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74–847CC 2001

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

COMMITTEE ON ENERGY AND COMMERCE

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES ‘‘CHIP’’ PICKERING, Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

TOM DAVIS, Virginia

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

JANE HARMAN, California

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

FRED UPTON, Michigan

JAMES C. GREENWOOD, Pennsylvania

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

Vice Chairman

BARBARA CUBIN, Wyoming

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES ‘‘CHIP’’ PICKERING, Mississippi

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

STEVE BUYER, Indiana

JOSEPH R. PITTS, Pennsylvania

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

(Ex Officio)

SHERROD BROWN, Ohio

HENRY A. WAXMAN, California

TED STRICKLAND, Ohio

THOMAS M. BARRETT, Wisconsin

LOIS CAPPS, California

RALPH M. HALL, Texas

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

PETER DEUTSCH, Florida

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

JOHN D. DINGELL, Michigan,

(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)

(1)

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

2

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.

3

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-forservice 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.

4

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.

5

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 competiVerDate 11-MAY-2000 10:29 Dec 03, 2001 Jkt 010199 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 E:\HEARINGS\74847 pfrm04 PsN: 74847
6

tive 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.

7

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 longterm 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.

8

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

9

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-forservice 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

10

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 copay, 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?

11

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 socalled ‘‘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

12

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

13

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

14

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.

15

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.

16

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,

17

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

18

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 SecVerDate 11-MAY-2000 10:29 Dec 03, 2001 Jkt 010199 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HEARINGS\74847 pfrm04 PsN: 74847
19

retary—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 outof-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.

20

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 risksharing 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.

21

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.

22

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-ofpocket 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;

23

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.

24

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 informationsharing 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.

25

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 longterm 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

26

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

27

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 lowercost, 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.

28

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

29

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,

30

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

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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

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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 informaVerDate 11-MAY-2000 10:29 Dec 03, 2001 Jkt 010199 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 E:\HEARINGS\74847 pfrm04 PsN: 74847
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tion 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

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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.

35

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.

36

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-forservice, 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

37

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——

38

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

39

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-forservice 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

40

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.

41

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.

42

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.

43

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?

44

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.

45

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.

46

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

47

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

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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

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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

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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.

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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

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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.

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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.

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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 imVerDate 11-MAY-2000 10:29 Dec 03, 2001 Jkt 010199 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 E:\HEARINGS\74847 pfrm04 PsN: 74847
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proved 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 marketbased 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-ofthe 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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