course, a lot of 
the insurance companies testified before this committee and 
said that they didn't see any of these policies actually being 
available, regardless of what the government intentions were. 
And I just was hoping that you are not going to go down that 
route, in other words, that that isn't one of the things that 
the administration is looking at in terms of a prescription 
drug benefit because I don't really see it as something that 
could work or that would provide any kind of comprehensive 
coverage, and I just wanted you to comment on that, if you 
would.
    Mr. Thompson. Congressman, a similar question was asked by 
Congressman Waxman. We would like to be able to include it in 
the Medicare benefits, but we also are going to have options, 
and individual options that would have a stand-alone drug 
prescription, and it is going to be a private mechanism, but it 
is also going to be a public one. And so we think there is a 
combination and a lot of different choices that individuals 
will be able to have, and we think the seniors are smart 
enough--I know they are--to be able to pick and choose what is 
best for them.
    Mr. Pallone. So that is one of the options that you would 
consider.
    Mr. Thompson. It is one of the options that we would 
consider.
    Mr. Pallone. Thank you.
    Mr. Bilirakis. I thank the gentleman. The hearing is 
adjourned, and I know that you are available for any questions. 
Thank you so much, sir.
    [Whereupon, at 11:55 a.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

     Prepared Statement of Advanced Medical Technology Association

    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.

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