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56–477—PDF 2008

S. HRG. 110–1042

SEIZING THE NEW OPPORTUNITY

FOR HEALTH REFORM

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 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

WITNESSES

Shalala, Hon. Donna, former Secretary of Health and Human Services,

Miami, FL ............................................................................................................. 5

Thompson, Hon. Tommy, former Secretary of Health and Human Services,

Washington, DC ................................................................................................... 7

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Grassley, Hon. Chuck:

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

Shalala, Hon. Donna:

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

Prepared statement .......................................................................................... 37

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 46

Thompson, Hon. Tommy:

Testimony .......................................................................................................... 7

Prepared statement with attachment ............................................................. 48

COMMUNICATIONS

American College of Physicians .............................................................................. 81

National Association of Chain Drug Stores ........................................................... 85

(III)

(1)

SEIZING THE NEW OPPORTUNITY

FOR HEALTH REFORM

TUESDAY, MAY 6, 2008

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

The hearing was convened, pursuant to notice, at 10:05 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Bingaman, Kerry, Lincoln, Wyden,

Stabenow, Salazar, Grassley, Smith, and Bunning.

Also present: Democratic staff: Bill Dauster, Deputy Staff Director and General Counsel; Liz Fowler, Senior Counsel to the Chairman and Chief Health Counsel; Catherine Dratz, Health Policy Advisor; Shawn Bishop, Professional Staff—Health; David Schwartz,

Health Counsel; Billy Wynne, Health Counsel; and Elise Stein,

Detailee. Republican staff: Mark Hayes, Health Policy Director and

Chief Health Counsel; Kristin Bass, Health Policy Advisor; and

Rodney Whitlock, Health Policy Advisor.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

The German poet Goethe said, ‘‘Art is long, life short, judgment

difficult, and opportunity transient.’’ The title of today’s hearing is

‘‘Seizing the New Opportunity for Health Reform.’’ Today we have

a new opportunity to achieve what previous Congresses and presidents were unable to do. We have an opportunity to agree on how

to provide access to affordable high-quality health care for all

Americans. But as Goethe said, opportunity is transient.

For at least a century, our country has debated health care reform pretty much every generation. In the early 1900s, the Progressive party pressed the case. In the late 1930s and early 1940s,

there was the Wagner-Murray-Dingell bill. President Truman tried

in the late 1940s. In the early 1970s, President Nixon proposed

what, by today’s standards, was a progressive plan, and in the

early 1990s President Clinton proposed the Health Security Act.

None of these efforts succeeded; each, for its own reasons, failed.

But these past attempts at reform must not scare us off. Past failure does not mean that reform is impossible. It means that the

issues and challenges have endured. It means that the need for reform remains. So we must seize the opportunity. We must try

again. This committee must prepare for the challenge of building

consensus, and I am confident that this time we will succeed.

2

Why is health reform important today? It is important because

the problems in our health system are so great. The problems are

greater than the incremental solutions that Congress has tried to

date. The problems are getting worse. Since the year 2000, nearly

10 million more Americans have joined the ranks of the uninsured.

Since the year 2000, insurance premiums have increased by 75 percent. That is more than 6 times as fast as the growth in median

income.

Families are grappling with high health care bills. According to

a new survey, nearly a third of Americans report that paying for

health care and health insurance is a serious problem, and more

than 4 in 10 Americans have gone without medical treatment due

to costs.

Businesses large and small are struggling to afford coverage for

their workers and retirees. Between 2000 and 2007, the share of

employers providing health benefits for their workers declined from

69 percent to 60 percent. That is, in large part, due to rising costs. America spends more than $2 trillion a year on health care. That

is 16 percent of our economy. But the quality of care is not as high

as it could be, nor are the financial incentives in our system

aligned with the best interests of patients.

The moral and economic case for reform has never been stronger.

There is abundant common ground for reform. As I read through

the reform proposals on the table, I see many shared principles. I

see commonality among major health care stakeholders, interest

groups, coalitions, and even presidential candidates.

To start, there is widespread agreement that we must strive for

universal coverage. We must cover the uninsured. And there is

widespread agreement that reform should do more. We must also

slow the growth in health care costs. Value-based purchasing, comparative effectiveness, greater use of health information technology,

and electronic health records are just a few proposals that can

transform our delivery system. These ideas could help Americans

get better value and quality of care.

There is also widespread recognition that our health insurance

marketplace is broken. The individual market, in particular, leaves

too many people behind. It encourages risk selection and it tolerates pernicious behavior by insurers. The practice of rescinding coverage to avoid paying claims is just one example. There is broad

interest in pooling risk, streamlining the application underwriting

process, and guaranteeing that even the sickest can purchase affordable coverage.

Achieving these goals will not be easy. They have stymied many

before us. Although the areas of consensus have grown, there are

still many difficult decisions to make. Should we mandate that everyone must have health insurance? How should universal coverage be financed? What roles should the Federal Government,

States, employers, and families play?

I do not have all the answers, but I know that to achieve our

goals we must work together and we must be inclusive. I also know

that the Finance Committee will play a central role in answering

these questions. We have jurisdiction over Medicare, tax subsidies

to finance health care, and our Nation’s health care safety net programs, so there is much work for us to do.

3

Today’s hearing is the first in a series. We have designed these

hearings to prepare us for the opportunity to engage in a national

debate over health reform. That debate awaits us in the next Congress.

What better way to start than to hear from two distinguished

former Secretaries of Health and Human Services? Both have appeared before this committee numerous times, and I am very, very

honored that they are here today. I would like to welcome Secretary Donna Shalala and Secretary Tommy Thompson. They

served us admirably as leaders of our Federal health agencies, and

they can offer us deep insights and lessons so we can move forward.

Recognizing that life is short, let us now begin to address these

difficult judgments and seize this new, but transient, opportunity

for health care reform.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. As the chairman has just done, I welcome you

to our committee to bring your expertise—Secretary Thompson, as

Governor with Badger Care, and when you were Secretary, Part D

prescription drug programs, administering Medicare and Medicaid;

and Secretary Shalala, a predecessor of yours, during her time in

the Clinton administration, being involved very deeply in Medicare

and Medicaid, as well as when the State Children’s Health Insurance Program was up and running. Your insights will be very helpful to the Congress and this committee in what we do in helping

with health care problems that we face.

Despite everyone’s best efforts, health care costs continue to grow

rapidly. As health care has become more expensive, by definition

health insurance has as well. If insurance were more affordable,

many of the Nation’s 47 million uninsured people would have insurance. It was hard for people to afford health insurance coverage

before, but now, with the economy slowing and gas prices rising,

it is even more troubling.

In Iowa, farmers, small businesses, and many others are getting

priced out of the market. Iowa has lower health care costs than

many parts of the country, so, in those other parts of the country,

things are much worse. It is a growing issue, and Congress needs

to take some steps to make sure that people can buy insurance.

We know that people without insurance often cannot afford

health care, and people with insurance are anxious about losing it.

We need to figure out a way to make the health insurance market

work better so that people can buy insurance that suits them. It

makes the most sense to build on the private health insurance system. As you all know, people are used to their employer providing

health benefits. They like their employers’ work and they do not

want us to disturb that. They like that their employers take care

of their billing, and by and large they are satisfied.

We learned 14 years ago during the Clinton health plan debate

that, even in the midst of call for change, many people like what

they have. So health reform should not up-end the system and do

harm while trying to help folks without insurance. I also think we

4

need to be prudent in taking on new obligations through government. This committee should take a look at what the tax code does

and does not do when it comes to health insurance and the American people.

Some of my colleagues want to expand health care benefits

through government. They also believe that such an approach will

make health insurance more affordable. I think we need to look

into whether we can expand health care coverage by making the

current unlimited income tax exclusion for employer-provided

health insurance more equitable, while increasing the tax benefits

for taxpayers purchasing non-group insurance.

This should not only increase coverage, but it should help lowincome taxpayers better afford health care. There could be ways to

increase the tax benefits for low-income workers receiving

employer-provided health insurance, while placing middle- and

upper-income taxpayers in the same tax position they hold under

current law. We can simultaneously provide taxpayers purchasing

insurance on the non-group markets with substantive tax benefits

for the first time. Tax policy is a powerful force that can be used

to expand coverage, but a powerful force in making things affordable as well.

There are serious inequities in the tax system. These inequities

make insurance much cheaper for rich people and more expensive

for low-income people. So it just is not right that someone buying

health insurance for himself must pay with after-tax dollars, while

a person getting insurance through work pays with pre-tax dollars.

So I think we need to look at the tax system and whether we can

make changes there that would enable more people to buy insurance. Any health care reform must be bipartisan. Everyone has an

interest in health care, and it is very important that we come up

with ideas that people like and buy into. We need to help rural people, as well as urban people who cannot afford coverage. At the

same time, we need to look at the health care delivery system to

encourage it to be more efficient. Obviously these are tough policy

problems. I am encouraged that the issue is back on the table.

Thank you very much.

The CHAIRMAN. Thank you, Senator.

I would now like to welcome our witnesses. Again, we are just

very honored to have today two former Secretaries, and we thank

you very much for taking the time. They are very, very busy people, lots of responsibilities, but at heart, also, servants. They want

to help the American people and tell us what they think makes

sense, basically based upon their experience.

Also, a little change of rules here. We’ll give you each 10 minutes. Usually it is 5, but each person will get 10 minutes. If you

want to take a few more minutes, that is fine. But basically 10

minutes, and your statements will automatically be included in the

record.

I do not know whether to call you Secretary Shalala, President

Shalala, all the titles. But President Shalala, your current title,

why don’t you go ahead?

5

OPENING STATEMENT OF HON. DONNA SHALALA, FORMER

SECRETARY OF HEALTH AND HUMAN SERVICES, MIAMI, FL

Secretary SHALALA. Thank you very much, Senator Baucus,

Ranking Member Grassley, members of the committee, and old

friends. I am delighted to be here. With your permission, I will submit my full statement for the record and simply summarize it. My

good friend, Secretary Thompson and I—we have worked together

for almost 2 decades, I think—agree on a number of the issues, and

I will forego going into detail on the issues that he is going to talk

about.

I would like to start by talking about the polls, because one of

the things that the committee asked me to do is to talk both about

the politics, as well as the substance of health care reform. Since

I still have bruises on my body from a number of fights, and I

teach the politics of health care, I thought it would be useful for

me to talk both about the political context, as well as some experience in trying to get comprehensive health care reform.

Let me start by talking a little about the polls, because health

care has actually dropped in the polls. When Americans are asked

what issues are important to them, they start with the economy

now, then go to Iraq, and health care has been slipping from number two to number three. That is misleading.

The Kaiser Family Foundation, which I am a director of, and

Drew Altman in particular, have looked at the polls at some level

of detail. It looks very clear that when Americans talk about their

economic concerns they are talking about health care. They are integrated issues for them. They are concerned about health care cost

as part of what is happening to the economy. So we should not believe that health care is fading as an issue, just that there is a

broader context for health care. It is very much seen as part of the

economic concerns that Americans have now. So middle-class people, for lower middle-income folks, both issues are linked for them.

Second, I talked in my paper about a strategy for universal coverage. I very much believe that most of the things that we want

to do, including containing costs, have to be done in the context of

universal coverage. But I talk about a strategy for universal coverage so that I do not get caught in some hole about either a

single-payer system or one strategy versus another. I think it is important to talk about a strategy for getting to universal coverage.

I also want to suggest that the committee needs to look not only

at the uninsured, which at this moment are 47 million, or at employers dropping health insurance, which is increasingly happening, but also at the under-insured, that increasingly our fellow

Americans have lousy insurance. They are paying a larger portion

of it. Their employer is trying to contain costs. I am an employer.

The largest private employer in Miami is the University of Miami,

and we are struggling to contain costs so that we can manage our

bottom line so we can do all the other things that we need to do

in terms of investments at the university.

So, as employers shift costs to employees, as they drop coverage,

in some cases, in some aspects of that coverage, we are beginning

to see lousy coverage for people. That has to be included in, and

has to be part of the justification for, trying to get some framework

around universal coverage.

6

Senators, Secretary Thompson will talk about electronic medical

records. Most of us believe that it will not only improve communications between physicians and enhance surveillance and monitoring, but we also believe that it will help to decrease unnecessary

services and allow us to monitor health care at a level of detail and

to catch those who would abuse the system.

The VA has done a very good job. We have learned a lot from

the VA experience. I want to point out, particularly with Senator

Rockefeller here, that they need additional investment. That system is going to become old if the VA does not continue to have investment in upgrading their system. But we have learned that we

can contain costs with that information, that we can certainly provide more quality care if we can track it with the most modern

electronic medical records system.

The Dartmouth study has pointed out to all of us that we waste a third of the $2.3 trillion that we spend. Much of that cost comes

from the disorganization of the system and the lack of information

for the professionals in the system.

We could also, when we seriously introduce IT, introduce a system of comparative effectiveness. All of us in the health care business believe that it is extremely important that we not continue to

pay the same rate for low-quality care versus high-quality performance, that we need more transparency in the system.

I have also recommended in other places that we need major investments in ARC, in the National Institutes of Health, to do these

kind of comparative effectiveness studies that will make a difference in terms of cost. We need to compare the effectiveness. This

is not an effort to ration health care, but rather to get independent

research that tells us the most effective treatment for a patient. We

have to have the guts to do that, even though there are strong political forces that would prefer that we continue the current payment system.

Finally, I would like to make a point that I think Senator Grassley has made. We have to be careful as we are putting together

comprehensive health care reform that we recognize that 80 percent of Americans like what they have, but they want lower costs.

That was the same percentage in 1993. We ran into a buzz saw in

1993 because our proposal affected everyone.

I am not suggesting that you should not prepare a proposal that

affects everyone, but we all have to be particularly sensitive to people who have health care that they like and who want the option

of keeping that health care. There are employers that want to keep

that for a competitive reason, and there are others that would just

as soon move into another system. But the one ‘‘beware’’ I would

have is of challenging this group without making a very clear case

about how they would be better off, particularly on the finance

side, because, while they like what they have, they really are unwilling to continue to pay rising costs at the same time. All of our

polls show that.

I would like to make one final point about social policy, since the

chairman made a point of trying to help us to understand the history of social policy in giant steps. We have never, in this country,

taken a giant step in social policy unless there was agreement

about the definition of the problem and agreement about the soluVerDate 11-MAY-2000 14:32 Jun 21, 2010 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 56477.000 TIMD PsN: TIMD
7

tion. Many of us have misread the politics because we went out and

polled the public and they were very unhappy with the problem.

In fact, there was a lot of agreement about the problem, how the

system has broken down. But we forgot that there also had to be

consensus about the solution. In every time we have taken a giant

step, whether it has been welfare reform or the introduction of

Medicare or Social Security, there has been consensus about the

problem and consensus about the solution. In many cases there

was not a private sector alternative or there was and we combined

it—that is in the case of Medicare—where we made a decision the

government would pay for it, but we also agreed on a private sector

delivery system for it.

So I would emphasize that point: in designing a system, we

should not be misled, because there is widespread agreement in

this country that we have a broken system. We also have to focus

very carefully on the stakeholders and getting a buy-in into whatever the solution is. That is not just political consensus, it is much

broader than that.

I would urge the committee to continue their attention on this

issue. I can think of nothing more important to our future, whether

it is our economic competitiveness or continuing this golden age of

biomedical research, to take extraordinary science and bring it to

the bedside of every American in a way that is fair and just.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Madam Secretary, very much. We

deeply appreciate that. That is very, very helpful. Thank you.

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

The CHAIRMAN. Secretary Thompson?

OPENING STATEMENT OF HON. TOMMY THOMPSON, FORMER

SECRETARY OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

Secretary THOMPSON. Thank you very much, Chairman Baucus.

It is an absolute honor for me personally to come in front of this

committee. Thank you, Senator Grassley, for your tremendous leadership. The two of you have been noted for your bipartisanship in

coming together. I had the privilege of working with both of you on

the Medicare Modernization Act, and I cannot tell you how pleased

I was with the bipartisanship and the leadership both of you

showed in that regard, and I thank you.

To all the members of this committee, this is an honor for me,

a privilege, to talk about health care. I thank the Senate Finance

Committee for inviting Secretary Shalala, my friend of many years,

and one who believes as passionately as I do that health care needs

to be transformed. Ladies and gentlemen, you are the ones who

have to do it. We can help you. We can advise you. But it is going

to take the government, and this committee, I believe, is the impetus to really transform health care.

I have submitted my speech, and I am going to summarize some

subjects that I feel very, very passionate about. I am going to offer

some solutions and suggestions on how we can handle them.

I also am chairman of the Center for Health Solutions for

Deloitte that we have just done a survey on, and I will submit that,

8

a recent consumer survey on the trends in health care. I will be

submitting that to the committee.

[The survey appears in the appendix on p. 56.]

Secretary THOMPSON. But ladies and gentlemen, when you look

at health care, you have to look at it in several different ways. The

first one is, you have to look at what is really causing the turmoil.

This happens to be an issue out there about which both political

parties, for the first time, are saying something has to be done. We

have never really had a presidential campaign in which we really

fought the issue of health care.

There are differences in views, but the truth of the matter is,

when you look at the presidential candidates, all three of them,

there are a lot of similarities, commonalities that I think really

allow us to forge a bipartisan solution to health care.

The first thing we have to address, however, is Medicare, because Medicare starts going broke in the years 2012–2013, and it

is going to be a huge kind of dampening impact on health care because the Congress does not have the money to subsidize it. There

are 30-some years of IOUs that have to be paid back, and there is

no way that we are going to be able to fund it without a complete

transformation of Medicare.

I do not know if Congress, without the help of a bipartisan commission, made up of an equal number of Republicans and an equal

number of Democrats, making recommendations—because you are

going to have to look at age, you are going to have to look at benefits, you are going to have to look at funding, and that is going to

require a bipartisan, really introspective look at Medicare.

I really think a commission, appointed by the President immediately after the election, whomever he or she is, that can advise

the Congress as to how to make those tough decisions, is going to

be necessary. You are not going to be able to transform health care

without first addressing Medicare. That is the big 800-pound gorilla.

The second one is, you have to go where the money is. When

Willie Sutton was asked, why do you rob banks, he said, that is

where the money is. If you are going to change health care, you are

going to have to go where the money is, and that is in chronic illnesses, 75 percent of the cost. The nice thing about it is, both political parties are talking about wellness and prevention. But that is

going to require a change in reimbursement, because right now we

have a disease system. We do not have a wellness system in America.

We do not have a medical system, we have a disease system. We

have to change the reimbursement formula, because doctors right

now are only paid for the procedures they make. The average time

that a doctor spends with a patient is 9 minutes, and that is not

enough to get a real in-depth finding of how a person acts, reacts,

or an inventory of that person’s illness. So you are going to have

to change the reimbursement formulas.

The second thing you are going to have to do is, you are going

to have to address chronic illnesses. One hundred and twenty-five

million of us have one or more chronic illnesses, and that is costing

the medical system 75 percent. If you really want to look at it, you

are going to have to somehow instigate a procedure with companies

9

in America to instill wellness and prevention and smoking cessation in the workplace.

That is going to require some kind of a tax credit, or if you are

going to allow for the tax deduction you are going to have to require a company that is going to get the tax deduction to put in

smoking cessation as well as some kind of tax credit in order for

those employers to start a wellness and prevention program.

I have done it in the company that I run in La Crosse, WI, and

it is working out extremely well, but you are going to have to do

that. Smoking is big. Four hundred and forty thousand Americans

died last year. You are going to have to address that. There is no

question that nicotine should be monitored by FDA.

A lot of you, including myself, take a baby aspirin every single

day. I am not going to ask for a show of hands, but a baby aspirin

is regulated by FDA. If every man, woman, and child took an aspirin, you would reduce the deaths by 88,000 in America today each

year, 88,000. Yet, nicotine, which kills 440,000 Americans, is not

regulated. It just does not make any sense.

The biggest one, and the growing one that is causing the biggest

changes in the marketplace is diabetes. Eighteen million Americans last year had Type II diabetes; this year, 21 million Americans have Type II diabetes. Forty-one million more Americans,

some in this room, are pre-diabetic. In 5 years, that is going to be

62 million. That is going to go from $145 billion to $400 billion. It

really gets down to the fact that there is a way to change diabetes.

One out of eight dollars now spent in the medical system goes to

treat diabetes, and that is going to go up to 1 out of 5 unless we

address diabetes.

The National Institutes of Health, when I was Secretary, did an

exhaustive study. They found out that if you walk 30 minutes a

day, lose 5 to 10 percent of your body weight, you reduce the incidence of Type II diabetes by 60 percent. That is not that difficult.

There are certain ways to cause it, but you would really have a

way to improve the quality of health care and reduce the cost.

The other big one, and the driving one for cardiovascular and diabetes, is the fact that we are all a little overweight. You know,

chunky is good but slim is better. I come from the State of Wisconsin, where every meal is better with beer, brats, cheese, and

cream. [Laughter.] But instead of eating two brats, you eat one

brat and you lose weight. Instead of two Millers, you have one and

you are able to reduce weight. That is a recipe.

There are no food police in America—yet—that require you to

clean up your plate, even though our grandmothers told us to do

that. But there are ways in which we can get information out on

nutrition, which we really have to do, especially with minorities.

Being overweight leads into diabetes, which is an epidemic in Native Americans, Latinos, and African Americans. We have to do

something about it.

The next one is disease management. Twenty percent, especially

in Medicaid, where the dual eligibles use up about 80 percent of

the costs. Now, if you intensely manage the 20 percent, you could

have a tremendous opportunity to reduce the costs of health care

in America, but you have to go in and—you just cannot call them

up and say, are you taking your meds? You have to see them and

10

have interaction. It costs more money for the doctors and the dentists or doctors and nurses, but you would have a tremendous way

to change that.

The third one is information technology. The Institute of Medicine said that 98,000 Americans died last year from medical mistakes, and 50 percent of those were made because individuals had

the wrong medicine at the wrong time or in the wrong amount.

Only 8 percent of the doctors are e-prescribing. One out of five prescriptions has to be rejected, modified, or changed. If, in fact, you

went to e-prescribing you would reduce those deaths by 50 percent

overnight.

It is so much simpler to have e-prescribing than having handwriting. Every doctor has to get straight As to get into medical

school except for one grade, and that one grade is handwriting.

Still, 92 percent of the scrips are written out, and the doctor’s

handwriting has not improved at all.

The next one is electronic medical records. If one of you esteemed

Senators had a stroke today and was unconscious and went down

to the hospital, how long would it take for the emergency room doctor to know what caused the stroke, if you had a stroke, what

medicines you are on, what sort of things you are allergic to. The

doctor does not want to cause any harm to you, but it is going to

take hours before he gets your records.

In Taiwan, little Taiwan, 24 million people, they hand out a medical card to every man, woman, and child. It tells you your whole

record. The chip has your whole record on there. We have the technology, ladies and gentlemen. If you run out of money in Beijing

or St. Petersburg or any other place, what happens? You go down

to the ATM machine and you get your money.

With the electronic medical record, we cannot even have the Senate and the House of Representatives have an electronic medical

record, or the employees in the Federal Government who can absolutely have interoperability from one hospital to the next.

The next subject is the uninsured. The uninsured, we pay for it.

The uninsured go to emergency rooms for their primary care. It

does not make any sense. We should require every State to have

a pool and allow every insurance company—not licensed necessarily in that State, but any State in America—to be able to bid

on the uninsured. We saw that in the Medicare Modernization Act.

We had more bidders than we ever thought possible come out. The

same thing would happen in every particular State if you had a

pool of the uninsured. For those individuals under 125 percent of

poverty, give them a tax credit and you will be able to really have

a lot of individuals—most of the individuals—covered by health insurance and you would save money.

The last two quick subjects I want to talk about, every one of us

knows what a W–2 is. The Federal Government is a large employer. Every single individual in the Federal Government and

every single individual in General Motors, virtually every single individual in the University of Miami, or a small ma-and-pa grocery

store fills out the same W–2.

The most complex employment system in the world, and every

employee fills out the same W–2. How many forms does it take to

get in to see a doctor? How many forms do you need to get to see

11

your insurance company? How many of us receive those, ‘‘This is

not a bill,’’ statements of benefits? I have drawers full of those and

it does not mean anything. What I am saying is, you could require

some statistics or some kind of standards on filing a claim, and you

will reduce the cost. If we went paperless—and we have the technology to do it—we would save $195 billion. That is 10 percent of

the cost of health care.

What I am telling you, ladies and gentlemen, there are ideas out

there, some exciting ideas, innovations to change and transform

health care. Just to give you a couple of examples, Allegiant Health

Care system has a system right now where Senator Baucus, as a

member of Allegiant, he just, on his computer, says he is going in

for appendicitis. Immediately it comes up, the cost of appendicitis

by the hospital system, what the insurance company is going to

pay, and what Senator Baucus has to pay, on all procedures. That

is done in Omaha, NE. It could be transformed all over.

We have nursing homes that have to put in quality standards at

CMS, and everybody now can check them there. We can do the

same thing for hospitals, for doctors on quality and have complete

opportunity for transparency. You would improve the quality

through the opportunities. There are many different things. Three

percent of Americans now are looking to go overseas for health

tourism. Another 22 percent are looking at that 3 percent that

went this past year.

We have tele-docs. You can call somebody. You could be traveling. You pay a fee and have a doctor within 40 minutes who

could prescribe, and they are 95 percent accurate, much more accurate than you would think in a regular doctor’s office.

You have MDVIP that has specialties that are putting up doctors’ offices throughout America to really do wellness and prevention, really putting the emphasis on that. Then you have people,

insurance companies putting in wellness and prevention plans.

What I am telling you, ladies and gentlemen, is it is exciting to be

in health care right now. We have to change it, we have to transform it, and it can be. It is going to take the leadership of the Senate Finance Committee, the Senate, and the House in order to do

it.

I know Secretary Shalala and myself are absolutely thankful to

be here. We appreciate you taking on this tremendous responsibility, and I know that both of us in our differing capacities, even

though we do not agree on every political issue, we certainly know

that health care has to be transformed and we want to help you,

and we want to give you the best information we possibly can so

you can make a bipartisan decision to transform health care.

Thank you again for allowing me to be with you.

[The prepared statement of Secretary Thompson appears in the

appendix.]

The CHAIRMAN. Well, thank you both. That was very interesting,

one of the better hearings we have had, frankly. I deeply appreciate it.

The question I have is whether you both agree that, if about 80

percent of Americans are comfortable with the health plan they

have, with the health service they have, but are not comfortable

with the costs that they have to pay, why is the answer not basiVerDate 11-MAY-2000 14:32 Jun 21, 2010 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 56477.000 TIMD PsN: TIMD
12

cally to keep somewhat the same system we have, but to be very

aggressive in addressing some of the cost problems? My assumption

is, some of the points made by Secretary Thompson will go to reducing costs, that is, to wellness, the e-prescribing, electronic

records, focusing on obesity and tobacco cessation, et cetera. I am

asking you the degree to which both of you tend to agree that that

is a basic approach that makes sense, or would you modify it in

some way?

Secretary Shalala?

Secretary SHALALA. Well, that is one alternative, to just take the

20 percent and figure out how to cover the 20 percent. The problem

is——

The CHAIRMAN. No, it would not be just the 20 percent, because

20 percent——

Secretary SHALALA. I mean, the 47 million plus whatever the

other.

The CHAIRMAN. Right.

Secretary SHALALA. The problem is that, even though they are

satisfied, to get their costs down is not easy to do without transforming the entire system. That is, while they are satisfied with

what they have, it is difficult to get them where they want to be,

and that is to make that health care cheaper without transforming

the entire system. So it is just hard to do what they want to do,

because what they would like, the simplest thing to do, is have

someone pick up some of those costs.

But, in fact, the people who are paying those costs cannot pick

up one of those costs. Those are the employers that do not see that

they can pick up more costs. So it is not so easy just to satisfy them

by finding someone to pay the larger bill.

The CHAIRMAN. Senator Thompson?

Secretary THOMPSON. Thank you for the question. I think it is a

very good question, and I think that cost is very important. When

you look at the $2.1 trillion of spending right now, 16 percent of

the Gross National Product, we cannot afford that. It is going to

double in the next 6 years unless we do something about it. So, cost

is very important.

But I agree with Secretary Shalala that you cannot just pick out

cost and solve the problem. It would be nice if you could, but there

has to be a whole transformation. It is not only cost in Medicare,

because Medicare is going to have to have some kind of infusion

of dollars. You are going to have to look at the age of Medicare,

and you are going to have to look at eligibility and benefits. That

is big. You are talking about some very tough political decisions.

The CHAIRMAN. With respect to Medicare, why is it not a better

approach not to address the symptoms, but to address the causes?

That is, why is the Medicare trust fund in such dire shape? Why

are the costs going up so steeply? It is not just for Medicare patients, it is for all Americans, basically.

Secretary THOMPSON. Well, there is no question about that.

The CHAIRMAN. So is it not more important, therefore, not to just

slice Medicare, the age requirement, for example, or the level of

benefits, means testing, all of which are very important issues and

have to be addressed, but why is it not more important to just

13

focus in on the underlying reasons for the increase in costs of

health care generally, which by definition will help to——

Secretary THOMPSON. Senator Baucus, I think you are right. I

think cost has to be the driving force as to, how do you make the

system more efficient, how do you make it more transparent, how

do you make it use technology, and so on. But you still are going

to have to—I do not want to come here and say, if you just deal

with cost you are going to solve the problem.

The CHAIRMAN. Right. Right.

Secretary THOMPSON. You are not going to.

The CHAIRMAN. Right.

Secretary THOMPSON. You are going to have to have a complete

transformation of the health care system.

Secretary SHALALA. The only point I would make about Medicare, if I might, Senator, is that you would be surprised how much

the private sector follows Medicare. So you control the Medicare

piece. If you drive through electronic medical records, if you do all

of these things in Medicare, you will get a bump in the rest of the

private sector. So it is very important, as part of the strategy, to

use what you can control, and that is the Medicare system.

The private sector very much follows the reimbursement rates,

the requirements. The same doctors who do Medicare are also

doing private sector health insurance. So, if you drive some of those

changes through the Medicare system, I would not—and in fact we

tried to do it—try a bunch of experiments out there. Every time

you try experiments, whoever is in that community does not want

to be the experimenter. You have to drive the changes across the

system. But it is very important to use Medicare as part of the

wedge to transform the entire health care system.

The CHAIRMAN. My time is expiring. But you are saying, therefore, as we formulate and frame a universal coverage strategy, that

part of that should be Medicare?

Secretary SHALALA. Absolutely.

The CHAIRMAN. In about 10 seconds, what should the other parts

be?

Secretary SHALALA. Well, obviously we have made a series of recommendations, including being able to have the information that

we need on what are the best practices, as well as, what is the best

treatment system. You can make investments in creating that kind

of a system. The doctors and the nurses need information, and they

need more accurate information that they can use for best treatments and best practices. That is part of the transformation. The

IT system is another part of the transformation of the system. The

prevention investments that you make are part of the transformation.

The CHAIRMAN. Thank you very much.

Senator Grassley?

Senator GRASSLEY. I am going to start with Secretary Shalala.

This is based on the proposition of studies that say paying extra

and getting more services, unlike maybe other industries than

health care, does not necessarily provide extra high-quality care.

You mentioned Dartmouth and the fact that one-third of the

money in health care might be wasteful. Dartmouth researchers

also have said that, if every hospital treated chronically ill patients

14

as effectively as the Mayo Clinic, the Nation would have saved $50

billion in unnecessary and redundant care.

Do you think that we should try to set the incentives so that we

encourage more hospitals and all health care providers to deliver

care as efficiently as the Mayo Clinic, and how do you think we can

do that?

Secretary SHALALA. That is a very interesting question, Senator.

I spent some time at Mayo. They transformed their culture. They

do not buy every piece of technology. I think the point the Dartmouth people made, and that you are making, is that we are driving up—health care is an area in which we absorb new technology

that does not save us money. One of the few ways we save money

is with some prevention things like vaccines, where we can actually

show that we saved money on treatment.

But the genius of Mayo is that they sit around and they do not

adopt every technology. The story that I told you about going in to

see an orthopedic specialist about a tennis injury, and he was writing a prescription for an MRI. I asked whether an X-ray would do

as well, and he said, yes. Then he looked at me and said, I have

never had a patient say I want an X-ray instead of an MRI. I said,

my question is about quality. Can you get as much information

with this particular injury from an X-ray as you can from an MRI?

The answer was yes.

At Mayo, and increasingly at integrated health systems, they ask

those questions. They create a culture in which what you are focused on is the quality of the decision for the patient, gathering

that information, and being much more tough-minded about the

adoption of the latest fad.

Now, you are also under pressure from the patients. You well

know my position on advertising and drugs. I think it drives the

patients to demand from their doctors the latest stuff. The word is,

Americans want the best health care in the world, they do not

want to pay for it. We need a culture, focused on the patients, of

best practices. That is what both Mayo and what Dartmouth is

talking about.

Senator GRASSLEY. Secretary Thompson, in regard to the tax

code and using it for health care incentives, I am interested in

ways in which you can reform the tax code to make sure it is fair

in how it treats health care insurance. We are all interested in

that. But how might, for you, the tax code, as you see it, be structured to hold down costs and make insurance more affordable?

How would you envision the program working?

Secretary THOMPSON. I will give you three examples, Senator

Grassley. I would use the Federal power of taxation and credits in

order to improve the quality of health care.

The first one is, I would pass a proposal law that would require

companies that are going to get a tax deduction for the premiums

that they pay on health care to have to instill wellness, prevention,

and smoking cessation in the marketplace. There is a quid pro quo:

if you are going to get a tax deduction for paying the premiums,

you have to provide wellness and prevention and smoking cessation. It will drive down costs and it will encourage businesses to

make their employees’ quality of health better, therefore the quality of life for their employees.

15

The second thing I would do, Senator, is I would provide for $5,000, or whatever the credit is, for individuals who do not have

insurance, the 47 million. I would require the States to put every

one of the uninsured in their particular State into either a group

or a single policy and allow every insurance company that sells

health insurance in the country to be able to bid on it, the same

way we did with Medicare, and you would be surprised how many

individual companies would bid on that. Then for those individuals

under 125 percent of poverty, I would allow a $5,000 credit to a

family, and $2,500 for a single person to be able to buy in to that

either single or family group policy in the State.

The third thing I would use is a little bit away from the tax code,

and this is for transformation of technology. I would set up a HillBurton mini-technology fund, and I would take the fraud and abuse

money. Each year it goes up. This past year we had $2.5 billion collected, and it was sent over to the Department of Justice. I would

take that $2.5 billion in fraud and abuse and put it into a mini

Hill-Burton Baucus-Grassley technology fund.

The CHAIRMAN. He is good. [Laughter.]

Secretary THOMPSON. And I would use that $2.5 billion in order

to transform the electronic medical record, require the doctors and

the hospitals to match it 1:1. You immediately would have a $5-

billion fund and you would be able then to completely energize and

change technology. Then the optics would be great: take from bad

providers to give to good providers, bad doctors to good doctors, bad

hospitals to good hospitals. Those are three quick examples of how

I would use the tax code and the power of the government to transform health care very quickly.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Thank you very much.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

Welcome to both of you. It is wonderful to see you and to have

your input. Lots of questions. I am going to say for my friend and

colleague Senator Wyden, who I know is going to talk about the

Healthy Americans Act, I am sure, but I do want to indicate that

I am very pleased to be part of a truly bipartisan coalition in the

Senate that is focused—seven Democrats, seven Republicans, including Senators Grassley and Crapo, who are on the committee

with us, and hopefully others as well who are looking at a comprehensive approach.

I did want to talk specifically, though, about health IT. Senator

Snowe and I chair the Senate Health IT and Quality Improvement

caucus, and I could not agree with you more about the emphasis

on technology. People start, I think, with the idea of just using it

to eliminate paperwork. We know that about 31 cents on every

health care dollar relates to administrative costs, but, as you indicated, it is so much more. It really is about quality.

I wanted to share one thing for the record. In Michigan, because

we have large employers doing the right thing providing insurance,

they have really tackled these issues around cost because they are

looking for every opportunity they can. One I do not know if you

have looked at, but General Motors, Ford, Chrysler, Blue Cross,

Medco, others have come together around an e-prescribing initiaVerDate 11-MAY-2000 14:32 Jun 21, 2010 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 56477.000 TIMD PsN: TIMD
16

tive that has been in place since 2005. It has had some dramatic

results in a very short amount of time. They have about 2,500 physicians now writing electronic prescriptions, and they have written

some 282,000 prescriptions.

But they found, in looking at just a couple of years, that in putting this system in place, that they have had 423,000 times when

they changed the prescription or canceled it based on more adequate information about other prescriptions that someone was on,

or allergic reactions, medical alerts, and so on. It has really been

quite extraordinary.

I want to thank the chairman particularly for embracing and

working with us on e-prescribing, with Senator Kerry and myself,

to move that ball forward. I really appreciate the chairman’s support on that, and we hope to see something happen there.

My question, though, relates to the broader incentives. We know

that most of the financial benefit goes to the payer for us; Medicare

saves money, Medicaid saves money, private sector insurance saves

money, more than the provider. But we have to have the provider

involved. We have to have the physician involved, even though the

physician has costs but may not get as much of the savings as we

do, as the Federal Government, or as private plans, and so on.

So when we look at this, what would you suggest in terms of incentives? We are looking at incentive payments on e-prescribing

through Medicare as we look at physician payments. What more

should we be doing in terms of incentivizing that?

Then the second thing I would ask, Secretary Thompson, you

talked about the Santa Barbara information technology exchange

in your testimony, which was an effort that actually was in place

for 8 years and then ceased in 2006 at the end of the year because,

according to those who looked at this and studied it, there was a

lack of compelling value proposition for potential investors.

So when we look at what should happen in terms of both the

right market incentives for health information technology, as well

as public sector investments, how do you see us moving forward?

Because I do not think we can get to quality comparativeness or

the other cost issues that we are talking about, savings, without

really embracing information technology.

You are welcome, either of you.

Secretary THOMPSON. Well, it is a subject that I am absolutely

passionate about, because you are absolutely correct. You cannot

get transparency, you cannot get interoperability unless you really,

really set up a system.

The first thing we have to do as a government, we have to have

national standards. It is too bad that we do not. I asked the President, before his last election, to make the statement that we are

going to have an electronic medical record in 18 months. He came

out for 10 years. As a result, we have not been able to get there.

We need action, but we need standards.

The second thing you have to do is, you have to take what I said

about fraud and abuse. Set up a fund so that people can download

and take the money and be able to invest it.

The third thing is, the incentive for people to do it is the fact

that you save money. There is a new company that has come out

that puts out a double auction, Senator Stabenow, one that puts

17

out if you have a drug—if you have Lipitor, you type in ‘‘Rx’’ and

you go in and you have any pharmaceutical company immediately

bid on that. It is an auction. It is a double auction. It is immediate.

Any generic that is the same as Lipitor can bid on it, with the

same amount. You can watch the prices actually go down. Then

you can have a second auction for the pharmacists in the area: who

will deliver, and at what cost will they deliver it? It is an incentive.

You can see the pharmaceutical costs actually go down. It is an exciting new company.

The fourth thing is, by getting quality—Allegiant Health Care,

which I mentioned—it is a wonderful way to see exactly what it is

going to cost and when you can get in and be able to have the operation or the procedure.

Secretary SHALALA. Senator, you asked specifically about, how do

we reward providers? Right now they do not get rewarded very

much because low-quality and high-quality get paid the same

amount. So it is extremely important that the new design rewards

quality, whether it is centers of excellence or individual performance. Quality is not how many patients you see in a day, quality

is outcomes kinds of measures. Increasingly, there are providers

out there and health care companies that are trying to figure out

a way in which there can be some cost sharing when there is savings, but the people are actually rewarded for producing quality

outcomes for their patients.

Electronic records systems can support those kinds of decisions

and those kinds of activities, and that is where we want to get to.

We also need to make certain that whatever is designed includes

nurses. For those Senators who particularly come from rural areas,

they are very used to advanced practice nurses, nurses playing a

much greater role. It is so uneven across this country.

It is a tragedy that in some States, because of lobbying efforts,

they can restrict what nurses can do, where in another State

nurses have much broader responsibilities. I believe, whatever the

Federal framework is, it has to recognize that this is a team effort

and that we have to integrate the role of nursing and other health

care professionals into our overall strategy. That includes pharmacists. A lot of people get their information from pharmacists and

from nurses. We just have to get over the uptightness about not

seeing health care as a team effort, and that has to be part of the

quality movement in this country.

Senator STABENOW. Thank you.

The CHAIRMAN. Thank you very much, Senator.

Senator Bunning, you are next.

Senator BUNNING. Thank you.

Welcome, both, Madam Secretary and my good friend, Tommy.

I am concerned about entitlement spending in our budget. We

did not touch entitlement spending in 2011. We did not touch it,

specifically how Medicare, Medicaid, and Social Security will consume the entire Federal budget by the year 2030. You brought out

the fact that Medicare will go belly-up by 2013. Social Security goes

negative in 2017. So that means that, unless we do something, we

are going to have some huge tax increases to pay for those programs.

18

The reforms that you have made, or suggested, are excellent. But

what about dealing with the entitlement spending? Is that the only

thing that we can do, the reforms that you have mentioned? What

else can we do? That is what I am looking for.

Secretary SHALALA. Well, we can do a lot of things: making the

health care system more efficient, slowing down the growth of costs

in the Medicare system. There are a number of things that both

Secretary Thompson and I have recommended. We have not talked

about fraud. One of the efforts, when you do a big-time effort on

fraud, you can actually slow down the growth of Medicare. We

demonstrated that over and over again.

We need a full court press on fraud. I live in an area in South

Florida where we have done demonstration after demonstration,

and there is a huge amount of fraud in the system, particularly in

Medicare. Whatever we do about health care efficiency, about introducing IT, we need to knock the fraud out of the system. That is

slowing down the growth of Medicare. There have been trustee reports that actually identified the additional years tied directly to

our ability to reduce the amount of fraud in the system.

On Social Security, there have been a number of recommendations, as you well know, on tweaking the system to extend the

number of years. But I would suggest to you that healthier Americans who work longer, where we do not see age as a barrier, and

everything we can do in terms of prevention, wellness, and getting

more efficiencies in the health care system, helps the entire entitlement world. But simply shifting more costs to the individuals, we

have tried all the incremental kinds of things.

We are talking about fundamental change in the way the health

care system works, which will also have an impact at the same

time on how long people work, how healthy they are, how dependent they are on Social Security alone, and how we transform that

piece. There are specific recommendations that I could give you on

Social Security, but on health care, and Medicare in particular, I

think there are lots of things we can do to actually——

Senator BUNNING. Maybe we need to implement the Inspector

General’s report that was done in April on Social Security, just the

things that were passed by the Congress and never implemented

by the Social Security Administration.

We are looking at CDRs (Continuing Disability Reviews). Right

now there are 750,000. In 1996, we passed a specific budget allocation of $350 million to reduce, at that time, a $250,000 backlog in

disability claims. They did not spend it. They did not spend it for

that purpose. So how do we get through that maze to get those

kinds of things done? One of them is Social Security, but the

other—Tommy?

Secretary THOMPSON. Senator Bunning, Social Security is not

nearly as bad off as Medicare. Social Security is——

Senator BUNNING. Medicare is. Even the report——

Secretary THOMPSON. Social Security does not start going broke

until 2029, and finally is bankrupt in 2041. Medicare starts going

broke in 2012 and is finally completely bankrupt in 2018 or 2019.

That is why I think you are going to have immediate—just to give

you a couple of quick figures: Medicare, right now, takes about 2.5

percent of the Gross National Product.

19

In the next 75 years, it will go up to 15 percent. Social Security

takes 5 percent of the Gross National Product today; in 75 years

it only goes up to 7 percent. The unfunded liability of Social Security in 75 years is going to be $12 trillion. The Gross National

Product today in America is $13 trillion. The unfunded liability for

Medicare in 75 years, Senator, is $65 trillion, completely unsustainable.

What you have to do is, I think you will have to have a bipartisan commission of an equal number of Republicans and Democrats, because here is what you are going to have to do. First off,

you are going to have to have the age increased somewhat, something a politician——

Senator BUNNING. It does not cost anything.

Secretary THOMPSON. But you are going to have——

Senator BUNNING. It saves a lot of money.

Secretary THOMPSON. It saves a lot of money. You are going to

have to do it. The second thing you are going to have to do is, you

are going to have to put in some laws as to when new procedures,

new medicines, new devices are going to be able to be given, and

when and who is going to be eligible for that.

The third thing you are going to have to look at is, you are going

to have to look at the limitations on revenue. Those are three big

things right away. But immediately what you have to do in Medicare is take care of looking at some of the things like, who are the

people going into Medicare? I will give you a factoid that really

shows me, and it is something that we could address quite easily,

that we have to do it. One-third of seniors this year who are age

64 and going into Medicare at 65 are diabetic. Fifty percent of the

one-third do not know they are diabetic.

Now, if we just had a physical—we do have a voluntary physical—but if we had a physical for every senior, to go in and get

those individuals, that 50 percent of the one-third who are diabetic,

and start treating them before they get so chronic that it costs hundreds of thousands of dollars, you are going to be able to start

changing it. That is just one. That is diabetes.

The CHAIRMAN. Senator Wyden?

Secretary SHALALA. Senator, I would strongly point out that just

that fact should caution you against extending the age for Medicare.

Senator BUNNING. I thought he was talking Social Security. But

he was talking Medicare?

Secretary SHALALA. Yes. I think extending the age for Medicare

is a very dangerous issue because, as people get older, they get

sicker, and that is the last thing that we want to do in our society.

What we do want to do is to make sure that, as people get older,

that they are healthier than they currently are, and diabetes is a

perfect example. I agree with the Senator.

Senator BUNNING. Thank you.

The CHAIRMAN. Senator Wyden? Thank you very much, Senator.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

It is great to have both of you, two people I admire so, so much.

Secretary Shalala, congratulations on the terrific work you have recently done for our veterans, more incredible public service to the

20

American people. And Tommy Thompson, you are one of my role

models on prevention. You use it as a bully pulpit, and it is so very

important.

I have been talking to some of those who have been through 1993

and 1994, the Clinton years. Senator Dole has been extraordinarily

helpful in terms of giving his counsel, constantly stressing bipartisanship. When I went to see John Dingell, he said much the same

thing. For the first time now it is possible to use the words ‘‘universal’’ and ‘‘bipartisan’’ in the same sentence. You have 14 Senators, 7 Democrats, 7 Republicans, ready to go with Senator Grassley, Senator Crapo, Senator Stabenow.

We have tried to focus on two things. First, to make sure that

the financial underpinnings add up. The Congressional Budget Office gave us great news essentially in the last week. They said the

proposal will pay for itself over the first couple of years, and then

generate some surpluses.

Then we have tried to be sensitive to the point that Secretary

Shalala has mentioned this morning, and that is to try to address

the concerns of people with coverage. What we focused on there is

trying to make sure that there are fresh strategies for those people

to hold down their costs, but to do it within the context of a system

where they can keep what they want.

So my question to you, first, Secretary Shalala, is on this point

of the confidence people have in our system. Most workers do not

know that their wages are not going up because health care is eating up everything that might give them more take-home pay. Any

ideas for getting the word to those folks about how, unless you control health care costs for everybody, transform the system for everybody, we are not going to be able to fix this?

Secretary SHALALA. Well, as you well know, it is a tough case to

make. I am not sure that that 80 percent loves the system. I think

they love their doctors and the way in which they use the system,

and their nurses, that they know where they are going to go. It

seems simple and straightforward to them. So, I may have overstated the case. I just feel the whiplash on my neck about the experience of 1993.

So I think transparency is extremely important, bringing people

along so that they understand what they currently have and how

that is put together and how much they end up paying, and the

relationship between their wages and health care. You talk to some

of the labor leaders in this country. They would very much like to

see a different system because they cannot negotiate wages anymore. They are negotiating health benefits, not wages.

So you talk to some of our labor leaders where their populations

are growing, they are very frustrated with the current system and

with their ability to do that. I did want to congratulate you on your

own plan. I found it very thoughtful, the bipartisanship, the comprehensiveness. That is, in the long run, as you shape the future,

where we obviously need to go.

Senator WYDEN. A question for both of you at this point. Senator

Dole and Congressman Dingell, as we talked about 1993 and 1994,

particularly looked at that Congressional Budget Office situation,

because back in 1993 and 1994 the Congressional Budget Office did

not give it a favorable review. We got a very positive report last

21

week, and it seems to me that in this economy, where people are

concerned about deficits, concerned about economic uncertainty,

getting a good Congressional Budget Office analysis is probably

even more important than it was in the past.

Secretary Thompson, any thoughts on this?

Secretary THOMPSON. I do not know how much more I could add

to that. I think it is absolutely correct. I have not had a chance—

I have been traveling; I just got back this morning to DC—but I

would love to read the report. But what you tell me is, we could

have the coverage necessary for all Americans. I tend to believe

that, because I think, when you look at the 47 million Americans,

we are paying for it, we are paying for it now, hospitals, providers

are paying for it, taxpayers are paying for it. Where do a lot of the

individuals go for their care? The emergency room. What is the

most expensive care? Emergency room.

If we could set up a system where poor individuals who are uninsured have the opportunity to go to their clinics and their doctors

for their periodic tests, you are going to make them healthier and

you are going to save money in the long run. So, I tend to believe

it. I would like to read it, but I tend to believe it, and I think you

are absolutely correct. If you have a good CBO score, you have a

good chance of getting it passed. So, congratulations.

Senator WYDEN. Thank you.

I will have some additional questions in the second round.

The CHAIRMAN. Thank you.

Senator Salazar?

Senator SALAZAR. Thank you very much, Chairman Baucus. I appreciate this committee looking at something that is comprehensive

as opposed to some of the work we do around here, which is very

important. I sometimes feel on the health care issue we are putting

Band-Aids and baling wire around an issue that does require this

kind of attending, so I appreciate Chairman Baucus’s leadership in

getting us thinking ahead of this whole deal.

My question to both of you, Secretary Shalala and Secretary

Thompson: you have grappled with this issue for a very long time.

You saw what happened in 1993 and 1994, major efforts that really

did not go forward. I am wondering if what we end up doing here

is, we try to take a bigger bite than we can chew. I think back in

my days of baling hay and running a baler, and sometimes a particular baler was too fast, and what ended up happening is you

would get too much feed into the baler and you would end up

breaking your shiv bolts and messing up your baler.

Are we doing nothing here in the context of health care because

of a desire of wanting to do something comprehensively, where

there are lots of things where we already have an agreement that

we can work on here? Secretary Shalala, and you Secretary Thompson, were talking about how we know that there are things that

we can do on information technology, and we should start making

those investments and creating the kind of tax credits and incentives there. Do we take on the issue of wellness and prevention and

start doing something there as opposed to trying to put together

the whole package and essentially moving forward in what is going

to be a very, very difficult process to try to get everybody together?

22

Secretary SHALALA. Senator, my answer would be: been there,

done that. That is, we have done a lot of the incremental things

that we know how to do. All of the other things that we would like

to do would be helpful, but probably would not stop this huge

growth of the uninsured and the huge growth of the underinsured.

As much as we talk about IT and as much as we talk about other

efficiencies that you could build into the system, we need a much

more comprehensive, more integrated strategy to get everybody

covered. It is just easier to do all those other things if you get everybody covered.

But I think that the State experiments are interesting because

they tell us a lot about the politics and how you put the politics

together, but frankly we are at the point where the Congress itself

knows on what elements they could build a bipartisan reform. It

has to be very transparent with the American people and has to

simplify the system, because one of the things we learned in 1993

was that complexity killed us. It was not simply that we scared

people who already had good health insurance, but the complexity.

I had to testify on that bill, and I am very good at complexity, and

I had a heck of a time explaining it to anyone.

Senator SALAZAR. And maybe that is part of the reason that it

died: that it was seen as too complex. Maybe the American people

were not ready for it. So now, fast forward. We are in 2008, trying

to pull together a similar kind of effort. How would you do it so

that it does not die by its own weight? I would like to hear your

thoughts as well here, Secretary Thompson.

Secretary THOMPSON. Well, Senator Salazar, I am a farmer. During a thunderstorm that is coming, a tornado, whether you are in

the plains of Colorado or the hills of Elroy, you want to get that

hay field in, so you are working darned hard to get it in before the

thunderstorms hit, before that hay gets wet. Even though you are

trying to crowd and you do not want it to clog up the machine, you

want to get that hay in. That is where we are today.

The thunder clouds are out there. We are doubling the cost of

health care in the next 6 years. We have uninsured at 47 million.

We are having employers pull out of offering health insurance.

Senator SALAZAR. So, Secretary Thompson, would you try to then

pull together a comprehensive package that would address all the

facets of health care that you just addressed, or would you try to

take them one at a time, for example, the Medicare—the information technology, prevention, try to take those?

Secretary THOMPSON. You may be able to have information technology as a separate piece, but overall you have to transform

health care. One piece is not going to do it, Senator. It is too broken. We have to transform health care. The beauty is, all the stars

are lining up correctly. All three presidential candidates are talking about it, Congress is talking about it, this committee is talking

about it, the leadership.

The fact of the matter is, costs are up. People are almost demanding that we do something. Now is the time to act. Two thousand-nine, as I say in my speeches, is going to be the best year for

transforming health care ever. I am from the State government

perspective, where I believe in incremental things like we did on

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welfare. I just think health care is so broken we have to have a

total fix.

Senator SALAZAR. Well, thank you both for your service to our

country, and for your testimony.

Secretary THOMPSON. Thank you, Senator.

The CHAIRMAN. Senator Kerry?

Senator KERRY. Thank you, Mr. Chairman.

Welcome to both of you. Thank you for your many years of input

on this subject.

I listened to and read both of your testimonies. I thought they

were very interesting, and appreciate the perspectives that you

bring to it.

Secretary Thompson, I just want to ask you, you made the point,

and you have made the point in your testimony, about the need to

sort of have a commission or something to begin to deal with the

Medicare piece. I find that hard to square with what you have just

said right now about the need for a comprehensive fix, et cetera.

Peter Orszag has made it clear that the only way to deal with

the growth of the cost of Medicare and Medicaid over a long period

of time is to bring down the cost of health care, and that you cannot deal with Medicare and Medicaid separately from the rest of

the system. You are going to have to drop those prices, and therefore deal with a number of different things, ranging from everything—I heard Senator Stabenow and other people questioning

about IT, we have our e-prescription effort, a whole bunch of

things. They all have to happen, do they not, simultaneously?

Secretary THOMPSON. Oh, absolutely. But Medicare is so broken,

Senator, it is going broke in——

Senator KERRY. I understand. In 2012 we go negative, and in

2019 it is bankrupt. I have the picture.

Secretary THOMPSON. And we have to move on it. Medicare, as

Secretary Shalala has mentioned previously, has an impact on

most decisions in the private sector as well, hospitals, reimbursement of doctors, and so on. They use that to help——

Senator KERRY. Oh, I understand. That is why it seems to me

you cannot sort of have a separate commission out here and be trying to do——

Secretary THOMPSON. Senator Kerry, the only thing I am saying

is that, it is so political. You are going to have to raise more money,

you are going to have to look at the age question; Secretary Shalala

and I disagree on the fact that you are going to have to address

it. You are also going to have to address what benefits are available, when they are available, and to whom. These are tough decisions, and most individuals in the Senate and the House really do

not want to deal with those things.

Senator KERRY. We are going to have to deal with them.

Secretary THOMPSON. That is why I think an equal number of

Republicans and Democrats sitting down, making some tough decisions, then passing it on to Congress, is the way to go.

Secretary SHALALA. Yes. Senator Kerry, I spent an hour and a

half trying to figure out where I was going to disagree with my

good friend, Secretary Thompson. On the use of a blue-ribbon commission, I actually think the history of those commissions is that

24

they work when it is very specific things that they need to address,

not something so integrated and comprehensive.

So I think that the Secretary and I disagree on this one, and I

would separate myself out. You use a blue-ribbon commission when

you are dealing with a Walter Reed situation, as the President did,

something very specific, like the Social Security issue, where you

are in and out, you tweak the system, you get a few more years.

But on Medicare, because it drives many of the changes, it is

going to have to be done by the political system, but specifically by

the Congress. The one thing we learned in the executive is, unless

it is a team effort, working with Congress, the President could lay

out his or her principles on how we wanted to do it, we could look

at bipartisan bills, but my sense is that you all ought to take the

lead, start the ball rolling, and that the executive ought to come

in, but we ought not to use well-intentioned citizens on this one because of the need for——

Senator KERRY. I could not agree with you more. Not to go backwards, but had the outcome been different in 2004, I can guarantee

you my plan was to ask Ted Kennedy, Orrin Hatch, Max Baucus,

and Chuck Grassley to come down to the White House, sit there,

and say, all right, you guys have to fundamentally help put this

together and we have to do it jointly. There is no way to do it otherwise. I think, hopefully that is the way we are going to proceed

on this thing because of the politics, et cetera.

But let me put a couple of the other thorny things on the table.

I think it is absurd, frankly, and I intend to try to do something

about it separately if necessary, that we are encouraging Americans to go out and, on the spur of a fanciful, attractive advertisement, go out and ask their doctor to do something, which the doctor

then feels, if they do not do, they could be sued for if something

else happens, or they just make their client unhappy and they go

away and go somewhere else.

The higher cost of health care—I have had more doctors tell me

that there are more people who come in to them and say, well, I

want this, I saw this on TV, you have to give me this, whatever

it is. It seems to me that medicine, and the whole concept of curing

people and dealing with this, sure, patients deserve to have information and knowledge, but I do not think we should be encouraging a specific drug of one kind or another, which is just unbelievably costly in terms of the whole system.

Would you comment on that, please? I know you commented a

little bit earlier.

Secretary SHALALA. Yes, I did a little earlier. I strongly opposed

that part of the FDA reauthorization and held my ground all night.

I think Senator Frist now admits that that may have been the

wrong thing to do at the time. But I want you to know that we

knew better, and we told the Senate authorizing committee exactly

what we thought was going to happen: it would run up health care

costs, it would transform the health care system in a way that was

inappropriate. I still oppose it. I hope that at some point you could

roll that back.

Senator KERRY. Secretary Thompson?

Secretary THOMPSON. First off, I would like to just quickly go

back one step, because you and I agree as to whether or not a blueVerDate 11-MAY-2000 14:32 Jun 21, 2010 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 56477.000 TIMD PsN: TIMD
25

ribbon commission—if, in fact, the President of the United States

comes down and says that to Senator Baucus, Senator Grassley,

and to the other two leading Senators, that is fine. I just do not

think that is ever going to happen. That is why I am saying a blueribbon commission is probably the most——

Senator KERRY. I disagree with you. I think it is going to happen.

Secretary THOMPSON. All right. If it does, that is fine. We have

not seen it yet.

Senator KERRY. Well, I think that is——

Secretary THOMPSON. And it is immediate. It is an emergency.

In regards to advertising, you have the Constitution, you have

the legal—I think a better way to approach it is, pharmaceutical

companies should be required to advertise, if they are going to advertise, and put out information on nutrition, on wellness, and prevention along with any drugs out there and start educating America. This is where we are lacking. We are not getting information

out on diabetes, on general subjects, on wellness and prevention.

This is where you are going to save the dollars, much more so than

hawking one particular pill over another.

The CHAIRMAN. Might I ask both of you your thoughts on how

to get to universal coverage? Secretary Shalala, you mentioned a

strategy with Medicare. Just kind of sit back a little bit. I guess,

first of all, it is a matter of definition. I presume you are not talking about single pay, because that is politically so difficult in this

country, and also has other problems. But how would you move toward universal coverage, and what would some of the elements of

that strategy be? How important is the mandate, for example, the

individual mandate? How much of the solution is in the public sector versus the private sector? Just your thoughts when you are

driving to and from work, thinking about this stuff. I mean, what

do you think?

Secretary SHALALA. Well, I think it depends on how——

The CHAIRMAN. I am going to ask both of you.

Secretary SHALALA [continuing]. How much political muscle you

have at the time. I mean, there are ways of putting the pieces together, simply building on the existing system. The problem with

that, as we demonstrated, is that you will continue to pay for poor

performance. Even though any kind of system will have electronic

records, we will not have the kind of quality of care that we want

while at the same time getting universal coverage.

Getting everybody covered and not transforming the system in

terms of how we pay, in terms of efficiencies, in terms of the standard of care, I would not recommend to anyone. Some of the elements involve deep subsidies for those who cannot pay, and these

transformational elements that pay based on performance and

based on quality, as well as the IT components, you want in, as

well as some kind of a mandate. I do not see a way around those

kinds of incentives.

What I have been interested in is that there have been bipartisan coalitions built around individual mandates. Candidates are

talking about it, if you look at Massachusetts and look at some of

the other States. So, I would want to look at those elements. I

think all of the elements that we have seen in a number of difVerDate 11-MAY-2000 14:32 Jun 21, 2010 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 56477.000 TIMD PsN: TIMD
26

ferent plans, including the bipartisan plan that is up here, are ones

that ought to be considered. But you ought to pick and choose.

The one thing I have learned from government is that no one

ever thinks about simplicity. It is extremely important that we can

explain the six things that we have done that will transform the

system as opposed to 1,228, and that we pick the transformational

elements for the new plan and that everybody is in. We have to be

in this together. We also have to have the kind of simplistic and

simple information that we now give people for Social Security.

You get it at a certain age, but you can pick up the phone or online you can ask for where you are in the Social Security system.

You ought to be able to get that basic information in health care,

what you pay, what the government pays, what your employer

pays. You ought to be able to get straightforward information. So

whatever the elements are, there ought to be a limited number of

elements. You ought to pick the ones that make the most difference, and everybody ought to be covered. So, those are the principles that I would follow for the system.

The CHAIRMAN. Thank you.

Secretary SHALALA. And I would absolutely get away from, if the

government is going to do part of it, they ought not to be paying

more than the private sector for anything.

The CHAIRMAN. Secretary Thompson?

Secretary THOMPSON. Thank you very much, Senator. I have

probably five points, very quickly. First off, you are going to have

to change the reimbursement formula or else you are going to have

a system that is not going to function very well because you have

fewer people going into internists and family doctors.

The CHAIRMAN. Big-time. A big problem.

Secretary THOMPSON. A big-time problem. You have to change

the reimbursement formula so you can get young doctors to go in

there. You have to change the formula so that you can get nurses,

people who get their Ph.D.s so they can start teaching. We have

a lot of young people wanting to become nurses but we do not have

the professors. The constraint is the fact that we do not have

enough instructors and professors. That is structural, and that has

to be changed.

Number two, I would demand that every State require all the

uninsured to be put into a group, both family and single, and then

allow every insurance company in the health care arena to bid on

it like we did on Medicare Modernization. You would be surprised

how many insurance companies would come in and bid on it.

Third, I would give every couple a $5,000 tax credit if they are

under 125 percent of poverty to buy into it, and for a single person,

$2,500. I would also allow them to buy into the Medicaid system

using that tax credit to do it, or buy into the health insurance system.

Fourth, I would do a lot of education in schools, at the medical

schools in regards to making sure that nutrition, wellness, and prevention are taught. Doctors coming up really have a paucity of

knowledge about nutrition, as well as exercise and prevention. You

have to teach it, and you have to educate. Those are the points I

think you have to have in order to have universality.

27

The CHAIRMAN. I think we all agree that the reimbursement system is out of whack, for a lot of reasons. It does not pay for performance, really. It is procedures, it is volume, all that kind of

thing. How do we get from here to there? I mean, how do you get

the medical profession to agree, yes, we have to pay for performance here or that the primary doctors need to be reimbursed more

than the subspecialties? We all talk about that, we all know it is

important. But any thoughts on what the dynamics are as we are

putting something together so we accomplish it? We know the Jack

Wennburg study problems, for example. That should be addressed

as well.

Secretary THOMPSON. We put pay-for-performance in the Medicare Modernization Act, and I think it is working. I think it is the

first small step towards getting to that quality and pay-forperformance that is necessary, and I think Congress has to just put

in the laws, and CMS has to implement the rules and regulations

in order to accomplish pay-for-performance in quality and transparency.

The CHAIRMAN. Madam Secretary?

Secretary SHALALA. I agree with that. There are lots of different

things that have been tried. Some of them have worked pretty well.

The one thing about pay-for-performance is that the private sector

insurance companies are very interested in this, for good reason.

They have put some things in place. I think there are enough elements out there. One of the reasons I believe we can get to comprehensive health care reform in this country is because we have

tried lots of different pieces. It is really a question of scaling up

and implementing, but everybody has to understand it and buy

into it. That is my fundamental point.

The CHAIRMAN. Thank you very much.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

Thank you, Madam Secretary and Mr. Secretary, for being with

us. We have a monumental task ahead of us, and it is getting further ahead of us than we need it to. Our hope is that we will be

able to look at some of the common-sense things we can do now

that will help us create more comprehensive, I think, solutions for

overall health care.

I am sorry that I am late. I know you all have both touched on

the roles of employers in encouraging healthy behaviors in their

workers. I agree with that. I think it is critical to preventive

health—smoking cessation, the obesity epidemic. We see an awful

lot of those in smaller rural States like mine, and I think the encouragement that we can provide there is really critical in what we

need to do.

The private sector does have a role to play. I do not know how

much you all have talked about that. Maybe you can expand a little

on what you have already said, perhaps. I know in our State, WalMart has saved its customers more than $1 billion in terms of the

$4 prescription drug program that they started in September of

2006, and they have even furthered that this week in added savings and greater access, longer coverage periods, up to 90 days

now, and specials for particularly women’s health. But looking at

ways that the private side can be helpful and how you all might

28

encourage that, particularly the opportunities and innovation and

economic development, like health IT.

I do not know if you all have talked about the e-prescribing and

some of the competitive natures there. But it is something you all

might want to expand on. I am very interested in knowing how we

can encourage the private sector to be more innovative, more involved in this, and any of those innovations, how they can be fostered in health reform while still putting downward pressure on

health care costs.

Suggestions?

Secretary SHALALA. Well, I think we both talked at length about

IT systems, but there are some very interesting private sector

bottoms-up experiments going on in this country. I describe them

now as experiments. Putting clinics inside of pharmacies.

Senator LINCOLN. We have some of those.

Secretary SHALALA. Putting them in Wal-Marts. That is probably

the first new innovation, privately financed, not necessarily by people, in some cases, who knew a lot about health care. But the use

of nurses, which I think both the Secretary and I feel very strongly

about. I have complained that it is so uneven across the States depending on what kind of restrictions States place on nurses’ ability

to provide health care, but in rural States, they have a much

stronger role.

In these clinics around the country, with physician back-ups—

and my university is involved in ones that are family practice,

where an advanced practice nurse, a nurse practitioner is providing

those services——

Senator LINCOLN. A nurse practitioner.

Secretary SHALALA [continuing]. Limited as they are by whatever

they are allowed to do. But there, what you are seeing is there is

a standard of care. They do not go beyond the certain procedures

and illnesses where there is a clear standard of care, and then use

the backup, and then someone can get an appointment. The first

studies in California showed that people with insurance were using

those places, and that tells us a lot about access. So by the time

you get to a major discussion about health care reform, we are

going to know a lot about different kinds of innovations and the

way to do the preventative part, to provide widespread access, the

role of clinics, the role of federally qualified health care providers,

where we could perhaps describe a system in which there were different points of access with different providers providing that, in

which what you are going to be talking about is a framework for

all of this.

But I think I am with Secretary Thompson. There are an awful

lot of exciting things going on out there that can transform the discussion that you are going to have, and there are experts in each

of these areas that could be helpful. We would be happy to be helpful in identifying some of those things that are going on.

Senator LINCOLN. Well, you brought up the nurse practitioners.

I think that is important in a State like ours, but making sure

that, again, like Secretary Thompson said earlier, we have the

training going on and we have the professional—not just the clinical folks, but we have the academic folks who are going to be able

29

to train. We have folks who want to start nursing school, a lot of

them out there, who do not actually——

Secretary SHALALA. Once they get their degree, if the medical establishment that they go into does not see them as an equal partner and see them as part of the solution in the long run, is not prepared to give them a stronger role as a part of the health system,

we will continue to have nurses who leave the profession. The fact

is, we could solve the nursing shortage in this country if we could

bring back to nursing positions all of those who have left and been

discouraged about the way it is organized. So, we have big challenges in this country, but there is no question in my mind that

there is something out there that is going to allow real leadership,

particularly by this committee, to bring us together.

The CHAIRMAN. Senator Wyden?

Secretary THOMPSON. Senator Lincoln, if I could answer your

question. I agree with Secretary Shalala, but I would like to just

expand a little bit. I mentioned it before you were in here. In my

capacity as chairman of the Center for Health Solutions for

Deloitte, we made a survey and we found that 62 percent of the

Fortune 500 companies are going into wellness prevention this

year, and next year an additional 31 percent. That is a giant step

forward.

The second thing is, in my capacity of going around the country

speaking on health care, I have come in contact with some really

nifty ideas. Tele-doc is one in which you pay a fee and, anyplace

in the country, you can tele-doc, call up and telephone a doctor.

They are 95-percent accurate in their diagnoses and can give treatment, and can also give a prescription.

The third one is the MDVIP, a company out of Florida that is

putting doctors in cities all around America in clinics, based strictly

on wellness and prevention.

Then there is Allegiant Health Care out in Omaha, NE, which

I talked about, an exciting thing on transparency using technology.

Senator Lincoln, if you were a member of Allegiant, if you needed

whatever procedure you wanted, a mammogram or what, you just

type in on your computer at home ‘‘a mammogram’’ and they would

tell you immediately, instantaneously it comes back, you can come

in and have your mammogram, what it is going to cost, what your

insurance company will pay, and what your co-pay will be. So this

is the kind of transparency and quality that needs to be exported

throughout America. These are just some. I have many examples

of these where there are some really wonderful, innovative things

coming in that are just very helpful to transform health care.

The CHAIRMAN. Thank you very much.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

With Secretary Dole, on this question of the Congressional Budget Office, I think what I have been struck by, Secretary Shalala,

is the point that we now have something that indicates that we can

pay for a universal coverage proposal 2 years in and then start

generating surpluses. It seems to me as I look back on 1993 and

1994, if there had been something like that—and I get this from

Senator Dole and Congressman Dingell—that that might have been

30

a game-changer back in 1993 and 1994 if they had had a document

like the ones Senator Bennett and I got last Thursday.

Can you tell us what happened back then with the Congressional

Budget Office?

Secretary SHALALA. Well, we expected a better mark from the

Congressional Budget Office, and it was devastating because of the

costs and their estimates. And while we argued with them for a

while, that just compounded both the sense of the complexity and

our inability—it changed the momentum of the discussion.

So, if you start with a kind of revenue neutrality, that is, you

make some up-front investments and then there are payouts, you

just take a giant step, there is just no question about it. Would it

have made a difference? Yes. But there were some other elements,

as you all know, during that point of time. I think we learn from

our mistakes. Obviously you all have thought a lot and have talked

to people who were the players to try to learn from those mistakes.

Senator WYDEN. Let me go now, for the two of you, to something

we have not talked about, and that is the role of the States in fixing American health care. I have come to the conclusion that we

have this terrific set of Governors and State legislators, people with

terrific ideas and thoughts.

But the reality is, the States cannot fix problems they did not

cause. The States are not responsible for the tax code, the biggest

expenditure in American health. States cannot do anything about

the big self-insured plans. They obviously cannot touch Medicare

and have limited control over Medicaid. In fact, I think the story

of the States is what a terrific job States do, given what little bandwidth they really have to operate in. So what Senator Bennett and

I do with our group is, we try to give the States a wide berth, but

we recognize we are going to need a new Federal/State partnership

to fix health care.

I would be interested, from our last question, Secretary Thompson, in your thoughts on the role of the States in fixing health care,

and then you, Secretary Shalala.

Secretary Thompson?

Secretary THOMPSON. Well, I think you said it as well as anybody

can, Senator Wyden. States are doing a great job. We started, and

I am happy to say I was one of the originators of, welfare reform

and we made successes, and then other States were able to build

upon that. The same thing is happening on health care. I was able

to give Governor Romney a waiver, and they started the Massachusetts program on covering everybody. Since then, Oregon has tried

health care, California, Wisconsin, Illinois.

A lot of States are trying innovative things, and they are asking

for waivers to try them. But the truth of the matter is, if in fact

you are able to, Senator Wyden, on a bipartisan basis, give States

a wider bandwidth, you would find a lot of innovation, a lot of exciting things bubbling up that you could see take place.

I just do not think at this point in time—and I have been a Governor for over 14 years, and I think those people do a wonderful

job, like you have said. I just do not think, right now, health care

can afford the experimental kinds of programs at the State levels

to bubble up. It is too immediate. I think the Federal Government—I hate to say this, coming from where I come from—but I

31

really think the Federal Government has to take this particular

problem on, on health care, because you have to deal with Medicare, and then broaden the base, give States the opportunity in

your framework to fix it. But I really think this is immediate, and

the Federal Government has to deal with it.

Senator WYDEN. Secretary Shalala?

Secretary SHALALA. I basically agree with that. As much as I love

State experimentation, we have not given Secretary Thompson

enough credit, not simply on welfare, but SCHIP, for example. The

first movement on that came out of his State, and a couple of other

Governors’.

It is just that we have so federalized the big purchasing, that it

is very difficult. Because plans do not have to pay attention to

State law, you almost have to rewrite the relationship of States

over health care. Sorting out that federalism is going to be a very

important part of the plan that you eventually work out: what is

the role of States and what is the role of the Federal Government?

That is why I raised the issue of nurses.

Your framework is not simply a Federal framework, it is a

Federal/State framework. Sorting out what the States ought to be

doing as part of this and what the Federal Government ought to

be doing is going to be very important as part of this exercise. We

know that they are talented out there and they are anxious to

cover. They have told us a lot about their ability to bring in employers and about buy-ins and how much glue money it takes to

put it together, as California recently found out. They did not have

enough glue money to put theirs together.

That also is another indication of the politics, and that is, there

are a lot of people out there at the State level who want to see this

done. I think making them partners will be a very important part

of this.

The CHAIRMAN. Senator Kerry? Thank you.

Senator KERRY. First of all, I agree with both of you on that.

Massachusetts, which we are proud of in terms of the experiment

we made, is, I think, not a model for the rest of the country by

itself, for a couple of reasons. One, we got a huge waiver with a

lot of money that came in, allowing us to do things with Medicaid

so we had extra money. Number two, we had a demographic that

was different from that in California and other States in terms of

the numbers of uninsured. Number three, we had a huge uncompensated care pool which also allowed us to make it up.

What we are finding is, the Massachusetts experiment is proving

that the real population difficulty that you have to cope with in any

of these plans is your low-income uninsured and how you would

cover them. So I think that we have to look at this larger thing.

Then there is the other problem. As the States proceed, you get

into these variations in what the benefits are that are mandated

in the States, and that causes all kinds of problems in terms of

costs, State boundary pools, and things. I think we are going to

have to deal with that.

But let me come to two other fundamental questions I want to

ask. I have a daughter who is currently a first-year intern at Mass

General in Boston. She keeps reporting to me, as do other young

friends who are doing the same thing that she is, on the primary

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care crisis. There is just a crisis of finding primary care doctors.

None of her friends who get out of medical school can afford to go

be primary care doctors because of their loans and burden. I would

like you to comment on that.

Second, the defensive practice. I am a lawyer. I have carried

some of those cases previously. I do not want to see people’s rights

of access for redress lost. I certainly do not want to have an openended system where you do not have accountability. But you cannot avoid owning up to the reality that there is an enormous

amount of defensive practice, an enormous amount of cost shoved

onto the system by people who are just afraid not to do X-rays, no

matter the appropriateness of them. I met with a bunch of radiologists recently, and we were talking about appropriateness criteria

and how you begin to make those determinations. Can you share

with us how you deal with those two issues in the context of this

sort of macro reform we are talking about?

Secretary SHALALA. Well, on the first issue of primary care doctors and loan forgiveness, we can do this. We can do the same

thing on nursing if we need more nursing faculty members. I mean,

it is not a very expensive enterprise to incentivize people so that

those who want to go into primary care can go into primary care

and not end up with a huge burden that they have to pay off. We

also have to make sure—and I run one of the great academic

health centers in this country—that we ourselves are encouraging

people to go in.

I have a young family member who went to one of the great medical schools, an Ivy League institution in this country. He was the

most brilliant student they had, and everybody discouraged him

from going into family medicine. Now, he is in family medicine

today, but it was overcoming the opposition of his faculty members

to go into family medicine.

On the issue of tort reform, which you bring up, I am one of

those Democrats who believes that we ought to have tort reform.

The sense of medicine and the studies of defensive medicine have

not been conclusive about whether we are practicing so much defensive medicine. Our system is so messed up that it is hard to

measure that in a way in which we can come to a firm conclusion,

but we need a better way, whether it is arbitration—we need a

faster and fairer way. Here is what we do know from the study,

that those who really need to get some kind of a settlement are

probably not the ones who are getting it. It is so uneven in terms

of the court cases.

I am in a State in which my faculty are burdened by litigation.

But we also know that the right cases ought to be settled, people

ought to have opportunities. It probably is not a court system that

will do that for us. There are some alternatives that can be adopted, whether it is limits on a certain amount of the payments. But

we certainly want to make sure that justice is served, that the system is fairer, and it has to be a system other than going to a court

and going to a jury and a system that is——

Senator KERRY. Well, in Massachusetts, one thing we did was

put in place a tribunal system, where you have a doctor, lawyer,

and judge, and you clear cases before they even get in. There are

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a lot of ways to do it to hold onto the rights of people, which is important to be able to have that adjudicated, I think.

Secretary SHALALA. I agree with that. I think that our party in

particular has to be willing to look at some of those alternatives

and build a bipartisan coalition as part of this.

The CHAIRMAN. Senator Lincoln?

Secretary THOMPSON. Could I answer the question?

The CHAIRMAN. Very briefly.

Secretary THOMPSON. This is a tough process here.

The CHAIRMAN. All right, Mr. Secretary, go ahead.

Secretary THOMPSON. Number one, we have to change reimbursement forms, Senator Kerry. It just is not financially practical to

have a family doctor. Thank you for your daughter being in Mass

General. But to have a family doctor in a medical school owing

$200,000, making $100,000 a year and seeing patients only for 9

minutes—the reimbursement form has to be changed.

Second, we have to encourage hospitals and companies to allow

nurses who want to, to get their Ph.D.s so they can teach, because

we have a lot of young men and women who want to go into nursing and they cannot go into it. We are going to have a shortage of

350,000. We have a huge shortage of gerontologists coming out, and

family doctors. All of this is going to require the Federal Government to stimulate it.

The second quick thing on defensive medicine, I love what Secretary Shalala says, I agree with her. I think the Democrats do

need to change their policy on tort liability, but I think all of us

do. I am being a little bit cute there, and I am sorry about that.

But I really, truly believe that what we have to do is we have to

set up a system of arbitration, Senator Kerry, that is going to get

these cases handled quickly and be able to solve the situation much

faster.

The CHAIRMAN. Thank you.

Senator Lincoln?

Senator KERRY. Thanks, Mr. Chairman. Can I just say quickly—

I am sorry. I apologize.

Senator LINCOLN. That is quite all right. Not a problem.

Senator KERRY. I think you said something very important,

which is, we both have to. Some try to use it as an excuse just to

get rid of everything altogether and have no accountability. I think

it is the balance.

The CHAIRMAN. Thank you.

Senator KERRY. Thank you.

Senator LINCOLN. Thanks, Mr. Chairman.

I have three quick questions, and I am going to try to get them

out there.

I just think it is critical to address our need for comprehensive

and accurate data in health care, particularly with seniors and

more people who are living with chronic illnesses. I have introduced a bill, the Geriatric Assessment and Chronic Care Coordination Act, which I think is critically important as we see more and

more of our population obviously in the older category.

Would either of you—whatever recommendations you might have

on improving on the quality of data that exists for coordinated care

models, efficient care delivery settings like home care, hospice. I

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had a man walk up to me just yesterday who said thank you for

working on hospice. It is understood. How do we do that? How do

we get the data there that is important, that it reflects?

I know Senator Wyden brought up the issue of CBO and the

scoring. We know that there are cost savings, that it provides cost

savings in the long run, but we run up against that problem. The

other thing is, one of the things we know is we are going to have

some costs involved in here. I guess one of the things we have

talked about is looking at Medicare Advantage.

I know that we are certainly seeing that, subsidizing these plans

on an average of 13 percent or more than regular Medicare, and

seeing it growing. Do either of you all have an opinion on whether

or not that should be a part of our discussion on meaningful system

reform in terms of Medicare Advantage?

I think the last thing that I wanted to ask is, Secretary Shalala,

you mentioned that one reason for the failing of the last Clinton

health reform plan was that America was in a recession at the time

and was not ready for that drastic kind of health care reform.

We are finding ourselves now, obviously, with great concerns of

our economic state. It is not exactly ideal. Would it make sense

now to walk before we run, or are we going to hit that same situation that you mentioned in terms of the Clinton plan?

Secretary SHALALA. I do not think I mentioned the recession as

part of my statement. I think both of us see elements of where

there is a build-up in one of those opportunities that we would not

want to miss. The fact that there is a very good CBO report on a

specific plan gives you some hope that you could, whether it is that

one or some variation that we have suggested here in terms of elements, I think this is the time to move. I think Senator Baucus recognizes that, and the chairman’s willingness to take this on will be

very important in the future.

You asked a bunch of other questions. I want to yield to Secretary Thompson. I am sure you are going to be looking at Medicare Advantage. Everybody is eyeing it for a variety of offsets. It

is true that it does pay more. It is also true it is not clear how

many more benefits people are getting besides it. But one of the

reasons to do Medicare reform now is because everybody is going

to be looking at that to offset some other kinds of things that need

to be solved in health care, including physician payment and some

other issues.

So I do not think there is any question about some over-payment

there. The question of whether there are additional benefits being

offered, there are lots of studies and lots of people who are more

expert than I am in that area.

Secretary THOMPSON. First off, let me thank you, Senator Lincoln, for what you are doing in hospice, home health, and that. I

would also like to introduce Bill Pierce and Jennifer Young, and

Jorge and Tony. They are working in a bipartisan way in order to

get more attention to wellness and prevention in the handling of

chronic illnesses. They have 175 organizations, bipartisan, trying to

influence politics and the government to make sure that they are

going to be able to be heard.

Senator LINCOLN. I hope they have looked at our chronic care

bill.

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Secretary THOMPSON. They will. They have, and they are supportive of parts of it. So you should sit down and talk to them.

The second thing, in regards to Medicare Advantage, as you

know, it was a successor to a previous program. You are going to

look at it. I think everything in Medicare has to be looked at. I do

not think there are any sacred cows. Medicare needs to be absolutely looked at and it has to be overhauled.

The third thing is, I really sincerely believe that, if we are going

to have an opportunity to transform health care, it has to be done

on a bipartisan basis and everything in the whole health care system has to be looked at, and hopefully we can forget about the partisanship and come up with a bipartisan conclusion.

The CHAIRMAN. Thank you all very, very much. I know that you

have deadlines to meet. Thank you for taking the time to come.

This has been a great kick-off of our inquiry as to how to find a

solution here. You have both really helped make this work very

well. Clearly we have to have bipartisanship. We need to do something more than incremental, and we need universal coverage. I

just thank you very much.

I think we are probably going to be calling upon you often in the

future, because clearly you have thought an awful lot about this

and have a lot of good ideas.

Thank you very much.

The hearing is adjourned.

[Whereupon, at 12 p.m., the hearing was concluded.]

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