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55–469—PDF 2008

S. HRG. 110–1022

PRESIDENT’S FISCAL YEAR 2009 BUDGET

PROPOSAL FOR THE DEPARTMENT

OF HEALTH AND HUMAN SERVICES

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 6, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

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

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 3

ADMINISTRATION WITNESS

Leavitt, Hon. Michael O., Secretary, Department of Health and Human Services, Washington, DC ........................................................................................... 5

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 3

Letter to Hon. Michael O. Leavitt and Hon. Jim Nussle, dated February

4, 2008 ............................................................................................................ 41

Letter to Hon. Michael O. Leavitt and Hon. Andrew C. von Eschenbach,

M.D., dated February 6, 2008 ...................................................................... 43

Leavitt, Hon. Michael O.:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 68

Responses to questions from committee members ......................................... 75

(III)

(1)

PRESIDENT’S FISCAL YEAR 2009 BUDGET

PROPOSAL FOR THE DEPARTMENT

OF HEALTH AND HUMAN SERVICES

WEDNESDAY, FEBRUARY 6, 2008

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. Max Baucus

(chairman of the committee) presiding.

Present: Senators Kerry, Lincoln, Wyden, Stabenow, Schumer,

Stabenow, Grassley, Hatch, Snowe, Kyl, Smith, and Roberts.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

President Franklin Roosevelt said, ‘‘Democracy cannot succeed

unless those who express their choice are prepared to choose wisely.’’ The President’s budget request presents the President’s

choices. Once the President puts his proposals forward, it then becomes the Congress’ job to scrutinize those choices. We must determine whether he has chosen wisely.

I am just as interested as the President in controlling health care

spending, but his choices are not the best ones for the long-term

health of our country, our Federal health care programs, seniors,

people with disabilities, children, and the poor who rely on them.

Over the next 5 years, the President proposes cutting more than $180 billion out of Medicare, he proposes cutting more than $18 billion out of Medicaid, and he proposes meager funding for children’s

health. These numbers are truly staggering. They do not reflect the

choices of America’s seniors, people with disabilities, children, and

less fortunate citizens.

The President’s choices related to the Medicare program are par- ticularly troubling. His budget proposes over $182 billion in Medicare cuts. A significant portion of these cuts come from drastic,

across-the-board reductions of what Medicare pays health care providers, but the President proposes those cuts only in the traditional

fee-for-service program.

The President chose to permanently cut payments to hospitals,

to nursing homes, to rehabilitation facilities and hospices. He also

proposed permanent reductions of Medicare payments for ambulances, outpatient hospital services, and home health services. But

the President chose not to address the differential between tradiVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
2

tional fee-for-service and private Medicare Advantage payments.

MedPAC estimates this differential at 13 percent. MedPAC recommends that we eliminate the difference.

The committee held hearings on Medicare Advantage last week,

and we will have another one tomorrow. With all of the problems

that Americans are learning about Medicare Advantage, it is confounding, to say the least, that the President chose not to propose

any changes in the program, despite the recommendations of CBO

and the recommendations of MedPAC.

Why did the President choose to protect private health plans at

the expense of hospitals and other providers that treat beneficiaries

in the fee-for-service program? Why? This budget demonstrates

where the President’s priorities really lie. The only change that the

President proposed for the Medicare prescription drug benefit is to

increase premiums to beneficiaries with high incomes. No one supports the Medicare drug benefit more than I. After all, I helped create the benefit. But it is not perfect.

The most recent HHS survey revealed that 85 percent of beneficiaries are satisfied with the drug benefit. That is encouraging.

But it means that we have to do more before all beneficiaries are

satisfied. The President’s choice appears to indicate he is more easily satisfied than this committee.

Medicaid is America’s health care safety net. It provides access

to health care for the most vulnerable among us. Tough economic

times like these stretch Medicaid to its limits. Since the President’s

last budget, the administration has proposed a number of changes

to Medicaid that decrease what the Federal Government will pay.

This means that States have either to make up for lost dollars or

to cut services.

Now, on top of that, the President wants to make over $18 billion

in additional cuts to Medicaid. Cuts of this magnitude are too big

for this critical program, and that is especially so when Medicaid

is stretched so thin. The President also proposes to fund the State

Children’s Health Insurance Program at $19 billion above baseline

over the next 5 years. This level of funding is far below what the

Congress chose to provide last year, and it may not be enough to

even cover projected State shortfalls.

Last year, the committee made reauthorization of the Children’s

Health Insurance Program, otherwise known as CHIP, its top

health care priority. After months of hard work, Congress delivered

a bipartisan reauthorization to the President. He vetoed it. A bipartisan group of Senators and Representatives resumed negotiations.

We tried to craft a package that the President would sign. We

spent more long days and nights hammering out an agreement

that addressed a number of the President’s concerns. We sent the

President that second bipartisan reauthorization package. He vetoed that one as well.

Now the President has proposed funding far below the level for

which Congress has twice demonstrated its support. The Children’s

Health Insurance Program provides access to health care for America’s poorest kids. The President is choosing not to do all that he

can to improve and expand health care for America’s children.

So, Mr. Secretary, help us to understand the President’s choices.

Help us to understand how making his proposed cuts would actuVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
3

ally affect beneficiaries. What will the effect be on beneficiaries

under our Federal health care programs, and on our country? Help

us to work together—and I mean that—to choose more wisely.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Thank you, Secretary Leavitt, for coming.

One area of great interest for me, as it is with Senator Baucus, is

this provision of the budget dealing with the State Children’s

Health Insurance Program. Last year’s budget included only about

a $5-billion increase for SCHIP, which many experts deemed insufficient, and which I said at that time was insufficient to keep the

current program then at its level.

Even though funding for outreach activities to enroll uninsured

children had been provided in earlier budgets, last year’s budget included no funding at all for those activities. Many members of Congress supported the administration’s proposal for SCHIP during

last year’s reauthorization debate. As you know, we were not successful in reauthorizing. Instead, Congress passed, and the President signed, an extension of the program till March next year.

While I am hopeful that SCHIP can be revisited, it is more likely

that the debate will resume in the 111th Congress. It is, therefore,

a bit surprising to me that this year’s budget proposal actually puts

forward a more credible funding amount for SCHIP. Instead of

about $4 billion to reauthorize SCHIP, this year’s budget has about

$20 billion, almost 5 times as much, and the additional funding for

outreach and enrollment has also reappeared in this year’s budget.

First of all, let me commend you for the proposal. It is a more

thoughtful and a more realistic proposal than was offered last year.

In fact, I will go so far as to say that, if the administration had

offered this proposal a year ago, it would have made a real difference.

On Monday, I wrote a letter to you and to OMB Director Nussle

about this issue. In that letter, I requested that you provide an explanation of how, and more importantly when, you came to the realization that last year’s proposal was off base and that substantially more funding was required to reauthorize SCHIP. I, for one,

would like some answers, and I would bet a lot of my colleagues

would feel the same way. I would ask consent that a copy of that

letter be put in the record.

The CHAIRMAN. Without objection.

[The letter appears in the appendix on page 41.]

Senator GRASSLEY. I hope that your testimony will answer the

questions in my letter and detail why the administration has done

such an about-face on SCHIP.

Now I would like to turn to Medicare, another issue that the

chairman has addressed. When it comes to the situation we have

in Medicare, we need to think long and hard about its long-term

implications on the budget and how we can solve those problems.

One troubling area is physicians’ payments. The Physician Payment Sustainable Growth Rate—we refer to that as the SGR formula—is fundamentally flawed. At the end of last year, Congress

passed the Medicare and Medicaid and SCHIP Extension Act. It

4

temporarily eliminated the 10.1-percent scheduled cut in physician

payment for Medicare. It provided a 6-month half-percent increase

instead. It also extended the Physician Quality Reporting System

and included the usual 1.5-percent bonus payment to physicians for

reporting quality.

However, if Congress does not act by June, physicians face a severe payment cut in the second half of this year. Without further

action, Medicare payments to physicians will plummet way down

over the next several years. These continued payment cuts probably will threaten access for beneficiaries if physicians decline to

participate in Medicare or to accept new Medicare patients. While

the President’s budget does not offer any ideas for addressing the

physician payment dilemma, it is undoubtedly one of the biggest

challenges that Congress faces.

On a broader level, the President’s budget achieves a substantial

portion of its savings from Medicare provider payments. Many of

these recommendations go far further than what the Medicare Payment Advisory Commission has recommended, and even taking

their advice and doing what they want done is often very difficult

to get a majority in the Congress to do.

We must then look beyond payment updates to control Medicare

spending. Instead, the way that this program pays providers is in

need of comprehensive reform. Today, Medicare rewards poorquality care. That is just plain wrong, and we need to address this

problem of rewarding people based upon quality of care as opposed

to quantity that they deliver right now.

The administration recently released a plan, required in the Deficit Reduction Act, to implement value-based purchasing for hospital services. I am pleased with the thought that was put into the

development of that plan, and I look forward to working with

Chairman Baucus and other members of the committee to transform how Medicare pays for hospital services.

I am also pleased to see proposals in the budget to improve Quality Improvement Organizations—we refer to them as QIOs. Last

year, I introduced a bill with Chairman Baucus to comprehensively

reform that program. I look forward to hearing more about your

ideas on how to ensure that the hundreds of millions of taxpayers’

dollars that go to QIOs each year are dollars that are put to good

use, without detracting from the fact that we do need to have people observing quality and making judgments about quality being

improved in the entire health care delivery system.

Also included in this year’s budget is President Bush’s plan to

help more Americans get health insurance. About 47 million Americans do not have health insurance. As I noted last year, the President has proposed correcting a flaw, a very serious flaw, in the

health care tax policy. The Joint Committee on Taxation estimates

that over the next decade Americans will receive more than $1 trillion of tax benefits from health care under our current tax law.

Now, there is nothing wrong with that except the unfairness of

it, and where it does not drive the market in the right direction,

and then still provides for 47 million people not having health insurance. Whether a worker receives a tax benefit under this system

depends on whether his employer chooses to provide health insurance. We want to help individuals as well as what corporations

5

might do. Those benefits then could be more fairly directed to help

meet the needs of millions of Americans without health insurance.

One of the leaders in that area is Senator Wyden.

President Bush would extend the tax incentives for purchasing

health coverage to the self-employed and those who buy health coverage on their own. Such an approach would be more equitable and

it would make health insurance portable. It is very important that

a person’s health insurance not be dependent on where they work.

I hope that as we discuss how to insure more people we can consider some changes to the taxation of benefits that will both expand health insurance coverage and contain health care costs. I

would encourage working with Senators Biden and Bennett on that

approach.

Lastly, Mr. Chairman, I also request that a lengthy letter and attachment regarding an investigation into the Food & Drug Administration be inserted into the record, and it is dated for today.

The CHAIRMAN. Without objection.

[The letter appears in the appendix on p. 43.]

Senator GRASSLEY. Mr. Secretary, I strongly encourage you to

read this letter. I would encourage you to do it personally. I am not

going to ask you if you actually read it, but I hope you will. It describes a troubling series of events involving the FDA, Wyatt, and

a safety officer at the FDA. It involves the hiring of private investigators by Wyatt to find dirt on a safety officer, an FDA investigator submitting a criminal referral to the U.S. Attorney’s Office

that was riddled with false information. Mr. Chairman, that is

what I was submitting for the record.

Thank you again for being here.

The CHAIRMAN. Mr. Secretary, thank you for coming before this

committee to address the President’s budget as relevant to your department. As you know, your prepared statement will automatically be included in the record, and I would urge you to stay within

the 5 minutes allotted.

STATEMENT OF HON. MICHAEL O. LEAVITT, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

Secretary LEAVITT. Thank you, Mr. Chairman. I will do so.

Why don’t I jump directly to the question you raised with respect

to Medicare? First of all, let me just express my appreciation for

the chance to come and talk about the budget. Obviously, Medicare

is 56 percent of the $737 billion that our department administers,

so it is the biggest part, and a very important part.

You asked about the reasoning of our budget. May I just acknowledge that we view this budget as a stark warning on the current course? If it remains on auto-pilot, 11 years from now, Medicare will be broke. It is a very serious problem. I know you share

the concern.

Let us acknowledge that Americans’ sensitivity on entitlement

warnings has become a little bit numbed over the course of the

years. There is a repeated cycle of alarms and inaction. Dire warnings become kind of a seasonal occurrence. It is a lot like the cherry blossoms coming out. We drive by them, acknowledge them, and

then keep going without doing anything.

6

This budget warns in a different way. It illuminates with specificity the hard decisions that policymakers, no matter what their

party, will need to make in coming years unless we change the current course. We can keep our National commitment, and must, but

in our judgment we need to change the way we manage Medicare.

Currently, the fee-for-service Medicare is a centrally planned, government regulated system of price fixing. Price fixing systems are

adjusted when the government makes decisions on what the priorities should be. Those are very blunt tools, and they are inexact:

government decides who gets treated, government decides how

much they get treated, government decides how much value should

be allotted to each different procedure. It is an inefficient system,

and it has contributed substantially, in my view, to the dilemma

that we face today.

If consumers were allowed to make these decisions through an

efficient market that the government would need to organize, their

decisions would be far more precise and, in my judgment, wise.

One need look no further than the prescription drug benefit that

you mentioned. I agree it is not perfect, but it is a great success.

It has been a success because we organized the marketplace and

we let consumers decide. In addition to the good things that you

referenced in terms of satisfaction, we are now seeing the savings.

Recently we have announced a substantial savings over the next 10

years as a result of many factors, but high among them is the competition.

So we have prepared our Medicare approach with three goals in

mind: the first is long-term sustainability; the second is affordable

premiums for beneficiaries; and lastly, a balanced budget by 2012.

I am sure we will have a chance to talk more about that, so I will

skip to just mention a couple of other things that I mentioned in

my statement.

First, I would like to acknowledge what you have said about

SCHIP. We view SCHIP, of course, to be a very important part of

the vision to make certain that every American has an affordable

insurance policy. The President proposes to increase funding to the

States by nearly $20 billion over the next 5 years, and we are adding $450 million as part of that to outreach grants to assure that

we are reaching those who are in most need.

Our proposal is consistent with the philosophy that SCHIP

should be focused on the low-income in our society. It is also consistent with the 18-month extension that was passed in December.

I will be pleased to reconcile that with you.

With respect to Medicaid, we have made steps in this budget to

assure that Medicaid is sustainable. You mentioned the fact that

there is an additional $18 billion. Again, I want to emphasize that,

as with Medicare, our budget continues to increase. The $18 billion

is the amount that we would reduce the growth rate. It would continue to grow every year to serve Americans.

We believe that every American needs to have access to an affordable insurance policy, and for that reason the President has

proposed, as Senator Grassley indicated, very important changes to

the tax code. When coupled with making tools available to States,

we feel confident we can, in fact, meet that obligation.

7

I would like to comment, briefly, on food safety and the important work of the Food and Drug Administration. The United States

has a good system of food protection, but it is not adequate for the

future. So you will see a major emphasis in this budget, including

7 percent additional funding going into the area of overall food protection and safety, and a 5.7-percent increase in the overall budget.

One thing that gives me perspective here is, in the last 2 years, we

will have added 1,000 people at FDA. We are taking this very seriously.

Biomedical research. We proposed increases in each institute and

center at NIH. Overall, the budget is about the same as it was before. On emergency preparedness, we are still a Nation that remains at risk. HHS obviously has a big responsibility. You will see

efforts on our part to meet that responsibility in this budget, as

well as being able to complete our pandemic influenza plan.

You will also see a series of health diplomacy initiatives I hope

we will have a chance to talk about. We see the United States having a very important part not only for our own protection, but as

an important leader in the world.

In conclusion, the President and I both believe that we have

crafted a strong and fiscally responsible budget at a challenging

time. I want to acknowledge, Mr. Chairman, that some will not

agree with the decisions that were made, and that is why we are

here to talk about them. My job is to do my best to give you an

understanding of our thinking, and I will do so.

Mr. Chairman, could I acknowledge one other thing? That is, I

have become aware that a series of questions that were raised at

the last hearing a year ago that I had understood had been responded to, apparently were not. I want to acknowledge that. I cannot defend it. They have now been answered, and I can assure you

that, if in fact there are questions this year, they will be responded

to in a much more timely way.

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

Senator GRASSLEY. Can I ask in regard to that, are those questions that every member of the committee asked or just the ones

that I have asked?

Secretary LEAVITT. I do not know the answer to that.

Senator GRASSLEY. All right.

Secretary LEAVITT. I assume it was everyone’s.

Senator GRASSLEY. All right.

The CHAIRMAN. I would hope so.

Secretary LEAVITT. It was everyone, I understood.

The CHAIRMAN. Well, thank you, Mr. Secretary.

I guess I am asking you, how can we honestly engage in a good,

solid discussion about health care priorities, especially Medicare,

Medicaid, and CHIP spending? You have asked for huge, draconian

cuts which this Congress is not going to enact.

I might say that your budget request also sounds very much like

you are trying, to say it bluntly, to privatize Medicare and Medicaid, in two respects. One is the letters that you sent to States

changing the CHIP program. It is very bothersome, frankly, to send

a letter that is not regulation yet, for Congress to codify. It just

feels like you are just trying to privatize that program.

8

But more importantly, with respect to Medicare, you proposed

huge cuts in fee-for-service, but did not touch the private side. You

want huge cuts in the government plan, but no cuts in the private

plans, even though we get very strong recommendations by the

Congressional Budget Office, bipartisan, very strong recommendations by MedPAC, the panel that advises the Congress on Medicare

spending, that the differential between fee-for-service and Medicare

Advantage plans should be eliminated.

So how can we have an honest-to-goodness discussion when your

budget is based, it seems, more on ideology than it is on trying to

find a meeting of the minds between the Congress and the administration? I say that in part because cuts of Medicare, $182 billion,

smacks of a meat ax cut. I see no analysis of how it is going to actually affect providers, how it is actually going to affect hospitals

and all the other providers. There is no analysis, you just say ‘‘cut.’’

The real problem, frankly—and you alluded to this in your statement—about Medicare trust fund expenditures going up so high is

health care costs in this country generally. That is the problem. We

are not going to solve a problem just by cutting down Medicare or

Medicaid, or not giving benefits to CHIP. That is not going to get

to the underlying problem with health care costs.

So I am asking you, the administration, to talk to us about how

we legitimately get health care costs under control. There is virtually nothing in this budget in a solid way to get at health care

costs. Nothing. You just want to whack Medicare, whack Medicaid,

and do not touch Medicare Advantage, the private plans. So again,

it sounds like you want to cut government, meat ax approaches, cut

government, bolster and help the private plans, but not address the

underlying problem, which is health care costs.

Secretary LEAVITT. Senator, there is the basis of a very good conversation here. First of all, let me just acknowledge, in terms of nomenclature, when we talk about cuts, we are talking about a reduction in the growth rate. We would have taken it from 7.2 percent

down to 5, so we will see it increase over the next year, and that

would be true of Medicare. I know you are aware of that.

The CHAIRMAN. Why not eliminate that differential?

Secretary LEAVITT. I would like to address that. Let me acknowledge that the tools that are available to a budget maker right now

in Medicare are relatively limited because we are in a price-setting

type mode. I believe that ought to change. I believe we have to get

consumers involved, not only in Medicare but in health care generally. I would like to take up your offer to talk some about how

we could reduce costs in health care generally.

The CHAIRMAN. And where do I see in your budget an honest-togoodness effort to cut health care costs?

Secretary LEAVITT. We have introduced, with the tools we have

available, given the nature of this budget, decisions that we think

need to be made. I will tell you, I think there is a better way to

do this. The better way to do it would be to get consumers involved

in it. A better way to do that is—there are four cornerstones that

you and I have talked about before: electronic medical records, beginning to define what quality is, giving consumers information

about what quality is and price, and beginning to create incentives

9

so that we pay providers on the basis of the value they provide, not

just the volume they provide.

That is the key to not only getting Medicare back under control,

but also beginning to stem the tide of health care costs generally.

Medicare Advantage is a good opportunity to do that. You mentioned the fact that there is a differential in what we pay. Over

time, that needs to be remedied.

The CHAIRMAN. Why don’t you begin with this budget?

Secretary LEAVITT. Let me suggest a better way than simply

using price controls to do that. If we were to expand the areas of

competition beyond one county where we could have broader

ranges of competition, we would see those costs come down. That

is what happened in Medicare Part D. We created regional competition and the competition from the high-cost areas and the lowcost areas.

The CHAIRMAN. It sounds like you want to privatize more.

Secretary LEAVITT. What I am saying is, I would like to see consumers involved because I think——

The CHAIRMAN. It sounds like, basically, Mr. Secretary, there is

nothing in your budget that addresses the point you made in the

last minute, that is, the general hope that we could get health care

costs down. If your budget had a very large component and made

very clear that we are trying to get health care costs down generally, whether it is private fee-for-service, whether it is Medicare

Advantage, whether it is fee-for-service generally, whatever it is,

that would be great. I see nothing there. Again, I just see ideology.

You want health care privatized and you want to cut government.

That is what I see here, and that is a non-starter in terms of discussion here.

Secretary LEAVITT. Given the nature of Medicare, which is a regulated, government price-setting organization, that is the way we

have to construct budgets. You and I seem to be in agreement that,

if we could begin to create more involvement by consumers and

change that system, we could potentially see it. I would love to

have that conversation with you, Senator.

The CHAIRMAN. Senator Grassley?

Senator GRASSLEY. In my letter to the FDA dated January 10,

2008, I requested that FDA make available the Executive Secretary

Alleda Syndelar for an interview with my committee staff. The response that I received from the FDA on February 1 was that they

did not think that the Executive Secretary could give me the information that I sought. Now, that is, of course, a novel response.

Now, I appreciate that, but it is not a very helpful response. So,

a very simple question. Could you make sure that the FDA produces the Executive Secretary, as I requested?

Secretary LEAVITT. I am not sure the title ‘‘Executive Secretary’’

is one that is familiar to me.

Senator GRASSLEY. All right. How about, could Alleda Syndelar

be made available for answers to questions?

Secretary LEAVITT. Senator, this is a circumstance that I am a

little unfamiliar with. As you know, we have been working to be

cooperative with you in making certain that you had the investigator and so forth, and we would be happy to continue this diaVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
10

logue. I want to be cooperative. I am not familiar with this situation. This is one I am going to have to respond later on.

Senator GRASSLEY. All right. I would only ask you—and I do not

blame you, I blame the Justice Department—remember, it took us

2 years to be able to question Agent West, and I do not want to

go through that again because you might not be around here a year

from now. I hope you are, but you may not be. So I need to work

quickly with you to get an answer, and get her.

Secretary LEAVITT. Thank you. I would like not to go through

what we did before either.

Senator GRASSLEY. All right. Thank you.

I appreciate that the administration has moved in a constructive

direction relative to SCHIP. Would you respond to the questions in

my letter? Now, not today because you do not have enough time

today to do that, so do that in writing. But I would like to have

you, today, elaborate further on when the administration determined that additional funding for SCHIP was needed, and maybe,

what was it, a statistical base or philosophical or something that

got us to the point where we have this reality of what I said a year

ago we needed to do, and the fact that the President said they only

needed $5 billion.

I will tell you, it carried a great deal of credibility with about

three-fourths of the people on the Republican side of the aisle, so

we did not get the bipartisan compromise that the President could

sign, and we would have been able to do that if this had been acknowledged a year ago. So that is why it is important for me to

understand why this change now, which is a very positive change.

Secretary LEAVITT. Senator, I think I can do that, briefly. First

of all, let me just be clear that our proposal was not $5 billion. We

had 5 and then some left-over money from previous allocations,

which made it just under 10. So the difference between where we

started was 10.

Senator GRASSLEY. All right. And 20.

Secretary LEAVITT. Just under 20 now.

Senator GRASSLEY. Yes.

Secretary LEAVITT. It can basically be attributed to three things.

First, we dropped off the 2008 year and added 2013. 2013 is substantially more expensive than was 2008.

Second, we funded this year rather than just fulfilling what the

States had suggested they would have. As we did in our previous

budget, we have basically created a growth scenario.

Third, we have added the funds that you indicated for outreach.

Our effort has been simply to say, let us arrive at the policy and

then cost it out. We have better estimates now. Last year when we

had this conversation I indicated repeatedly that I was interested

in being able to arrive at a policy and then cost the policy out, not

arrive at a number and then come up with a policy. What we have

done here is consistent with the extension that was offered through

the Congress and signed by the President in December.

Senator GRASSLEY. My staff just gave me something here that I

am not sure I understand. But there is something about some disagreements with the figures that I will ask somebody else if they

can do when I am not able to be here.

11

As I mentioned earlier, for several years leading up to the reauthorization of SCHIP, the administration’s budget proposal included outreach funding for grants to States, schools, and community organizations to enroll children. Yet last year, when the Congress was working on an SCHIP reauthorization, the President’s

budget included no funding. Would you elaborate on why the administration reversed course and included outreach in this budget?

Secretary LEAVITT. It was consistent with the spirit and letter of

the extension, and we attempted to take that extension and create

a budget that approximated the will of the Congress.

Senator GRASSLEY. All right. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Kerry? No, you are not next. Senator Wyden is next.

Senator WYDEN. Thank you, Mr. Chairman.

Welcome, Mr. Secretary. I have long felt, if you are going to do

anything important here, it has to be bipartisan. That is what we

are trying to do with the Healthy Americans Act. We are anxious

to work with you as well, Mr. Secretary.

Let me also say, we appreciate Senator Grassley, Senator Crapo,

Senator Stabenow, all of whom have been part of this effort as

well.

Mr. Secretary, I believe that you care about the poor and the less

fortunate, but this budget does not care about the poor and less fortunate. You have to defend it, that is your job, but it seems to me

that much of it is indefensible. I share your view, for example, that

there is a way to find savings in these programs. But I think, for

example, it makes more sense to start with ideas like helping people buy quality, for example, with respect to providers and technology.

So my first question to you is, with the American people understanding that the health care system is broken and they want

Democrats and Republicans to work together to fix it, why can we

not get the White House to say that they will be part of an effort

to reform the system and go where six Republican U.S. Senators

are going and say that, as part of that, you have to cover everybody?

Secretary LEAVITT. Senator, first of all, the President has made

very clear that every American needs to have access to an affordable insurance policy. We are anxious to see government play a

productive role in organizing a system where that can occur. You

will know from the many hours we have spent together working to

find a bipartisan solution to this that I believe it is possible.

A very important part of that would be what was referred to earlier and correcting the blatant discrimination that exists in this

country’s tax code against people who have to buy insurance outside their employment. That would be a giant step forward. There

are proposals being put forward by a Republican President and

proposals being made by various members of this body who support

variations of that tool. That would be a substantial step forward.

If we could take that proposal, debate it this year, and do something about it, we think it could add as many as 20 million people

to the rolls of the insured.

Senator WYDEN. Mr. Secretary, I would only say that there is a

big difference between access and coverage. What the six RepubVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
12

lican U.S. Senators have said as part of a bipartisan effort is that

there would actually have to be coverage in return for making the

various marketplace changes. I look forward, through the year, to

continue to have the discussion.

Now, it seems to me that, in terms of this budget, one area that

is going to work a particular hardship is, there is an awful lot of

shifting of the cost to the States. I would assume that there would

be very strong opposition from the Governors Association to this

proposal. Am I right in that? Have you run this by the Governors

Association? Because I look, for example, at the provision that limits Federal matching funds for such things as case management. I

have heard again, if we are going to keep this bipartisan, Democrats and Republicans at the State level are very concerned about

the fact that this budget shifts costs to the States.

Secretary LEAVITT. Senator, as you know, I sat in one of those

chairs for a time and feel like I am somewhat sensitive to the feelings of Governors and the States. For example, on case management, we support case management. We think it is very important

and vital to the management of Medicaid. But what we found over

time is that case management is being used as a means of being

able to fund a lot of things that are not health-related. For example, in one State that I am aware of, Medicaid funds were being

used for child protection, and for adults receiving protective services, and probation and parole. That was not the intent. So we are

just trying to close that kind of thing.

Senator WYDEN. On the point of the Governors Association, do

you think that there is going to be support in the Governors Association for this proposal?

Secretary LEAVITT. I doubt it. But I can tell you that it is the

right thing to do. I have found over time in my experience as Governor that States are as anxious as anyone to have as much help

as they can from the Federal Government, and they will optimize

it and should not be expected, I suspect, to do much less than that.

But that is the reason we have a Secretary of Health and Human

Services: to make certain that the program is managed in a fair

way, and I am doing my best to do that.

Senator WYDEN. On your watch we still have an opportunity to

influence the debate. You have 12 U.S. Senators. If you can bring

the White House over to saying everybody ought to actually have

coverage, not just access, you are going to have 12 U.S. Senators,

as Senator Grassley indicated, wanting to work with you in a bipartisan way. I hope we will go as far as we can in that direction

through the remainder of the year.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Grassley would like to speak.

Senator GRASSLEY. Yes. I hope my colleagues will just give me

30 seconds. You do not have to respond to this. But this is what

I did not understand that my staff quickly put in front of me. We

have a CBO document. This is about the $10 billion that you said

we were starting with last year. CBO says that that was $4.16 billion, and the Congressional Budget Office says that the actual cost

was going to be $2.62 billion. This gets back to, when Al Hubbard

was working with you on this issue, I kept telling him what CBO

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said versus what you folks are saying. He said, we do not understand what CBO said.

Maybe I said this even to you, and maybe you said the same

thing to me, that I would be glad to get you together with CBO so

we can understand it. So we are right back where we were of not

understanding it. But I want to make it clear that CBO does not

agree with you that you started out with $10 billion. So, I just

wanted to make that point. If you want to respond and, if the

chairman will let you, it is all right with me.

Secretary LEAVITT. We had conversations with CBO. I think we

basically concluded we were counting different ways. I would like

to keep the conversation going. I would still like to see us be able

to resolve this and get the numbers right. I think if we get the

numbers right we can find the policy, or at least if we get the right

policy we can find the right numbers.

Senator GRASSLEY. Since the chairman stepped out, Senator

Schumer is next.

Senator SCHUMER. Thank you. I think I would be next even if he

did not step out.

Senator GRASSLEY. Yes, you would. You would. I would not show

any favoritism he would not show.

Senator SCHUMER. Well, thank you, Mr. Ranking Member, and

in absentia, Mr. Chairman.

I want to thank you, Secretary Leavitt, for coming. My first questions are on generic biologics. I would like to focus on the proposals

included in the President’s budget, 2009, for FDA. The proposal is

a new regulatory pathway for follow-on biologics. The budget states

that such a pathway should ‘‘protect patient safety, promote innovation, and be financed by user fees.’’

As you know, Senator Clinton, Chairman Waxman, and I put in

legislation in this regard. We got a good working group, Senator

Enzi, Senator Kennedy, Senator Hatch. We came to an agreement,

but could not move forward because of timing issues. So I was really pleased to see that the administration included a proposal in the

budget. It really would create great savings for both our government and our citizens.

Biologic spending grew by 127 percent from 2001 to 2005. Eleven

billion dollars was spent in 1994, $45 billion today, $60 billion estimated in 2010. The top five biologics marketed in the U.S. account

for more than 30 percent of Medicare Part D spending, which is

huge.

So I think it is imperative we make this marketplace competitive

so the Medicare program gets the best possible deal. In that regard, I am very glad that you have come forward.

This morning, I spoke with Commissioner von Eschenbach, who

yesterday came actually and visited with my staff. I was saluting

the Giants in New York, I am sure something you will agree was

very important and necessary.

But in any case, we sat down and said two things: one, that we

wanted to work together, that basically, while there might be differences, there are no insurmountable obstacles in the way of the

administration and some of us coming together on a proposal; and

that, instead of the administration submitting a proposal, we would

14

sit down and try to do something jointly. Does he have your support in that general endeavor?

Secretary LEAVITT. Indeed. Senator, we believe that follow-on

biologics are an important medical development, and we would like

to see them expanded in their generic form, like we would all

generics. We would very much like to see the market competitive.

We are working through some pioneering here in trying to figure

out how to do it well, and there are lots of issues that you are familiar with. I will not recount them. But we are anxious to see a

bipartisan proposal that could be arrived at.

Senator SCHUMER. And the idea of not either of us putting down

a proposal, but trying to come up with a joint one meets your approval?

Secretary LEAVITT. That seems to me to be a better approach. If

we could reach agreement, we would get somewhere.

Senator SCHUMER. Good. All right. Great.

Now, just to get into some principles here, some important principles, but I think ones that are not going to be in the way. There

are three principles that I have always felt, and many of my colleagues: we need a clean pathway approval that is driven by

science and allows the FDA discretion based on that science. Second, we must allow for interchangeability and comparability that

is critical to achieve the savings. A pathway without interchangeability does not really help either competition or scientific advancement. And three, we have to have a mechanism to resolve patent

disputes efficiently that incentivizes the parties to come to the

table to provide a reasonable period of exclusivity. Those are general principles.

Now, one principle you have put on the table is a user fee to pay

for this, and that is something that I would certainly entertain,

and think that as long as the proposal had these kinds of things,

that a user fee would be well worth it. Do you agree with that basic

outline, that those three principles are important and could be combined with no interference with the user fee to make it happen?

Secretary LEAVITT. That is a succinct outline of the principles in

question. What we have to find is a way to apply those great principles.

Senator SCHUMER. All right. Good. That is terrific. We will get

our sleeves rolled up and start working with the Commissioner

right away.

My next is a less friendly subject, I guess, which is IME (Indirect

Medical Education). We have a shortage of physicians all over this

country. I go to Upstate New York. I have been interested in diabetes, and we have diabetes legislation, Senator Domenici and I, to

try to change the way we fund it so it will do early——

Anyway, so I go and meet with endocrinologists. I have not met

a single endocrinologist from Upstate New York who was either

born or trained in the United States. I asked the hospital administrators, and they just cannot get them. This happens with doctors

everywhere. I think if you go to any one of our States, the proportion of foreign-born, foreign-trained doctors is huge.

Yet, the budget proposes devastating cuts to IME. Obviously it

affects New York, which is the center of medical education. About

1 out of every 8 doctors is trained in New York. People come from

15

all over the country. They go back home. They get great training.

It is one of the best things we can do. Your cuts would mean about

$4.3 billion over the next 5 years.

So my final question is, how do we ensure we are not making the

physician shortage even worse when we are cutting funds to the

teaching hospitals for the purpose of training physicians?

Secretary LEAVITT. We are in agreement that we need to have

medical education. That is obviously what creates the viability of

the system on a long-term basis. Time today will not allow for an

extended conversation on this, but let me just say I think the system is illogical, and in some cases creates a double payment. We

are just looking for ways to refine the system, not to eliminate it.

Senator SCHUMER. I think you have done a pretty good job of

chopping it up pretty good, but we will talk about it later.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Next, Senator Kyl?

Senator KYL. Thank you, Mr. Chairman.

First, let me just comment that I find some of the discussion here

a little distressing, and it comes from good friends on the committee. My good friend from Oregon always urges bipartisan discussions, but then the comment that this budget does not care

about the poor. Of course, the budget is not an animate subject, it

is inanimate.

But the people who put it together obviously care about the poor,

so I think we want to start a conversation on the basis of recognizing that everybody is trying to do the right thing here. My colleagues talk about ‘‘huge draconian cuts.’’ The chairman complained about ‘‘meat ax cuts,’’ and then asked what we could do

about trying to get costs under control.

What the Secretary has tried to say here, and I think it is worth

repeating again—and I would like to ask you to tell me if I have

this straight, Mr. Secretary—is that essentially what you are trying to do is to recognize that markets set prices. We do not have

a single-payor, one-size-fits-all government program here. We rely

upon private market forces to work, insurance companies, physicians, consumers making choices, that then can affect prices. What

I take it you have said is that, in your budget, you are trying to

create opportunities for consumers to affect prices, to influence

them to go down as one of the ways to cut consumer costs.

Do I have that right, or would you like to expand on that?

Secretary LEAVITT. I would just say it in a slightly different way.

I would say that I believe that, if consumers were informed about

quality and cost, they would make decisions that would drive the

quality up and the costs down. They are provided with very little,

either in Medicare or anywhere else in our health care system.

The point that was made earlier, I agree with. In order to have

a sustainable Medicare Program, we have to create a system of

health care generally because Medicare is a big part of the market.

Medicare can be a part of reforming the market, but it is subject

to the foibles of what I think is market-insensitive to consumers.

Senator KYL. And politicians always talk about, we have to do

something about runaway entitlement costs. I do not know of a colleague who has not made that comment at one time or another.

16

Yet, when the budget comes out trying to reduce the rate of

growth, it is characterized as cuts, as I said, ‘‘huge draconian cuts,’’

‘‘meat ax cuts.’’

Now, as I understand it, with regard to Medicare there is no cut,

but rather you are assuming with this budget a rate of growth of

approximately 5 percent rather than a rate of growth of about 7

percent and, with respect to Medicaid, a rate of growth of about 7.1

percent as opposed to 7.4 percent. Is that roughly correct?

Secretary LEAVITT. That is precisely correct. I would add that, if

we allowed it to continue to grow on auto-pilot, Medicare will essentially run out of money 11 years from now. If it is allowed to

continue beyond that, within 30 years it would subsume every

piece of the Federal budget. Everything we spend for defense, everything we spend for highways, everything that goes to education,

everything that goes to R&D would be taken up by Medicare. This

is an emergency, and it is not very long in coming. Eleven years

will happen fast.

Senator KYL. And, in fact, slightly reducing the rate of growth

to the rate of growth that you project in the budget is not even,

in and of itself, enough to solve the problem that you just articulated. Would additional policy changes not have to be made in

order to ensure that the rate of growth does not get to the point

that you articulated?

Secretary LEAVITT. We need more than a change in budget, we

need a change in philosophy. That philosophy could work to the

benefit of consumers because it would give them choices, higher

quality, lower costs. It would, in fact, make Medicare sustainable.

Senator KYL. So just to reiterate, is the net result of the budget

that you have proposed here a cut in Medicare or a cut in Medicaid?

Secretary LEAVITT. Let me say without equivocation, there are no

cuts in this budget. It will continue to grow at 5 percent a year

over the next 5 years. Medicaid will grow as well. We are simply

reducing the rate of growth.

Senator KYL. Thank you, Mr. Secretary.

The CHAIRMAN. Does that adjust sufficiently for inflation increases and population increases?

Secretary LEAVITT. Well, medical inflation is a function of exactly

what we are talking about.

The CHAIRMAN. I am asking on this debate over whether this is

a cut or not. I mean, does your budget accommodate inflation increases over the years? Does it also accommodate population increases over the years?

Secretary LEAVITT. The budget grows at 5 percent per year. You

can apply that to whichever of those factors you would like.

The CHAIRMAN. All right. Well, I think net is going to be more

than that.

Senator Roberts? You do not have to do it now. We can always

go to somebody else.

Senator ROBERTS. I am getting my track shoes on.

The CHAIRMAN. All right. Let ’er rip.

Senator ROBERTS. I have not started yet. Put that back at 5.

[Laughter.] Thank you. About 5.30, because that is what it is going

to take.

17

Mr. Secretary, thank you for coming. Thanks to the Senator from

Arizona for pointing out some things we all need to hear. Thank

you for your comments on Medicaid Part D for the greater growth

and the lower cost, and more savings on premiums, and 85 percent

of the people agreeing that this is a better program. I know that

the chairman indicated we need to get that 85 percent figure up.

We cannot even get 85 percent of the Senators to come back and

vote or decide when to adjourn around here, so I think 85 is pretty

good.

Let me just say that I have the privilege of being the chairman

of the World Healthcare Caucus, in view of the fact of the passing

of our dear friend, Craig Thomas. He was a strong fiscal conservative. He wanted Medicare to be fiscally sound, but he also knew

that funding for the rural health programs was absolutely critical.

The President’s budget—and this is discretionary, not entitlement—does propose a $150-million cut in rural health programs,

the Health Resources and Services Administration. Two programs,

rural outreach grants and rural hospital flexibility grants, are proposed for elimination, yet they have been very vital to our success

in Kansas and other States like Kansas. Several other rural programs are proposed for flat funding, yet the needs of the communities continue to grow.

The budget proposes to reduce funding for the National Health

Service Corps and completely eliminate title VII of the Health Professionals Program. Yet, as has been pointed out, we have a health

professional shortage all across the country, and more especially in

our rural areas. As a matter of fact, the HELP Committee actually

approved legislation to renew this program and to increase funding

over the next 5 years.

As the chairman also pointed out, the President’s budget also

proposes to significantly reduce—I do not know whether you want

to get into the business of ‘‘cut’’ or ‘‘reduce’’ or the ‘‘reduction in

growth’’—Medicare and Medicaid programs for hospitals, home

health care providers, nursing homes, and others, more especially,

the friendly hometown druggist who has to administer Medicare

Part D, yet he cannot get reimbursed for the generic drugs to give

to the senior.

I am not going to get into that, but that is part of the problem.

We need to return to a policy of fiscal responsibility and transparency. I agree with that. We need to get a handle on it. We need

to have a change of philosophy. But I do not want to be in the business of tying the hands of our health care providers, especially

those in the rural areas, and ultimately harming our seniors and

our low-income populations by restricting their access to care.

The largest reductions in your budget come from freezing hospital payments over the next 3 years. In Kansas, they have put this

on paper. That would translate to a $653-million cut to our Kansas

hospitals over the next 5 years. We cannot do that and stay in

business. From 2000 to 2006 in Kansas, our hospitals State-wide

have experienced losses treating Medicare patients. In fact, the

State-wide Medicare margin in 2006 was a negative 2.2 percent,

even though in the Kansas City area one was 13 percent, and the

big regional hospital in the middle of our State, 8 percent.

18

MedPAC recently recommended a full update for hospitals in

2009 because of a similar negative Medicare margin. Given all this,

I just do not see the President’s proposed payment freezes as a sustainable option. We have a lot of hospitals that have passed bond

issues. We are down to the marrow of the bone. That has been

going on for some time.

Home health care. I have stated over, and over, and over, and

over, and over again, because I strongly believe in the service that

our home health care folks do provide for our seniors, I fear that

further reductions in their Medicare payments will come close to

devastating their ability to provide care.

Home oxygen payments. Patients and providers are already

about to undergo tremendous change in the next 10 months due to

the implementation of the competitive bidding program that has

really created a lot of confusion and exasperation among our home

health care providers. This was supposed to be announced in

March with the metropolitan service area that is in Kansas City.

We have 428 home health care providers. The minimum that

could get a bid from Medicare is five. What happens to the other

423? They do not know. I do not even know how many have entered the bidding program, which means you are going to have existing home health care providers who do not know if they are

going to be in Medicare or not. They are waiting to hear from CMS

on round one. CMS has announced plans to move to round two, and

we have not had anything back. If you could get a hold of Mr.

Weems over there at CMS, tell him we need the news.

January will bring the end of certain monthly oxygen provider

payments and the transfer of equipment ownership to thousands of

seniors. Think of a World War II veteran. He now has ownership

of the oxygen tank. He says to his wife Mabel, ‘‘Mabel, how do I

attach this oxygen so that it works?’’ She says, ‘‘Well, it would be

a good idea, dear, if you would put out your cigar.’’

I just do not think that that is the right way to go. This is the

perfect storm. I want to be on record stating we should not exacerbate this by further reducing the oxygen benefit or deepening home

health care cuts before we know the full impact of existing cuts and

policies on the Medicare beneficiaries.

Mr. Secretary, you said Medicare is going broke, and it is. Over

a period of time, that is where we are. But the other side of it is,

the providers cannot afford Medicare because they are not being reimbursed at cost. So you can fix Medicare all right, but if hospitals

opt out, like a lot of doctors do now, and set up specialty hospitals,

and we have the community hospital that is faced with even more

cost, and we have a bifurcated health care system with one system

not having Medicare and the other system having Medicare, you

are sure going to reduce costs, but we are not going to have a program.

The same thing with druggists, the same thing with home health

care providers, the same thing with ambulance drivers, the whole

universe of health care. And I tend to really try to highlight the

rural health care delivery system, but it is true everywhere. Sure,

we will fix Medicare, we will get those costs down, but there are

people who will not take part. Then what does the senior do? That

is the question, it seems to me.

19

Now, I have not left any time for a response. I am sorry about

that. Thank you for testifying. Thank you for your continuing to

work with the committee.

Secretary LEAVITT. Thank you. In absence of the chairman,

maybe I will respond. Senator?

Senator KERRY. Go ahead and do that for a little while.

Secretary LEAVITT. I think the Senator raises some very good

points. Let us acknowledge that Medicare is a governmentregulated price-setting body. The government sets the price. We decide what is important. We essentially decide who gets to be treated and how much they are treated. It is a blunt and insensitive

system in many ways.

What we agree on, I think universally, is it has to be fixed. What

we cannot ever agree on is what specifically ought to be fixed, because we are making these decisions in an atmosphere that creates

different priorities. That is the reason I feel so strongly that the

change of philosophy is, rather than having a price-fixing system,

we ought to have a competitive marketplace where the invisible

hand of the marketplace does its work in a way that is substantially more wise and efficient.

Now, competitive bidding is a very interesting example of all of

this. The models and pilots we have done on this lead us to believe

we will save more than 20 percent on the areas we are doing competitive bidding on. That is an efficiency that will not be unfelt, but

it will likely be more fair than if we were using a regulatory process to do that. Now, it needs to be fair, and we will get better at

it as we go. But I want to underscore that this is an effort to try

to use the marketplace as opposed to regulatory setting where,

frankly, there are always political influences and so forth that come

into that.

Senator ROBERTS. Would my colleagues permit me just 30 seconds to respond? Thank you.

As I indicated, we have 428 home health care providers in the

metropolitan service area of Kansas City. The minimum that is in

statute says that you could have that bid go to five. Well, I hope

to heck you do not just give the bid to five, because that is going

to be 423 home health care providers that will not have Medicare.

I do not know what is going to happen to the people they serve.

If they get out of Medicare and there is just private industry, I do

not know. I guess my point is, again, you have to look at the providers.

If you have a program but you have no providers—and they are

in the same situation. They would agree with you, because we are

not getting at the cause of these rising health care costs. We are

rationing health care now in rural areas. Here we have home

health care providers, 428 of them. Half of them, I do not even

know if they have applied. To apply was like going through a briar

patch. There was a 1–800 number, dial 1 for this, dial 2 for all

sorts of gobbledy-gook, and you could not understand it. You had

to hire somebody to figure out how you applied. Then you wait, and

wait, and wait, and it is extended, and extended, and extended. We

still have not heard, and yet we are now moving to phase two.

What worries me is that you are not going to have a majority,

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care. Then you know what will happen. We already have sharks in

the waters, and that is the big operations. They come in and say

to a small home health care provider, guess what, I will offer you

X, and that person thought that their operation was worth XX, but

they are getting out. Then you have just a very small group of

home health care providers, and then your costs are really going

to go up.

Secretary LEAVITT. If we were to exclude so many people that

people could not gain access, or what you suggest happened, it

would not be a success. But every likelihood, in my judgment, is

we will see dramatic reductions in our costs, and Medicare beneficiaries will still have access to the supplies they need. That is the

way we need to define success.

Senator ROBERTS. Well, we may have a lot of babies born in pickups if we are not careful.

Secretary LEAVITT. Probably not for Medicare beneficiaries.

[Laughter.]

Senator ROBERTS. No. I am just talking about the hospital that

may not exist any more.

Thank you.

Senator KERRY. Thank you very much, Senator. I appreciate it.

Mr. Secretary, thank you. I know you were hearing from my colleagues. I was here and I heard the opening statement of the chairman, and I agree with significant components of it.

But let me pick on something that we agree on first just for a

moment if I can, because I want to at least get the record clear on

how this might be helpful. That is on the issue of e-prescriptions.

We have a bill, a bipartisan bill, that we put in which would require physicians to adopt e-prescriptions, and ask in return that

every physician in Medicare adopt this practice by 2011. Every

independent analysis indicates this saves lives, it saves money, and

Medicare spending will be curbed if it is passed. I think it should

be passed, and passed quickly. Do you agree with that? Do you

agree with the judgment that it saves lives, prevents errors, and

that Medicare ought to adopt this rapidly?

Secretary LEAVITT. It saves lives, it saves money, and it saves

time. Two years ago, I do not believe I could have said we were

ready, but we now have succeeded in developing technology and

having standards. This is the moment we need to begin to create

that expectation that, if you are going to be reimbursed at the

highest rate, you need to provide it to us in the most efficient and

safe way.

Senator KERRY. So the standards are in place and the technology

is there and we could go forward, in your judgment?

Secretary LEAVITT. In my judgment, we could. We support it and

hope very much at the first available opportunity we can do that.

Senator KERRY. Well, I hope we will also, and I thank you for

that.

Now, let me come back to this budget for a minute. It is really

hard not to draw the conclusion that this is—and I have always

had a lot of respect for you, and I think you are one of the more

articulate persons in the administration. I know your history in

your State as a Governor, and I respect it, so I do not know comVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
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pletely whether this is of your design or someone else’s. That is not

a question.

But what concerns me is, there really is a big ideological statement in this budget. Rather than engage us in an effort to do what

we all know we are going to have to do—I mean, I heard you mention in your opening statement the significant challenge to Medicare. It has always perplexed me that the President chose to try

to fix Social Security for the future and protect it, when Medicare

goes bankrupt way before Social Security and is a bigger problem

in many ways. Social Security is easy to fix compared to some of

the struggles we have here within health care.

Yet, here you come with a budget that presents massive cuts

that almost bureaucratically seeks to deal with CHIP, the Children’s Health Care Program, that we wanted to do in a constructive, broader way with about $35 billion, not the $20 billion, but

you are doing it administratively here. It is hard to see the credibility in that kind of approach. It is hard to see how, when you are

tackling Medicare, you come at this with these kinds of cuts. You

kept talking, in your statement, about a government decision and

a government-run this, and a government choice here or there. I

do not think we are getting a lot of letters from Medicare beneficiaries telling us, scrap the system.

I do not think we are getting a lot of letters from them complaining about having health care. They certainly do not say, get

the government out of my health care life. Surely they would love

to have a system that works as effectively as possible, but here you

present us with these massive cuts without tackling Medicare Advantage, without demanding anything from the pharmaceutical industry, without any of the sort of systemic proposals that we ought

to be looking at to do this as a whole.

You come in here and you have cuts on the skilled nursing facilities this year and annually thereafter; hospice update annually

thereafter; inpatient rehabilitation facilities, annually thereafter;

long-term care hospital, annually thereafter; outpatient hospital,

annually thereafter; ambulance, annually thereafter; ambulatory

surgical care centers, annually thereafter; home health, annually

thereafter. You just run through this, and it is just sort of gutting

the concept without really looking systemically at the problems.

I rode down here this morning on a plane with a consultant to

Human Resources who specializes in benefit plans in health care.

We were talking about it, and there are sort of three things driving

the rise of health care in his judgment. One, is knowledge. We have

better knowledge about how to help people live longer and how to

take care of people, and we want to apply that knowledge, and doctors do, and people want it and they know it is there. We have better technology. Technology keeps increasing, and it costs more. We

have better pharmaceuticals, and they keep people alive, and people want them.

So it is driving it in an open-ended way. We all understand that.

Senator Wyden and Senator Stabenow and others have been working at this long and hard. Why come in with a budget that just sort

of says, boom, we are cutting, without any regard to all of those

pieces that play in this? It just does not seem responsible. It does

not seem constructive. As the chairman said, it is not going to hapVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
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pen that way. So why are we not engaged in a better discussion

here as to how you fix this thing big-time and save some money

and give the Americans the best health care system they could

have?

Secretary LEAVITT. Senator, I would love to respond to this. This

is the fourth time——

Senator KERRY. Well, whether you would love to or not, you have

to, right? [Laughter.]

The CHAIRMAN. Also, Mr. Secretary, briefly.

Secretary LEAVITT. Lucky for me. Briefly, let me say this is the

fourth time I have been privileged with presenting a budget. Each

time I am required to go through a price-setting system where, in

order to present a budget that can be scored under the current

rules, I have to deal with the price-fixing system. If I could present

a budget that would say, let us take a look at what would happen

if beneficiaries of Medicare had quality measurements, if they had

electronic medical records, if they had price comparisons, if they

had choices, I believe that we would begin to see prices fall and

quality go up.

But we cannot score that, so we are left with coming and making

a group of presentations here that—I mean, you are talking about

$186 billion. You could make those reductions. Do I expect you are

going to? No. But it is very important that people understand, we

have a serious problem and we have to deal with it. If we want to

be able to put forward that kind of proposal, we ought to have that

conversation because we——

Senator KERRY. I am not going to disagree. I will wind up, Mr.

Chairman. But I am not going to disagree with you on the scoring

issue. Mr. Chairman, we need to find a way. I have had this problem when I presented, in 2004, a health care plan. All kinds of savings were unscoreable. All kinds of reasonable things were

unscoreable. It is just ridiculous.

We are locked into a system where we have to sort of deal with

a fake budget because somehow things that people in the real

world in business can go out and give you a value for cannot, by

government, be scored. That is just crazy. I think we ought to dig

at that so that we can kind of maybe have a better conversation.

I know time is ticking on this administration, but maybe you could

help us do that and we could have a better conversation about all

of this.

Secretary LEAVITT. This is a subject that not only have I given

a lot of thought to, we have done a lot of work on it. Time is up,

but I would love, in a different round, to have you tee me up and

let me break into song over this.

Senator KERRY. Well, we will work on it.

The CHAIRMAN. Thank you. Thank you, Senator.

Senator Smith?

Senator SMITH. Mr. Secretary, thank you for being here. I actually feel a lot of sympathy for you because you are constrained by

budget rules, scoring rules, from presenting, from what I hear from

you, a market incentive system that I suspect in the end the American people would find more satisfying than what is being offered

on the campaign trail now, which are command-and-control sysVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
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tems. It sounds great as a theme: health care for all, and the government will make sure you get it.

I just know when they put flesh on those bones, the American

people are going to hate that when they see what it means. With

all respect to Senator Kerry, I hear a lot about Medicare and usually it is because it is so bureaucratic and so few physicians are

willing to participate in it any more, that despite the benefit the

government provides for them, they cannot find a physician to care

for them.

When you add it all up and you come to the bottom line, basically these programs are government command-and-control systems so that all of America will be on Medicare. The assumption

is that government can provide these services, displace the insurance industry, at a cost less than the current system. I just do not

know that there is any evidence of that anywhere in history that

that is the case. I know that there aren’t even numbers. People say

look at all the savings here, the profit centers there, but the government costs have never been factored in in an honest way as to

what its costs would be, and then all of America would be on Medicare.

Now, maybe that is where we are going. But my friend the chairman talks about, the problem is not demographics, the problem is

cost. Well, as a businessman, I know how you deal with cost. You

cut things out, you ration things, you eliminate, you reduce investment, you figure out how to do what government does, and you are

forced to do, in this budget, which is reduce numbers so that you

can show a bottom line that gets you to some balance.

So I have real sympathy for you. I do not hear a lot of answers.

I want to exempt from what I said the Wyden-Bennett idea, which

at least makes some proposal for the private system to provide

some competition. But I have sympathy for you. That is basically

what I have to say.

Secretary LEAVITT. I like this round of questioning. [Laughter.]

Senator, could I just—unless you want to——

Senator SMITH. Well, I do have a question which stands in stark

contrast to what I just said. That is a concern that I have, and I

have to ask it because we are stuck with these budget rules. You

are stuck with these budget rules. But, as I have noted before in

hearings like this, you have been one of my champions when it

comes to mental health and when it comes to youth suicide prevention. The Congress, last year, plussed up the Garrett Lee Smith

Memorial Act to $40 million. To be at a current service level, we

are going to have to be at $48 million this year.

There are about 4,400 kids a year in America who take their own

lives. It is an epidemic. It is a problem. I actually think that government, with the kinds of programs we have going throughout the

country—I get letters every week from some parent whose child’s

life was saved through the intervention of those funds, those programs that now exist on college campuses, in States, and on Indian

tribe reservations. I just think we need to do that. I mean, I just

think that we have to live up to this very crying problem in our

country. Your budget says the number is 27, not 40, not the 48 that

it needs to be, because you are stuck with the budget rules, because we are watching a train wreck in slow motion here.

24

So obviously you are going to see me fight for full funding, and

I hope the President will support it. Sometime, Congress is going

to have to face up to whether we are going to have a commandand-control medical system or whether we are going to go to a market incentive system, somewhat like Medicare Part D—not perfect,

but as you noted, it is very successful, as noted by all the senior

polls that I have seen on that issue. But if you can respond.

Secretary LEAVITT. I can respond in two parts. First, with respect

to mental health, since I last appeared before this committee, I was

assigned by the President to go to 13 communities where they had

tragedies that were rooted, in most cases, in mental health. This

was triggered by the tragedy at Virginia Tech.

I became more and more aware, as I traveled, that we have gone

through, in the last 25 or 35 years, a substantial change in the way

we treat mental illness. We have gone from institutionalizing to

more treatment in community settings. We very successfully deinstitutionalized. We have not done an adequate job yet of being

able to build alternative resources, and hence I see that as a priority.

With respect to your first point, may I just say I see very little

about health care in this country that you could call a system. We

have a large, robust, rapidly growing health care sector, but none

of the things that make an economic sector into a system are

present. We have to change that or we will never solve this dilemma in Medicare, and we will not solve the dilemma that employers and the public in this country face over the next decade.

There is a reason. There is a reason that we spend twice as much

as any other industrial competitor of ours without substantially

greater measures of success. It is because our system is saturated

with inefficiencies that only the invisible hand of a well-organized

market can find. We will not find that in a budget where we are

using price fixing.

Senator SMITH. Mr. Secretary, my time is up. I just want to note

for you the 1–800 Medicare Part D call system. You need more

money in there if you are going to keep that system with the service levels that it needs to preserve a program that is successful,

good, and getting better, as the call times take too long. I have

talked to Kerry Weems about this and made suggestions, but it is

not reflected in the budget.

Thank you.

The CHAIRMAN. Thank you. Adam Smith’s ‘‘invisible hand’’ is basically referring to, everybody is out for himself to get the most he

or she can get. That is what I am saying, it is partly consumers,

but it is also providers. Today, providers, understandably, are trying to get what they can get. So when we talk about the ‘‘invisible

hand’’ of Adam Smith, we have to be careful in remembering, we

all are Americans. We are all together here. The main goal here

is to get the best health care possible for the least cost. That is the

real goal here. I know we agree on that and we do not have time,

because other Senators need time to speak here. But competition

is important, but the real goal is better health care for all Americans at the lowest possible cost. That is the real goal here.

Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

25

Welcome, Mr. Secretary. I want to ask a couple of questions, one

regarding Medicaid and a rule that is upcoming in March that is

having a significant impact on my State of Maine, and I think

across the country, on targeted case management. In the Deficit Reduction Act, it was scheduled to achieve $760

million in savings, and now it is up to $1.2 billion. It is going to

affect a very vulnerable segment of our population, particularly in

the foster care arena. It is inconsistent with the statutory requirements in the Deficit Reduction Act in terms of limiting the number

of days that would be available for targeted case management and

services that would be provided to a very vulnerable population

that has complex physical and emotional problems, transitioning to

the community, because they cannot get those services until they

are in the community, and limiting the number of days in which

they can receive them.

So in all combination, this is going to have a draconian impact

on States that are serving these populations. I am sort of surprised

that the rule went this far, and the timing of it. I would hope that

we would have a moratorium. Senator Coleman has introduced legislation for a moratorium until April of 2009. I know the National

Governors Association has written to the Director of CMS on this

issue, that it is very inconsistent and really contrary to the money

following the person initiative so that we can help these individuals

to transition into the community.

Secretary LEAVITT. Senator, could I explain the problem I have

as the person trying to administer this? As you know, I served as

Governor, and I know that States look at these programs and say

we need to optimize the value we get from Medicaid and we need

to find as many ways as we possibly can to attract a Medicaid

match.

Well, what I found is that there are many States that do things

like buying school buses with Medicaid money. I see them creating

recreation programs. I see them doing foster care. I see them doing

all kinds of things that are not medical services. They try to wrap

Medicaid around it so that we will match their dollars.

Medicaid has a very specific and important role that is not buying school buses, or building buildings, or creating other programs.

We are just trying to find a way to bring that into a sense of good

management. We are not doing it to be unkind, we are not doing

it to be anything other than fostering the program as it was intended.

Senator SNOWE. Well, I think the essence of the National Governors Association’s letter to the Director of CMS certainly indicated working out the issues, whether it is making sure it is consistent with the law, and those where the rule is inconsistent. Obviously you have gone far beyond; when the original projected savings was $750 million, now it is up to $1.2 billion. This is going

to have a severe impact on some of the most needy.

You mentioned foster care. Absolutely. In our State, for example,

for young people who have a lot of physical and emotional problems, these are the vulnerable out of our population, and they need

to have these services. If you pull the rug out from underneath

them, they cannot make that transition and cannot get the care

that they need and the services they deserve. So I hope we can

26

work this out because it is going to have an impact. And discerning

where there are some egregious problems, absolutely, we should

address them.

Secretary LEAVITT. That is the cooperation I would like to seek

from you. The reality is, there are abuses and cheating the system.

Senator SNOWE. Well, then can we work on it? Because this rule

is scheduled to go into effect, I think it is, March 3. So, I think the

timing of it makes it very difficult. I hope in some way we can work

that out and go from there, because that is the problem with the

deadline that is looming.

Secretary LEAVITT. The estimate you indicated of the savings was

larger than projected. It is very possible there was more of this

than we thought. That is the problem we have had, because there

is a lot of money going out the door to things other than health

care, and we just need to isolate it to health care.

Senator SNOWE. On the second part, on Medicare, I think we all

understand that we have some challenges—significant challenges—

for the present and for the long term. My concern is, you mentioned that it is a reduction in the rate of growth. But ultimately,

it represents a broad-based cut because you have an increase in the

number of people being served by the program, increased costs in

the delivery of health care services. I mean, the cut in Medicare, the $182 billion, is going to represent a 15-percent cut for physician payments. You are cutting

long-term care, hospice, home health care, hospitals, across the

board. Yet there are no savings, essentially speaking, from the

Medicare Advantage subsidies, of which, over the next 5 years, are

scheduled to be $50 billion. Now, the chairman of MedPAC, the

Medicare Payment Advisory Commission, said in fact 50 cents of

every one of those dollars goes to the beneficiary. All the rest goes

for administration, overhead, and profit.

So why are we not making it far more equitable in drawing from

those subsidies that go into the Medicare Advantage program? I

mean, the Director of CBO, Peter Orszag, said to us recently, it is

very difficult to get any information from CMS regarding the performance of Medicare Advantage programs. Why are we not demanding the same level of standards?

When you are talking about a program that is receiving $50 billion in subsidies, 12 percent above the traditional fee-for-service—

if all the beneficiaries moved over to the subsidy in the Medicare

Advantage program, it would cost us $250 billion more, given the

level of subsidies and the costs. He said there is a paucity of data

from CMS to measure this program, Medicare Advantage. I think

we deserve more than that.

Also, they should be included in the cuts. Why are we providing

such significant subsidies when we are now asking for tax increases, cutting benefits, and borrowing for the future, and the

next generation having to pay for it?

Secretary LEAVITT. Senator, I just want to acknowledge that 80

percent of whatever difference goes to beneficiaries, which is an important point. But the fact that there is still a difference is what

you are addressing, and I would like to comment on that. I believe

Medicare Advantage is doing a very good thing. Beneficiaries like

it. It is beginning to create opportunity for people to have service

27

who otherwise would not have had it. It has been particularly popular among low-income and minority populations. People who are

on Medicare Advantage are having less trouble getting a physician,

et cetera, et cetera.

But we do need, over time, to bring this into a place where the

initial incentives we provided to make certain it was nationwide

are rationalized. Now, the better way to do that is for us to begin

to look at the way the competition takes place. I am troubled by

the fact that I am required to conduct competitions on a countyby-county basis.

If I could spread that into a larger competitive atmosphere like

we do Part D, we would see the same kinds of downward pressure,

and I think they would not only come down to the level of the other

fee-for-service plans, I believe they would go below. But we have

not set off that competitive pressure because we have been required to do this in such a narrow way. We have to have the capacity to let this work, and it will.

Senator SNOWE. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator SNOWE. Thank you, Mr. Secretary.

The CHAIRMAN. Thank you.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

It is always good to see you, Mr. Secretary. I first want to say

that I know in today’s Hill magazine that you have a column linking e-prescribing and doctor reimbursements, and certainly Senator

Kerry and I, and others—Senator Snowe has worked on this issue

extensively—have been working very hard and with the chairman’s

support, the ranking member’s support, moving in the direction of

e-prescribing. I would just note that you do nothing in this budget

to stop the doctors’ payment cut, which is totally contrary to our

ability to be able to get e-prescribing.

So I am actually, in the interest of time, not going to ask for a

response for that. But the reality is, we have been talking about

health information technology for as long as I have had the opportunity to hear you at budget meetings and finance meetings. It is

time to get this done.

On the broader note, while I have enjoyed very much working

with you personally, I have to say today I am stunned at our general conversation about Medicare. Again, this is not a question. I

have questions, but I have to say for the record that Medicare is

the only part of universal health insurance we have in this country

if you are 65 or older, if you are disabled. Some, close to 45 million

people, get health insurance. It has worked well for over 40 years.

The characterization which—I appreciate the buzz words. This

goes to a general philosophical debate that frankly will carry on

into the next year and the next administration about governmentcontrolled price-fixing, all of these great buzz words meant to scare

people. I have to say, as other colleagues have, I do not have anybody telling me that they wish we would do away with Medicare

or break it up more and privatize it more.

Yes, there have been some positives from Medicare Advantage,

but the reality is that what we have seen is a constant effort to

unravel the universal nature of Medicare and that has, in fact, inVerDate 11-MAY-2000 14:41 Mar 29, 2010 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 55469.000 SFIN1 PsN: SFIN1
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creased costs through privatization. The head of the Congressional

Budget Office said, even if we capped Medicare Advantage payments at 150 percent of the regular payment, we would save

money. It is extraordinary. It is extraordinary, what is happening.

I would argue that the way we designed the Medicare prescription drug plan, without Medicare itself, the administration being

able to negotiate the best price, just adds to it. So just for the

record, I would suggest that the efforts over the last number of

years in this administration have added to the cost and have undermined our ability, in fact, to provide health care to the 45 million people who happen to think Medicare is a pretty good system,

not that it does not need some improvements. But I think there is

a large philosophical issue that a former speaker talked about, not

being able to get rid of Medicare directly so we will let it wither

on the vine. There have been great efforts to try to have it wither.

Mr. Chairman, count me in the camp that says we want to stop

this from happening, because I could not disagree more with the

notion of Medicare as a universal system that has worked well. We

could spend all of our time having a philosophical debate, and I am

not going to do that at the moment. But that is for the record.

When we talk about CHIP, it is true, I certainly concede that the administration has included $19 billion more over 5 years. But our

bipartisan proposal needed at least $15 billion over 5 years just to

keep the status quo, so you have put $19 billion in. Our $15 billion

was to cover status quo without cost increases or inflationary increases.

Then on the other hand, you have proposed $17 billion over 5

years in Medicaid cuts that go to the same people, the same kinds

of people, the same structure, so that on the one hand children who

are the poorest of the poor, poor families, $17 billion in cuts, and

basically just enough to keep even. Maybe a little bit more, but

pretty much just enough to keep even on Children’s Health Insurance. Could you speak to that?

Secretary LEAVITT. Yes, I can. Senator, I am a little bit stuck on

the previous conversation. There are a couple of things I would like

to make certain we understand. First, I think Medicare is a commitment our country has made, and I want to make sure you understand I have no interest in seeing it ‘‘wither.’’ I see Medicare

being about healthier and better lives for seniors. I am deeply concerned about what the impact is of this system we currently have,

because we are going to go broke in 11 years. We have trillions of

dollars of unfunded liabilities, and there is nothing sustainable

about a system in the future where that occurs.

I think we would have to ask ourselves, will a Senate, a House,

a Congress ever deal with this so long as the system is as it is and

we have to go through and figure out surgically what the reductions will be? I do not think that there is much optimism that they

will, but if we can create a system where it can happen, then it

becomes sustainable.

Senator STABENOW. Mr. Secretary, with all due respect, the policy decisions that have been made under this administration have,

in large part, made it worse by adding to the cost, adding to administrative costs. Medicare itself has a 2- to 3-percent administrative

cost. And what are we trading that for? Twelve to 15 percent by

29

this constant, unrelenting effort to do what I know in your view—

and I respect that—is more choice.

I mean, my folks are asking for more doctors, not more insurance

plans. They are asking that they be able to get their medicine, get

their doctor, and be able to get home health care and so on. So we,

with all due respect, have a very different view of health care and

Medicare, and frankly how the majority of Americans view this

universal health care system called Medicare.

Secretary LEAVITT. But it is——

The CHAIRMAN. Senator Lincoln? Thank you very much.

Senator STABENOW. Thank you.

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

Welcome, Mr. Secretary. We are glad you are here.

I would like to follow up on a couple of things—I know the chairman brought it up, and so did Senator Snowe—on Medicare Advantage. The Medicare Advantage program obviously was designed by

us here to provide private plan options for beneficiaries, but it was

based on the assumption that private market competition would result in plans being able to provide good-quality coverage and extra

benefits, while costing the government less than what traditional

Medicare did, or at least 95 percent of the regular Medicare feefor-service program.

You have devoted an awful lot of time here, I think, talking

about government price controls and concerns about that. But I

only think that is a good argument if it is a completely private program. It is not. I mean, it is subsidized tremendously by taxpayers,

certainly not counting beneficiaries, co-pays, and all of that. But

more than regular Medicare, anyway, is subsidized, a tremendous

amount. In some places, I do not know, it is much as 13 to 20 percent or greater.

I know in my State—you said that there were a lot of people who

really liked Medicare Advantage. I am going to invite you to come

to my State office and answer those phones, where we have people

who are being coaxed into the program, not getting providers. Their

provider is not in the system and then they are left without care.

So I know we all have a lot of work to do here, but it is just hard

for me to believe that you are going to talk about cost containment,

you are going to talk about cutting costs and putting it back on

track, but you are going to continue to insist on subsidizing these

plans, and a tremendous amount.

Secretary LEAVITT. Senator, the plans cannot be subsidized indefinitely. The subsidy was established so that a nationwide system could be developed. I have indicated earlier today that I believe there need to be improvements in the way we make that competitive so we get the benefit design.

Senator LINCOLN. And you are not making recommendations on

that. You are just saying you think we need those changes?

Secretary LEAVITT. I am saying that we need to make those

changes. I see no——

Senator LINCOLN. But you are not suggesting what those changes

are?

Secretary LEAVITT. I am not today, but I certainly have a lot of

ideas about it, and I will be putting them forward at some point.

30

May I also say that there is no reason why Medicare could not

provide to beneficiaries information about the quality of the care

they are getting, about the cost of the care that they are getting.

There is no reason we could not provide them with incentives that

would allow them choices and information about how they can get

better quality at lower cost. If we did, Medicare would win. If we

did, beneficiaries would win. We would be able to pay providers on

the basis of value, not volume.

Senator LINCOLN. But you are talking about transparency and

assistance in terms of decision making, and yet Senator Smith

brought out the issue of not adequately funding the call lines. I

mean, when we made the transition, I have to say, I got in there

in the trenches with your bunch because I had a tremendous

amount of dual eligibles who were just left high and dry. So that

is going to cost money too in terms of what you are talking about,

because you are not dealing with people who are savvy about

health care issues and the technical parts of health care, not just

delivery, but the essence of health care.

So saying that that is going to be the magic wand that we wave

and it is going to provide these Medicare Advantage plans the ability to cut their costs down 20 percent, which is what we are subsidizing, most of them in my area, I just think it is—I do not know.

It seems a little bit unrealistic in terms of thinking there is this

magic bullet.

But nonetheless, I am certainly willing to look at ways that those

things can happen. I do agree that information is an important tool

for everybody, but I hope that we will be realistic about whom we

are dealing with, what kind of information, and what it is going to

cost to get that information and to educate those people, particularly in terms of States like ours where we have a tremendous

amount of dual eligibles and low-income seniors. That is growing

because people are living longer, technology is getting more sophisticated. I just think we are going to have a lot more on our plate

to deal with there than you are leading most people to believe.

But the other thing I wanted to make sure of in terms of clarifying—you talk about growth, that you are trying to limit or put

a reduction on growth. You are trying to say that it is not a cut.

But in many instances you have eliminated programs to do that,

so you are just looking at the bigger picture as opposed to looking

at what is happening.

I mean, I referenced your elimination of the Area Health Education Centers, the AHEC program. They have been tremendous in

States like ours, tremendously helpful in training medical professionals who are not going into these rural areas where we need

people to provide services and to have providers.

I would just say, I think you need to look at places or facilities

like that that provide a tremendous service, and others that you

are eliminating. The cuts in rural ambulance providers—those people are providing a service in a rural area and they are meeting

the same standards with one ambulance covering three counties,

compared to what you have ambulances doing in major metropolitan areas on 20 or 25 reimbursements in 1 day compared to somebody who is providing the same services for 3 reimbursements in

1 day.

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Senator GRASSLEY. Can you give a short answer? Both I and Senator Wyden have a couple of questions apiece, and I know you have

to go at noon.

Secretary LEAVITT. Yes. Senator, I would just say, with respect

to Medicare Advantage, one nice thing about the Part D program

that you reference is that, if people in your district and your State

are unhappy, they do have a different place they can go. One thing

about Medicare Advantage is that, if people are unhappy with traditional Medicare, they can at least choose that. We like to have

that as an option because it gives people who are being poorly

served an alternative.

Senator LINCOLN. But when they are given false information and

they take that choice, then it takes us 6 to 8 months to get them

back into Medicare fee-for-service.

Secretary LEAVITT. Well, if that is the case, we have a problem

and we have to——

Senator LINCOLN. We do have a problem.

Secretary LEAVITT. But it does not mean that we should eliminate choice because one person had a bad experience, or two or

three.

Senator GRASSLEY. Mr. Secretary, I just have two questions, and

then whatever time Senator Wyden wants.

Senator LINCOLN. I would like to ask another question.

Senator GRASSLEY. I am sorry, I thought we were done. Yes.

Senator Wyden, if it runs past 12 o’clock, I am going to have to

go. Will you finish up then?

Senator WYDEN. Yes.

Senator GRASSLEY. Since the Deficit Reduction Act, the administration has issued some regulations that have stirred up controversy. It seems to me there are bills out there to put moratoriums on just about every Medicaid regulation that CMS has

issued. I have been willing to give you the benefit of the doubt and

have generally opposed moratoriums on CMS regulations; however,

recently the judicial branch has gotten involved in the reading of

CMS regulations.

Then we had a court case, a Federal court case, striking down

the Average Manufactured Price regulation, saying CMS ‘‘violated

the APA and acted contrary to law and/or acted arbitrarily and capriciously in creating its Average Manufactured Price rule.’’ It is a

pretty serious charge, Mr. Secretary. We can only get so specific

when we write laws. We have to depend upon people like you in

the executive branch to fill in the details consistent with our intent.

Clearly, one court thinks that CMS has failed miserably on AMP.

Should we be concerned that the court may think similarly about

some of the other controversial rules, and can you tell me what you

are doing to ensure that CMS regulations are consistent with statute and intent of Congress?

Secretary LEAVITT. Senator, most of the rules we have talked

about today have been in the area of targeted case management,

as a good example. I just want to assure you and other members

that our purpose is eliminating only things that are not medical

services, and we are doing our best to be protectors of the integrity

of the program. There will always be disagreement, and that is

32

why we have courts. There will always be a need for people to interpret, and that is why we have a regulatory process.

I can assure you that no regulation goes out of our Department

that is not reviewed in detail by our general counsel from whom

we have a firm and strong opinion that we are acting within the

law. I recognize that there will be times when there are disagreements, but there are processes to resolve those.

Senator GRASSLEY. Yes. Well, it is quite obvious you are going to

have to follow the court’s opinion as you go back through this on

this specific rule, at least, right?

Secretary LEAVITT. Indeed, we will. We will follow the law.

Senator GRASSLEY. Yes.

In that case, I would suggest the law, as modified by the court

decision, or at least the way they have interpreted it, you did not

follow the law. Right?

Secretary LEAVITT. I am not sure.

Senator GRASSLEY. I am not a lawyer, so maybe I should not try

to finesse things.

Secretary LEAVITT. I will follow the law. Write that down.

Senator GRASSLEY. All right.

This is another question. To be eligible for Medicaid, a person

has to be a citizen or qualified agency. The DRA included a provision that would cause States to more thoroughly document the citizenship of Medicaid recipients and applicants. This provision was

developed in response to the July, 2005 Inspector General’s report

that showed States were not doing a very good job of documenting

the citizenship of Medicaid applicants.

In the Tax Relief and Health Care Act that we passed in December of 2006, we included provisions to improve upon what we

passed in DRA. Specifically, the change gives States flexibility so

that a person who had established citizenship for one Federal program would not have to do so again in Medicaid. In 2007, we saw

Medicaid enrollments fall for the first time in nearly a decade.

Some experts blame the decline in Medicaid enrollment on citizenship documentation rules, keeping American citizens off the rolls.

Do you think that documentation enforcement in Medicaid is working properly or are there areas that can be improved?

Secretary LEAVITT. I feel confident there are ways we can improve. One thing we have had a problem with, however, is, in cases

where States have delegated Medicaid eligibility to other programs,

we have found that there have been abuses. We are interested in

being able to maintain some level of control on that judgment. It

is a very expensive thing when States do it in a way that causes

enrollments to go outside the parameters of the law.

Senator GRASSLEY. Thank you very much.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman. Thank you again for

your kind comments on our efforts to be able to work this session

in a bipartisan fashion.

I have one other area I want to explore with the Secretary, and

I think Senator Grassley and Senator Lincoln, all of us who want

to work in a bipartisan way, may have some opportunities this session, and I want to explore that with you.

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Mr. Secretary, as we all know, the physician payment update

issue is upon us again. Of course, hearing the debate about what

is known as the Medicare 45-percent trigger is going to be discussed as well. Some will of course say it is gimmick, but both of

these are opportunities, it seems to me, for Democrats and Republicans to work together in a thoughtful kind of fashion to try to find

some common ground on key issues like buying quality and comparative effectiveness, where Dr. Orszag has spoken, and in other

areas.

Tell me what you think the possibilities might be this session, in

the remaining 10 months, for a bipartisan group of us to look at

some of these areas where we can make sensible policy, find savings, for example, and do it in a way that does not hurt people,

that makes sense.

I wonder if you have some thoughts on those two areas, physician payment update and the 45-percent Medicare trigger, areas

where we can make sensible reforms and start in motion what Senator Bennett and I, Senator Grassley, our group wants to do for the

long term.

Secretary LEAVITT. Senator, I would like to acknowledge those

two potential vehicles, and I would like to concentrate my response

on what I think the potential policy changes that we could agree

on might be.

I would focus on two areas. The first is in areas that would advance access. There is a great debate right now about how best to

make certain that every American has health insurance that is affordable to them. Some would have a system that is more controlled by the government, others would have a different system

that would be more private.

The areas of agreement between them, I think, are two. One, it

would not matter which of those systems you have. Unless we are

able to inject some level of market force or sensitivity to consumers

into that system, neither will be sustainable in the long run. So the

idea of electronic medical records, I think there is a substantial

amount of agreement in that area. Quality measures. How do we

create quality measures, how do we create cost comparisons, how

do we use incentives to let everyone have a reason and a motivation to increase quality and decrease cost? I would say that is one.

The second area I would suggest is the whole area of the tax

code. Your proposal has used tools eliminating the discrimination

between those who purchase through their employer and those who

purchase on their own. The President has made proposals in that

way. I think working on ways to give fairness to the tax code and

ways to bring value judgment and comparisons to health care are

the two areas we could make progress on this year.

Senator WYDEN. I would encourage you to look for ways, and to

the extent that Democrats and Republicans on this committee

could be involved in this, we could help shape the debate in the

U.S. Senate, both for the short term and for the long term, and

there are two vehicles that we have coming up in the next few

months for trying to drive the message, for example, about buying

quality and comparative effectiveness. I hope that you will give us

your thoughts quickly about how to use those two vehicles.

34

One last question I had dealt with something that we are working on for the purposes of the Healthy Americans Act, again, more

generally. That is that providers still in this country are incredibly

frustrated about how complicated the billing process is, that we

still do not have what was pledged to them it seems like eons ago,

a uniform billing system. Of course, that was also pledged in the

HIPAA bill, the Health Insurance Portability and Accountability

Act.

What progress is being made now, again for purposes of this

year, to get simplification in medical billing for the extraordinary

number of providers around this country who gnash their teeth

about how it works today?

Secretary LEAVITT. Senator, I wish I could tell you there is a lot

of progress on that. It is a very obvious problem. Anyone who has

been to the doctor sees it. It is a reflection of the fact that we do

not have a system. I think what we have is a sector that needs to

be systemized. That would go a long way just to bringing consumers into a sense of involvement; if they understood their bill,

that would be a great start.

Senator WYDEN. I know Senator Lincoln has a question.

Senator LINCOLN. I do. Just a couple more.

Thank you, Mr. Secretary. Just two or three more questions, if

I may. In May of 2007, the GAO produced a report that determined

that Medicare reimbursements for ambulance service providers, on

average, were 6 percent below their cost of providing those services,

and 17 percent for providers in super-rural areas. Again, I know

for us, in a State like Arkansas, that is tremendously rural, it is

virtually impossible for them to stay in business. We had a hospital

administrator the other day testifying about losing several of their

ambulance operators in rural Mississippi.

I guess my question is, what is your reason for the cut that you

have in this budget? You are going to reduce payments roughly by

$60 million in 2009, and nearly $1.3 billion over 5 years when you

reduce the ambulance fee schedule. My concern is that you are

going to have sick people in rural America and they are just not

going to be able to get to health care providers.

Secretary LEAVITT. Senator, I think I would be better off responding on that specific line item in a letter or some other way

to you.

Senator LINCOLN. However you would like to respond. I just need

to know why you did it.

Secretary LEAVITT. It is a level of granularity that I am not able

to respond to now.

Senator LINCOLN. Sure. I appreciate that.

The other is the Geriatric Health Professions program. We have

had a lot of discussion here today about our growing elderly population. We know out of all of the medical schools in this country,

every one of them has a good department of pediatrics, but only

about six or seven have departments of geriatrics. If we do not

maintain some of our efforts in training both the geriatricians that

need to be out there, but also the other health care professionals

in particular geriatric needs—the program supports the geriatric

training at levels through our GEC centers, the Geriatric Education Centers, fellowship programs, small grants.

35

The programs are certainly critical, because we have such a high

percentage of seniors who need that quality care. When you poll

those individuals or they are interviewed, they say that the programs that they go through in these facilities are enormously helpful in their ability to better provide quality care, and certainly costeffective care, to the aging population.

So I guess I am concerned that the administration eliminates the

Federal funding for this year after year. If we just put them out

of business, there is no longer going to be the kind of training programs that are training not only academic geriatricians, geriatricians, and physicians, but also providing the additional geriatric

training for nurses, and a whole host of other things.

I guess my question is to you, with the growing population that

we have in the aging sector, what is the justification for just eliminating the program year after year?

Secretary LEAVITT. We went through all of the programs and

tried to make an evaluation of those that, first of all, were providing services and not necessarily infrastructure. The budget was

intended to balance the budget by 2012. This is a decision we made

based on the fact that we want to provide services as a priority to

infrastructure. In many cases, these are about providing basic infrastructure.

Senator LINCOLN. But you cannot provide the services if they are

not trained.

Secretary LEAVITT. I am quite concerned generally about the way

we are conducting training for medical workers, and particularly

for professionals. The demands in the future are going to be so high

that, if we were to fill up all of the nursing schools, for example,

and even expand them, we still would not be meeting what our

needs are in the future.

There are some systemic changes that time will not allow us to

talk about today, but that I believe can, in fact, begin to help us

meet that demand, ideas such as beginning to measure competency

as opposed to measuring the time people spend in their seat being

trained. We can use existing facilities for workers, et cetera. So

that is not exactly on point to your question, but I did want to be

on the record as saying I am deeply concerned about our incapacity

to meet the demands using the current system.

Senator LINCOLN. Well, that sounds good, I suppose, but it does

not help us solve the problem. I would say, if your concern is about

where we are spending time or money in these programs and

whether or not we are getting the biggest bang for the buck, that

maybe perhaps we need to look or revisit some of the metrics by

which we are measuring these programs. I mean, our program in

Arkansas received 100 percent, a perfect score.

So, there is a good way to do this, and it is very necessary. As

you said, we are not only not training those who are going to practice. We are not training the ones who are going to train or teach

the future practitioners. We do not have the academics, whether it

is in our nursing schools or whether it is in our geriatric centers,

or our medical schools, or anywhere else that are training health

care providers.

My husband is a physician. He spent 12 years training. It is not

something that, all of a sudden when we hit that brick wall, we are

36

going to be able to remedy it quickly, because we are not going to

have the people in the pipeline. So, I would just encourage you to

look, if we need to change the metrics and how we evaluate these,

but we need to do something. I wholeheartedly agree. I am always

working in a bipartisan way.

As I said, I got in the trenches with your bunch after the prescription drug piece. But we should think about that before we institute the law, before we put together the packages and create the

cuts, because trying to do it after the fact is enormously devastating to the lives of some people who are really the fabric of our

country. So, I hope you will not wait until we get there to meet

those serious concerns.

Senator Hatch is here, and I know he had some questions.

Senator HATCH. Well, thank you so much, Madam Chairman.

I apologize. I was on the floor. But I was here a little earlier. I

just want to personally express my appreciation for you. We have

been friends for a long time. But your approach towards bringing

consumers into the health care field is really the answer. Everybody, I think, with brains knows that. But it is so hard politically

to get people to really do some of these things, because some want

government to do everything. That, to me, is the absolute worst

way of doing things.

But I wanted to tell you, you are not failing to gain some support

up here, in a bipartisan way, to get consumers involved. Also, your

work on health IT has been nothing short of spectacular. One of

the highest priorities of this administration is to get greater value

from our health care system, and you have articulated that as well

as anybody, through disclosure of price, quality, and health information technology. As you know, I introduced the Wired for Health

Care Act with Senators Kennedy, Enzi, and Clinton. Our bill encourages the development of interoperability for health information

technology. I know you have been a leader in this field as well.

I just want to get your opinion on uniform standards for the secure transmission of health information. Do you believe that this

should be spearheaded by the Department of Health and Human

Services or should it be spearheaded by Congress, or should both

the administration and Congress work together to develop these

standards? If so, how can we accomplish this important goal? Give

us your advice on how you think we can ultimately get this done.

Secretary LEAVITT. Senator, you have used the word ‘‘standards,’’

which is in my mind the cornerstone of being able to measure and

gather information about value through electronic medical records.

I am very happy to report a lot of progress on standards-making

over the last 3 years.

There are only three ways to arrive at standards. The first is,

you can have government step up and just set the standard. It has

been my experience that when that occurs, we do not always get

it right. The second way is with what I call the last vendor standing, which is, you just let people compete until they try to eliminate one another. That will not happen. That will not work in

health IT, for example, because there are just too many ways to get

to the same place in a rational fashion.

The third way is through old-fashioned collaboration, where we

bring all the players together and say, we are going to establish a

37

standard, we would like to ask you to help us do that. We have employed that the last 21⁄2 years now in what we call the American

Health Information Community. It is a place where we are able to

arrive at standards and have them recommended to the Secretary

of Health and Human Services for implementation across the Federal Government.

I am pleased to tell you, Senator, that we now not only have

standards developing, but we also have an accreditation process

where those systems that are produced by developers who employ

them receive a certification that gives a physician confidence that

they are buying a system that will meet the standards.

We now have 75 percent of the systems that are being sold in

this country certified as being on a pathway to interoperability.

That is a huge step forward, and we need to build on it, working

together. But it is through this collaborative process that these

standards need to be set. It is a mistake, in my judgment, for government to be the absolute standard-setter. We need to be a

facilitator, an organizer, and a major player because we are a big

payor of health care.

Senator HATCH. Well, I think you deserve a lot of credit for the

work that you have done in that area.

I do not mean to keep you. I know you have been here a long

time. But let me just ask this question. When reviewing the HHS

fiscal year 2009 budget, I do have to admit that I was deeply concerned with the magnitude of the Medicare provider cuts and that

market basket freezes make up 63 percent of the Medicare savings.

I think that is correct, is it not?

Secretary LEAVITT. It is 56 percent. No, you are right on the savings.

Senator HATCH. Sixty-three percent.

Secretary LEAVITT. Yes.

Senator HATCH. Could you explain to me why market basket

freezes are the primary area of savings for the Medicare program?

And I would like to know the thinking behind that particular policy.

Secretary LEAVITT. Let me just mention to you that we had a discussion about this earlier, where I indicated that there is some

frustration with a scoring system where we are not able to look at

some of the things we have talked about getting consumers involved on, as to how that would be helpful in being able to drive

these costs down. So we have ended up using this sort of pricefixing model that is currently part of Medicare to create a budget

that would begin to move us toward sustainability.

We desired not to have an impact on beneficiaries, and so we

looked hard at the providers and concluded that there was room

within the operation of those providers to accommodate those reductions in growth. Again, it needs to be stated, we will continue

to grow Medicare, it will continue to grow at 5 percent a year, but

we believed there was some margin that we could capture.

Senator HATCH. Let me ask just one more question. I am deeply

concerned about the impact that the Graduate Medical Education

portion of this Medicaid rule on Inter-Governmental Transfers, the

IGT, will have on universities. Let me just bring it home. At the

University of Utah, it is no secret that the university would stand

38

to lose millions of dollars if this rule goes into effect at the end of

May.

I just cannot allow that to happen because they have worked

very hard to try to get where they—and I think they do a very efficient job. But I would like to have the opportunity to continue the

dialogue with you and the university, and other universities as

well—I think I can speak for others as well—to help us to come up

with some sort of solution that really would work. There are very

good parts of this rule, but the GME portion, in my opinion, was

unworkable. I hope that you will work with us, because it has

caused such angst, that it is unbelievable.

Secretary LEAVITT. Well, particularly the academic medical centers find themselves in a place where they have come to rely on

this money. It has become basically a foundation piece from the

Federal Government that is not part of the economics of their hospital generally. There are parts of that that are——

Senator HATCH. They would love that.

Secretary LEAVITT. My guess is, they would not disagree with the

fact that it has become an integral part of their funding.

Senator HATCH. Yes, I think they would agree.

Secretary LEAVITT. However, there are parts of this that are duplicates where we are paying twice, frankly. That is what we are

trying to avoid.

Senator HATCH. I do not disagree.

Secretary LEAVITT. So let me just finish by saying this. Graduate

medical education is a vital part of the system, but the system we

have right now lacks logic, in my judgment. Some big-picture

thought ought to be given here. It is illogical, in my mind, for graduate medical education to be funded almost entirely by Medicare

and Medicaid. We ought to have a more broad-based approach to

that. There are many hospitals in this country and many medicalproviding communities that benefit from graduate medical education that do not share in any of the cost. So this is not a matter

that will be easily remedied, but it is a big-picture strategic issue

that ought to be thought about.

Senator HATCH. I have heard the same worry from the administrator of Primary Children’s Hospital in Salt Lake, Joe Mott, about

the President’s budget and its proposal to eliminate GME payments to children’s hospitals. Of course, I have been a great supporter of providing GME payments to children’s hospitals and was

interested in the thinking that went behind developing the policy.

So all I can ask is that you would work with us to see if we can

find some solutions that make sense both ways. In other words, I

think what you are trying to do is noble and considerate of taxpayers, and yet we have a system here that has worked in some

areas and maybe not as well in others, I do not know.

But I just want to personally tell you that I have been here 31

years and I have seen a lot of Secretaries of Health and Human

Services, and I do not know one—and there have been some great

ones—who has mastered that impossible-to-master task of running

that outfit as well as you have. I just want to compliment you for

it. I think you have done it in a bipartisan way.

You have had to carry administration positions, no question

about that, and sometimes that irritates people up here on both

39

sides. But that is part of your job. But as far as working with people, holding out your hand to grasp theirs and trying to find solutions that we can mutually work on, I have never seen a better

one.

So I just want to personally pay that tribute to you. I know it

is a very, very tough job. It is very demanding. You are traveling

all over the country all the time, trying to help people in every

way. You worry as much about these things as we do—in fact, I

think more.

I just want to personally express my high regard for you, and

hope the people up here will work with you on some of these things

that you really know, and we all know, need to be done. So, thanks

so much.

I have been informed that I can shut this down and let you go,

and I will bet that will be one of the happiest days of your life.

[Laughter.] All right.

So with that, we will recess until further notice.

[Whereupon, at 12:14 p.m., the hearing was concluded.]

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