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S. HRG. 109–281

THE PRESIDENT’S BUDGET PROPOSALS

FOR FISCAL YEAR 2006

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

FEBRUARY 16, 2005

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 2

ADMINISTRATION WITNESS

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

Services, Washington, DC ................................................................................... 4

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 2

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Leavitt, Hon. Michael O.:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 43

Responses to questions from:

Senator Grassley ....................................................................................... 49

Senator Baucus .......................................................................................... 69

Senator Bingaman ..................................................................................... 92

Senator Bunning ....................................................................................... 113

Senator Crapo ............................................................................................ 117

Senator Kerry ............................................................................................ 120

Senator Lincoln ......................................................................................... 121

Senator Rockefeller ................................................................................... 129

Senator Schumer ....................................................................................... 150

Senator Smith ............................................................................................ 159

Senator Snowe ........................................................................................... 160

Senator Thomas ......................................................................................... 162

Smith, Hon. Gordon:

Prepared statement .......................................................................................... 163

Thomas, Hon. Craig:

Prepared statement .......................................................................................... 164

(III)

(1)

THE PRESIDENT’S BUDGET PROPOSALS

FOR FISCAL YEAR 2006

WEDNESDAY, FEBRUARY 16, 2005

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:04 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Hatch, Lott, Snowe, Thomas, Smith, Baucus, Bingaman, Kerry, Lincoln, Wyden, and Schumer.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Welcome to Secretary Leavitt. This is his first

hearing before our committee, and we appreciate the Secretary’s

willingness to come so quickly after his confirmation.

President Bush released his proposed budget for fiscal year 2006

a week ago. The committee has a great interest in the administration’s priorities for the Department of Health and Human Services,

and this hearing will try to provide the committee an opportunity

to further discuss the details of the President’s budget.

This budget proposes comprehensive efforts to expand access to

health care for the uninsured and for making health care more affordable. We all agree with that goal. There are about 45 million

Americans without health insurance, and for a Nation as fortunate

as ours, that is a problem that we feel we can address, and should

address.

Individuals, families, and small businesses in particular all need

relief from rising health costs. The President is to be commended

for putting forward these proposals on this issue.

The budget also recognizes that this is an important year for

Medicare and the implementation of the Prescription Drug Act of

2003. This year, the Centers for Medicare and Medicaid Services

will be completing the final work to get the new voluntary Medicare drug benefit up and running by January 1, 2006.

It is an incredible undertaking. Of course, thanks to the dedicated staff of CMS, they are entitled to recognition for the long

hours and for their hard work in getting this important new benefit

up and running, and doing it on time.

The Medicare Modernization Act also created the Medicare Advantage program, which will provide beneficiaries with new and

better choices and enhance benefits of Medicare private plans, and

hopefully that will be equal geographically across the country, inVerDate 11-MAY-2000 14:09 Feb 28, 2006 Jkt 095484 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 25948.000 SFINANC2 PsN: SFINANC2
2

cluding States like Montana and Iowa where we do not have that

option at this particular time.

I was very pleased to hear the President’s statements of continued strong support for this new drug benefit. This Chairman also

will not support re-opening the drug benefit for changes that will

undermine the program, particularly because it has not been implemented yet, and how do you know it is not working until we get

some experience with it?

Making changes that would deprive our Nation’s seniors and individuals with disabilities the drug coverage promised by this Act

would be a terrible disservice.

Surely they have waited long enough for Medicare to provide prescription drug coverage without Congress threatening to cap the

program or prevent its implementation by making changes that

would make the January 2006 start date unachievable.

In regards to Medicare, the President’s budget proposes a number of efforts to restore the integrity of the program. I know that

several of my colleagues are particularly interested in numerous

changes contemplated by the budget. I anticipate there will be a

number of questions about Medicaid proposals, and I look forward

to hearing a thoughtful response.

I am also interested in learning more about the national outreach campaign called Cover the Kids, which is designed to get

low-income children enrolled in health coverage. I think this is a

very laudable effort, to get every child who is eligible for health

coverage through Medicaid or SCHIP services identified and enrolled.

Additionally, pay-for-performance is a very important issue before this committee. Some would say that that is long overdue, not

only from the standpoint of possible cost savings, but from the enhanced care for our people.

I believe it is time that we rewarded high-quality care. These incentives will lead to better care, fewer medical errors, and better

adoption of information technology for our health care system. So,

we thank you.

Now, Senator Baucus.

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you very much, Mr. Chairman. I thank

you, Mr. Secretary. I realize your preference was to testify, I think,

mid-March or early March rather than mid-February, but I want

to thank you very much for changing your schedule to accommodate us. I appreciate that very much.

Before I begin, I would like to address, briefly, an issue that has

been in the news a lot lately. That is, the cost estimate for the

Medicare drug benefit. There has been a lot of speculation that the

numbers have changed and that the estimated cost of the benefit

has gone way up, and that HHS is engaged in some sort of coverup operation again this year.

I might say, I remain deeply troubled that the administration did

withhold cost estimates from Congress during negotiations on the

Medicare bill. I am bothered that the CMS Chief Actuary was orVerDate 11-MAY-2000 14:09 Feb 28, 2006 Jkt 095484 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 25948.000 SFINANC2 PsN: SFINANC2
3

dered to do so to keep his job. That was wrong. It is the wrong way

to start the implementation of this drug bill.

But regarding the latest controversy, I do not see any. I have

looked at the numbers and my staff has analyzed the new estimates. The main story is that, instead of counting 8 years of drug

benefits, we are now counting 10.

Now, there might be more changes taking place behind the numbers, changes in enrollment, retiree coverage, the cost per beneficiary enrolled in Part D, and I am still looking into the causes of

these shifts. But the overall cost estimate is essentially the same

as the one calculated by CMS in 2003.

I appreciate the concerns of my colleagues who were surprised by

the numbers and who argue that we need to revisit the 2003 drug

bill, but I urge them to keep in mind that we all knew that covering prescription drugs for the Medicare population would be expensive. But we decided that it is critically important to provide

that drug benefit, to provide it for the elderly and disabled, and

that Medicare, without a drug benefit, made no sense.

I still have many questions and concerns about implementation

of the bill. As I stated before, I remain a strong supporter of the

bill as long as it is implemented as Congress intended. But for now,

I believe that the controversy over the latest estimates is, at best,

overblown.

Let me now turn to what I think is the most important topic of

the hearing, that is, the administration’s proposal to cut Medicaid

by $60 billion. We all want to make Medicaid more efficient, all of

us, and we all want to root out fraud and abuse in Medicaid. There

is fraud and abuse probably in most government programs. Wherever it is, we want to root it out.

I am willing to consider improvements to Medicaid. I am open to

talking about the need for more State flexibility, and I am open to

talking about better accountability. In fact, I have a bill to help do

that, that is, to shed more light on the so-called 1115 waiver process.

But I am opposed to cutting Medicaid for the sake of meeting an

arbitrary budget number. I am opposed to making these cuts under

the attractive, and somewhat misleading, caption of ‘‘program integrity’’ without a better understanding of what States are doing,

whether those activities are truly abusive and what the impact

these cuts will have on the people who depend upon Medicaid. To

do so, I think, is just plain reckless.

Yes, Medicaid costs are growing, but that is mostly due to an increase in enrollment and the same health care cost inflation that

affects every insurance plan. From 2001 to 2003, during the last recession when jobs were scarce, Medicaid added 7.5 million people

to its rolls, 7.5 million who would likely be uninsured were it not

for Medicaid. That says to me that Medicaid is doing its job, that

is, growing to meet the need when times are tough.

Even though Medicaid costs are increasing, just as in Medicare

and in the private sector, Medicaid growth is actually lower on a

per-person basis. A recent study showed that Medicaid cost growth

was 6.5 percent, compared with 12.5 percent—that is, double—for

the private sector.

4

Another important factor in Medicaid spending is this: Medicaid

picks up the tab for what Medicare should be covering. More than

40 percent of all Medicaid spending goes to pay for long-term care,

prescription drugs, and other coverage, and cost-sharing for dualeligibles, that is, for the elderly who are also low income. Forty percent of the costs, even though these beneficiaries only make up

about 14 percent of all Medicaid enrollees. So the bottom line is,

if forced to make cuts in Medicaid this year, we should all realize

that it is unrealistic and misleading to say that we are simply cutting fraud and closing loopholes.

Let me reiterate that I am open to working to improve Medicaid,

but we should not throw the proverbial baby out with the bath

water. Medicaid is too important for too many people, and program

cuts or funding caps will have a real impact on real people.

Speaking of real people, I want to thank you again, Mr. Secretary, for visiting Libby, Montana last year when you were EPA

Administrator. They appreciate it in Libby. I appreciate it very

much. As you well know, we still have some serious issues ahead

of us, especially serious health issues, and I hope you will work

with me to help improve upon what we have already achieved.

I thank you for your efforts already. Thank you for coming this

morning. I look forward to your continued service. You work very

hard to help our people and our country, and I thank you for those

efforts.

The CHAIRMAN. Before you start, Mr. Secretary, I want to associate myself with the part of the remarks that the Ranking Member just made about the Medicare cost estimates for the future. I

thank him for making that point.

It has not been made as clear as he has made it by any member

of the Senate. Really, what he is saying is, we are going to compare

apples with apples. All the news articles last week compared apples with oranges. So, I thank you for doing that.

Senator BAUCUS. Thank you, Mr. Chairman. I might say, Mr.

Chairman, that Senator Rockefeller very much wishes he could be

here. He has an obligation at the Intelligence Committee. As you

know, he is Ranking Member there. He just wanted everyone to

know that he really wishes he could be here, but he cannot.

The CHAIRMAN. Now, Mr. Secretary, your presentation.

STATEMENT OF HON. MICHAEL O. LEAVITT, SECRETARY,

U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Secretary LEAVITT. Good morning. Thank you, Mr. Chairman,

Senator Baucus, and members of the committee. I want to thank

you for inviting me to discuss the President’s budget for 2006.

The President and I share an aggressive agenda for the upcoming year. The agenda takes us closer to becoming a Nation where

health insurance is within the reach of every American, a Nation

where American workers have a comparative advantage in a global

economy because they are healthy and because they are productive,

a Nation where health technology and information technology help

improve health care and produce fewer mistakes, and help us

produce better outcomes and lower cost. Fiscal year 2006, for HHS,

will advance that agenda.

5

To advance the agenda further, the President proposes $642 bil- lion for HHS for fiscal year 2006. That is an increase of $62 billion,

or a 10-percent increase over fiscal year 2005. The discretionary

portion of that budget is $67 billion, and $71 billion in program

level funding.

Six hundred and forty-two billion dollars, Mr. Chairman, is a

great deal of money. It is a substantial responsibility as Secretary

to ensure that all of those dollars are spent effectively. The people

who pay the taxes and the people who consume the services deserve no less.

Let me take a few minutes and discuss some of the budget’s

highlights. First, I look forward to a successful implementation of

the Medicare Modernization Act, the prescription drug benefit, and

the Medicare Advantage regional health plans in 2006.

With the MMA, we are helping seniors save money, improving

preventative care and increasing access to doctors and medical care

that they badly need, and want. Between now and January 1 of

2006, we have a lot of work to do. I give you my commitment that

we will not fail.

I know there has been a great deal of discussion in the past

week, and some discussion already here in the committee, about

the new Medicare drug benefit.

I want to address that issue for a moment, particularly the

issues that you have raised related to the inaccurate claims on the

cost estimates being dramatically increased. It is simply not true,

as both you and Senator Baucus have indicated.

The main reason that the 2006 budget shows a higher cost for

Medicare than it did in 2005 is that they reflect different windows.

Last year’s projection for 2004 through 2013 looked at a period

with 8 years of the prescription drug benefit. This year’s project of

2006 through 2015 includes a 10-year benefit.

We should not be surprised when we look at the landscape and

see a different part of the landscape when we look out a different

part of the window.

Some have asserted that the estimate for MMA is now over a

trillion dollars. Again, this is simply not true. The trillion dollar

figure was an estimate of the gross cost. To arrive at the actual estimate, the net estimate, you subtract out hundreds of billions of

dollars of Federal revenue, such as beneficiary premiums and State

payments.

Focusing exclusively on gross spending levels without considering

the offset savings creates a false impression and does a disservice,

frankly, to the budget process and to Medicare beneficiaries.

In a little more than 10 months, almost 43 million Americans

will be eligible to receive much-needed assistance with the high

cost of prescription drugs. Let us put aside the differences and

work together to attain the goal of ensuring that seniors and people

with disabilities successfully sign up for their new benefit; we owe

it to all of them.

The President and the Department are also committed to resolving the growing challenges facing Medicaid. Medicaid provides

health insurance for more than 46 million Americans.

But State governments are struggling with burdensome rules

and regulations and a financing system between the Federal GovVerDate 11-MAY-2000 14:09 Feb 28, 2006 Jkt 095484 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 25948.000 SFINANC2 PsN: SFINANC2
6

ernment and the States that is prone to abuse. The budget would

assure an appropriate, economically responsible partnership between the Federal Government and the State governments. As the President’s budget notes, taxpayers would save $60 billion

over 10 years when inappropriate Federal spending, such as that

occurring through inter-governmental transfers and other loopholes, is eliminated.

If these savings are enacted through State and Federal portions, taxpayers will spend, still, nearly $5 trillion on Medicaid over the

next 10 years. Spending on Medicaid will increase more than 7 percent a year for each of those years.

When spending on our most needy populations to ensure the effective use of tax dollars, we propose to build on the success of the

State Children’s Health Insurance Program, or SCHIP, as it is referred to, and various waiver programs.

These allow States the flexibility to construct targeted benefit

packages to coordinate private insurance and to extend coverage to

uninsured individuals and families that are not typically covered

by Medicaid.

This is just part of the President’s plan to help the approximately

45 million Americans who currently do not have health insurance

policies. In addition to our efforts to improve Medicaid and SCHIP,

we propose to spend more than $125.7 billion over 10 years to expand health insurance to millions of Americans.

We are working to help Americans, through tax credits, through

purchasing pools, through health savings accounts. We expect to

help 12 to 14 million additional people gain health insurance over

the next 10 years. We also request $2 billion—a $307 million increase from 2005—

to fund community health centers. This will help us complete the

President’s commitment of creating 1,200 new or expanded sites to

serve 6.1 million people by 2006.

All of these efforts seek basic reforms in the health system and

will help us move to a more personalized, patient-centered system

of medicine. To that end, the President’s budget proposes an investment of $125 million to help make electronic medical records a reality.

We also work to protect the homeland. One of the areas that we

made our greatest achievements in, and face our greatest challenge, is strengthening our public health infrastructure. Our proposed budget requests $4.3 billion to continue this very important

work. That is an increase of almost 1,500 percent over 2001.

Including the 2006 budget, we will have spent or requested nearly $19 billion since September 11, 2001, and that investment is

now showing tangible results.

To support HHS’s responsibility to lead public health and medical services during major disasters and emergencies, we are also

requesting $1.3 billion to support the work of CDC and the Health

Resources and Services Administration to improve State and local

health and hospital preparedness.

We are also requesting $600 million to strengthen the strategic

national stockpile, which would provide Americans with almost immediate access to needed medicines in the event of a major health

emergency.

7

To ensure that drugs and medical devices that Americans routinely use are safe, efficient, effective, and get to market as quickly

as possible, the budget includes a request of $1.9 billion for FDA.

That is an increase of $81 million over 2005.

This would also help us combat threats in our food supply. It

would help us improve our means of detecting contaminated food

and increase the research on ways in which to improve food security.

On Tuesday, I announced the creation of the Drug Safety Oversight Board to review the safety and the effectiveness of some

drugs that may need further monitoring after they are on the market. We will cultivate a culture of openness and independence at

the FDA, because there are many drugs that require additional

monitoring.

The 2006 budget requests $439 million to fight influenza and to

improve the access of children from low-income families to routine

immunizations. Because the foundation of a society rests upon the

moral values of that society, the President proposes $206 million to

support abstinence education programs.

The 2006 budget expands activities to educate adolescents, and

also parents, about the risks associated with early sexual activity,

and provides them with the tools they need to help youth make

healthy choices. We also request $150 million to help us assist victims of drug abuse through access to recovery initiatives.

Finally, the President’s budget proposes an investment of $125

million to make electronic health records a reality.

In conclusion, Mr. Chairman, this is a strong, fiscally responsible

budget. It comes at a challenging time for the Federal Government,

with the need to further strengthen the economy and to continue

to protect the homeland.

I look forward to working with Congress, with the medical community, and with Americans all across this country to implement

a new Medicare law that will carry out the initiatives of the President and propose a healthier, safer, and stronger America.

Thank you.

[The prepared statement of Secretary Leavitt appears in the appendix.]

The CHAIRMAN. We will take 5-minute rounds. The order is:

Grassley, Baucus, Hatch, Bingaman, Wyden, Snowe, Lott, Smith,

Thomas, and Lincoln.

I was not going to start with this, but you just brought it up so

I will give you just a couple of opinions of mine, and you do not

even need to respond. In fact, I would just as soon have you not

respond, just think about them.

On FDA oversight, if that is going to work, it seems to me you

are going to have to take ownership of it, and it is going to have

to be outside the FDA and not within the FDA.

The second thing is, I think there needs to be some changes in

existing law to make sure, if we are going to have an Office of Drug

Safety, that it cannot be under the thumb of the Office of New

Drugs. Now, you could say the Oversight Board is going to make

sure that there is that independence, but I think that there has to

be some change in machinery within FDA.

8

Then separate from all of that, but kind of related to it indirectly

about the safety of drugs, I think we need a registry of clinical

trials that is completely transparent.

Now, moving on to Medicaid. During meetings that you have had

with members of the Congress, you have made it very clear that

you intend to work very diligently to improve the way that the Federal and State Medicare program works, and that is a very laudable goal. It is going to take very strong leadership.

So I have two questions. What is your plan for getting this done,

and how would you envision the administration, the Congress, and

the governors working together to do this, if the governors are

going to be included? I guess I would advocate that they be included.

I would ask you—and you may be saying you are going to do this

anyway—to take very much a leadership role in trying to bring the

governors, in a bipartisan way, around to helping us work this out

so that money can be saved, and yet not hurt the program for people who need it.

Secretary LEAVITT. Mr. Chairman, Medicaid is a vital program in

this country. As I indicated, nearly 46 million people receive health

insurance. It also cares for the truest and most needy of our citizens, those who are disabled, those who are aged and disabled, and

low-income children. It is a vital program.

It is, however, rigidly inflexible. It is my belief that it can be improved through providing additional flexibility so that we can use

resources in a way that will provide coverage to more.

I believe we can use the resources that we are devoting to Medicaid at the State and Federal level and provide access to health

care to more people, and do nothing that would threaten in any

way the commitment that we have made to our neediest citizens.

I am meeting with the governors now on a basis that I hope will

produce a bipartisan proposal that we can bring to Congress to do

just that. I am encouraged by your commitment to this, and look

forward to working with you and other members of the committee

to produce needed changes and reforms.

The CHAIRMAN. Yes. A little more specific on this. States, as you

know, currently have the option to cover additional services under

Medicaid. If a State chooses to cover additional services, it must

provide those services to most of the mandatory and optional populations.

So my question is, could you describe options States currently

have regarding limiting services for optional populations and how

the budget neutrality requirements work under those arrangements?

Secretary LEAVITT. Well, regrettably, Mr. Chairman, there are

very few options. What has happened in most States is that, in

order to meet their own budget needs and to respond to the needs

of so many other programs, they have begun to eliminate entire

populations of optional categories. That is not our goal.

Our goal is to cover more people, not fewer. The governors are

crying out for some level of help in being able to provide coverage

for more. That is the goal of, I believe, HHS, and of the President,

and of the States: to cover more people, not fewer.

9

The CHAIRMAN. Well, that would follow into what some governors

have said to me about needing more flexibility. What reforms do

you hope that States would undertake if they had additional flexibility? I assume that you are suggesting additional flexibility. Is

that right?

Secretary LEAVITT. Yes, I am. One is in the area of caring for

those who are disabled and those who are elderly that would like

to be cared for at home or in their community.

Currently, Medicaid essentially requires that they are covered in

an institution, and many times that is not in the best interests of

the patient, not the desire of the person being served, and it is the

least efficient way to do it.

The President has proposed a New Freedom initiative that is just

one example. There is money in this budget to provide for that.

Under State waivers, a number of States have already begun to do

this. It is something that we ought not to have to seek waivers on.

It is something we ought to be able to do unilaterally. It will expand coverage to more and provide better coverage and better service.

The CHAIRMAN. What are the implications for these optional populations, in your judgment, if we simply do nothing here?

Secretary LEAVITT. If we do nothing, many will lose coverage

they currently have because of the inflexibility. Our objective is to

cover more. The President has put proposals forward that, in total,

would allow 12 to 14 million people to be within the reach of health

insurance over the next 10 years. A good piece of that would be

those who are currently served by Medicaid. We have had great

success in this country with SCHIP.

For SCHIP, in many cases, States chose to use Medicaid. Many

other States chose to use a plan that would be patterned after either the Federal employees’ or State employees’ plans, and they

have been able to use those plans to provide quality, basic care,

and do it for more people than Medicaid. That is a very good example of the contrast.

Some States have been able to use flexibility through various

means and cover more, some States have not, and they have covered fewer optional populations, and are regrettably, in some cases,

threatened because of lack of flexibility.

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Secretary Leavitt, in the interest of helping the people we represent, I think it is important to shed some more light on what

these Medicaid cuts are really all about so that the Congress, the

Senate and House, in the budget process, has a better idea of what

is right and what is not right for the States, and most importantly,

the people in our country.

You have identified—let us use your figure—net, $40-some billion of Medicaid cuts. That is, $60 billion, and then you subtract

out the extra dollars that go to SCHIP, so the net is roughly

around $40 billion. Is that correct?

Secretary LEAVITT. Would you like me to reconcile those?

Senator BAUCUS. No, not really. Thank you. I am accurate, am

I not, basically?

Secretary LEAVITT. Roughly speaking.

10

Senator BAUCUS. Roughly speaking. Thank you.

I have a couple of concerns about all of that. Number one, in

written response to the question I raised in your confirmation, you

stated that CMS could only identify about $120 million in fraudulent payments in the year 2003.

These cuts are under the guise of ‘‘program integrity,’’ under the

aura of, this is wrong. Kind of an aura, if not fraud and abuse, at

least, it is wrong. There is a moral label on all this. Yet, there is

only $120 million identified by CMS as ‘‘fraud and abuse.’’ Which goes to my next point. You are asking for $40-some bil- lion, $40 to $60 billion, whatever it is, in cuts. That is a far cry

from $120 million.

Next, though, there are very few details on your proposal. We do

not know what in the world this is really all about. To some degree,

or to a large degree, that is not your fault, because you walked into

a situation where there was a lot of uncertainty with regard to

Federal Medicaid payments and inter-governmental transfers, and

UPLs—upper payment limitations—and so on and so forth.

But yet, the Medicaid dollars that States have received, and the

way the States have provided the matching money, have all been

all right. It is legal. All States have been doing things which, up

to this point, CMS said, fine. That is all right, by and large. But

you are stepping in and saying, well, gee, maybe not. Maybe there

needs to be some changes.

So I am asking you to be much more specific about all this.

Frankly, I know this puts you in a very difficult position, because

you did not ask for all the facts that you faced when you began to

take over this job, but that is what we hired out for, basically, all

of us.

So I would like a breakdown, on a State-by-State basis, frankly,

on how these changes will affect Federal Medicaid payments to the

States, because that is only fair to the States, it is only fair to the

people, it is fair to us in the Congress as we are trying to figure

out what the correct budget number should be on Medicaid. Would

you provide that information?

Secretary LEAVITT. As best we have the ability. I think it would

be helpful if I were to describe it for you, Senator. I would like to

make clear that the integrity issues that we are talking about I

view as separate from those that we are dealing with in the States,

where I believe there are inappropriate accounting practices being

used.

I put those in different categories where you have got people simply doing things that are fundamentally dishonest and meant to

defraud, and those where we have got disputes over accounting.

Senator BAUCUS. Right. All right. Right.

Secretary LEAVITT. Let us talk about the States.

Senator BAUCUS. Yes.

Secretary LEAVITT. Let me put it in this context. The President’s

budget proposes basically three reductions and two add-backs. Two

of the reductions are matters where we believe we are paying too

much for medicine, and the second is that there are certain people

who are beginning to give their assets away in order to qualify for

Medicaid, and we do not think that is consistent with the character

of the program.

11

The third does deal with, frankly, a fairly awkward conversation

we are having with our funding partners, and that is the States.

Senator BAUCUS. That is right. That is the conversation I want

to explore, the awkward one.

Secretary LEAVITT. Let me tell you why it is awkward.

Senator BAUCUS. We all know why it is awkward. We just need

some transparency and some solutions here.

Secretary LEAVITT. All right. Let us assume that there are three

people who live in a cul-de-sac. There is Mr. Federal and the Federal family, Mr. States and the States family, and then there is the

Jones family. The Jones family has a daughter that has a serious

chronic disease.

Senator BAUCUS. I see the yellow light. I know that you know

there is a yellow light there, too. So, could you please use your time

responsively so we can address the question I asked?

Secretary LEAVITT. Why do I not tell you the story later then to

keep within the context of that 5 minutes.

Senator BAUCUS. All right.

Secretary LEAVITT. But it is a very compelling story.

Senator BAUCUS. All right. I am sure it is.

Secretary LEAVITT. Essentially what it amounts to is, the States

are recycling money in a way that is not about whether or not we

should provide health coverage, it is about who should pay for it.

The reality is, they may have been doing it, but in most cases we

have not known they are doing it, and we are still trying to figure

out where they are doing it and why they are doing it. We want

it to be fair and we are working with them as data comes.

Senator BAUCUS. My time has expired. I appreciate that. If I may

ask the members’ indulgence, very briefly. My understanding is,

though, that you have looked at all this to some degree. There are

a number of States where things are all right, a number of States

with questions, and that is all right. There are a number of States

where you are not sure, you are negotiating with. In other States,

you just do not know, and so on, and so forth.

If you subtract out the first two categories of States, that awkward category is a lot of money that is supplied to a relatively

fewer number of States, which can have, therefore, a greater impact.

The only fair way I see to get to the bottom of all of this is to

put all of the cards out on the table. One of the cards is, what is

the dollar effect going to be on each State? So, I am asking you for

that information.

Secretary LEAVITT. To the extent we have it available, Senator,

I will be happy to provide it.

Senator BAUCUS. You should have it. If you do not have it, that

says something right off the top. If you do not want to do it because

it makes your life more difficult, that says a lot, too.

I am just asking for it. You have got it. You are a huge agency.

You have got lots of smart people down there. There is no doubt

in my mind, if you really wanted to and if your staff really wanted

to, they would provide it. So, I am asking for that information, very

quickly, please.

Secretary LEAVITT. Senator, we will be responsive.

Senator BAUCUS. Thank you.

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Secretary LEAVITT. I would like at some point, when we are not

facing a red light, to describe for you the nature of the task so you

will understand the nature of the result.

Senator BAUCUS. Well, there will be an opportunity when we go

around again.

Secretary LEAVITT. Good.

Senator BAUCUS. Thank you.

The CHAIRMAN. All right.

Senator Bingaman?

Senator BINGAMAN. Thank you very much, Mr. Chairman.

Mr. Secretary, thank you for coming today. I wanted to just follow up on some of the discussion we have been having on Medicaid,

because that is the big issue in my State.

I have noticed a pattern in the time I have been here in Washington. Every year, when the year starts, you can sort of predict

a few things that are going to happen. Number one, the President

is going to give a State of the Union speech. Number two, the week

after that we are going to get the budget from the administration.

Number three, the week after that, the States start complaining

and the Federal Government starts arguing about the proposed

cuts in Medicaid. That is sort of where we are today.

And I notice that you gave a speech the other day which talked

about ‘‘The Seven Harmful Habits of Highly Desperate States.’’ I

think that was the title of your speech.

The National Conference of State Legislatures has come out with

their concern. They call it the export of the Federal deficit to the

States, mainly talking about Medicaid.

Senator Smith and I have proposed establishing a national commission, which we would have the President appoint a member,

and then have Congressional leadership appoint other members,

and try to get a good bipartisan group of folks who understand this

and have the time to really look at it long-term and resolve some

of these issues so that we could break the cycle of, every year,

starting into a budget debate about who is cheating who on Medicaid.

I welcome your statement in your prepared statement that you

are going to be meeting with governors and trying to resolve these

things. I think that is helpful. But you are going to have a few

other things to do this year, so it is not going to be possible for you

to devote the enormous amount of time that I think is required to

sort all of this out. It is very complicated.

I think the States have some legitimate complaints about some

of the things that they complain about, and I think the Federal

Government has some legitimate complaints about some of the accounting that the States have engaged in.

But I would be interested in whether you think that that kind

of a commission would be helpful in this process, and if that is

something you could support.

Secretary LEAVITT. Senator, to be candid with you, I think a commission, while always helpful and enlightening, would likely end

up with the same dance that you have just characterized.

The facts are on the table. There are smart people in this room

who are as experienced as anybody in the country on this question.

The States need help. The people who are currently insured by

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Medicaid whose coverage could be threatened by the lack of flexibility need help.

It is time for us to make decisions. I am very hopeful that the

States, working together across party lines, could bring a proposal

to this committee and we could work together to find solutions immediately. Now, there may be things that, long term, we could continue to look at that would be improvements, but there is a need

for swift and early action.

Senator BINGAMAN. Well, I am not averse to swift and early action, but I do not think, frankly, that we have the time here in this

committee, or perhaps that you personally have the time, although

you are very knowledgeable about this issue from a State perspective, and now you obviously are going to have to be from a Federal

perspective. I just think getting some folks who did not have the

other demands on their time to look at this would be very helpful,

so I hope you will consider that.

Let me ask another issue. One of the things that you proposed

in your budget is that the Federal Government would reduce the

Federal matching rate for targeted case management services to 50

percent. So the Federal Government, instead of providing the

match that it otherwise provides in Medicaid—which in my State

is 72 percent—it is going to say, for these targeted case management services, the Feds will provide 50 percent and the State will

provide 50 percent. That has an adverse effect on my State, and

all of what I see as the poorer States. It is something that concerns

me.

The well-off States that already have a 50 percent or less match

from the Federal Government are fine. They are held harmless on

that. But a State like mine which is up against it and trying to provide these health care services will lose about $8 million next year

in New Mexico because of that proposal. Again, I would urge that

that be something you reconsider, if possible.

Secretary LEAVITT. Senator, that is a characteristic that is worth

focusing on for a moment. There are certain areas of the accounting

categories where States have become brilliant at loading costs onto

categories where there has been higher-than-average reimbursement.

All we are looking for is to be able to characterize those things

that are appropriately characterized as administration, and then to

have the appropriate rate applied to them. This is a good example.

Many of the States have hired consultants who have become

quite adept at being able to determine how to code things, how to

characterize things, how to hide things in a way that will allow

them to have the maximum Federal match.

Now, I am not here to suggest that they should be expected to

do a lot different than that, other than the fact we ought to have

the rules clarified so that we know what we are matching and that

it is what we intend to match. This has become so complex, it just

needs to be simplified.

Senator BAUCUS. Thank you, Senator.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

Mr. Secretary, I think you know, there is probably nowhere on

the planet that is more interested in flexibility and waivers than

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Oregon. I have been on the phone to our Medicaid directors, and

they think that the proposal that you all offered essentially hits

them with a double-whammy. On the one hand, they would get

fewer dollars.

On the other hand, nothing is being done to change what seems

to them to be bureaucratic water torture in terms of trying to get

something approved. That is what they were faced with concerning

the Oregon Health Plan waiver and a variety of other waivers

where, literally, documents were not taken from one office to another when they wanted to have a waiver considered.

So outline for me, if you would, what proposals you have, specifically, to deal with these problems in waivers, and particularly ones

where we can get to the objective you and I want, which is to

stretch the dollars.

For example, one that my State Medicaid people would like is

something that would say, if one State has done something innovative, it could then be put on a fast-track for other States to do it.

That is something that is not allowed today. Outline for me what

your suggestions would be for approaches like that.

Secretary LEAVITT. I will outline a very specific construct. One,

we need to get with the governors to develop a proposal that can

be brought to this committee that will meet the needs of the States,

and also have integrity in the funding partnership.

I have indicated, Senator Bingaman pointed out, this is a timeconsuming matter. It is an important matter for 46 million people

and their health care. I am prepared to spend the time necessary

to bring that, and I would hope that the committee would work

with us in being able to find results.

Senator WYDEN. I am very interested in working with you, Mr.

Secretary, on this and other things. I would just like to see a specific set of ideas for making sure there would be more flexibility

without hurting people. I have offered one that I talked about with

my State Medicaid director, and I am interested in hearing others.

I want to turn to prescription drugs because I think we are headed into treacherous waters at this point. I am someone who voted

for the program. I feel very strongly about it. I have had a chance

to work with Senator Baucus, Senator Grassley, and others on it.

What I am worried about is the combination of the costs going

up—and we can have a debate about how much they are going up,

and the like, but they have gone up—and the relatively paltry level

of senior participation in the first phase.

It means that what we have is a situation where a boat load of

money is going to be spent on a relatively small number of people.

That is not a prescription for a program that is likely to survive.

I want to work with you to make sure that a program I voted for

gets back on track.

What are your suggestions this morning about how we get this

back on track, and suggestions so we can all work on a bipartisan

basis to do it?

Secretary LEAVITT. I think we would agree, this is a historic opportunity to expand access to prescription drugs to millions of

Americans who currently do not have it. It is also a formidable task

to educate and provide information to those who are eligible and

to help them receive the benefit, but we will meet that task.

15

I would hope we could work as partners with the Congress. I

would hope that, in the July and August recess, members of the

House and members of the Senate will be going throughout their

States and their districts, helping seniors to understand this, in

partnership with HHS.

We will be using every tool available, through both private and

public sector, to be able to reach the 43 million people that we believe will be eligible. It is an exciting opportunity and one that we

will provide every possibility for the elderly to meet.

One thing I want to make certain of is that you are aware, and

others, that we will not allow any of our elderly who are transitioning from Medicaid to Medicare to drop through the cracks.

We are going to assure that the decision is made for each of them

so that they continue to have benefits, and we will do all we can

to ensure that it is the decision right for them.

If a decision is made that is not, we are going to provide broad

flexibility for them to change so that they have benefits and they

also have the plan that is best for them.

Senator WYDEN. I think that is a constructive answer. I know my

time is up. I would just say, Mr. Secretary, absent some stronger

cost containment, I think it is going to be very hard to get the enrollment numbers up where you want them to be, I want them to

be, and colleagues do. That is really the key to getting people

signed up. That is what you hear at town hall meetings. People

say—and this is a reflection of the bill Senator Snowe and I have—

why are we not using the kind of cost containment that is in the

private sector?

I will explore this on another round. Senator Baucus and Senator

Grassley have been gracious to give me the extra time. But that

is why people have been reluctant to get involved in this program,

is they do not see us doing enough to contain the costs that are

clobbering them every time they walk into a pharmacy. I thank my

colleagues for the extra time, and I will look forward to the next

round.

The CHAIRMAN. We had to skip over a few people, but I will go

to Senator Smith, first.

Senator SMITH. Thank you, Mr. Chairman.

Mr. Secretary, welcome.

Secretary LEAVITT. Thank you.

Senator SMITH. I am sorry I was not at your swearing in. I was

on the west coast. But I watched it on C-SPAN, and I thought that

it was a very moving occasion. Your remarks were terrific.

Secretary LEAVITT. Thank you very much.

Senator SMITH. The first time you and I met, I was the president

of the Oregon Senate, working on Medicaid in Oregon, known as

the Oregon Health Plan, and you were the governor of Utah, testifying at one of our committees.

As Senator Wyden has talked about his conversations with our

State on the President’s budget proposal, I have been doing the

same. They have estimated to me that the proposal, as they now

interpret it, would cost the Oregon Health Plan $500 million over

10 years. That is an estimate, obviously.

But the reason Senator Bingaman and I proposed the commission was, frankly, the difficulty I have in figuring out how that

16

does not translate immediately to people served in the most vulnerable of circumstances. I do not know whether the votes are in the

Congress at this point for the proposal.

No one has done a whip check, as far as I know, but I suspect

it will be tough. Frankly, a lot of us, while we may come to the

same conclusion eventually, a lot of us need to have some better

understanding about where this leaves vulnerable and elderly people in my State, when the number is $500 million.

Obviously, I do not want to complicate your effort, but I am also

dealing with the realities of this side of the dais. I do not know if

you have any comment, further, on that.

Secretary LEAVITT. Well, Senator, I would just simply say that

Medicaid does not suffer from lack of solution or information. It is

a deficit of decision. We need to get to the point of making decisions on how to supply the flexibility, how to provide States with

a very clear mandate on what our objective is.

I believe we can work together to do that, and hope very much

that if the States are able to bring a bipartisan proposal to this

committee, that we could work to move it forward. There may be

long-term discussions we need to engage in. In fact, I would suggest there are.

We have some significant challenges that will take some time to

resolve, but there are things that we could resolve in the near term

that would have a profound impact on the citizens of Oregon in a

positive way.

Senator SMITH. It is my understanding, and certainly my evaluation, and I wonder if it is yours as well, that Oregon is not among

the States that is engaging in these inter-governmental transfers

and scamming the Medicaid system. Is that your understanding?

Secretary LEAVITT. Senator, I am very happy to have that conversation directly with you. I have got a list of those we are working feverishly with, and I would be happy to look at that list in a

moment, if you would like. But let me just say, we are working

very constructively with States.

In most cases, we are able to reach agreement on what is an appropriate practice and what is not. In many cases, what we are

working most strenuously on is how to work our way back to what

is appropriate, and we are working to provide the time necessary.

This is not about blame, it is about restoring integrity to the funding partnership, and I believe we will get there with nearly every

State.

Senator SMITH. Let me express appreciation to the President and

to you, Mr. Secretary, publicly. While many things have been cut

out, what was included was $11.5 million for youth suicide prevention. I am very grateful for that and for the President’s support

from the beginning to this moment, as reflected in his budget.

I know this runs counter to the need, but full funding for that

program in its second year would be $27 million, and I hope you

will not mind if I push really hard to get that.

Secretary LEAVITT. No one would question the intent of that.

Senator SMITH. It was interesting, on the issue of anti-depressant drugs, to follow this Botox—not Botox. The Zoloft defense in

a recent murder trial. It failed. Yet, in conversations that I have

had with Secretary Thompson before, it was very clear to him, and

17

I think others at the FDA, that some of these anti-depressant

drugs may really have some serious, life-threatening consequences.

Obviously, there is a lot more good being done by them than

harm, but it seemed to me like he was putting the brakes on these

drugs to at least get more answers. Countries like England have

actually either labeled them or taken them away because there is

apparently some side effect.

In that light, I want to commend you for the Drug Safety Oversight Board that you announced. I think this has to go on. But I

wonder if that does not suggest that there ought to be a more rigorous approval process in the beginning.

Secretary LEAVITT. One thing with certainty it means is that we

need to ratchet up our monitoring of drugs after approval. We have

the technology tools to do it. We have the capacity to capture millions of data points and we have been, up to this point, more passive than we must be in the future.

Senator SMITH. Well, I certainly want to encourage that. Mr.

Chairman, my reference to Botox was not a Freudian slip. I have

never used Botox. [Laughter.] My time is up. Thank you.

Senator BAUCUS. I think Senator Thomas is next.

The CHAIRMAN. Senator Snowe was next, but she is willing to let

Senator Thomas go ahead of her.

So, Senator Thomas, proceed.

Senator THOMAS. Wonderful. Thank you so much.

Welcome, Mr. Secretary. I am delighted to have you here.

During your confirmation process, you indicated that rural

health care issues would be a top priority for the Department. As

you know, many of us here have worked hard with the Rural

Health Coalition, as well as Finance, to include the rural equity

package in the Medicare bill.

This really was the first comprehensive rural and frontier providers’ effort that we had made. The measure has gone a long way

towards the gap in payment and was not intended to be the sole

revenue source.

The equity provisions do not address some fairly significant

issues: rural patients diagnosed with more chronic conditions are

less likely to have prescription drug coverage; rural areas’ proportionately higher rate of uninsured and under-insured.

So, I guess I am a little disappointed to see significant cuts in

the Health Resources and Service Administration budget, eliminating or drastically reducing the Rural Health Flexibility grant

program, the Small Hospital Improvement Program, the Rural

Healthcare Services Outreach, and Rural Access to Emergency Devices grants.

Would you respond to that?

Secretary LEAVITT. First off, I want to make clear that I personally, coming from a rural State, understand the importance of this.

I know that the President’s commitment is real. The budget does

recategorize a number of different provisions.

Of course, it includes ways of being able to approach rural health

care from a number of different angles. For example, the community health centers are, in large measure, located in rural areas,

particularly those with significant unmet needs.

18

I think I would be better off being able to provide you with the

data in writing than I can today in specific off the top of my head,

and I will do so.

Senator THOMAS. All right. I appreciate that. As you well know

from your State, we have a different system. We have to have a

system, because each town and each facility does not have all these

kinds of services. I think we have one community center in Wyoming, as a matter of fact. So, I would be grateful if you could do

that.

Secretary LEAVITT. I do want to acknowledge, Senator, the leadership that you have provided, along with Chairman Grassley, in

being able to include $25 billion over the last 10 years for rural

medicine, $109 million in this budget. So, I will give you more information, but I did want to acknowledge that.

Senator THOMAS. That has been very, very helpful in terms of

making some equity in the kinds of payments that are made, and

so on. So, thank you. That is all I have.

[The information appears in the appendix.]

The CHAIRMAN. Thank you.

Now, Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

I welcome Governor Leavitt to the committee. Again, I am sorry

I was not here for your testimony, but I have been shuttling back

and forth between hearings in two committees.

Let me just get back to the question of the rising prescription

drug costs. I know that you mentioned, in response to one of the

questions, I think, posed by Senator Wyden, that obviously the

window changed in terms of the 10-year projection.

But on the other hand, even within the original estimate and the original window starting in 2006, the cost was still rising to $557

billion over that time frame.

So, obviously we still have a problem. Irrespective of changing

the windows, it was magnified by doing so and having a full 10-

year projection instead of including just the phase-in period of 2

years leading up to 2006.

So I think that that gets back to the crux of the issue of what

we are going to do to address these costs, and the need to have negotiating authority. I do think that that is a critical instrument.

It is not the sole answer to the problem, obviously, but it is a

critical tool to addressing and grappling with rising costs of prescription drugs, particularly those that are sole-source drugs and

have no competition, and also in the fall-back programs in which

there may be numerous areas of the country where they will have

a fall-back program, and it is going to be all the more important

for you to have that authority and to use it in certain circumstances and require it. That is the legislation that I have introduced with Senator Wyden.

Secretary LEAVITT. Senator, I may be responding to different

time periods still, but I would like to clarify that, for the period of

2004 through 2013, the estimate last year was $510 billion, this

year is $517 billion, which is well below 1 percent fluctuation.

Senator SNOWE. But that estimate came out last late fall. It was

not the original estimate when we were considering that legislation. It was not the CBO estimate.

19

Secretary LEAVITT. I understand there are some differences, and

much discussion has gone into reconciling those.

Senator SNOWE. Right.

Secretary LEAVITT. With respect to, how do we provide the best

opportunity for the lowest possible cost, it is the position of the administration—and I share that position—that the best way to do it

is to provide a rigorous and active market where those who are

manufacturing the drugs are negotiating directly with multiple

competitors. That will, in fact, provide the most competitive market. This system is based on that.

I feel more optimistic every day that we will be successful in having multiple providers of multiple drugs in every category, and that

it will be a rigorous, competitive marketplace that will produce the

lowest possible cost.

Senator SNOWE. I know you have been in your position for a

short period of time, but have you had any opportunity, Mr. Secretary, to consider some of the factors that might be driving these

costs? Because, again, hopefully there will be multiple competitive

drugs on the market and that it will be a very competitive system

throughout the country.

But, again, I do believe that this negotiating authority is going

to be essential and instrumental, because it will also be the leverage that will be required in making sure that that comes to pass

in achieving the lowest possible prices and a fair system for those

who do rely on a fall-back system, because there are not many options in given areas. That may be true in my State, for example,

and in many of the rural areas across this country.

Secretary LEAVITT. Again, I feel more optimistic every day that

we are going to have a robust, competitive market in every region

of the country. As you have pointed out, to the extent that we had

less than two providers, we would have a fall-back.

Yesterday, Medco committed that they were going to play a national role. That means we are halfway there to having at least two

in every market. I think we will have more. I think it will be a robust, competitive market where not only will we have multiple providers, but they will be required to have multiple alternatives, and

that is the formula for the lowest possible cost.

Senator SNOWE. Have you had a chance to assess these factors

at all, a preview into why they are driving up the costs of the estimates?

Secretary LEAVITT. Actually, I have just begun to understand

what the factors are that go into the estimates. I am not able to

enumerate them today to you, but undoubtedly they are a big issue

for me, as they are for the Congress.

Senator SNOWE. All right.

On the question of Medicaid, and I know you have had numerous

questions, but I am supporting the legislation that has been introduced by Senator Smith and Senator Bingaman, because I do think

that we cannot afford to take precipitous action when it comes to

the issue of Medicaid. I mean, it is an over-arching issue.

It serves needy populations throughout the country, and any

kinds of changes are going to magnify, I think, and exacerbate the

existing problems, particularly with those who do not have access

20

to health insurance and the growing uninsured population in

America.

I know you mentioned the fact in a speech last week that optional populations may not need such a comprehensive solution because most of them are healthy people, but many of these people

do not have access to health insurance, and that is obviously one

of the greatest problems that we are facing in America in our domestic agenda, the growing population and the greater needs for

those who are uninsured.

Capping the program, I do not think, can be a substitute for

flexibility. I am concerned about that, because ultimately it could

be a euphemism for reducing the program and providing support

to the neediest populations. Obviously, we do not have the specifics

of any proposal. I assume it is going to be forthcoming.

Secretary LEAVITT. We are working with the States to come up

with a bipartisan proposal that we could bring to this committee.

I would also like to make clear that we are not proposing any block

grants, nor are we imposing any involuntary limits on optional populations.

What is occurring, however, is that States, because of practical

limits they have, have begun to reduce coverage or to eliminate

coverage to optional beneficiaries, and we want to avoid that. Our

objective is to have more covered, to have health insurance within

the reach of all of those populations.

Senator SNOWE. Can you expand the populations without expanding Federal support?

Secretary LEAVITT. Senator, I would point to my own experience

as a governor. We were among about 30 States who chose, when

SCHIP was made available, not to use Medicaid, but to use a benefit program that was very similar to the one that my own children

had while I was governor.

We were able to provide coverage to 35 percent more people by

providing the same quality care that my children received while I

was governor to them. That is just indicative of what I believe

States can do.

In your area, for example, in the neighboring States of Vermont

and New Hampshire, one has used home and community care and

flexibility they received under waiver for the elderly and disabled

population, dramatically different than in other States close by who

do not.

So, yes, we can provide coverage to more and we can provide

high-quality, basic care that is similar to what State employees

have, Federal employees, or the best HMO that is in their area. We

can provide coverage for more people with existing resources.

Senator SNOWE. Thank you, Mr. Secretary.

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for joining us again. I feel strongly,

as you had stated earlier, that Medicaid should remain our Nation’s safety net and not be used as a de facto long-term care program for our country.

But we have to acknowledge that, in many ways, that is a lot of

what it has become nationally and in our States. Nationwide, 60

percent of the people in long-term care are paid for by Medicaid.

21

In Arkansas, my home State, 80 percent of those in long-term

care are paid for by Medicaid. It is a tremendous part of what we

are spending those dollars on.

The President’s budget proposes to change the rules regarding

the nominal assets on individuals that they can retain in order to

qualify for the Medicaid long-term care services. As you know, the

current law requires individuals applying for that Medicaid longterm care to divest all but a minimum level of assets before becoming eligible.

If the applicants transfer their assets at a below-market value to

avoid these requirements, the Medicaid rules hold them subject to

delays in eligibility. The budget process that the President has provided us proposes tightening up these existing rules.

I guess my question is, I would like to know how you plan to implement this change in asset transfer. Can you provide us with

some more details, hopefully today, and then in written answers?

How do you expect it will impact the seniors trying to enter nursing homes, those that are in nursing homes, and the nursing homes

themselves? I am hoping that you will ensure that it will not result

in a lot of seniors with nowhere to go.

Secretary LEAVITT. Senator, our objective is to care for the maximum number, and to cover, frankly, all who are in the categories

of the mandatory populations, and then to expand beyond that as

far as the States can. We are working with the States to create a

set of guidelines and a specific proposal.

Senator LINCOLN. Do you have that proposal where you implement the changes in the asset transfers?

Secretary LEAVITT. We are actually working right now with the

States to develop a proposal that will be workable from their standpoint. This is a proposal—a request, actually—that is being made

by the States, as well as the national government.

Our purpose is to cover those who are legitimately within the

category of the mandatory populations, but to stop a migration

through a practice where people give their assets to their children,

or their children have them so as to protect their assets so they can

qualify for Medicaid.

Senator LINCOLN. But you do not have a policy design already for

the implementation of the change in that asset transfer yet.

Secretary LEAVITT. That exists today. There are specific

tightenings that need to be made, and we can provide those to you.

Senator LINCOLN. All right. So you will provide us the

tightenings that you are reflecting in the budget numbers?

Secretary LEAVITT. That is correct.

Senator LINCOLN. All right. Great.

Well, the next thing is, obviously we want to be able to make

sure that as many people as possible can provide for that long-term

care.

I have been working with Senator Grassley to create both tax

credits for caregivers and individuals faced with the immediate expense of long-term care, and also providing tax deductions to help

consumers pay for their long-term care insurance premiums for

policies, to meet stronger consumer protection standards, and just

making sure that more people are prepared.

22

Last year, the President’s budget included a proposal to provide

an above-the-line deduction for long-term care insurance. Why did

the administration omit this proposal from the President’s budget

this year?

Secretary LEAVITT. Senator, I am not actually able to respond to

that. I do not know. As you know, I have been here only 21 days.

I have been working with the larger-themed issues. But I can get

back to you with an answer.

Senator LINCOLN. I hope you would. I do think this is a critical

issue. If we are going to encourage people to move forward and provide for their own long-term care in the future, I think we have to

make sure the incentives are there. I hope that you will come back

to us and let us know if there is a specific reason that the President had that in previous budgets, and now has eliminated it.

Secretary LEAVITT. We will respond to that.

Senator LINCOLN. That is a critical something.

[The information appears in the appendix.]

Senator LINCOLN. One of the concerns I think many of us have

is, we know that Medicaid is a huge cost to the Federal Government and to the State governments, and that, hopefully, as we look

at ways that we can make it more efficient and more effective, that

we can do that, but that we will make those policy decisions based

on policy decisions and not budgetary decisions.

So, I guess much of my concern is that, in some of the budget

actions that we have seen in the President’s budget, we are actually seeing policy actions decided or maintained through budgetary

decisions. I think there is a lot of concern there.

I guess one of them is the health care provider tax. You have

talked a little bit about the health care provider tax which was

passed by Congress for States to be able to raise more money to

draw greater amounts of Federal dollars.

Phasing out that provider tax, saying they are fraudulent even

though they are completely legal, I think, is one of those issues. If

we have a problem with that policy, I think we should address it

as a policy concern. I guess my question is, how fast do you plan

to take away the money from the States?

Secretary LEAVITT. Senator, there are three provisions of the

President’s proposal, two of which we are in, I think, great harmony with the States on. One is paying less for prescription drugs.

The second is the matter we just talked about, tightening the

provisions on who can give their assets away and qualify. The

third, is just an awkward conversation we are having with our

funding partners about who pays what.

It is not about not providing benefits. It is about, who pays for

what portion? The provider tax was not something created by Congress. It is a means which many States have begun to use to come

up with their share of the money.

Senator LINCOLN. But it is perfectly legal.

Secretary LEAVITT. Some of it is perfectly legal, some of it is perfectly appropriate. What is not appropriate, however, is when they

give money to the providers and then they take it back as a means

of getting the Federal Government to pay more and for them to pay

less. That is not consistent with our partnership.

23

Now, if the money is going to the provider, not only is it all right,

we will put up our share. That is what we are trying to do: to get

money to providers to care for people.

But if, in another transaction, they are requiring the provider to

give it back to them and then raising the price so that we are paying more and they are paying less, I do not think any of us feel

good about that.

Senator LINCOLN. Well, I am not saying that it is a perfect system, nor does it need to be revised or looked at. My concern is just

setting a budget number on it as opposed to discussing the policy

of it. I think discussing the policy in these venues is a much more

appropriate way to approach it.

The CHAIRMAN. Senator Kerry?

Senator KERRY. Thank you, Mr. Chairman.

Mr. Secretary, welcome. I appreciate your being here today. This

is obviously an area of enormous interest. I heard some of the comments back in my office from the Ranking Member and others with

respect to the specific amounts per State, and I know you are going

to pursue that.

But let me just say that I have a lot of difficulty with this budget, and with the proposal, for a lot of different reasons. You have

been a governor. You have balanced budgets. You know what honest budgeting is all about. I regret that the overall budget that is

in front of us, I think, is significantly a shell game. Many people

have pointed that out in different ways.

But in the 22 years I have been here, it is one of the most inaccurate, almost dishonest, budgets that I have seen. It does not

cover the war in Iraq or Afghanistan. It does not cover Social Security. It does not reflect the permanency of the tax cuts, which is

almost $1.6 trillion. I mean, none of this is in the budget. There

is almost $5 trillion of proposals that you guys are fighting for that

are not in the budget. So, there is a different set of books. A totally

different set of books.

It is sort of Enron-style accounting; you have a set of books over

here for what you really want to do, and then something you

present to us. I do not know why you did not just present us something that said you balanced the budget, because it would have

been, in effect, the same thing.

Now, you have a proposal that you are calling ‘‘Cover the Kids,’’

implication, we are going to cover the kids in America. There are

11 million children without health insurance in America. Correct?

Secretary LEAVITT. The exact number, Senator, is not something

that I am able to give you.

Senator KERRY. It is about 11 million. There are about 9 million

under the age of 19, are you aware of that, who have no health insurance?

Secretary LEAVITT. Senator, I am aware that there are, in fact,

somewhere between 35 and 45 million people in this country who

do not have access to health care.

Senator KERRY. Well, I am talking about kids. Your program is

called ‘‘Cover the Kids.’’ How many kids do you cover?

Secretary LEAVITT. Well, we are proposing an additional $10 billion.

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Senator KERRY. You are proposing an additional $10 billion

based on your first proposal that puts $1 billion into outreach. Correct?

Secretary LEAVITT. Senator, the administration is putting forward a proposal, over the next 10 years, that would spend $125.7

billion——

Senator KERRY. You are not answering my question, Mr. Secretary.

Secretary LEAVITT [continuing]. To provide coverage to an additional 12 to 14 million people in America.

Senator KERRY. Mr. Secretary, that is not correct, and I will tell

you why it is not correct. Seventy billion dollars of that $142 billion

is in tax credits, and it has a $1,000 tax credit level that is not

going to apply to most people that do not have health insurance.

It is just not correct. That is part of the game that I am talking

about.

It is $70 billion that probably will not be spent. But I want to

come back to the $1 billion. You have a proposal to spend $1 billion

for outreach. Is that correct?

Secretary LEAVITT. One billion for outreach and 10 billion to pay

for the children that are currently not covered and fall within that

35 to 45 million people who have no coverage.

Senator KERRY. Only if the outreach is successful. Correct?

Secretary LEAVITT. Well, we have been very successful on outreach, when you consider that 5.6 million children are now covered

under SCHIP who were not a very few years ago.

Senator KERRY. Well, we started that and we have been pushing

that. But the fact is, there are 7 million kids eligible who are not

covered because we have not gotten the outreach. This administration allowed $1 billion to lapse last October which was fixed for

outreach. It just let it lapse.

Now, the history of outreach, in your own State included, is that

when you are cutting—you are cutting $60 billion in Medicaid, are

you not?

Secretary LEAVITT. We are not. Over a 10-year period, we are not

cutting any services to any people with those dollars. We are paying for prescription drugs at a lower rate.

Senator KERRY. But you are cutting $60 billion that currently

goes to Medicaid, to the States. The governors are screaming about

it. You are cutting $60 billion. Correct?

Secretary LEAVITT. Senator, we are simply having a conversation

with the States about who is paying it. This is not about reducing

services, it is a question of who is paying it. We believe the States

should be paying, they believe that we should be paying. It is a dispute between partners.

It is one that we believe we are right on, and one that we believe

will not result in any person receiving lower coverage if we are able

to return integrity to the funding partnership.

Senator KERRY. Well, you used the word ‘‘integrity’’ with respect

to what the States are doing today. The States are doing today

what they are doing. It is allowed under the law. You call it fraud

and abuse, but it is allowed under the law.

25

It is not actually fraud, it is just, they are gaming the system.

I agree with you, we ought to change that. We should not allow

them to game it. But they are gaming it under the law.

Secretary LEAVITT. Well, that is a dispute. We have been working with your own State and have come to a solution that is amenable to the State and will allow them to provide continued funding in the way that they would choose to. But we needed some

changes, and Governor Romney was willing to do it.

Senator KERRY. I am for some changes, but you are sort of avoiding what I am really getting at here, Governor, which is that when

you are cutting $60 billion and the money that you are holding out,

$142 billion total, $70 billion of which, incidentally, is in this tax

credit, there are very few people who are going to be able to take

advantage of that who are in the population that are needy, so you

are talking a fictionalized shell game.

It takes money away from the people who are currently needy

and getting it and providing a very high deductible incentive to

people who can only participate if they can save money in a savings

account, and the population we are trying to reach, we are not necessarily going to reach.

Now, let me give you the documentation for that. I have been

talking to governors around the country, and they are finding it already very hard to go out and enroll kids. But even in your own

State, you may recall, in 1996 we set up a special $500 million

fund to help States do outreach, and we paid 90 cents of every dollar of it. All we required was 10 cents from a State to go do something. You remember what happened?

Secretary LEAVITT. Well, Senator, I am very pleased to defend

what happened in my State, because what happened in my State,

is that we were able to cover 27,000 children, 35 percent more than

if we had used Medicaid as a means of doing it.

We were able to take those dollars, innovate, and cover 35 percent more because we had the flexibility, which is exactly what the

governors are asking for: give us the flexibility and we can cover

more children.

Senator KERRY. I am all for flexibility. We need flexibility. I want

flexibility. I want as much flexibility as possible. But I want a flexibility that actually empowers people to be able to do it.

I mean, the fact is, in that experience of outreach, 17 States had

used no more than 10 percent of the 90 cents on the dollar that

had been offered them. Only four claimed more than 50 percent.

They did not do the outreach, which is part of the problem with

the whole program today. There are barriers to the outreach, and

you do not do anything to remove any of those barriers here.

In fact, your State of Utah did not even use the money until

about 4 years down the road. I think you were allotted $4 million

in Utah for outreach under that fund. You only needed to spend

$400,000 in State funds to get $4 million in return, and you said

no thanks.

Secretary LEAVITT. Senator, we exceeded the number of people

who could be covered.

The CHAIRMAN. Mr. Secretary, just a minute. I want to be flexible with Senator Kerry. When the red light goes on, we let people

26

finish their question. So I assume you finished your question now,

and then you take the time to answer the question.

Secretary LEAVITT. Senator, we, on SCHIP, enrolled 35 percent

more children than we would have had we used Medicaid. If we did

not spend all of the money recruiting them, it is because we enrolled all of those who were allowed under the program without

having to spend the money. I do not think any of us would have

us spend money we did not need to in order to max the program.

Senator KERRY. Actually, Governor, I am not allowed to respond

now because of the red light, but I will come back in the next question and set the record straight on that.

The CHAIRMAN. Mr. Secretary, in 2000, Congress passed the Energy Employees Occupation Illness Compensation Program to provide compensation to Department of Energy employees who were

unknowingly exposed to radiation while assembling our Nation’s

nuclear weapons during the Cold War.

When Congress passed the law, we knew some sites would not

have adequate records to reconstruct the workers’ exposure to radiation. To deal with this problem, claimants are allowed to petition

you, as Secretary, for eligibility as what is called a ‘‘special cohort.’’

Inclusion in the cohort would mean automatic compensation for

workers with one of the 22 specified cancers. Last week, the National Institute of Occupational Safety and Health and the Advisory Board for Radiation and Worker Health recommended that

workers at the Iowa Army Ammunition plant in Burlington, Iowa

be added to the special exposure cohort.

Have you been made aware of this special exposure cohort recommendation for Iowa, and have you had an opportunity to look

into it? This petition is now, or soon will be, before you for consideration.

Congress provided your office with 30 days to render a determination once you received the opinion of the advisory board. I understand you have been in your position just a few weeks, but

would your office be able to work within that deadline?

Secretary LEAVITT. Senator, I am aware of this situation. I want

to express appreciation to you, and also to Senator Bond, who have

very persistently pursued, on behalf of these particular claimants,

a remedy.

I am aware that the board has voted. I have not yet received notice of it formally. As I do, we will act as quickly as possible to

meet the obligations of the law, and will be pleased to keep you informed of that action.

The CHAIRMAN. And not that you would be aware of this letter,

but on February 11 I shared with you in a letter my support for

the workers’ petition, and I would hope that you would read my letter and take my position seriously. These workers, or in many

cases survivors, have been seeking compensation for their cancer

for nearly 5 years.

That is the end of my round. Go ahead.

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Secretary, I have three questions/points. I will mention each

of the three and ask you to take them together and respond to

them.

27

Number one, I again thank you, and I will forever thank you, for

going to Libby, Montana. There is such a problem up there, as you

well know, with asbestos-related deaths in Libby. The vermiculite

plant up there emits particularly pernicious type asbestos,

Tremulite, which is the most dangerous, the worst. It has a long

latency. You cannot see it as well on X-rays. It is terrible.

There have been over 200 deaths already in little Libby, Montana, related to all this. We are trying to put together sort of a research clinic to get at the problems and help people who have asbestos-related disease.

As I mentioned, there are 200 sites all around the country. I

think you met with Dean Forbes, the dean of the pharmacy school

in Montana, to talk about what we are trying to do, and I would

strongly urge you to see if you could help out in your Department.

Second, I see that the administration is proposing caps on services. Also, you are suggesting budget neutrality. My question is,

that, in effect, looks like you are block-granting or putting caps in

the budget proposal on Medicaid spending. Is that accurate?

Secretary LEAVITT. I believe you would be referring to the fact

that, in our 1115 waiver process, we almost always involve some

commitment for budget neutrality, and often include caps that are

basically proposed by the States, as well as the Federal Government.

Senator BAUCUS. I am violating my rule of three questions and

then the response. But, in effect, are the caps proposed that are

greater than, or more in the nature of caps than current law and

practice?

The third question has to do with non-interference. In letters

back and forth between Senators and CBO, essentially CBO is saying if the non-interference provision in the Medicare drug benefit

provision were dropped and eliminated, CBO said there would be

little, if any, potential savings from negotiations involving those

single-source drugs. Little or no savings.

Then that issue was refined. What if you were given the authority to negotiate drug prices? The answer to that is, well, with respect to single-source drugs that did not face competition from

therapeutic alternatives, there could be some savings. The net effect is, according to CBO, not a lot of savings.

So my question is, if that is the case, do you agree with that

analysis? If you do agree with that analysis, why? If you do not,

why? If you do, what do you say to those Senators who think it is

a good idea to drop the non-interference language, to delete it and/

or put in some authority in subsequent legislation to allow Uncle

Sam to negotiate? Those are the three questions.

Secretary LEAVITT. Question one. Libby. I am glad I went.

Senator BAUCUS. We are, too.

Secretary LEAVITT. I might indicate that I had a fascinating conversation with former Governor Roscoe, who grew up in Libby.

Senator BAUCUS. Played on the basketball team.

Secretary LEAVITT. He told me about spending time playing as

a child on piles of vermiculite and the long-term, potentially devastating health effects. I am glad I had a chance to see it firsthand.

I was aware of the proposal in the clinic, and I am glad you reminded me of it. Thank you.

28

With respect to caps, the administration’s proposal includes no

block grants and no involuntary caps on Medicaid. Now, caps have

been part of Medicaid since the beginning, on 1115 waivers, for example, and the fact that optional populations are, in fact, optional.

That is the problem.

Currently, the only remedy that States have, given the demands

that the program has begun to place on them financially, is to

abandon optional groups, and we want to avoid that. We want to

be able to provide access to broader numbers of people as opposed

to having the limits that are placed because of the rigid inflexibility

of the current program.

With respect to your last question, again, I want to restate that

it is our belief that the best way to provide the lowest possible prescription drug costs will be to have multiple providers for multiple

drugs. I will acknowledge, again, that our actuary has reaffirmed

that no savings would occur if non-interference was dropped.

I’ve got the red light. I will stop.

The CHAIRMAN. Well, did you answer his questions?

Secretary LEAVITT. I did.

The CHAIRMAN. Then we move on.

Senator BAUCUS. I do not think he did. I am sorry. No. That is

all right.

The CHAIRMAN. No. Let me make this clear here or Senator

Kerry will think I am being prejudiced against him. If the member

starts the question before the red light goes on, the member can

finish the question and then you have an opportunity to give a full

answer to that question. So, proceed.

Senator BAUCUS. I am fine, Mr. Chairman.

Secretary LEAVITT. I have concluded.

Senator BAUCUS. Thank you.

The CHAIRMAN. Senator Bingaman?

Senator BINGAMAN. Thank you, Mr. Chairman.

I wanted to just take a minute here and ask about another part

of your responsibility which gets very little attention here in the

halls of Congress, but it deserves some, and that is the Indian

Health Service.

Two big problems that I wanted to get your reaction to. One is,

this is seriously underfunded. In my opinion, it is seriously underfunded. The things we have been generally talking about here at

the hearing and that you have responsibility for are entitlement

programs.

You indicated Medicaid is going up by 7 percent a year. The

budget you have given us proposes a 2 percent increase for Indian

Health Service. The budget documents behind that say that Indian

Health Service is going to have to serve 29,000 more people next

year than it does this year.

So you have not only the increasing cost of health care, but you

have increasing numbers of people demanding service and the

budget never keeps up. That is partly because this is a discretionary part of the budget. It is not an entitlement. Therefore, it

is easy to save money in this area. Unfortunately, that has been

done each year.

So, that is one problem, and I would be interested in any

thoughts you have as to how we break out of that and start proVerDate 11-MAY-2000 14:09 Feb 28, 2006 Jkt 095484 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 25948.000 SFINANC2 PsN: SFINANC2
29

viding adequate funds. One statistic. The Indian Health Service

per capita funding is $1,914 for the people who are eligible for

those services. That is about half of what we spend on Federal prisoners. That is not, to my mind, a good statistic.

The other part which I would like you to comment on is urban

Indian health care. About half of the Native American Indian population in this country lives in urban areas today. I am informed

that 1 percent of IHS funding goes to provide services in those

areas.

In my State, of course—I know I have written to you about this

and spoken to you about it—the Albuquerque Indian Health Center

tries to provide services to urban Indians. They have had to announce that they are no longer able to provide urgent care because

of inadequate funds, and they cannot keep the staff, so they are

RIFing or cutting their staff and terminating those services.

So, there are the two issues. One, is overall IHS funding. The

other is, how do we get adequate funds to provide services to urban

Indians out of the mix of funding that is there? What do we do

about circumstances like this clinic having to terminate services in

Albuquerque for urgent care?

Secretary LEAVITT. Senator, I have, somewhere in my memory,

information on the situation in Albuquerque. They are not fresh

enough with me that I would attempt to recount them. I have been

made aware, and will try to deal with you directly on that matter.

I would, however, like to just offer as a reminder that many of

those served who are Native American populations are served by

Medicaid and served by other health care programs, many of whom

use the clinics. That equation, overall, ought to be considered as we

have mutual concern about the health of the clinics, as well as the

people.

Senator BINGAMAN. And do you have any thoughts on the urban

part of it? What I am told is that tribes sign these 638 contracts

which say they will provide services directly to their members.

That then results in the funds that would otherwise go to support things like this Albuquerque Indian Health Center. Those

funds get taken away to provide services out on a reservation,

whereas, the Indians are still in town. I do not know if that is the

circumstance, but that is what I have been told. Do you have anybody who is looking at that?

Secretary LEAVITT. I will shortly.

Senator BINGAMAN. Very good. I would appreciate that.

Secretary LEAVITT. I will have to find out more about that and

get back to you. But let me just say, generally speaking, that the

Indian Health Service’s clinical services, their budget includes allowances for inflation and for population growth. The budget proposal of $128 million is a 5 percent increase. We should get together and reconcile the differences.

Senator BINGAMAN. Where does the 2 percent come from? You

are not familiar with the 2 percent increase that I was advised was

in your budget for IHS?

Secretary LEAVITT. I am not familiar with that. We should get

together and reconcile those two numbers, because that is not consistent with what I understand.

30

Senator BINGAMAN. But even at the 5 percent, it is not covering

the increased cost of health care as we see it reflected elsewhere

in the private sector, in Medicaid, or in Medicare.

Secretary LEAVITT. The base of my knowledge on the details of

this is not sufficient to respond to your question. I will speculate,

however, that one of the revenue items that will go into that accounting will be uses of Medicaid, and it would not be reflected in

the base budget of Indian Health Service.

So, I would like to get with you and say, let us examine the

health of it overall. I think there may be several different accounts

that would bear on the question.

Senator BINGAMAN. Thank you very much.

The CHAIRMAN. Now we go to Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman.

Mr. Secretary, I want to go through where I think we are on prescription drug cost containment, and do it very specifically.

Here we are in February of 2005. We have this program starting

in 2006. By my analysis, we are going to spend a ton of money, as

of today, on a pretty small number of people, which certainly is

going to be attacked in a lot of quarters.

You have made the recommendation—a sensible one—that members of Congress and everybody else go out in July and August and

try to make the case for the program and get people signed up,

which I am happy to do as somebody who voted for the program.

What happens when you try to make that case is you get razzed

pretty hard because people say, what is going to be done to contain

the costs? I make the argument that you have made.

Well, there are going to be all these plans out there that are

going to contain the costs, and that will be a source for cost containment. People say, what happens if that is not the case? What

happens if we do not have all of the plans? And this gets to my

question.

Your predecessor, Tommy Thompson, said at that point it would

be very helpful to have the authority to step in to be able to respond to people who are up in arms about costs. That is what he

said, that he wished, in his last press conference, he had the authority, in the bipartisan, Snowe, Wyden, McCain, et al., legislation.

Why do you disagree with Secretary Thompson’s thinking that it

would be helpful to, in effect, have that as just a tool in your quiver? In other words, nobody is going to rush out and do some onesize-fits-all, run-from-Washington, cost-containment approach.

But it could be an awfully good tool so that we could respond this

summer to people who would say, where there are not the plans,

where there is not the competition, we have some certainty that

your government is going to try to stand up for you on costs. Why

do you disagree with that thinking that Secretary Thompson had?

Secretary LEAVITT. I have not talked directly with Secretary

Thompson, so I am not sure what was in his mind.

Senator WYDEN. He called for the authority.

Secretary LEAVITT. I have read those accounts.

Senator WYDEN. I would like to know specifically. This is important to me because I want to work with you. Why do you disagree

with the Secretary, so that those of us who voted for this program

31

and feel passionately about it—I dreamed about doing this since I

was director of the Grey Panthers. I want this to work.

But unless you give us some tools to respond to people on this

cost-containment issue, I do not think they are going to sign up.

I do not want to see that happen. Why do you disagree with Secretary Thompson?

Secretary LEAVITT. Senator, I believe that we will have a robust

marketplace in virtually every part of this country, where seniors

will be presented with alternatives and options with well-qualified

drug plans that will be competing for their business, and that, in

fact, that will provide the best environment for low-cost prescription drugs for millions of seniors.

Now, that is also added to by an analysis of the chief actuary for

CMS, who indicates in a letter that they have considered the issue

and believe that direct price negotiation by the Secretary would be

unlikely to achieve prescription drug discounts of a greater magnitude than those negotiated by Medicare prescription drug plans

responding to competitive forces.

We fundamentally believe that the best way to provide markets

is a robust set of choices for seniors, and then to make those known

to seniors, and that the market will drive those prescription drugs

to the lowest possible level.

Senator WYDEN. I still think I would like an answer as to why

you disagree with your predecessor, because I want what you are

talking about. That is certainly my preference. That was certainly

Secretary Thompson’s preference. The question is, what happens

when we do not have that theoretically ideal kind of world? I am

going to work with you to get people signed up. I hope you will

meet us halfway on this cost-containment question, because I think

you are going to find, if there is much more bad news about this

program, and we took a lot of hits last week, it is going to be very

hard to do what you are talking about, what I am talking about.

You have got Senators on this committee who voted for the program, want it to work.

But the Thompson quote, in particular, comes up constantly at

town meetings. When we go out to sign people up, they say, my

God, even the previous Republican Secretary of Health and Human

Services said there ought to be something else if the theories do not

work. So, I hope you will work with us. I appreciate it.

The CHAIRMAN. Senator Lincoln, and then Senator Kerry.

Senator LINCOLN. Thank you, Mr. Chairman.

Thank you, Mr. Secretary, for hanging in there with us. We have

just got lots of questions, and we hope we will be able to continue

this dialogue even after today’s hearing.

I represent a State that is tremendously dependent on services

to rural areas. We have a disproportionate share of elderly that live

in rural areas. They have many needs. They are, oftentimes, hard

to serve. So, there are a lot of special needs in rural America.

I share the President’s concern about the growing deficit, the historic deficit that we have in this country, and I want to work with

him to do something about it. But I do have great concern that this

budget reflects a disproportionate burden on rural areas and rural

States.

32

The budget that the President submitted proposes to eliminate

the Area Health Education Centers, or the AHEC program. These

centers are academic/community partnerships that train health

care providers in sites and programs that are really responsive to

State and local needs.

There are six AHEC centers in Arkansas, and the program overall has greatly improved the State’s health manpower distribution

needs over the last 3 decades, including the placement of 503 family physicians in 68 of the State’s 75 counties to date, and that is

not an easy task; getting physicians into rural counties to serve is

a phenomenal question for rural America. These centers have also

trained hundreds of nurses, pharmacists, and allied health professionals who are now scattered across our State.

My question is, because of its success, why does the President’s

budget eliminate this highly effective program?

Secretary LEAVITT. Senator, I think that likely falls into the category of, if we had more money, that would be a good place to

spend it.

Senator LINCOLN. So these people are not important?

Secretary LEAVITT. We actually have included about $25 million

into the Medicaid bill. Judgments had to be made. Of course they

are important. That is what Medicaid, for example, is all about, is

serving. What we have been talking about today is ways to find a

capacity to serve more people, not fewer.

Senator LINCOLN. But this is a program that does that. That is

what is so interesting to me. I mean, this is a program that has

been effective. It has done outreach in rural communities. It has

brought in medical centers and others to bring physicians and

other medical professionals into these more difficult to serve areas.

I guess I would just echo what Senator Kerry has said there,

that in terms of this budget, it is really hard and it is misleading

to think that we are going to do something about the debt from the

budget here and the decisions that have been made, when you see

a parallel effort to make permanent tax cuts to the ultra-wealthy,

none of which live in these areas where these medical professionals

serve, in most instances. So, I would just say, the answer that, if

there were more money we would like to do it, to me, is of great

concern.

Secretary LEAVITT. Senator, let me make clear what I am responding to. Do we desire to have more medical providers in rural

America? The answer to that is yes. Did we believe that that particular program, on balance, was the best investment and way to

get it there? No.

Senator LINCOLN. Then what do you propose to replace it with?

Secretary LEAVITT. The Medicaid bill, as I mentioned, has $25

million in it that we believe will go a long ways in replacing it.

Senator LINCOLN. With what? I mean, it is just $25 million.

What are you going to do? These programs that exist now, are you

going to fund them through that? Are you just going to leave these

AHEC projects that we have invested the time and resources in?

Are they going to be empty buildings?

Secretary LEAVITT. Decisions have to be made, and that is a decision that was made in this budget.

33

Senator LINCOLN. So you made the decision, but there is no policy decision or no ideas of what you are going to replace it with at

this point, other than $25 million.

Secretary LEAVITT. If you are talking about the entire area of

rural health, I have addressed that on a number of different occasions. But the Medicare bill has $25 billion in payments that will

go to rural providers.

Senator LINCOLN. Medicaid or Medicare?

Secretary LEAVITT. Medicare. I may have said Medicaid before.

I meant Medicare.

Senator LINCOLN. No, you said Medicare.

Well, getting to that, I guess, as we see the new estimates that

the new Medicare drug benefit will cost, and looking at where we

dealt with a lot of those issues and the costs, and many of our concerns, those of us that supported and worked on that bill, the concern that we were not doing as much, as Senator Wyden mentioned, to bring down those costs.

I agree with him, that cost containment and being able to make

sure we have got a real handle on that is going to be very effective.

I guess my hope is that the administration will have more suggestions on how to control those escalating drug costs. Would you

consider MEDPAC’s findings that Medicare has overpaid managed

care plans in Medicare and proposes cutting those overpayments?

Do you agree with that?

Secretary LEAVITT. I do not know, Senator. I am not familiar

with the precise comment that you are referring to. I know about

MEDPAC, but I do not know about the specific finding that you are

referencing and I cannot respond to that.

Senator LINCOLN. What they have most recently come out with,

you are not familiar with that?

Secretary LEAVITT. I am not familiar with the specific suggestion.

Senator LINCOLN. The overpayment to managed care. We supplement managed care tremendously in the Medicare Reform Act that

we did. It was a tremendous amount. I think it was $12 billion, or

something like that, that we supplement managed care with. We

knew then that we were overpaying them, and MEDPAC has confirmed that in their studies, that we are overpaying them.

Secretary LEAVITT. I will do my best to get a hold of that report.

I have been here 21 days, Senator. I am doing my best to deal with

the larger issues first and drill down.

The CHAIRMAN. You could answer that in writing, I believe.

Would you be willing to do that?

Secretary LEAVITT. I would be happy to.

Senator LINCOLN. Thanks.

[The information appears in the appendix.]

The CHAIRMAN. Senator Kerry?

Senator KERRY. Thank you very much, Mr. Chairman.

Mr. Secretary, I would like to pick up where we left off. I am not

trying to suggest somehow that you did something wrong with respect to what happened in Utah. But I am trying to suggest that

there is a reality to the choices, as you know better than anybody

because you were a governor, that governors make. The past is prologue to the future. I mean, we have to look at the behavior and

how States have implemented these programs through the years.

34

If 17 States only used 10 percent of the money previously—and you

yourself made a different choice, and it is a rational choice.

You chose to cover people under the SCHIP money that we provided, so you were able to expand. The problem is, there are still

40,000 kids in Utah who do not have any coverage. Still, today,

40,000 children have no health insurance in Utah. Eleven million

kids under 21 have no coverage in America.

The question I am asking is, and a lot of people are asking, is

what you are offering really going to change this? Now, based on

past experience, particularly when we are cutting $60 billion and

the States are in the throes of trying to figure out how they are

going to provide Medicaid services, what is the incentive to go out

and enroll a whole bunch more people when they have not done it

in the past and we are not getting rid of the enrollment barriers

themselves? There is a term of art called churning. Are you familiar with it?

Secretary LEAVITT. I am.

Senator KERRY. So the churning that takes place is going to set

us to whatever degree it is. We do not get ahead of the game here

unless you change the enrollment barriers, unless people do not

have to re-enroll every 3 months, in some States, unless they do

not have to go to the office to do it, or so forth.

That is what I am trying to get at: how do we get rid of the barriers, boldly reach out, and insure all these kids? Now, you have

got a program called ‘‘Cover the Kids’’ that is going to leave millions of kids out.

Here is the other problem, and I would like you to address it. I

understand the President and the administration have a choice of

tax credits as an approach. The problem is, you have $125 billion

that is tax-credit-oriented out of the money you are talking about

spending.

You have a refundable credit of $1,000 to low-income people. But

$1,000 is not enough to be able to purchase health care, and particularly push towards the higher deductible plans, which is what

you are doing.

So the notion that you are really covering people with that $75

billion is, in my judgment and in the judgment of many experts,

a fiction, because they cannot afford the premiums. That is not

enough money, and they are being pushed to high deductibles.

The other $51 billion goes to people who already are insured and

it is an incentive to actually push them into the higher deductible

plan, but it will not do anything to provide that broader coverage.

So let me ask you, how many children specifically are going to

get coverage with your Cover the Kids plan?

Secretary LEAVITT. Let me begin, essentially, where you did. The

assumption and the way you have portrayed it, is that States do

not desire to see children covered. They do. When I became governor, and when I left being governor, we had cut that 40,000 basically in half by proactively going out and finding children and providing them with some means of being able to get health care.

Senator KERRY. Under the SCHIP coverage.

Secretary LEAVITT. Yes. And many other ways as well.

Senator KERRY. Right.

35

Secretary LEAVITT. It is something I take great pride in, the fact

that when I became governor, 86 percent of the children had it;

when I left, 94 percent had it. I take great satisfaction in that fact.

The President recognizes that not every State has done that well,

and that despite their best efforts, they might not still have

reached all of the children. For that reason, he has chosen to put

$1 billion in the budget to help find them.

But not just for State governments to find them, to give some of

that money to Indian tribes, to give it to community organizations,

to give it to schools to find children who are currently not covered

and then provide them in some way.

Senator KERRY. No. I understand that. I respect that. But the

question is, given the past experience and the churning factor I just

described, how many kids are actually going to get covered here?

Secretary LEAVITT. Let me go on and I will do my best to respond.

Senator KERRY. Fair enough. Fair enough.

Secretary LEAVITT. The second point I would make is, to presume

that the only way in which a person can gain health insurance is

through a government program is fundamentally wrong. To assume

that only those who receive a health insurance policy are the ones

who get health care is fundamentally wrong.

Currently, among that 35 to 45 million people that we know do

not have health insurance today, 6.1 million of them, in some way,

will have received health care at one of our community health centers. The Indian Health Service is another. We do not include those

among the rolls of the insured. The President has put forward a proposal, as you indicated, $125

billion over the next 10 years. Twelve to fourteen million people

will have health insurance within their reach.

Now, how many of those specifically will be children, I do not

know. But I believe we could provide you with that, and I would

be happy to provide you with the best possible answer I have.

Senator KERRY. I appreciate it.

[The information appears in the appendix.]

Secretary LEAVITT. But the goal here is to provide coverage to

more people.

Medicaid. We have had a great deal of discussion on Medicaid.

The fundamental issue there is, how can we take the resources

that we currently have and cover more people and keep people who

currently have coverage from being dropped because of meaningless, rigid inflexibility?

Your State is a prime example. They have, through waivers, been

able to find ways of being able to reach out to those who currently

have not qualified. That is the commitment we are making: 12 to

14 million additional people over the next decade.

The CHAIRMAN. Senator Schumer. Oh. Senator Kerry, you looked

at me. Senator Kerry?

Senator KERRY. Mr. Chairman, I would just like to ask, if you

could, also submit how many low-income uninsured will get coverage under the refundable tax credit for high deductible insurance

programs and, finally, how many people who are already insured

that benefit from the $51 billion in tax credits to the higher income

earners. If those questions could also be responded to.

36

Secretary LEAVITT. I will do my best to respond, Senator.

The CHAIRMAN. And also Senator Lincoln said she was going to

submit some questions in writing.

Secretary LEAVITT. We will submit them in writing.

The CHAIRMAN. Thank you, Mr. Secretary.

[The information appears in the appendix.]

The CHAIRMAN. Senator Schumer?

Senator SCHUMER. Thank you, Mr. Chairman, and to you, Mr.

Secretary. To the Chairman and the committee, I apologize. We

had Alan Greenspan at the Banking Committee, so I am sorry I

missed the beginning of your testimony.

I have three questions. The first is on the Medicare drug benefit

cost estimates. We have heard a lot about these. There is a debate

whether we are talking about an apples to apples comparison or an

apples to oranges comparison. We have said that in an apples to

apples comparison, the new estimate is pretty close to the old estimate, with a few expensive years added at the end.

But as I understand it, and I think Senator Baucus talked a little about this while I was not here, that the assumptions underlying the new estimate have changed substantially since the first

estimate was completed, including very important assumptions

about enrollment and employer participation in the program.

If that is true, then the similarity of the numbers may be more

fishy than if the numbers were different. Can you explain? It is almost as if you wanted to have the same number and the assumptions worked their way back.

Can you explain the changes in the assumptions underlying

these two estimates and the justification for those assumptions?

Secretary LEAVITT. That is a level of detail we will need to provide you in writing. I am not able to do it myself.

Senator SCHUMER. All right. I would ask unanimous consent that

that be done.

[The information appears in the appendix.]

Senator SCHUMER. The next question leads to the Medicaid cuts,

which most of my colleagues have talked about, and the cost shifting to the States. As a member of the NGA, you signed off on an

NGA resolution opposing caps and cuts to Medicaid. We all know

that.

But as part of that resolution, you stated explicitly that States

believe that Medicaid is chronically underfunded because the Federal Government is shifting long-term care and other costs to governors and State taxpayers.

You are now proposing these rather severe cuts to the Medicaid

program. How can you reconcile not addressing this cost shifting

burden and actually making it worse? Because not only will these

cuts directly affect the quality of services available to beneficiaries,

but as a former governor, I am sure you know it is going to force

States, once they shut down programs altogether, to raise property

taxes. In my view—I do not know if it is yours—property tax is the

most hated tax, more than a sales tax, more than an income tax.

In addition, it is going to put a greater strain on private coverage. That will cause premiums to go up, and it will severely

threaten access to quality nursing home care for people of all income levels.

37

What is your response to this, particularly on the cost shifting?

We all know, every time there is a cut here, it does not decrease

the program or even make it more efficient, but it ends up ending

up on the back of the local property taxpayer.

Secretary LEAVITT. Senator, the view that was expressed at that

time is still my view. To the extent that we do not provide States

with some means of being able to deal with the rapidly expanding

population of elderly and disabled, we will rapidly approach a point

when they will not be able to do so.

That is the reason that the President has proposed his New Freedom Initiative, as an example, giving States the capacity to expand

home and community care as an alternative. It is an alternative

that people want, that States desire, and that would be in the interest of Medicaid because it would allow us to cover more people

with those dollars that are currently being invested.

Senator SCHUMER. Why would you not do it the other way, help

the States ease into these things and then save the money, as opposed to making the cuts? Again, it is sort of, cart before the horse.

You are making the cuts and you say, well, maybe some of these

other things will happen.

My experience in my State, obviously a very big Medicaid State,

is that that does not. Washington always says that, oh, it is not

going to shift costs, it is going to just make things more efficient,

and it ends up doing far more of the cost shifting than of the efficient sizing.

If you could come up with a better way, I would love it, and help

the States move there. But I do not think you have here. I think

the motivation here was a budget cut, not improving the efficiency

of the program.

Secretary LEAVITT. Senator, we have three categories of reduction in this budget. The first, is a clear statement that we are overpaying for pharmaceuticals.

Senator SCHUMER. Hear, hear.

Secretary LEAVITT. All right. We are together on that one.

Senator SCHUMER. Yes. But I have a question on that, next.

Secretary LEAVITT. All right. The second, is that there are people

in America who are giving their assets to their children to qualify

for Medicaid.

Senator SCHUMER. Right.

Secretary LEAVITT. We find that troubling, and so do the States.

Senator SCHUMER. Yes.

Secretary LEAVITT. So we are together on that one. The third, we

have a very straightforward, honest dispute with States about the

way they are funding their share. We are being straight up about

our disagreement with many of their practices, and are desirous to

work through, one at a time, with them what we believe are unfair

shifts that they are making.

Now, it would not be the first time that partners in a good and

noble cause have disagreed with one another on who ought to pay

for what. But we have a serious disagreement.

Senator SCHUMER. Understood. Let me ask you this. If you really

have the interests of the States at heart, would you not tell them,

and it would be in their incentive as well, that the savings made

would go back into the Medicaid program?

38

We know, there is an exploding cost of medical care for everyone,

Medicaid, Medicare and private. Would that not be a much better

incentive to the States, and would the administration consider

that?

Secretary LEAVITT. Senator, over the next 10 years, between the

States, our partners, and the Federal Government, we will spend

$5 trillion. It will be among the fastest-growing categories on this

budget now and in the next 10 years. We know that. The changes

that we are making will reflect a difference between 7.6 percent

growth and 7.4, and we are trying to balance it.

Senator SCHUMER. I am just saying, would you not have greater

cooperation and incentive from the States if you shared some of the

cost savings and let them put it back in the program?

Secretary LEAVITT. Senator, we are looking for ways to work with

the States in every category. I am meeting with governors. I have

told them I will be at the table as long as it is necessary to produce

a proposal that is bipartisan that we can bring to this committee.

Senator, I hope very much, if we are able to produce that, that

we could come to the Finance Committee and say, here is a proposal; work with us so we can keep from having to drop these optional populations. That is what the governors are telling me, and

I suspect they are telling you the same thing.

Senator SCHUMER. You bet. At least one of them is.

One final question. I appreciate the Chair. This might help you

save some money, and I am a little befuddled by the policy. It is

on an issue that I have been very involved with, the generic drug

situation. These are about the authorized generics.

On the heels of the reports about the cost of the Medicare drug

benefit, taxpayer-supported drug purchases are getting greater

scrutiny, as they should. The last time you were here, I asked you

a question in writing about authorized generics, which are generic

versions of drugs that are produced by a brand manufacturer on

the same lines as the brand-label drug. In your response you stated, ‘‘CMS treats authorized generics the same as the brand drug.’’

That is what your answer to me said. However, I now understand that this policy only applies when CMS is deciding which rebate should be paid on the authorized generic version of the drug.

It does not apply when CMS decides what rebate should be paid

on the brand drug.

Instead, CMS sort of conveniently treats an authorized generic as

different from the brand drug in this instance, which allows the

brand company to escape reporting the price of the authorized generic when it reports its best price to the Medicaid program. That

is costing a lot of money. It is helping the pharmaceutical industry,

but it is costing a lot of money.

In effect, this policy prevents Medicaid, the program we are talking about, from getting the highest rebates on brand drugs allowed

under the law. That is the justification for CMS’s inconsistency

here?

Secretary LEAVITT. Senator, the FDA does not have authority to

prohibit the marketing of authorized generic manufactured drugs,

pursuant to the——

Senator SCHUMER. I know. I know what the FDA can do. I am

asking about CMS’s bifurcated policy here, which only seems to

39

benefit the drug companies and costs the Federal taxpayer more

money. If we want to save money on drugs, this is a good way to

do it. Why are you not?

Secretary LEAVITT. CMS treats authorized generics as innovative

drugs and they are subject to a higher rebate that is required by

law. I do not see an inconsistency, but I would be glad to respond

to you further in writing.

But while I am on the subject of prescription drugs, may I

say——

Senator SCHUMER. Why is there not an inconsistency? Just explain that to me. You want to save money on the one. Why not save

money on the other, get the best price? It is like a loophole. It

seems to me, it is sort of a nice little deal between the drug companies and someone quietly at CMS.

As I understand it, you could do just what I asked with a flick

of your pen. That does not require any legal change. Right. My

staff says that is correct, so it must be.

Secretary LEAVITT. My staff says it is not, so it must not be.

[Laughter.]

Senator SCHUMER. Oh. Well, if it were, if we could get some understanding by your legal counsel that it was allowed by law,

would you do it?

Secretary LEAVITT. Why do we not conduct this conversation in

a way that will allow us to find out, (A) what the truth is, and (B)

we will be happy to be responsive.

Senator SCHUMER. Right. I am just trying to save you a little

money here.

Secretary LEAVITT. Thank you. I am up for that.

Senator SCHUMER. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Schumer.

Now, Senator Baucus. Senator Baucus has one question and then

I think we will be able to adjourn.

Senator BAUCUS. Actually, two.

The CHAIRMAN. Two questions. You can have three or four, if you

want.

Senator BAUCUS. I appreciate that. Thank you.

The first has to do with, as I understand it, CMS phasing out

risk adjustment as it applies to health plans. As you well know,

CMS has announced its intent to continue to increase payments to

the plans to cover the savings they achieved by attracting healthier

patients. That is in 2006. Also, CMS wants to phase out these overpayments beginning in 2007.

As you well know, back in 1997, Congress required CMS to account for risk adjustment. In legislation, we asked CMS, over a period of time, 10 percent the first year and then back to a full 100

percent by 2006 and thereafter. Why are you phasing out, why paying back? Why phased-out risk adjustment?

If the plans are getting overpaid, and Congress made that determination for having a higher percentage of healthier patients, why

should there not be risk adjustments in payments to the health

plans as there is in the private sector generally? What is the rationale here, and what is the schedule?

Secretary LEAVITT. Given enactment of the Medicare Modernization Act and the creation of the Medicare Advantage program, CMS

40

strongly recommended, as you have indicated, that the risk adjustment, or the adjuster, not be phased in the same year as the program begins.

Medicare Advantage plans are expected to offer seniors richer

benefit packages with significantly lower out-of-pocket costs, and

they were focused on being able to make certain that there were

programs with low out-of-pocket costs for that target group.

It is my sense that trying to implement a new payment policy

that would be based on the program’s population of enrollees in the

first year of the program does not make sense and would not allow

us to maximize the number of people who will participate in the

program. As has been mentioned, our objective is to provide a plan

that will provide millions of Americans access.

Senator BAUCUS. But that is not the issue. The issue is not

whether to provide benefits. The issue is, should there be an adjustment in the payment to plans that attract healthier clientele

versus less healthy?

Of course, it is in that plan’s best interests to get the healthiest

possible, because then the payments are lower and the cost to the

plan, therefore, is less. I just do not understand why we do not

have honest accounting here, honest risk adjustment. I understand

the point about phasing in and so forth, and a little bit of timing.

But I do not understand the policy of phasing out risk adjustment.

Secretary LEAVITT. When you are dealing with risk adjustment,

you are dealing with what is someone’s opinion of what might happen. We do not know with certainty.

Senator BAUCUS. You have actuaries and you have data. I am

not saying this is a perfect science.

Secretary LEAVITT. But we do not know with certainty when it

will, or who will.

Senator BAUCUS. Right.

Secretary LEAVITT. But we have made an assumption. What you

are questioning is, why did we make an assumption one way and

why did we make it the other way? The answer is very clear.

Senator BAUCUS. I am asking, why make the same payments, irrespective of the risk that the plans have with their patients?

Secretary LEAVITT. Because we wanted to create a low-cost alternative for those beneficiaries to assure that they were able to sign

up for the plan.

Senator BAUCUS. All right. I would just ask you to take a good,

hard look at that. I wonder if plans are being overpaid as a consequence of CMS policy. That is my point. I know you do not want

to over-pay, and I urge you to look back to make sure that you are

not.

Secretary LEAVITT. I accept your point. Thank you.

Senator BAUCUS. A couple of questions about health care tax

credits. Working on the drug bill, I pushed hard for trade adjustment assistance for people who were thrown out of work. We

worked hard on that and we pushed very hard to get a government

payment of 65 percent. That is, the person that is out of work and

applies, and in the private market it would have to be at 35 percent.

The GAO just recently conducted a report. The long and the

short of it is, it concluded that only 6 percent of those eligible have

41

enrolled. Only 6 percent. In some States, it is just amazing, that

is, what insurance companies are charging. Therefore, the 35 percent is just prohibitive. They just cannot sign up. It seems as if a

65-percent credit is just odd enough to purchase a credible, affordable package.

In addition to that, the cost of administering the program is

about 35 percent of total spending. Thirty-five percent. There are

a lot of payments going to contractors here.

In light of all that, I wondered what lessons we have learned

from that as the administration proposes expanding health care tax

credits. If you look at the history of TAA, it is not good, which is

disappointing to me. I had hoped it would amount to something,

but it is not near what we had hoped it would be.

I would like for you to comment on that if you could, please.

Secretary LEAVITT. It seems like a very legitimate question. It is

not one that I am capable of being able to answer today. Would you

be willing to allow me to respond in writing?

Senator BAUCUS. I thought you had all the answers.

Secretary LEAVITT. All but that one.

Senator BAUCUS. All right. Yes, if you could. This is fairly important. I have forgotten the exact number, but it is, like, $65 billion

worth in the President’s budget, in the President’s health care

plans. I think it is that high. It is a very high number.

Secretary LEAVITT. As you are aware, those are all administered

by the Secretary of Treasury, not the Secretary of HHS. But it is

something I would like to know about, and we will do our best to

consult with them and respond.

Senator BAUCUS. Since it is part of the President’s health

plan——

Secretary LEAVITT. That is something I want to know about.

Senator BAUCUS [continuing]. I think you probably will know

about it.

Finally, I would like to have the State-by-State breakdown of the

Medicaid costs by the end of the month, please.

Secretary LEAVITT. Senator, we will do all we can. We will give

you everything we have by that time.

Senator BAUCUS. And I know you can get it all for us by then,

because you have got a lot of bright people down there. You have

demonstrated today just how earnest you are in doing the right

thing.

Secretary LEAVITT. Well, Senator, I am both earnest, and I do

want to do the right thing.

Senator BAUCUS. Thank you.

Secretary LEAVITT. I will tell you that these payment issues are

complex. It essentially requires auditing the various plans. We can

come up with estimates, but they will be disputed by the States.

Senator BAUCUS. I understand. All I am asking is, we do the best

we can.

Secretary LEAVITT. We will do the best we can.

Senator BAUCUS. Because I think it is good public policy for us

to have as much information as we can have as we get into the

budget process here.

Secretary LEAVITT. We will give you everything we have that is

credible.

42

Senator BAUCUS. Thank you.

The CHAIRMAN. Thank you for coming, Secretary Leavitt. I assume we just got a lesson that we should have waited another

month to have you, and then you would have answers to all of

those questions.

Secretary LEAVITT. That is right. Missed by one.

The CHAIRMAN. I can understand being on the job only 12 days.

We appreciate your cooperation, because it has really expedited the

very heavy workload of this committee. Thank you.

[Whereupon, at 12:19 p.m., the hearing was concluded.]

(43)

A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF HON. MICHAEL O. LEAVITT

Good morning, Mr. Chairman, Senator Baucus, and members of the committee.

I am honored to be here today to present to you the President’s fiscal year 2006

budget for the Department of Health and Human Services (HHS). The President

and I share an aggressive agenda for the upcoming fiscal year, in which HHS advances a healthier, stronger America while upholding fiscal responsibility and good

stewardship of the people’s money.

In his February 2nd State of the Union address, the President underscored the

need to restrain spending in order to sustain our economic prosperity. As part of

this restraint, it is important that total discretionary and non-security spending be

held to levels proposed in the fiscal year 2006 budget. The budget savings and reforms in the budget are important components of achieving the President’s goal of

cutting the budget deficit in half by 2009, and I urge the Congress to support these

reforms. The fiscal year 2006 budget includes more than 150 reductions, reforms,

and terminations in non-defense discretionary programs, of which 19 affect HHS

programs. The Department wants to work with the Congress to achieve these savings.

The President’s health agenda leads us towards a Nation of healthier Americans,

where health insurance is within the reach of every American, where American

workers have a comparative advantage in the global economy because they are

healthy and productive, and where health technology allows for a better health care

system that produces fewer mistakes and better outcomes at lower costs. The fiscal

year 2006 HHS budget advances this agenda.

The fiscal year 2006 HHS budget funds the transition towards a health care system where informed consumers will own their personal health records, their health

savings accounts, and their health insurance. It enables seniors and people with disabilities to choose where they receive long-term care and from whom they receive

it. Equally important, it builds on the Department’s Strategic Plan and enables

HHS to foster strong, sustained advances in the sciences underlying medicine, in

public health, and in social services. To support our goals, President Bush proposes outlays of $642 billion for HHS,

a 10-percent increase over fiscal year 2005 spending, and more than a 50-percent

increase over fiscal year 2001 spending. The discretionary portion of the President’s

HHS budget totals $67 billion in budget authority and $71 billion in program level

funding. In total, the HHS budget accounts for almost two-thirds of the proposed

Federal budget increase in fiscal year 2006.

The Department will direct its resources and efforts in fiscal year 2006 towards:

• Providing access to quality health care, including continued implementation of

the Medicare Prescription Drug, Improvement, and Modernization Act of 2003;

• Enhancing public health and protecting America;

• Supporting a compassionate society; and

• Improving HHS management, including continuing to implement the President’s Management Agenda.

Americans enjoy the finest health care in the world. This year’s budget provides

opportunities to make quality health care more affordable and accessible to millions

more Americans.

MEDICARE

HHS will be working in fiscal year 2006 to successfully implement the Medicare

Modernization Act (MMA), including the Medicare Prescription Drug Benefit and

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the new Medicare Advantage regional health plans. I know there has been a lot of

discussion over the past week about the cost of the new Medicare proposal, and I

want to address that issue today. Recent press reports have inaccurately claimed

that our cost estimates have dramatically increased. This is simply untrue.

The passage of time is the main reason that the fiscal year 2006 budget shows

a higher net Federal cost ($723.8 billion) for 2006–2015 than the cost estimate for

2004–2013. In the original cost estimates, the first 2 years in the 10-year budget

window were for years before the new drug benefit was implemented (2004 and

2005). The 10-year budget window reflected in the 2006 budget includes 10 full

years of actual drug benefit spending. In effect, the passage of time has dropped 2

low-cost dollar year estimates (only transitional assistance spending) from the budget window and added 2 high-cost years, due to anticipated increases in average drug

spending and the growth of the Medicare population. People should not be surprised

that the numbers look different as a result of the advance of time.

Some individuals have asserted that the estimate for MMA implementation is

now over a trillion dollars. This assertion is completely unsupported by facts. The

trillion-dollar figure is a gross estimate that neglects to subtract out hundreds of

billions of dollars of Federal revenue, including beneficiary premiums, State payments, and other offsetting Federal savings. Focusing exclusively on gross spending

levels without considering the offsetting savings creates false impressions and does

a disservice to the budget process and to Medicare beneficiaries.

Moving beyond the subject of funding, I hope we can all begin to focus on the task

at hand: ensuring successful implementation of a strengthened and improved Medicare program with the new prescription drug benefit. Between now and January 1,

2006, we have a lot of work to do, and I give you my commitment that we will not

fail. I know not everyone in this committee supported the passage of the Medicare

bill, but it is now law, and in 101⁄2 months, almost 43 million Americans will be

eligible to receive much-needed assistance with the high cost of prescription drugs.

Let us put aside our differences and work together towards the goal of ensuring that

seniors and people with disabilities are successfully signed up for their new benefits.

We all owe that to them.

UNINSURED

In fiscal year 2006, the President also proposes steps to promote affordable health

care for the approximately 45 million Americans who are currently uninsured. The

President proposes to spend more than $125.7 billion over 10 years to expand insurance coverage to millions of Americans through tax credits, purchasing pools, and

Health Savings Accounts. To improve access to care for many uninsured Americans,

the President’s budget requests $2 billion, a $304 million increase from fiscal year

2005, to fund community health centers. This request does two things. It completes

the President’s commitment to create 1,200 new or expanded sites to serve an additional 6.1 million people by 2006. By the end of fiscal year 2006, the Health Centers

program will deliver high quality, affordable health care to over 16 million patients

at more than 4,000 sites across the country. In 2006, health centers will serve an

estimated 16 percent of the Nation’s population who are at or below 200 percent

of the Federal poverty level. Forty percent of health center patients have no health

insurance, and 64 percent are racial or ethnic minorities. In addition, the President

has established a new goal of helping every poor county in America that lacks a

community health center and can support one. The budget begins that effort by supporting 40 new health centers in high-poverty counties.

Moreover, the President proposes a budget that would expand access to American

Indian and Alaska Native health care facilities, staff six newly built facilities to

serve the growing eligible population of federally recognized members of Native

American tribes, and address the rising costs of delivering care. In fiscal year 2006,

the Indian Health Service will provide quality health care through 49 hospitals,

more than 240 outpatient centers, and more than 300 health stations and Alaska

village clinics. In total, the President proposes increasing health support of federally

recognized tribes by $72 million in fiscal year 2006, for a total of $3.8 billion.

The President and the Department are also committed to resolving the growing

challenges facing Medicaid. Medicaid provides health insurance for more than 46

million Americans, but, as you are all aware, States still complain about overly burdensome rules and regulations, and the State-Federal financing system remains

prone to abuse.

This past year, for the first time ever, States spent more on Medicaid than they

spent on education. Over the next 10 years, American taxpayers will spend nearly

$5 trillion dollars on Medicaid in combined State and Federal spending. The Department proposes to make sure tax dollars are used more efficiently by building on the

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success of the State Children’s Health Insurance Program (SCHIP) and waiver programs that allow States the flexibility to construct targeted benefit packages, coordinate with private insurance, and extend coverage to uninsured individuals and families not typically covered by Medicaid.

The President proposes to give States more flexibility in the Medicaid program in

order to enable States to increase coverage using the same Federal dollars. The tools

we have at our disposal today were not available when Medicaid was created. States

largely agree that current Medicaid rules and regulations are barriers to effective

and efficient management. Over the past 10 years, Medicaid spending doubled. At

its current rate of growth (7.4 percent), the Federal share of Medicaid spending

would double again in another 10 years.

The growth in Medicaid spending is unsustainable. I intend to enter into a serious

discussion with governors and Congress to decide the best way to provide States the

flexibility they need to better meet the health care needs of their citizens.

The President plans to expand coverage for the key populations served in Medicaid and SCHIP by spending $15.5 billion on targeted activities over 10 years. The

budget includes several proposals to provide coverage, including the ‘‘Cover the

Kids’’ campaign to enroll more eligible uninsured children in Medicaid and SCHIP.

In addition, the extension of the Qualified Individual (QI) and transitional medical

assistance programs will ensure coverage is available to continue full payment (subject to a spending limit) of Medicare Part B premiums for qualified individuals, and

provide coverage for families that lose eligibility for Medicaid due to earnings from

employment. Also, community-based care options for people with disabilities will be

expanded through the President’s New Freedom Initiative, including authorizing

$1.75 billion over 5 years for the Money Follows the Person Rebalancing demonstration.

Overall, these efforts to expand health insurance coverage, as well as those in

other Departments, work together to extend health care coverage and health care

services to millions of people. Thanks to the comprehensive nature of this agenda,

workers are already investing money tax-free for medical expenses through Health

Savings Accounts, Americans have increasing flexibility to accumulate savings and

to change jobs when they wish, and more Americans are accessing high-quality

health care. We estimate that 8 to 10 million additional people will gain health insurance over the next 10 years. Together, these efforts to expand insurance coverage

and improve the Medicaid and SCHIP programs will cost approximately $140 billion

over the same period.

At the same time, we are taking steps to ensure States can use their Medicaid

funds to the fullest potential to reach more individuals in need of health care. The

budget includes proposals that will assure an appropriate partnership between the

Federal and State governments. We would like to work cooperatively with the

States to respond to the challenges in Medicaid. We must eliminate the vulnerabilities that threaten Medicaid’s viability. In our budget, we have proposed a series

of legislative changes that will ensure Medicaid dollars are used appropriately to

fulfill the program’s purpose to provide health care coverage for low income families

and elderly and disabled individuals with low incomes. Under this proposal, inappropriate Federal spending on Medicaid intergovernmental transfers and spending

resulting from other current loopholes in Medicaid law will decrease by $60 billion

over 10 years.

As a former governor, I understand the pressure on States in developing their

budgets, particularly given the lack of flexibility in the current Medicaid law. However, some State officials have resorted to a variety of inappropriate loopholes and

accounting gimmicks that shift their Medicaid costs to the taxpayers of other States.

Obviously, States that are not engaging in these activities will not be affected by

the proposals in the same manner as States that are. Collectively, the overall impact of the $60 billion 10-year decrease in Federal Medicaid spending on States will

in reality be about $40 billion, because by changing the calculation of prescription

drug payments to be based on the average sales price and by tightening asset transfer rules, approximately $20 billion in State spending will be saved. And it should

be noted that two-thirds of the savings will occur beyond the initial 5-year budget

window.

PREPAREDNESS

The HHS fiscal year 2006 budget will also build on the Department’s achievements in strengthening our ability to detect, respond to, treat, and prevent potential

disease outbreaks due to bioterrorist acts. It will enable the National Institutes of

Health (NIH) to increase research efforts in developing bioterrorism countermeasures and to fund biomedical research at current levels, it will allow the Centers

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for Disease Control and Prevention (CDC) to expand the Strategic National Stockpile, and it will support the Food and Drug Administration’s efforts to defend the

Nation’s food supply. This proposal requests $4.2 billion to continue this work, an

increase of almost 1500 percent over 2001. This request raises to $19 billion the cumulative amount invested since September 11, 2001 on public health preparedness,

and that investment is showing tangible results.

Let me mention just a few of the highlights and also note that HHS works in close

cooperation with DHS on many of these activities, including the medical surge initiative and food node threats and vulnerability assessments:

• HHS has a responsibility to lead public health and medical services during

major disasters and emergencies. To support this, we are requesting $70 million

for the Federal Mass Casualty Initiative to improve our medical surge capacity.

We are also investing $1.3 billion to support work at CDC and the Health Resources and Services Administration (HRSA) to improve State and local public

health and hospital preparedness.

• In the event of a major health emergency, one posed by either nature or

through the intentional use of a weapon of mass destruction, the Strategic National Stockpile would provide Americans with almost immediate access to an

adequate supply of needed medicines. In order to ensure the effectiveness of the

Stockpile, we’re requesting $600 million to buy additional medicines, replace old

ones, provide specialized storage, and get any needed medicines and supplies to

any location in the United States within 12 hours. $50 million of this will go

to procure portable mass casualty treatment units.

• We’re requesting $1.9 billion for the Food and Drug Administration (FDA)—an

increase of $81 million over 2005. $30 million of this request would be directed

to improving the agency’s national network of food contamination analysis laboratories and to supporting vital research on technologies that could prevent

threats to our food supply. HHS also proposes to dedicate $6.5 million more

than in fiscal year 2005 to evaluating and communicating drug safety risks to

the public and applying scientific expertise to explore the risks of medical products already on the market.

We now have a heightened awareness that the Nation’s critical food safety infrastructure must be better protected. FDA quickly learned that pursuing more field

exams, alone, is not the most effective strategy for providing this protection. The

new Prior Notice requirement on the shipment of foods allows FDA to conduct intensive security reviews on products that pose the greatest potential bioterrorism risk

to consumers in the United States. We intend to complement these inspection efforts

with further improvements to the national network of food contamination analysis

laboratories, and to provide support for vital research on technologies that could

prevent threats to the food supply. Investments like these will allow FDA to work

smarter in the future.

The Food and Drug Administration is an integral component in our efforts to promote and protect the health of the United States public. Its mission is broad, and

the agency’s decisions affect virtually every American on a daily basis. In addition

to food defense, the proposed $81 million increase will be focused on achieving specific improvements in drug safety and medical devices.

The budget includes a total of $747 million for human drugs and biologics, an increase of $26 million. With these funds, we propose to strengthen FDA’s Office of

Drug Safety with an increase of $6.5 million, for a total of $33 million. This increase

will better equip the Office to carry out Center-wide responsibilities for drug safety

analysis and decision-making. Critical staff expertise will be augmented in such

areas as risk management, communication and epidemiology. Increased access to a

wide range of clinical, pharmacy and administrative databases to monitor adverse

drug events will be obtained. Also, external experts will also be used to a greater

degree to evaluate safety issues.

Medical device products regulated by FDA must be safe and effective. The budget

requests $289 million, an increase of $12 million, to improve timely performance in

the review of applications, as well as, maintaining consistent high standards of safety and quality. Additional funds will also be directed towards medical device postmarket safety activities.

VACCINES

The fiscal year 2006 budget also includes targeted efforts to ensure a stable supply of annual influenza vaccine, to develop the surge capacity that would be needed

in a pandemic, to improve the response to emerging infectious diseases before they

reach the United States, and to improve low-income children’s access to routine immunizations.

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HHS plans to invest $439 million in targeted influenza activities in fiscal year

2006, in addition to insurance reimbursement payments through Medicare. The

budget includes a 2-part $70 million approach to ensure industry manufactures an

adequate supply of annual influenza vaccine. The Vaccines for Children (VFC) program will again set aside $40 million in new resources to ensure an adequate supply

of finished pediatric influenza vaccine. The discretionary Section 317 program will

use $30 million to get manufacturers to make additional bulk monovalent vaccine

that can be turned into finished vaccine if other producers experience problems, or

unusually high demand is anticipated.

To improve low-income children’s access to routine immunizations, the budget includes legislative proposals in VFC that I believe should be strongly supported by

the members of this committee. This legislation would enable any child who is currently entitled to receive VFC vaccines to receive them at State and local public

health clinics. There are hundreds of thousands of children who are entitled to VFC

vaccines, but can receive them only at HRSA-funded health centers and other Federally Qualified Health Centers. When these children go to a State or local public

health clinic, they are unable to receive vaccines through the VFC program. This

legislation will expand access to routine immunizations by eliminating this barrier

to coverage and will help States meet the rising costs of new and better vaccines.

As modern technology and research have generated new and better vaccines, that

cost has risen dramatically. For example, when the pneumococcal conjugate vaccine

became available, it increased the cost of vaccines to fully immunize a child by

about 80 percent. FDA has recently approved a new meningococcal vaccine that will

further raise the cost to fully immunize a child—making this legislation even more

important.

To improve our Nation’s long-term preparedness, NIH will invest approximately

$119 million in influenza-related research—nearly 6 times the fiscal year 2001 level.

The budget also increases the Department’s investment to develop the year-round

domestic surge vaccine production capacity that would be needed in a pandemic, including new cell culture vaccine manufacturing processes, to $120 million. These research and advanced development efforts will be complemented by expanding CDC’s

Global Disease Detection initiatives from $22 million to $34 million to improve our

ability to prevent and control outbreaks before they reach the U.S.

OTHER BUDGET INITIATIVES

The toll of drug abuse on the individual, family, and community is both significant

and cumulative. Abuse may lead to lost productivity and educational opportunity,

lost lives, and to costly social and public health problems. HHS will assist States

in fiscal year 2006 through the Access to Recovery program to expand access to clinical treatment and recovery support services, and to allow individuals to exercise

choice among qualified community provider organizations, including those that are

faith-based. This program recognizes that there are many pathways of recovery from

addiction. Fourteen States and one tribal organization were awarded Access to Recovery funding in fiscal year 2004, the first year of funding for the initiative. This

budget increases support for the Access to Recovery initiative by 50 percent, for a

total of $150 million.

Expanding abstinence education programs is also part of a comprehensive and

continuing effort of the administration, because they help adolescents avoid behaviors that could jeopardize their futures. Last year, HHS integrated abstinence education activities with the youth development efforts at the Administration for Children and Families (ACF), by transferring the Community-Based Abstinence Education program and the Abstinence Education Grants to States to ACF. The fiscal

year 2006 budget expands activities to educate adolescents and parents about the

health risks associated with early sexual activity and provide them with the tools

needed to help adolescents make healthy choices. The programs focus on educating

adolescents ages 12 through 18, to create a positive environment within communities to support adolescents’ decisions to postpone sexual activity. A total of $206

million, an increase of $39 million, is requested for these activities.

Our request also includes approximately $18 billion for domestic AIDS research,

care, prevention and treatment. We are committed to the reauthorization of the

Ryan White CARE Act treatment programs and request a total of $2.1 billion for

these activities, including $798 million for lifesaving medications through the AIDS

Drug Assistance Program.

Finally, we constructed the fiscal year 2006 budget with the knowledge that

health information technology will improve the practice of medicine. For example,

the rapid implementation of secure and interoperable electronic health records will

significantly improve the safety, quality, and cost-effectiveness of health care. To imVerDate 11-MAY-2000 14:09 Feb 28, 2006 Jkt 095484 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 25948.000 SFINANC2 PsN: SFINANC2
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plement this vision, we are requesting an investment of $125 million. $75 million

will go to the Office of the National Coordinator for Health Information Technology,

to provide strategic direction for development of a national interoperable health care

system. $50 million will go to the Agency for Health Care Research and Quality to

accelerate the development, adoption, and diffusion of interoperable information

technology in a range of health care settings.

PROGRAM PERFORMANCE

The President and the Department considered a number of factors in constructing

the fiscal year 2006 budget, including the need for spending discipline and program

effectiveness to help cut the deficit in half over 4 years. Specifically, the budget decreases funding for lower-priority programs and 1-time projects, consolidates or

eliminates programs with duplicative missions, reduces administrative costs, and

makes government more efficient. For example, the budget requests no funding for

a number of smaller, duplicative community services programs and the Community

Services Block Grant, which was unable to demonstrate results in Program Assessment Rating Tool evaluation. The administration proposes to focus economic and

community development activities through a more targeted and unified program to

be administered by the Department of Commerce. It is due to this focused effort to

direct resources to programs that produce results that I am certain our targeted increases in spending will enable the Department to continue to provide for the

health, safety, and well-being of our People.

Over the past 4 years, this Department has worked to make America and the

world healthier. I am proud to build on the HHS record of achievements. For the

upcoming fiscal year, the President and I share an aggressive agenda for HHS that

advances a healthier, stronger America while upholding fiscal responsibility and

good stewardship of the people’s money. I look forward to working with Congress

as we move forward in this direction. I am happy to answer any questions you may

have.

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PREPARED STATEMENT OF HON. GORDON SMITH

Thank you, Mr. Chairman, for hosting today’s hearing to discuss the President’s

budget for the Department of Health and Human Services. Today’s hearing will

prove to be a valuable resource for all of us as the Senate begins its work to develop

its budget for fiscal year 2006.

First, let me say what a pleasure it is to see you again, Secretary Leavitt. I enjoyed the conversations we had during your confirmation hearing. I’m excited to see

you here as the Secretary of Health and Human Services. Given your experience as

the governor of Utah for 8 years, I am confident that you will be able to understand

many of the budgetary issues that will be raised today by the members of the committee.

Today, one of the topics that will be discussed is the long-term financing of Medicaid. I know much has been said about balancing the budget, and I support those

efforts, because it is good for our economy; however, it cannot come on the backs

of the poor, disabled and aged. The President’s budget reduces Medicaid funding by

$60.1 billion over the next 10 years, with $1.1 billion of that coming in fiscal year

2006. Due to the relatively small reduction in the budget next year, I urge you to

forgo those spending cuts and consider a review of the entire Medicaid program before moving forward. Senator Bingaman and I have a bill that calls for the creation

of a Medicaid commission so that Federal, State and local officials can debate the

issues and make recommendations about the future course of this program. Medicaid has served our country well for 40 years; now we must determine its future.

As we review the Medicaid program, I must thank you for including proposals

that will make the Medicaid program more flexible. As the largest single source of

long-term care, Medicaid plays a singular role in helping the elderly and disabled.

While most experts agree that the least restrictive setting is the best setting to deliver assistance, the Medicaid program remains out-of-date because of its bias toward placing people in institutional settings. The President’s budget includes a demonstration called ‘‘Money Follows the Person’’ that would help States remove this

bias by allowing both Federal and State Medicaid funding to ‘‘follow’’ people into the

least restrictive, most appropriate setting. In the 108th Congress, I introduced legislation with Senator Harkin that would carry out this demonstration. We will be reintroducing that bill shortly, and I look forward to working with you to see it become law.

I also am pleased to see that the President has included increased funding for the

AIDS Drug Assistance Program. This $10-million increase will be well-spent in helping people with AIDS get access to more affordable treatments. However, I fear it

is not enough. For the past few years I have championed an effort to increase funding for ADAP by $217 million. You see, in Oregon alone there are approximately

4,500 people living with HIV/AIDS and approximately 150 more newly detected infections annually. Of these, an estimated 40 percent of those Oregonians are not receiving care for their disease. It is important to me that we help these people in

my State.

Another, more comprehensive approach is to provide coverage through Medicaid.

I have introduced legislation, the Early Access to HIV-AIDS Treatment Act or

ETHA that would provide States the option of expanding Medicaid coverage to individuals living with HIV. Independent actuaries have found that over 10 years, my

bill would reduce the death rate for persons with HIV on Medicaid by 50 percent,

and over 10 years the bill would save $31.7 million. It is my hope that we can be

creative when working with the Medicaid program to find opportunities, like the

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Early Treatment for HIV Act, to save money while at the same time helping people

who are in desperate need of our help. The President’s budget includes $1.003 billion for health centers, which is an in- crease of $303 million over the fiscal year 2005 level. I fully support your efforts

to expand the number of health centers nationwide. In Oregon, health centers provide care for some of our most needy individuals. The President’s proposal to target

‘‘high-need counties’’ with a portion of this funding encourages me. Much of the

State that I represent is rural and is in desperate need of greater access to health

care providers. Thank you for working to ensure that the people that reside in these

high-need areas are served.

As you know, mental illness is a personal issue for me, and with the strong support of the President I was able to see the Garrett Lee Smith Memorial Act signed

into law on October 21. It was a momentous occasion for Sharon and me, yet we

know that the battle isn’t yet won. We have many challenges ahead. The first is

securing full funding for the Act. The President’s budget includes $11.5 million for

the Garrett Lee Smith Memorial Act. Full funding for the Act would be $27 million.

I will be working for full funding this year, and your support would be invaluable

to me as we work through the appropriations process.

I also must thank you for supporting the Vaccines for Children program. As you

know, missed opportunities to vaccinate children are a major barrier to timely immunizations. The program in Oregon aims to help Oregon reach its goal of having

90 percent of our children up-to-date with their immunization series by age 2. Currently, 76.5 percent of Oregon’s children are immunized on time. It is my hope that

I can help the State meet its goal. I have been working with my colleagues on the

committee to expand this program to allow local and county health centers to distribute immunizations under the program. I am encouraged that the President’s

budget includes this proposal, and I will be working with you ensure that the proposal is passed into law. I also seek your support in removing the price cap for pre1993 vaccines and to allow you to sell stockpiled vaccines to public health department to raise money to procure pediatric vaccine stockpiles.

Congress, as part of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), modified the SSI program to include a 7-year time limit on

the receipt of benefits for refugees and asylees. This policy was intended to balance

the desire to have people who emigrant to the United States become citizens with

an understanding that the naturalization process also takes time to complete. To

allow adequate time for asylees and refugees to become naturalized citizens, Congress provided the 7-year time limit before the expiration of SSI benefits. Unfortunately, the naturalization process often takes longer than 7 years, because applicants are required to live in the United States for a minimum of 5 years prior to

applying for citizenship, and the INS often takes 3 or more years to process the application. Because of this time delay, many individuals are trapped in the system

faced with the loss of their SSI benefits. I am encouraged that the President’s budget includes funding to allow refugees and asylees to receive SSI for an additional

year. I will be introducing legislation that will allow refugees and asylees to receive

SSI for an additional 2 years. It is my hope that you will support a 2-year extension

for refugees and asylees.

Thank you for your time, Secretary Leavitt, and I look forward to working with

you in your new capacity as Secretary of the Department of Health and Human

Services.

Thank you, Mr. Chairman.

PREPARED STATEMENT OF HON. CRAIG THOMAS

Today the Senate Finance Committee is meeting to hear testimony from Health

and Human Services Secretary Michael Leavitt regarding the President’s fiscal year

2006 health care budget. I look forward to hearing about the administration’s health

care funding priorities and its vision to modernize and reform the Medicaid program.

I believe the American health system is at a crossroads. If we continue along our

current path, health care costs will continue to rise rapidly, and more Americans

will be priced out of the system. This will only increase the financial burden on Federal, State, and local governments. We must begin acting today to make the difficult

decisions we face regarding the future of the Medicare and Medicaid programs. We

have an unprecedented opportunity to work together to ensure the sustainability

and viability of these entitlement programs for years to come. It is also critically

important to me and my State that we also ensure rural providers are paid adequately, and rural residents have access to necessary health care services.

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I commend the Department’s efforts to implement a ‘‘Rural Initiative’’ to improve

the Agency’s responsiveness to our rural communities. Also, the decision by HHS

to serve as the government agency that reviews J–1 visa waiver applications so foreign doctors can practice medicine in America is crucial to many of our rural and

frontier underserved areas. These remote towns have difficulty recruiting American

doctors to practice in their area, and the J–1 visa waiver program has provided an

important opportunity for these vulnerable communities to maintain physician services for their residents.

I am disappointed, however, the administration has cut rural health programs by

approximately $115 million. Rural Health Outreach and Network Development

Grants, Rural Health Research Grants, and Rural Hospital Flexibility Grants have

proven to be effective and efficient programs that have a significant impact on the

rural health care delivery system. While I certainly understand we are operating in

a tight fiscal framework, I also believe these programs should not be undervalued.

The Medicare bill we passed offers seniors access to prescription drug plan coverage modeled after the Federal Employees Health Benefit Plan (FEHBP). The

FEHBP has proven to be a good model for giving folks the same health plan choices

no matter where they live. Congress increased seniors’ ability to choose the type of

health plan that best meets their individual needs while utilizing the private market to offer more modern and efficient health plan options.

Most importantly, the MMA offers large savings in drug costs for rural beneficiaries. As co-chair of the Senate Rural Health Caucus, I will be monitoring implementation closely to make certain rural Medicare beneficiaries have access to the

same types of prescription drugs and health insurance coverage options as urban

seniors.

I do have concerns about the long-term costs of this legislation, and it is important to keep that in mind as the program becomes fully operational in 2006. I am

pleased, however, that together, we have taken the first steps toward bringing Medicare in line with modern medical practices.

The Medicaid program is also at a critical juncture, as its skyrocketing program

costs have pushed the vast majority of States into budget deficit situations. Governors have proven to be extremely innovative in delivering health care to their

most vulnerable populations, and the Federal Government should give them the

flexibility to tailor programs that best meet the needs of their States. I look forward

to hearing more details about the administration’s efforts in this area.

I thank Secretary Leavitt for his comments today, and I look forward to working

with the administration on strengthening our Nation’s rural health care delivery

system.

Thank you, Mr. Chairman.

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