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94–489 PDF 2004

S. Hrg. 108–615

DOES CMS HAVE THE RIGHT PRESCRIPTION?

IMPLEMENTING THE MEDICARE PRESCRIPTION

DRUG PROGRAM

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE AND THE DISTRICT 

OF COLUMBIA SUBCOMMITTEE

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 8, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

AMY B. NEWHOUSE, Chief Clerk

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

GEORGE V. VOINOVICH, Ohio, Chairman 

TED STEVENS, Alaska 

NORM COLEMAN, Minnesota 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD J. DURBIN, Illinois 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

ANDREW RICHARDSON, Staff Director 

MARIANNE CLIFFORD UPTON, Minority Staff Director and Chief Counsel 

KEVIN R. DORAN, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Voinovich ............................................................................................. 1 

Senator Lautenberg .......................................................................................... 4

Senator Durbin ................................................................................................. 27

Senator Pryor .................................................................................................... 34 

WITNESSES 

THURSDAY, APRIL 8, 2004

Michael McMullan, Deputy Director, Center for Beneficiary Choices, Centers 

for Medicare and Medicaid Services ................................................................... 5

Gail R. Wilensky, Ph.D., Senior Fellow, Project HOPE ....................................... 19

Nancy-Ann Min DeParle, Senior Advisor, J.P. Morgan Partners, LLC .............. 23

ALPHABETICAL LIST OF WITNESSES

DeParle, Nancy-Ann Min: 

Testimony .......................................................................................................... 23

Prepared statement .......................................................................................... 70

McMullan, Michael: 

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

Prepared statement with attachments ........................................................... 41

Wilensky, Gail R., Ph.D.: 

Testimony .......................................................................................................... 19

Prepared statement .......................................................................................... 58

APPENDIX 

Questions and responses for the Record from Ms. McMullan from: 

Senator Voinovich ............................................................................................. 83

Senator Durbin ................................................................................................. 180

Senator Akaka .................................................................................................. 183

(1)

DOES CMS HAVE THE RIGHT PRESCRIPTION? 

IMPLEMENTING THE MEDICARE PRESCRIPTION DRUG PROGRAM 

THURSDAY, APRIL 8, 2004

U.S. SENATE, 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE, 

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:42 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. George V. Voinovich, 

Chairman of the Subcommittee, presiding. 

Present: Senators Voinovich, Durbin, Lautenberg, and Pryor. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. The hearing will come to order. 

I do apologize to the witnesses for being late but the Members 

of the Senate were being briefed by the Secretary of Defense and 

the Chair of the Joint Chiefs of Staff about what is going on in Iraq 

today. So we stuck around a little bit longer just to get a real flavor 

for what is happening there. I apologize for being late. 

The Subcommittee on Oversight of Government Management, 

the Federal Workforce and the District of Columbia will come to 

order and we welcome you. 

Today’s hearing is entitled, ‘‘Does CMS Have the Right Prescription: Implementing the Medicare Prescription Drug Program.’’ I 

thank all of you for coming today and hope that the hearing will 

provide an opportunity to have a forthright discussion about the 

management challenges facing the Centers for Medicare and Medicaid Services. 

The existence of these challenges should not detract from the 

agency’s significant accomplishments. Medicare has been and 

continues to be a successful program for the American public, providing vital health care to our Nation seniors. Yet the agency currently has more on its plate than it has since the creation of Medicare and Medicaid in 1965. 

While Medicare and Medicaid have been essential for our Nation’s seniors by providing coverage for the cost of doctor’s visits 

and hospital stays, prior to enactment of the Medicare Prescription 

Drug Improvement and Modernization Act on December 8, 2003, it 

was structured for a 1960’s health care system. Unfortunately, the 

system did not evolve with the new developments in science that 

2

allows physicians to treat diseases that once required surgery with 

modern prescription medications. 

Thanks to Congress’ action last year, our Nation’s seniors will 

now have access to a prescription drug program through Medicare. 

It is now our responsibility to make sure that CMS has the means 

to implement this new benefit in an efficient and effective manner. 

While the task ahead of CMS is enormous, the agency has faced 

similar challenges in the past. 

In fact, implementation of this new benefit is similar to the previous administration’s implementation challenge with Medicare 

Plus Choice. When Medicare Plus Choice was ready to be rolled out 

nationwide, I was serving as Governor of Ohio. I recall after reviewing the implementation plan I was concerned that the agency 

was not ready to handle all of the phone calls they were going to 

get after a massive advertising campaign. 

Ms. DeParle will remember my concerns at the time. She was 

the head of the agency preceeding CMS—HCFA. I approached her 

and then-Health and Human Services Secretary Donna Shalala. I 

told them that I felt that before they rolled it out nationwide they 

ought to do some pilot projects to see how it would work. 

To their credit, they adjusted the program. My State became one 

of the five test States and the program was implemented smoothly. 

I think that just like Medicare Plus Choice, CMS has a lot of work 

to do before it will be ready to roll out this benefit in 2006. 

Remembering this experience will help us keep in perspective the 

administrative challenges facing CMS, which we will learn more 

about today. I believe that when we begin to discuss the details involved in implementing such dramatic changes the perception will 

shift from why is it taking 2 years to provide the benefit to amazement that CMS intends to provide it in 2 years. 

I am encouraged to see that CMS already has taken substantial 

steps to offer a temporary drug discount card. On February 5, CMS 

announced that over 100 separate entities submitted applications 

to offer Medicare approved cards to beneficiaries. 

By March 25, CMS was able to announce that they had reviewed 

the applications and, I understand, awarded 28 private card sponsors. This is the first step, and we have to make sure that this 

progress continues, particularly as the mailings go out and beneficiaries are going to be asked a lot of questions about how to take 

advantage of the card. 

I understand Ms. McMullan will talk about the discount card but 

neither the details nor the merits of the program are the topic of 

this hearing. Understand that. I do not want to get into a debate 

about the program. There have been numerous Congressional hearings about that issue. 

The purpose of this hearing today is to discuss the capacity of 

CMS to respond to the challenge of implementing the drug benefit 

program by 2006 and to establish a baseline of where the agency 

is today. 

Even before passage of the Medicare Modernization Act, CMS 

was coping with administrative challenges. For example, a 2002 report by the National Academy of Social Insurance highlighted the 

fact that between fiscal years 1992 and 2002 benefit outlays increased 97 percent and claims grew by 50 percent, however proVerDate 0ct 09 2002 13:18 Sep 23, 2004 Jkt 094489 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\94489.TXT SAFFAIRS PsN: PHOGAN
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gram management funds increased by only 26 percent and authorized full time equivalent positions only 12 percent. So the workload 

increased, but there was a question about whether the dollars were 

there to provide for the management that was needed to deal with 

the increases. 

One of the challenges facing CMS in moving forward with implementation of the prescription drug benefit is the agency’s human 

capital resources. In general, governmentwide strategic human capital management remains on the General Accounting Office’s highrisk list. Currently 18 percent of CMS workforce is eligible to retire. The number is significantly higher, 30 percent, in the career 

Senior Executive Service. We are not talking about early retirement. 

In addition, over the past 3 years, CMS has lost a quarter of its 

career executives to retirement. If that does not seem like a 

daunting challenge, 46 percent of the existing CMS workforce will 

be eligible for regular retirement by 2009. 

These statistics leave me asking the question will CMS have the 

expertise and the leadership it needs to get the job done? 

During my time as Mayor of Cleveland and Governor of Ohio, I 

worked to address the workforce challenges within our local and 

State governments. Working with a wide range of stakeholders, we 

successfully empowered our employees while establishing a culture 

of quality management. 

Since coming to the Senate in 1999, I have stressed to my colleagues the urgency of the Federal Government’s human capital 

challenges, the need to get the right people with the right skills 

and knowledge at the right place at the right time, something that 

has been ignored by this government for as long as I remember. 

And before I came here I lobbied this place for 18 years as a mayor 

and governor on this same issue. 

So the question is, do we have the people to get the job done? 

Human capital management is but one of the many management 

challenges we are going to touch upon today. For example, the 

Medicare program has been on GAO’s high-risk list since 1990. I 

look forward to discussing what the future looks like for CMS. 

Testifying before the Subcommittee today are three individuals 

with significant expertise and insight into CMS. While I have highlighted what I see as some of the challenges facing CMS, I look forward to hearing from CMS about the challenges they have identified and the steps the agency has taken to address them. 

At this time I would like to welcome Michael McMullan. 

Ms. McMullan is the principal career executive in charge of the 

Center for Beneficiary Choices. She has been with the agency for 

31 years and I certainly hope you are not considering retiring, Ms. 

McMullan. 

The Center is a focal point for innovation in the Medicare program, including clinical quality measurement and assessment, the 

Medicare Plus Choice program and beneficiary education. 

In addition, we are privileged of have testifying today before us 

two past administrators of the Health Care Financing Administration, Gail Wilensky, who served from 1990 to 1992, and Nancy-Ann 

Min DeParle, who served from 1997 to 2000. I have had the priviVerDate 0ct 09 2002 13:18 Sep 23, 2004 Jkt 094489 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\94489.TXT SAFFAIRS PsN: PHOGAN
4

lege of working with both Ms. Wilensky and Ms. DeParle during 

my time as governor. 

More recently it was their presentation at the John F. Kennedy 

Commonwealth Health Policy Conference in January that highlighted for me the tremendous management task before CMS. 

I look forward to their assessment of CMS’s ability to manage 

the new drug program and what they would do if they were in 

charge of CMS today. 

I would now like to recognize Senator Lautenberg for an opening 

statement. Senator, thank you for being here. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you, Mr. Chairman. 

You know that I think that Ohio had chosen wisely when they 

sent someone with the experience and the commitment that you 

have, Mr. Chairman, and I enjoy our chances to get together. 

I am sure that some of our meetings are not quite as pleasant 

as some of the others, but we always have the same mission in 

mind, Mr. Chairman. And so I look forward to this hearing and 

commend you for calling it. 

The Medicare Modernization Act is being closely scrutinized by 

all sides. We are not here to debate the merits of the new law, but 

rather to review how the Centers for Medicare and Medicaid Services will implement the most significant changes to Medicare since 

its inception. It is not going to be an easy job. It is precisely the 

implementation of this law that I have some serious concerns 

about. 

As you would expect, the view of the law where the class is halffull or half-empty is where we are. The Chairman sees it as halffull. I see it as half-empty. His interest in getting the program underway is one certainly that I think we all would like to see in 

place. 

Questions are raised about why the year 2006 was chosen, I 

think. I came out of the computer business and the Chairman has 

long studied Medicare and the health care problem. But I know 

that our recordkeeping is a lot better today than it was in 1965 

when Medicare was created and it took us only 11 months, I think, 

to get the Medicare program up and running. With the computer 

technology and the recordkeeping that we have today, I think it 

could take a lot less time. I am rather suspicious about deferring 

the date until 2006. 

I have repeatedly asked the Administration to stop producing 

misleading Medicare advertisements that have a political tone. The 

reality is that the recent print and television ads promoting the 

law do really little to inform the Medicare beneficiaries. Rather, 

they are thinly veiled political ads paid for with taxpayer funds. 

At my request, the General Accounting Office reviewed these ads 

and found that they contained ‘‘notable omissions and other weaknesses’’ such as misleading seniors about the prescription drug 

program’s premiums, which will very likely exceed the Administration’s estimate of $35 a month. These ads sugar coat the description of the Medicare drug discount card program by failing to 

note that the cards require the payment of annual fees and that 

the discounts will vary greatly. The ads promise the same Medicare 

5

1The prepared statement of Ms. McMullan with attachments appears in the Appendix on page 

41. 

when the law contains new structural incentives for the gradual 

privatization of Medicare. 

In a similar vein, false news reports scripted by the Administration repeat the litany of intentional errors and misleading statements. Masquerading as journalism, video news releases, VNRs, 

produced by the Administration tout the new legislation. In a video 

produced by HHS, the cheering crowd stands there applauding the 

President as he signs the Medicare Modernization Act into law. It 

is fairly obvious that this had to be staged. 

And even the government’s official 1–800–Medicare help line extols the new law, literally forcing callers to describe the changes as 

Medicare improvement before permitting them to access a counselor. Once a caller submits to say Medicare improvement, he or 

she is led to an automated voice with a familiar misleading message. It says it is the same Medicare you have always counted on 

with more benefits. You can keep it as it is and you do not have 

to change a thing. The Administration’s obligation is to educate 

and not spin. 

The legislation is now law and understanding its many changes, 

including some which will offer legitimate help to people with low 

incomes or high drug needs, is daunting enough for people without 

being misled by Administration ads or video news releases. 

If the Administration’s primary interest truly lies in getting 

Medicare beneficiaries and their families to understand the 

changes under this law, we insist that it remove bias and distortion 

from its so-called educational efforts. 

Mr. Chairman, I would like to be as cooperative as I can to get 

the program underway, but I just have a concern about how this 

is being presented to the American public. 

Senator VOINOVICH. Thank you. 

It is the tradition of this Subcommittee to swear in the witnesses. Will the witnesses please stand as I administer the oath? 

[Witnesses sworn.] 

Senator VOINOVICH. The record should reflect that the witnesses 

responded in the affirmative. 

Ms. McMullan, I want to thank you very much for being here 

today. I want to also publicly thank you for your 31 years of service 

to our government and the people that you have come in contact 

with over the years. We look forward to your testimony. 

TESTIMONY OF MICHAEL McMULLAN,1 DEPUTY DIRECTOR, 

CENTER FOR BENEFICIARY CHOICES, CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Ms. MCMULLAN. Chairman Voinovich, distinguished Members 

the Subcommittee, thank you for inviting me today to discuss implementation of the Medicare Prescription Drug Improvement and 

Medicare Modernization Act or MMA for short. 

The Centers for Medicare and Medicaid Services is very 

proud——

6

1The chart referred to appears in the Appendix on page 50. 

Senator VOINOVICH. Ms. McMullan, I usually ask people to speak 

for 5 minutes, but I do not want you to rush through this. We have 

three witnesses today and I want to make sure that we hear you. 

If you could just move up closer to the mike, too, so that we can 

hear what you have to say. 

Ms. MCMULLAN. The Centers for Medicare and Medicaid Services 

is very proud to have a significant role in implementing this historic legislation and is working diligently to meet the numerous 

and aggressive deadlines outlined in the Act. 

The MMA represents a fundamental change in the Medicare program by offering our beneficiaries more choices in how they receive 

their care and by establishing a responsive relationship with providers of that care. 

This will begin with the Medicare-sponsored discount card and 

will continue as the full prescription drug benefit is implemented 

in 2006, and represents a lasting change in how CMS and the 

Medicare program will operate. 

CMS is unique among government agencies in that it accomplishes its mission principally through contractors and other government entities. The agency employes about 4,500 people in locations across the country. However, these employers are only a 

small portion of a very large, complex network of people and groups 

that make our programs work successfully. 

The chart that I have attached to my testimony gives an idea of 

the scope of this contracted work.1 For example, in 2003, it is expected that CMS contractors will have provided claims processing 

services to about 33 million beneficiaries, worked with approximately 1.1 million health care providers, processed more than 1 billion Medicare claims, paid more than $236 billion for beneficiary 

services, and handled more than 7.3 million review requests and 

other kinds of appeals. 

CMS’ MMA implementation challenges can be categorized into a 

number of broad categories, including a prescription drug discount 

card and transitional assistance program, a new voluntary Medicare prescription drug benefit, modification of the existing Medicare Plus Choice program now renamed as Medicare Advantage, 

and contractor and regulatory reform. 

The MMA also modified numerous payment systems under Medicare and Medicaid, particularly those affecting rural providers. It 

established new preventive benefits, established a number of demonstration programs, provided for administrative improvements 

and regulatory process changes and numerous other provisions. 

Given the nature of the work before the agency and the need for 

effective steady leadership, we appreciate the Senate’s swift confirmation of Dr. McClellan as our new Administrator. 

As an example of what we have already done to implement 

MMA, on December 15, 2003, just 1 week after the law was signed, 

CMS published a regulation establishing a new prescription drug 

discount card program. We solicited applications from organizations interested in sponsoring such a program, and on March 25 

announced the approved applications. 

7

On April 1, CMS announced the actual drug discount cards that 

the sponsors will offer. And on April 29 we expect to post on our 

Web site specific discount prices available through these programs. 

Beneficiaries will be able to sign up for the cards in May and begin 

realizing the associated discounts on their drug purchases effective 

June 1. 

In addition, qualified low income beneficiaries will receive a significant additional benefit of a $600 credit applied toward their 

drug purchases. 

Establishing the drug discount card program, although a major 

effort, is not the only work that CMS has accomplished in the past 

5 months when it comes to MMA implementation. The second attachment to my testimony details more than 100 tasks that CMS 

has completed to date. It is obvious from this list of accomplishments that CMS is making good headway in meeting the ambitious 

timeline within the MMA. 

The MMA provides CMS with about $1 billion to spend over 2 

years for implementation. This money will be spent on hiring additional personnel, upgrading and adding new information systems 

for operations and analysis, educating and providing information 

services to beneficiaries and providers. CMS has already made important funding decisions related to the implementation of the drug 

card and to hiring new employees. CMS continues to develop and 

implement the budget plan as it moves toward implementation of 

the remaining provisions. 

To implement the MMA, CMS will need to hire individuals with 

expertise in pharmacy benefit management, clinical professionals 

such as pharmacist and physicians, individuals experienced with 

disease management and prevention, health economists, public policy analysts, and individuals who know how employers structure 

their retiree benefit practice. CMS will also need additional IT professionals experienced in building systems and telecommunication 

infrastructure contemplated by the law. Finally, CMS will need to 

hire individuals experienced with government contracting, as much 

of the work under MMA, as with other Medicare operations, will 

be contracted out. We have begun staffing a number of these new 

positions. 

Once contracts have been established for the administration of 

the program set up by CMS, the work of the contractors must be 

monitored and supervised to ensure program integrity and effectiveness. The main oversight work of CMS is to see that contractors and providers implement these new programs as directed by 

statute and established by the agency. 

For example, CMS will need to monitor pricing of drugs and benefits provided under the drug discount card program, by the drug 

benefit plans, and the Medicare Advantage plans. The new programs must be studied for their effectiveness, to see whether they 

have carried out the statute as Congress intended, and if they have 

provided appropriate benefits and assistance to Medicare beneficiaries. Error rates in payment will need to be established and 

education made available to providers to help them avoid billing errors. 

8

CMS must also monitor for fraud and abuse. The agency needs 

to be able to address any inappropriate behavior, either through remedial education or punitive measures. 

The implementation of Part D and the new and revised payment 

systems require substantial IT development and changes. The 

agency will need to develop and manage plan enrollment and management systems, systems to process beneficiary eligibility requests 

and enroll beneficiaries in the new benefits, track utilization of 

services, and measure and track clinical quality. 

Revised and new IT systems will need to interact with systems 

supporting MMA managed by other Federal agencies such as the 

Social Security Administration and the Internal Revenue Service, 

States, and private insurers who contract for the new benefits 

under MMA and those offering Medigap plans. 

CMS recognizes that opportunities for beneficiaries to choose new 

benefits and how these benefits will be delivered represent a 

change for Medicare beneficiaries. Therefore, CMS has begun a 

substantial and varied education campaign to assist beneficiaries 

as they take advantage of these new benefits. 

The timelines required under MMA are ambitious and will require prudent planning and wise use of resources. Although there 

are many decisions left to make with respect to budget and personnel, CMS is committed to informing Congress about these issues 

as they progress. 

I thank you for your invitation to testify this morning and I welcome your questions. 

Senator VOINOVICH. Thank you, Ms. McMullan. 

I would like you to go back to about the last 2 minutes of your 

testimony. I would like you to repeat for us that last part about all 

the things that you have to do, that is a mouthful and you went 

quite rapidly through it. Just go through it real slow. 

It is right at the end of your testimony, you were discussing 

bringing IT people on board. 

Ms. MCMULLAN. The types of people that we need to administer 

the programs? 

Senator VOINOVICH. That is right, could you repeat that again? 

Ms. MCMULLAN. In order to implement MMA, we are going to 

need people who understand pharmacy benefit management, a 

principal task under the new Part D, clinical professionals such as 

pharmacists and physicians, individuals experienced with disease 

management and prevention, health economists, public policy analysts and individuals who understand how employers structure 

their employee benefit packages. 

We will also need IT specialists who understand how to structure 

the systems and the telecommunication infrastructure contemplated by the statute in implementing both Part D and the other 

programs under the statute. 

Senator VOINOVICH. That is a mouthful. 

Ms. McMullan, you have been in the agency a while. What lessons has CMS learned from the twin challenges passed by the 

Medicare reforms mandated by the Balanced Budget Act of 1997 

and the Y2K computer migration, in terms of prioritizing and implementing a lengthy list of important and complicated program 

changes? 

9

Just listening to what you have said, what have you learned 

from past experience that will help you now? 

Second, these people with specific expertise that you need to hire, 

are they available today to be hired? Is the budget that has been 

made available to the agency adequate enough to get the job done? 

And, finally, but not least, what I am most interested in is do 

you think that you need some additional workforce flexibilities in 

order to get the job done? 

For the last several years, I have been working on the issue of 

human capital management. One of the concerns I have had is that 

some agencies have been unable to keep people they need. And 

then, more important than that, agencies have been challenged in 

attracting new people into the agencies. I have worked to ensure 

agenceis have the flexibilities and the tools and the other things 

that are needed. 

You have been at CMS a long time. So if you would talk through 

these issues for me, I would appreciate it. 

Ms. MCMULLAN. To start with the lessons learned, I think that 

the most important thing that we learned in both doing the implementation of the Balanced Budget Act and in Y2K is the need to 

think through the plan for each of the activities that is contemplated in the statute for us to implement and understand what 

the business requirements are for the task, and the critical path to 

implementing the different activities. 

And so, we are in a very careful planning and prioritizing stage 

now for many of the parts of the statute that have implementation 

dates in 2006 through 2011. 

So that is a critical task and activity that proved to be very useful and important in our implementation of the Balanced Budget 

Act (BBA) and in the Y2K management. So we are actively doing 

that, reporting on a regular basis on our accomplishment against 

those plans and working with our colleagues and other Federal 

agencies and the States to coordinate the activities that have to be 

implemented against the plan. 

So that is probably the greatest learning that we have done over 

time; understanding the importance of that first task of planning. 

Having said that, then you take those business requirements in 

the plan and look at what the tasks are ahead of us that are the 

most important for us to accomplish in implementing the statute. 

And for Part D, that is substantially information systems and contract development and management because we will be contracting 

out for the management of the Part D benefit to private drug plans 

as well as Medicare Advantage plans. The private drug plans is a 

new entity in the marketplace and so we are going to be working 

through and thinking about having to do that. 

Medicare Advantage offers a new option with the PPOs, so we 

are working to think through and understand how best to organize 

that and to be able to contract for it. 

The business requirements for the systems deal with how do you 

add to our already existing plan management and monitoring capacity that we have now for the Medicare Advantage plans? How 

do we expand out those systems that already exist? And then, for 

Part D, establishing new systems to manage eligibility and payVerDate 0ct 09 2002 13:18 Sep 23, 2004 Jkt 094489 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\94489.TXT SAFFAIRS PsN: PHOGAN
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ment. It is a different program. So that we have to think through 

those requirements and put the systems in place. 

As far as the human capital aspect of that, significantly to accomplish the work done to implement those programs we will rely 

on contractors. And so the human capital that we need within CMS 

are the people who can define the requirements and manage the 

contractors. So it is very important that we have expertise inside 

of CMS and the Department. 

Senator VOINOVICH. An important part of this program, and I 

have been through it as a governor, will be putting requests for 

proposals together for private contracting. It takes some really good 

people to do that. 

Once it is done, it is important to have the people to review the 

proposals. Do you have that capacity now to do that? 

Ms. MCMULLAN. We have the capacity now to do part of the work 

that we are doing now, and then we will build up the capacity over 

time to do the work that we will have to do between now and 2006. 

And then eventually, with contractor reform, through 2011. 

So we need to increase capacity both for people who understand 

government contracting and in the IT systems, as well as the expertise that we need in understanding how to manage the pharmacy benefit and the clinical staff that can help us understand the 

coverage and rules. We also have disease management and prevention, so we need more clinical staff in that area as well. 

So we do understand we have to build out the staff within CMS 

in order to manage the program. The significant human capital 

though, will be acquired through contracts as we do now. 

Senator VOINOVICH. Do you feel confident that the people you 

need to bring in to CMS to do the RFPs, request for proposals, are 

available to be hired? 

Ms. MCMULLAN. We have had significant success hiring expertise 

in government contracting. We often acquire people from other government agencies that do contracting. There are significant resources out there in trained resources. 

So I think that on managing government contracts we probably 

do have a sufficient supply available to us within the existing government contracting world. 

We are also using ways to attract scarce resources by offering recruitment bonuses as well as for our clinical staff, special pay provisions for physicians and others that qualify for those provisions. 

Senator VOINOVICH. Do you have those flexibilities right now? 

Ms. MCMULLAN. We have them and we are interested in employing some additional ones that can be made available to us through 

the direct hiring authority available through the Office of Personnel Management, as well as the hiring potential that is available through the statute itself. So we are interested in using those 

additional hiring authorities. 

Senator VOINOVICH. We are going to have a couple of rounds of 

questions. Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Mr. Chairman. 

May I have your permission to show a short video just to clarify 

what was said and when, that kind of thing? 

Senator VOINOVICH. That is fine. 

[Videotape played.] 

11

Senator LAUTENBERG. Thanks, Mr. Chairman. 

This news story, fake news story, was produced by CMS. It was 

distributed to TV stations around the country, run as if it were just 

an unbiased news clip. The video did not identify that it was produced by the government. The GAO has launched an investigation 

concerning the legality of this video. 

And I thank you, Ms. McMullan, for your testimony. I know how 

arduous the task has been to get all these things into shape and 

I respect it greatly. 

I just have some questions that I think need clarification. Do you 

know who Karen Ryan is, the reporter in this video? 

Ms. MCMULLAN. It was a name used in developing the video. 

We produce video news releases, audio news releases, and paper 

press releases that we give to the press in order to give them information. The way that the press stations use these, the VNR in particular, is to cut and paste certain portions of them. 

The use of a voice in going through the VNR from beginning to 

end is meant to provide context in ways that news stations may 

use them. Most news stations just use pieces of the VNRs. Very 

few of them use any of them from start to finish, and that is really 

the decision of the news director. But most of them, as I say, use 

them as just little snippets. 

And along with the information you show, we also include other 

kinds of materials that they can use called B-roll. I do not know 

what the B stands for, but it is called B-roll. That is added to the 

VNR just to provide them with other information that they can 

use. 

So it is very much like a paper press release that newscasters 

and others use at their discretion. 

Senator LAUTENBERG. But it does not identify anyplace that this 

was put out by CMS because it portrays what one would normally 

think of as a news report, ‘‘today thus and so happened.’’ The President signed the bill, and here is what the law is going to be. 

Usually that would carry a legend that says this is produced by, 

paid for by or otherwise. 

But I think what comes across is, as you have just confirmed, is 

that you use voices and people to portray things that usually always, I think, are required to identify the fact that this is produced 

by the government. This certainly did not have that character. 

How many stations played this so-called new report? Do you 

know? 

Ms. MCMULLAN. No, I do not know but we will be happy to provide that for the record. We do have the information.

INFORMATION PROVIDED FOR THE RECORD FOLLOWS: 

The video news release (VNR) was aired on 40 different stations in 33 local markets throughout the country.

Senator LAUTENBERG. I think the number was about 40, but I 

would appreciate your confirmation. 

Should CMS be in the business of covertly distributing news stories that are not really representative of just the issue, but rather, 

in my view, certainly has a political overtone here? Do you think 

that is appropriate to pitch, cut, and paste, and do that kind of 

12

thing, presented as if it was pure news without saying that this is 

a program that still has some way to go, and things to do? 

We talk about senior citizens being able to get all kinds of drugs, 

everything they want. But the fact of the matter is they cannot get 

the health savings account if they are a Medicare beneficiary. That 

was pulled, Mr. Chairman, from the first circular that was printed 

because it is not a benefit that is available to those who are beneficiaries of the Medicare program. 

The General Accounting Office found that the Medicare flyer and 

the ad campaign that the Centers for CMS produced contained notable omissions, had a political tone, and overstated the new drug 

law’s benefits. These are tough criticism by a nonpartisan organization, GAO. And will CMS revise these materials in response to 

GAO’s criticisms? 

Ms. MCMULLAN. The materials that GAO reviewed were ads that 

had been on the air. We will be airing additional new ads on the 

drug discount card. We use the power of television to reach the 

maximum audience that we can. 

The information that we include in ads, and note that ads are 

30-second ads, so that there is not a significant possibility to include all information about all parts of the program. So we try to 

target it on one or two messages to make sure that people understand, particularly where do they go to get additional information 

on any of these. 

When we do the ads, we substantiate the information in the ads 

to make sure that it is accurate and presented correctly. So we do 

intend to continue to use television advertising to help people understand Medicare. 

Senator LAUTENBERG. So you dismiss the commentary, the response by GAO that said that there were notable omissions, the 

ads had a political tone, and overstated the new drug law benefits? 

You dismiss those as not being meritorious in this case? 

Ms. MCMULLAN. I would never dismiss any good advice that we 

get from anyone. In looking at what they had to say, we take all 

of that into consideration in moving forward. But I would just note, 

in providing a 30-second ad, we have to limit the number of messages just because of the time. And we want to make sure that people understand what they are getting. 

Senator LAUTENBERG. But that does not mean that you would 

change the facts. 

Ms. MCMULLAN. We do not change the facts. They are fact-based. 

Senator LAUTENBERG. Then what is the 30-second relevance, in 

terms of when I say over——

Ms. MCMULLAN. Well, when you mention that there are significant omissions, it is hard to include a complete analysis of anything in a 30-second ad, so we target it to just a few facts. 

Senator LAUTENBERG. How about overstating the benefits and 

the political tone? Will those ads in the future say produced by the 

CMS and so forth? Should that legend be on there, do you think 

at all? Or is it appropriate to just have this out there and let us 

say pretend that it is a news story? Because it is not basically a 

news story. 

13

Ms. MCMULLAN. You have two different issues here. One is that 

the ads are always attributed to the Department of Health and 

Human Services. 

Senator LAUTENBERG. This was not. 

Ms. MCMULLAN. The television ads. The video news release is 

much like a press release. The video news release, when we send 

it out, we send it out from the Department of Health and Human 

Services. So it is attributed to the Department of Health and 

Human Services when it goes out to the new stations, just like the 

press releases and fact sheet include our information. 

What news stations choose to use is at their discretion, just like 

a newspaper reporter would not necessarily attribute a paragraph 

in a news story to a fact sheet that he gets from Health and 

Human Services. So it is much more akin to a press release than 

it is to the television advertisement, which on the television ads we 

do include an attribution. 

Senator LAUTENBERG. How do you differentiate, who makes the 

decision that this one is supposed to create the impression that it 

is a news release, that it is a discovery by the reporter or the station? As opposed to an ad? Why was this not an ad? Because to 

me it looks like one. 

Ms. MCMULLAN. For the ads, we buy time on television to 

present them to the public. The VNRs we produce and send out to 

the news stations and they make the choice as to whether they use 

any of it or not. We do not pay for the release of that information. 

Senator LAUTENBERG. Did any other networks, the larger stations, use this, that you are aware of? 

Ms. MCMULLAN. I do not know but I will be happy to provide 

that for the record.

INFORMATION PROVIDED FOR THE RECORD FOLLOWS: 

The VNR was not aired on national network newscasts but was aired only by local 

affiliate stations of all four major networks (ABC, NBC, CBS and Fox), as well as 

Telemundo and some independent stations.

Senator LAUTENBERG. We did some checking because we take 

heed to what GAO said. 

The VNR did not go out from CMS. It went out from HHS public 

relations firm, a professional firm. So there was no ID on the videos as to the source from whence they came. 

And to me, Ms. McMullan, as we discuss this I am more convinced than ever that there was something out there that was deceptive, misleading and ought to be reviewed very seriously by 

CMS and by HHS. 

And I am going to go further with this and see if we cannot insist 

that all of these carry the legend that this is sent out by either 

CMS or HHS to make sure that people understand that this is not 

just some news story that you go ahead and run, because it is misleading in character. 

Mr. Chairman, what is your preference on time? 

Senator VOINOVICH. I would like to ask some questions and then 

return to you. 

Senator LAUTENBERG. Thank you. 

Senator VOINOVICH. I would just like to comment, this is not the 

purpose of this hearing. But let me clarify. 

14

The ad that we have seen was sent out as a news release, a television news release. When it was sent to the stations, they knew 

that it came from CMS and HHS; is that correct? 

Ms. MCMULLAN. Yes. 

Senator VOINOVICH. The point you were making is when they got 

it, stations could use the whole thing or a snippet of it. It was their 

decision to make, in terms of what they were going to use; is that 

right. 

Ms. MCMULLAN. Correct. 

Senator VOINOVICH. Sometimes I sent a news release out when 

I was governor. We would do a TV spot, put it together, and send 

it to the stations. And most of the time they did not use it but 

sometimes they did. But rarely did they ever run the whole piece. 

They just took parts of it. OK, that is one thing. 

The other thing, you are guaranteeing to us that for any 30-second commercial that you paid for will notify everyone that it has 

been paid for by the Department or the government, so that there 

is no question about where it is coming from; is that correct? 

Ms. MCMULLAN. Yes. 

Senator VOINOVICH. OK, clear. 

One of the things I am really worried about is the advertising of 

the 1–800–Medicare number. I had a little experience last night. I 

called the company that takes care of my drugs with a question 

about whether one drug that I was getting was cheaper or more expensive than another one that supposedly is the same thing. 

I am writing to the president of this company. I waited for 15 

minutes before I got a pharmacist, 15 minutes. And then, when I 

got the pharmacist, I could not understand the pharmacist. 

I do not know where this person was, but I was really upset. Finally, after 5 or 6 minutes, I got what I needed, but it was unbelievable. 

What testing have you done on the 1–800 number? How much 

time are you going to be giving the individuals that are making the 

call? And the people answering going to be U.S. citizens, who can 

enunciate their words? And I have nothing wrong with accents. My 

grandmother and grandfather on both sides, they learned to speak 

English. 

My concern is that you are dealing with senior citizens. You 

must have people answering questions that have good diction, understand callers, and can communicate. 

How much testing have you done on this 1–800–Medicare number. Once people start calling that number, if they are not happy 

with it, they are calling my office. They are going to call Senator 

Lautenberg’s office. They are going to call our Department of Aging 

in Ohio. 

So I would like to know, what testing have you done to make 

sure that thing really works. 

Ms. MCMULLAN. At our 1–800–Medicare number, we have increased the number of customer service representatives from 352 

to 1,400 people. To answer your question about volume, will we be 

able to handle the volume. 

They are scripted with answers to questions that we carefully develop and test with both the customer service representatives and 

with Medicare beneficiaries. 

15

We also provide a quality assurance activity within the call centers where their managers listen in on the calls to make sure that 

people are following the direction carefully and answering the questions with the right kind of consideration to the caller. 

We have another tool that we use where we can offline watch the 

calls being answered and how people are navigating through the 

scripts to make sure that they are using the right answers to the 

scripts. 

And we also have something called mystery shopping where we 

have contractors who call, ask questions as if they are a Medicare 

beneficiary, and tell us whether or not they are getting the appropriate answers in return. 

Senator VOINOVICH. How long have you had the 1,400 people on? 

Are they all hired? 

Ms. MCMULLAN. They are being hired and will all be available 

by May. So they are being hired and trained now. 

Senator VOINOVICH. But people are already calling 1–800–Medicare. 

Ms. MCMULLAN. And we are able to answer the questions now. 

The people there are being trained and scripted as we speak. So 

as we started with the marketing and advertising campaigns, we 

had the ability to answer those calls. 

The calls are answered within a very short wait time, almost immediately. If there is a period of the day when there is a heavy call 

volume and they have to wait more that 2 minutes, we let them 

know that they can either wait or call back another time when 

there is less volume. But no one waits 15 minutes. 

Our call center is operated 24 hours a day, 7 days a week with 

English and Spanish speaking customer service representatives. 

And all of the call centers are in the continental United States. 

Senator VOINOVICH. Good. Senator Lautenberg. 

Senator LAUTENBERG. Thanks again, Mr. Chairman. 

Ms. McMullan, is Homefront Communications a division of government, do you know? 

Ms. MCMULLAN. Homefront Communication is one of our contractors who developed the VNR on our behalf. 

Senator LAUTENBERG. You said that they would know that this 

came as a news release from CMS. But here is the script and it 

says the address for this is Homefront Communications at 1620 I 

Street, and the phone number is definitely not a government phone 

number. 

So is this not a little deceptive to have this released as if it was 

fresh news without saying hey, this is put out by our Department 

in the interests of selling this program? Because it has a political 

bias to it that is, I think, almost impossible to challenge. 

We have seen a few things, Ms. McMullan, that are disturbing. You know the claim that there will be a $35 premium for the Medicare drug plan. It is only an estimate of what the actual premiums 

are going to be in 2006. And you know what happens with estimates, invariably they go up. The CMS materials give the misleading impression that the premium will be about $35 when, in 

reality, it could be substantially higher. 

Would you stake your family farm on the fact that this is a $35 

charge and nothing more? 

16

Ms. MCMULLAN. Like many things we estimate prospectively 

what we anticipate it will be and that is our current estimate. That 

is our best knowledge at this time. 

Senator LAUTENBERG. How long do you think the $35 premium 

will last, Ms. McMullan? 

Ms. MCMULLAN. I do not know. I do not know what our analysis showed as far as how long we thought that would be $35. The estimates are done by people who do these kinds of estimates all of the 

time based on the information that they have. So I expect that they 

do the best that they can. 

Senator LAUTENBERG. Do you know what the cost of this new 

program will take over the next 10 years? How much it will cost 

to do, to put this program into place? 

Ms. MCMULLAN. Those estimates are available. I do not know 

them off the top of my head, I am sorry. 

Senator LAUTENBERG. Do you recall the number $400 billion over 

a 10-year period? 

Ms. MCMULLAN. The CBO estimate was close to that, $395 billion was the CBO estimate. 

Senator LAUTENBERG. Are you aware of the contest that emerged 

with a re-estimate of that by Mr. Foster, whose name I am sure 

you have heard, suggesting that it might be 30 percent higher than 

was originally, 30 or 40 percent than originally estimated? You are 

aware that there was a challenge to that? 

Ms. MCMULLAN. I am aware that the CMS actuaries had a different estimate based on a different set of assumptions that went 

into those estimates. 

Senator LAUTENBERG. But you are satisfied that the $35 is an estimate that we can live with? 

You are aware of the flyer, familiar with the flyer that was sent 

out, that was prepared for mailing, 36 million, I think, of these 

pieces; am I correct? 

Ms. MCMULLAN. It was mailed to every Medicare beneficiary 

household, which is about 36 million. 

Senator LAUTENBERG. When this was examined, we challenged 

the section called News for All Americans that talked about starting immediately so Americans would be able to set aside money, 

in the health savings accounts. 

This was stricken from the later production because it was challenged. The GAO looked at this. Are you aware that there was a 

section removed in this? 

Ms. MCMULLAN. Yes. 

Senator LAUTENBERG. So was that a mistake or was that as a result, if I may suggest, that this was kind of a knuckle rap by GAO 

and some review of this? 

Ms. MCMULLAN. In the initial development of the flyer, we were 

responding to the fact that we were getting lots of inquiries from 

people with Medicare trying to understand what was in the new 

Medicare Modernization Act. The health savings account information is in the Medicare Modernization Act. So in developing the 

first version of it we thought that we should explain that important 

attribute. 

Since people with Medicare can, before they become Medicare eligible, have an HSA we thought we should explain it. However, you 

17

are right. Once you are Medicare aged, you can apply for a Medicare savings account but not an HSA. So upon further review, we 

decided that we needed to remove it. 

Senator LAUTENBERG. Thank you, very much. 

Senator VOINOVICH. One of the questions that I had was the 

same as Senator Lautenberg, in terms of the cost. And I had it explained to me by the Secretary. CBO still claims it is going to cost $395 billion over 10 years. It 

is OMB that came back and said that it is going to cost, I think, 

$530 billion or $540 billion, a substantial increase from the $395 

billion. 

It is my understanding that the difference is the estimate of how 

many people will take advantage of Part D. And I think CBO based 

their estimate on the percentage of people that are currently taking 

advantage of Part B of Medicare. Do you know what that percentage is? 

Ms. MCMULLAN. It is about 90 percent. 

Senator VOINOVICH. It is my understanding that when OMB 

looked at it they said that they thought a larger percentage. In 

other words, when CBO did its analysis, it said 90 percent participate in Part B. I think the Secretary gave me a larger number. Are 

you sure that number is right, 90 percent for Part B? 

Ms. MCMULLAN. We are pretty sure that that is correct, but we 

will also provide that for the record if it is not.

INFORMATION PROVIDED FOR THE RECORD FOLLOWS: 

Generally, 91 percent of those beneficiaries eligible participate in Medicare Part 

B. We assume that about 94 percent of those eligible for Part D will choose to participate.

Senator VOINOVICH. If you could do that. 

But the fact is that there is a difference of opinion about how 

many people are going to take advantage of this Part D that will 

be offered to them in 2006. And that is the reason why we have 

different numbers. But CBO, at this stage of the game, has not 

backed off the $395 billion and there is a difference. 

Quite frankly, if we are being honest about it, we are not really 

sure. It may be between $395 billion and $540 billion. Hopefully, 

it is not going to be more than $540 billion, but only time will tell 

because we just do not know how many people are going to take 

advantage of the program. 

In line with having people take advantage of the program, you 

are going to have a Web site; is that correct? 

Ms. MCMULLAN. Yes. 

Senator VOINOVICH. One of my concerns is that you have a lot 

of vulnerable people out there. The ones that I am really concerned 

about in this country are the least of our brothers and sisters, the 

people who today are poor and are unable to buy prescription drugs 

or, in the alternative, buy them and ration them. 

One of the things that this program is aimed at is that vast number of people, particularly those under 150 percent of poverty. They 

are most vulnerable people in this country today because they do 

not have prescription drug benefits. 

How can somebody that is in this vulnerable position, that does 

not have a computer, or maybe like this Senator, is not computer 

18

literate—thank god that my wife is—going to get the information 

so they can intelligently decide which card they should receive? 

What efforts are going to be made to help them take advantage of 

this program? 

Ms. MCMULLAN. We are making a significant commitment to 

reach out to the low income population. We have several strategies 

that we are using. In fact, we have 700 people in Washington yesterday and for half a day today, that come from States and other 

organizations that assist people with Medicare, and understanding 

how to take advantage of the drug discount card program, particularly those people who qualify for the $600 credit. So we are training people, through this approach, with the conference. 

We have put additional resources into our regional offices to 

work with State and local organizations to train additional community-based organizations to reach out to the low income population. 

We have our State Health Insurance and Assistance programs 

which are grants to States that we have added money to so that 

they can also assist the low income individuals and find those opportunities to engage the low income population. 

We are putting additional resources into establishing longer term 

partnerships with organizations that reach low income beneficiaries because that is also a very important aspect of Part D. So 

we have a significant amount of resources going to exactly the population that you are speaking about. 

Additionally, anyone calling 1–800–Medicare can be walked 

through the Web site and helped to narrow the choices of drug 

cards that are available to them and also get additional information about other drug discount programs that may be available to 

them such as State pharmacy assistance programs in those States 

that offer those programs. 

Senator VOINOVICH. I will close on this one comment. I have really worked with our governor and our Office on Aging and the Department of Insurance to expand OSHIIP. We started that aggressive program when I was governor. This has been very helpful and 

it seems to me that you ought to be encouraging the States to really go out and recruit more people in the OSHIIP program. 

It seems to me that you ought to have an expert at every senior 

citizen club, every senior facility, living facility, so that there is 

somebody there that can help these individuals take advantage of 

it. 

I just want to, for the record, say I had a staff member call 1–

800–Medicare. For the record, there was approximately 90 seconds 

of recorded information. After that an agent picked up immediately. So far, so good, Ms. McMullan. 

Senator Lautenberg. 

Senator LAUTENBERG. That is better than you get from the telephone company if you call for a service call. 

I would just ask one other thing, Ms. McMullan. I thank you for 

your cooperation and your patience in this, but we want to get to 

the bottom of it and we will be sending you additional questions 

for response to the record. 

But the subject of the pharmacy assistance program was brought 

up. There is automatic enrollment for those who are presently in 

Medicare, in the discount drug program. Why are we prohibiting 

19

1The prepared statement of Ms. Wilensky appears in the Appendix on page 58. 

the pharmacy assisted program beneficiaries from automatically 

being enrolled? 

Ms. MCMULLAN. There is no automatic enrollment in the drug 

card. We have been working closely with the States that offer pharmacy assistance programs to look at the opportunities to allow 

automatic enrollment for their pharmacy assistance members, and 

we will do that. It is an interesting combination of both Federal 

issues and State law issues. But we have worked out a mechanism 

where we can provide the opportunity for automatic enrollment. 

The one issue that we need to have, because it is stated in the 

rules around the drug card, is that we have to have a signature. 

So we are working with those programs to offer their members to 

make sure that they understand that they are being enrolled in 

this benefit. But we will allow the States that have pharmacy assistance programs to automatically enroll, given the fact they ask 

for a signature of those members. 

Senator LAUTENBERG. Thanks, Mr. Chairman. Thank you again, 

Ms. McMullan. 

Senator VOINOVICH. Ms. McMullan, I have several other questions I would like to ask you, but I am going to submit them to 

you in writing and would appreciate your responding to me in regard to those questions. 

You have been very gracious to come here this morning. We really appreciate your testimony. You have a very formidable task 

ahead of you. I have been involved in implementing programs, and 

god bless. 

Ms. MCMULLAN. Thank you. 

Senator VOINOVICH. I would now like to call Gail Wilensky and 

Nancy-Ann Min DeParle to come forward. 

As I mentioned earlier, Ms. Wilensky and Ms. DeParle are 

former administrators of HCFA, CMS’s predecessor. I look forward 

to hearing what they believe are the major challenges facing CMS 

as the agency moves forward with this benefit. 

Ms. Wilensky, if you could start. Again, I really am grateful that 

the two of you are here today and I am so glad that I was with 

you at the John F. Kennedy School of Government’s 2-day health 

seminar. Had I not been there and heard from you, we would not 

be having this hearing, and I would not have been on the phone 

and working so aggressively to make sure that Mr. McClellan was 

confirmed to take Mr. Scully’s position. A lack of leadership by 

CMS at this time would have been a disaster. 

Ms. Wilensky. 

TESTIMONY OF GAIL R. WILENSKY, Ph.D.,1 SENIOR FELLOW, 

PROJECT HOPE 

Ms. WILENSKY. I agree with your assessment. I believe the people running the January meeting, sponsored by the Commonwealth 

Fund and the Kennedy School, should feel this is a signal of the 

success of that meeting. And Senator Lautenberg, I hope sometime 

you will join us, as well. It is open to all Members of Congress. 

Mr. Chairman, Members of the Subcommittee, thank you for inviting me to appear before you. 

20

I am currently a Senior Fellow at Project Hope, an international 

health education foundation. As you have indicated, I am a former 

administrator of the Health Care Financing Administration from 

1990 to 1992. 

I also served as the first chair of the Medicare Payment Advisory 

Commission, MedPAC, from 1997 to 2001, and chaired the Physician Payment Review Commission from 1995 to 1997. 

I say that because it has given me a very broad perspective of 

issues both from an operational and administrative point of view, 

running the program but also advising the Congress on issues of 

payment and change. 

Additionally, I have spent 81⁄2 years in the Federal Government 

as a senior researcher and career staff person and that allows me 

to have a somewhat better understanding of the issues that career 

people have faced. 

What I would like to do is review some of the challenges that I 

believe are present with regard to the regulation and implementation phase of the Medicare prescription drug program, to consider 

the adequacy of resources available, and also to provide some suggestions about how Congress might be helpful. 

Before I start, I would like to make a comment in regard to a 

statement Senator Lautenberg had made about the timing, because 

I agree with the statement you made earlier, that having the full 

drug benefit occur January 2006 is going to require a Herculean 

task. I appreciate the assessment from somebody who has had a 

very successful career in the private sector in the computer industry that it seems like a long time to get a new benefit implemented. 

But the computer industry and the rest of corporate America do 

not have to go through the APA process. It truly is not just a question of making the decisions and of implementing them. Although 

there are many discussions to be made, I am just going to hint at 

some of them. Nancy-Ann DeParle, because she was present to implement the Balanced Budget Act, can give you more of them. 

But I have had the experience of having controversial regulations 

have to go through the APA process, including the process of proposing the regulation, of putting it out for comment, of having 

hearings and dealing with comments, particularly for controversial 

regulations. And some aspects of the regulations included in this 

bill will indeed be controversial, either with the provider community, industry or with senior citizens. 

That process, along with the decisions and the implementation, 

will in my mind make 2006 a very difficult date to meet, although 

one that I think is possible. 

It is not just the series of benefit changes. Although these will 

also be challenging. We have, as one of the specific challenges, the 

provision of a new benefit, the Part D benefit, using a new delivery 

system or, if it is not done as Part D benefit directly, it will be done 

as part of the Medicare Advantage program. 

Initially these are just payment increases, but by 2006 there also 

are a number of specific new issues involved in the Medicare Advantage program in terms of bids, regions, appeals processes, etc., 

that will also have to occur for the Medicare Advantage program 

to hit full force in 2006. 

21

There are, in addition, a series of changes to the outpatient drug 

program that is currently covered under Part B. I am just going to 

mention them briefly, as well as the usual host of payment changes 

and adjustments and modifications to all of the other Medicare providers. 

I thought I understood the Medicare payment system rather well 

after spending 21⁄2 years at HCFA, but I was constantly astounded 

at PPRC and MedPAC about the enormity of the changes and detail that is involved in the Medicare program. I had not, when I 

was at HCFA, focused on post-acute care in the way that MedPAC 

and the Congress has focused on what goes on in both home care 

and long-term care. 

Let me just remind the Senators about a few of the issues that 

will need to get taken care of regarding Part B drug coverage. Then 

I would like to comment about the early results of implementation. 

And more importantly, I have a few suggestions to make about how 

to proceed over the next period that I hope you will find useful. 

With regard to Part B drugs, and I am assuming that Nancy-Ann 

DeParle is going to comment more on some of the Part D drug 

issues as she did down in Florida, at the Kennedy School/Commonwealth meeting. 

But let me remind you, while all the effort is being directed for 

the introduction of the drug discount card, which appears to be 

going well, and the Part D benefit for January 2006, Part B drugs 

will continue as Part B drugs at least for now. These are the drugs, 

outpatient drugs, mostly chemotherapy or other related drugs, that 

have to be provided by a physician and have previously been covered by Medicare. 

Up until now, the reimbursement mechanism has been a percentage of the average wholesale price or AWP. The Congress has 

noted, the GAO has noted, the IG has noted that average wholesale 

price is not a very satisfactory measure to use. Initially reimbursement will be a lower percentage of AWP. But starting in 2005 the 

basis will be average selling price, a different measure that will become the basis of reimbursing Part B drugs. 

And then, in 2006, physicians will have the choice either of continuing with the ASP or going to a competitive acquisition process, 

a very different process, one that they may or may not choose. We 

will have to see what happens. 

In order to have that in place for 2006, a lot of decisions will 

have to be made and regulations issued about the competitive acquisition process. The number of regions, the kind of appeals process, what happens if there are not two contractors, etc. And it will 

have to be done by 2005 so that it can be in place for 2006. 

None of this is impossible. It is just a lot of work, given all of 

the work that will be going on to get the Part D benefit to start 

in January 2006. 

Early results are looking good. The regulations about the discount card got out in December. Of course, we need to remember 

this was a strategy or a plan that the program, that the Administration had been thinking about for at least 2 years. So in some 

ways it is not surprising that they could respond so quickly. There 

appear to be a large number of sponsors. There appears to be good 

response in terms of trying to make the adjustment from the State 

22

pharmacy assistance programs for low income populations, as you 

mentioned and as Ms. McMullan mentioned, to the low income support program. It appears to be going well and those are good signs. 

The fact that Mark McClellan was able to be confirmed within 

one quarter, one calendar quarter, from the time that his predecessor left is something I do not remember ever happening. I applaud the Senate for helping that to occur so rapidly. It would have 

been very bad to have had a leaderless CMS during this period. 

Not that the acting people are not capable, but for all the reasons 

that you need to have presidential appointees in place to lead their 

agencies, to deal with the Congress, to make decisionmaking, it 

would have been an awful time to have not had a leader in place. 

I am astounded it happened so quickly. 

The Congress also wisely recognized the burden that was being 

put on the agency by making $1 billion available from the trust 

fund through September 2005, and $500 million available to Social 

Security. That is the good news. 

Let me give you a few thoughts about what I think might help 

to have this all happen. First, recognize the Herculean task that 

has been put on CMS’ plate. 

Second, remember that if the Congress chooses to make any significant changes to the legislation between now and January 2006 

that affect the decisionmaking, the implementation or the rulemaking process, this will seriously jeopardize the ability of the 

agency to meet the January 2006 deadline, which really is October 

2005. That is when the materials have to be out to the seniors so 

they can enroll in November 2005. 

You are, of course, entitled to make those changes as you wish. 

It is just important to make sure the consequences are known. 

The third is that it may be useful for relevant Congressional 

committees to have occasional briefings on the progress that is 

being made to implement the legislation. It should not occur too 

frequently or it will become another burden to the agency. But if 

there is a problem either in the way the legislation is written or 

in the adequacy of CMS funding, knowing sooner rather than later 

would improve the likelihood of a successful resolution to the problem. 

I had a problem with legislative language, implementing the relative value scale for physician payment. It caused a lot of internal 

frustration and some time could have been saved perhaps if that 

had been vetted with the Congress. 

I would consider, if there is a problem, allowing the agency to 

use temporary hires, such as IPAs from other parts of government 

or universities, and other flexible hiring strategies in order to try 

to help solve what may be a temporary problem with a temporary 

solution. 

It will be very difficult to hire people who have experience in 

rulemaking. If you can have them come in in a temporary way, 

that would help. 

The agency will need more people with private sector experience 

than they have had. I assume that should be relatively easier to 

find. I do not know whether the salaries will be competitive. 

23

1The prepared statement of Ms. DeParle appears in the Appendix on page 70. 

Finding people who know how to write rules for Medicare, rules 

from any regulatory agency, and to work the process is difficult to 

find. It is not a skill you need in the private sector. 

CMS and HCFA have had a long history of having a disconnect 

between funding and the responsibilities that are given the agency. 

This disconnect was recognized in an open bipartisan letter that 

was published in Health Affairs several years ago. I was a signatory to it. There are a number of individuals who have been both 

directly involved and who worked for the Congress, Republicans 

and Democrats, as well as public policy analysts who signed this 

letter. It was reaffirmed in a MedPAC report while I was chair to 

the Congress, just reminding the Congress that either it needs to 

make sure there are adequate resources to match the increasing responsibilities that it puts on the agency or the Congress should 

turn to other agencies that it is more willing to fund. 

It is in this vein that I commend the $1 billion that was made 

available. 

And finally, the new CMS Administrator Dr. McClellan will have 

his own vision of how the agency can best function to meet the 

needs of the people that receive its benefits, the providers that provide the services, and of course the taxpayers that fund these services. Congress should pay serious attention to what he thinks needs 

to be done in order to have this new legislation implemented on 

time. 

Thank you for inviting me and I would be glad to answer any 

questions. 

Senator VOINOVICH. Thank you very much. We really appreciate 

your testimony. Ms. DeParle. 

TESTIMONY OF NANCY-ANN MIN DePARLE,1 SENIOR ADVISOR, 

J.P. MORGAN PARTNERS, LLC 

Ms. DEPARLE. Thank you, Chairman Voinovich, Senator Durbin, 

and Members of the Subcommittee. 

As you know, I served as the Administrator of the predecessor 

agency to CMS, HCFA, from 1997 to 2000. It was my honor to 

work with many of you on the Subcommittee and I appreciate your 

having this hearing today to focus on the real management challenges that I think face the agency as it undertakes probably its 

biggest mission ever, which is to provide a prescription drug benefit 

to some 42 million beneficiaries. 

I want to begin by noting that Michael McMullan, who testified 

here on behalf of the agency this morning, is one of the finest public servants that I have ever had the honor of working with. 

In fact, Senator Voinovich, you referenced the meeting in Florida, 

the Kennedy School meeting at which Dr. Wilensky and I talked 

about CMS. And I think you asked a question there about whether 

I thought CMS could get the Medicare prescription drug benefit implemented by January 2006. And I answered you, in part, by saying there is one person that I have in mind. And if she is there, 

and if she is allowed the flexibility to get the job done, I think that 

it can be done. 

24

Michael McMullan was the person I had in mind. She has, as 

you heard, served at the agency for 30 years and is a tremendous 

asset to the government. I want to thank her for everything she did 

while I was there. 

So I do think that CMS can get the job done but I also think that 

there are some significant execution risks. And there are some particular things that this Subcommittee can help CMS with. 

I think, if you look back at the record of the past few years, you 

will see a couple of things. One is that the agency Dr. Wilensky 

just alluded to, has been asked over a decade or more to do more 

and more with less and less, fewer and fewer people, fewer and 

fewer resources. That is something that has to change or we are 

going to be facing some real near-term problems as both we try to 

implement this prescription drug benefit and CMS tries to do all 

the other things that it needs to do to improve the health care services that we are offering to millions of Americans. 

I think the record shows, though, that when CMS has a major 

project and it has adequate resources and flexibility, focused and 

stable leadership, and the support of Congress that it can get the 

job done. In my written testimony I gave you a number of examples 

of where I think the agency has been successful there. 

Let me focus this morning, though, just on the execution risks 

because I know you have a tight agenda. The first risk I think that 

exists is one that I would characterize as a leadership risk. When 

we were in Florida I spoke about my concern that the agency was 

left without an administrator who had been confirmed as soon as 

the bill was signed. A number of other key political appointees had 

left as well. And the agency does not have that much depth in 

terms of political leadership. It is a relatively small agency. 

As Dr. Wilensky said, the career people are terrific. They are focused. But you need a clear point of view, you need a leader who 

can be depended on. For the first few months of the implementation of this drug bill they did not have one. That is beginning to 

be corrected with Dr. McClellan having been sworn in a week or 

so ago. 

I think there is still some risk around this, though, because, as 

I pointed out in Florida, Secretary Thompson said more than a 

year ago that he would be leaving HHS soon after the election. He 

has confirmed that recently, saying that he would not be there for 

the launch of the prescription drug benefit in January 2006. 

So given the difficulty of working within the Department of 

Health and Human Services just to get regulations issued and 

things like that, I do think there is a political instability that 

should continue to be focused on. 

But the more troubling concern that I have about leadership is 

one that is, in some ways, highlighted by Michael McMullan’s presence here today. As I pointed out to you, I looked back at my 

redimentary list of the senior staff when I was there. There are a 

number of ways you can look at this, but I looked at the Senior Executive Service (SES), the most senior career folks in the agency, 

the real leadership that you depend on. And there has been a real 

brain drain of those people over the past few years. 

In the Spring of 2001 there were 43 SES staff members. Since 

that time more than half of those people have left the agency. 

25

These are people who were working shoulder to shoulder with Michael McMullan. These are presidential rank award winners. These 

are people who I depended on when I was implementing the Balanced Budget Act. 

It is an unprecedented loss. You highlighted, Chairman 

Voinovich, some of the additional losses that we may be facing in 

the future. And I think that is something for this Subcommittee to 

really grapple with as you look at the importance of these programs and the unfortunate timing of the departures of these staff. 

Because I would not have wanted to be trying to do this without 

them. 

The administrative complexity is the other big execution risk. 

Senator VOINOVICH. To clarify for Senator Durbin, the number I 

used was 30 percent of the Senior Executive Service currently are 

eligible to retire. So they could walk out the door tomorrow. 

Ms. DEPARLE. That is on top of the more than half who have left 

since the Spring of 2001. As I said, these are the people with the 

experience, the knowledge, and the history to get the job done. And 

that is what concerns me. 

But to talk about the other execution risk, that is, I think, administrative complexity. Dr. Wilensky alluded to that in her testimony, as well. 

The BBA, which we went through together, as you all know, was 

complex and contentious. We had to design new payment systems 

for virtually every provider. Virtually every hospital and doctor in 

the country, as well as almost every other health care provider, had 

their reimbursements cut. I think I heard from just about every 

one of them. I know all of you did and you told me about them. 

So it was a very difficult and contentious period. 

That said, in the BBA, CMS was dealing with a familiar set of 

providers and a familiar benefit. And we knew a lot of the providers. We knew the trade associations. We kind of had an established process of working with them. 

The difference here, and I think Michael McMullan talked about 

this, this morning, is that the Medicare prescription drug benefit 

poses a different kind of a challenge because CMS is being asked 

to build a whole new delivery system for a product it has never offered before with a whole new set of partners that it has never 

worked with before. Now it is getting some experience with those 

partners, with some of them, with the prescription drug cards that 

it is doing now. But the fact remains that CMS needs not only 

human capital but, along with that, intellectual capital around 

things like how to manage prescription drugs in a smart way. 

And frankly, the severe time constraints that are built into the 

law pose a really huge execution risk. We have already had some 

discussion about that this morning, but I agree with Dr. Wilensky 

that the notion that on January 1, 2006 your 4 million—how many 

beneficiaries are in Ohio? I do not even know exactly any more. 

Senator VOINOVICH. We have 1.7 million. 

Ms. DEPARLE. One-point-seven million Medicare beneficaries in 

Ohio are going to be expecting to have a prescription drug benefit 

available to them 20 months from today. And really I think even 

that is unrealistic when you think about what CMS has to get done 

in order to have the open enrollment as the law mandates start in 

26

November 2005. Beneficiary education is supposed to start October 

1, 2005. 

Chairman Voinovich, you recalled our interaction over the beneficiary education campaign in the BBA, and one can wonder whether starting the beneficiary education campaign, as far as telling 

beneficiaries how much the premiums are going to be, what the 

drugs are going to be that are available in October, is really sufficient time to allow them to understand it without being confused. 

But if you just stick to the deadlines in the law, CMS basically 

has 18 months to build a brand new delivery system. And I think 

that is going to be a big challenge, notwithstanding what Senator 

Lautenberg said about computer systems. In fact, I think computer 

systems are a big part of the issue. Michael McMullan talked about 

that, as well. 

I attached to my testimony a very high-level, abstract list of the 

steps that CMS has got to take between now and basically November 1, 2005 to get open enrollment going. And Michael McMullan 

alluded to the list they have, and I am sure their list has much 

greater detail than what I put forward. But just looking at my list, 

I think you can get an idea that these are not easy little things you 

can just check off the box on. 

For example, how is CMS going to design an information system 

to keep track of what each beneficiary spends on drugs? They have 

to be able to do that: To make the deductibles, the catastrophic limits that you put in the bill, the so-called ‘‘doughnut hole,’’ to make 

all those details work, they have to be able to keep track of what 

beneficiaries are spending on drugs. 

Now the law stipulates certain ways that the spending is to be 

counted. For example, spending in the ‘‘doughnut hole’’ is supposed 

to count. I apologize for using that terminology but that is what 

you all are familiar with, I think. 

But it does not count if you buy drugs in the doughnut hole that 

are not on the formulary of the plan that you were in, even if your 

plan is not contributing during that time. 

And it does not count if it is for a drug in the beginning if it was 

not on your plan’s formulary. And if it is paid by a family member 

it can count, but if it is paid by a third party it cannot count. 

All of those are things that we could sit here and write the rules 

for but then somebody has to program computers to keep track of 

that. I believe CMS will have to modify the massive database that 

it maintains what is known as the Common Working File, which 

is a repository of all the claims that come in on each beneficiary, 

in order to keep track of this. 

That is not going to be a simple task and it is a high-risk task 

as well. I know this from my experience with Y2K, which you alluded to, Mr. Chairman. We were successful there in remediating 

all the computer systems but that was a terribly high-risk and difficult chore. 

Senator VOINOVICH. Senator Durbin has to go to another meeting. Would you mind if he asked some questions here before he 

leaves? 

Ms. DEPARLE. Of course not. 

27

OPENING STATEMENT OF SENATOR DURBIN 

Senator DURBIN. Thank you very much. Thank you, Mr. Chairman, for that. Senator Pryor, thank you, as well. 

I was happy to vote for Dr. McClellan because I have a lot of confidence in him. I think he has done a fine job at the FDA and I 

believe he has an extraordinary challenge here and I hope that he 

can meet that challenge, for his sake and for all the people who 

will depend on him. 

I told him when I met with him that I think this whole program 

is fatally flawed. As you describe the complexity of this law, it was 

an effort to superimpose a new system of reimbursement instead 

of turning to the obvious. And that is using the Medicare system 

to create a prescription drug option for seniors. We decided we 

were going to invent something new. And we put in rules that are 

unintelligible to the senators and to the seniors. And now, this 

agency is going to have to try to make something intelligent out of 

them. 

I bet there are not too many survivors, but it would be great 

some time to have some people who were in on the implementation 

of Medicare to come and explain to us how, before computers, they 

established a Medicare program for America 8 months after the bill 

passed and was signed by the President. How did that happen? 

Miracle of miracles. 

Well, it could have been that the concept, as big as it was, was 

very basic and simple in its approach. We have, instead, taken off 

on an opposite course. We have built into this so much complexity 

and we have given a 2-year opportunity to implement it. 

And when I read statements by Mr. Scully, they really relate to, 

I think, the reason for this hearing and the passion of Senator 

Voinovich here. Mr. Scully said, in January of this year to a group, 

and I will read this from the Pink Sheet, which is probably the best 

place to turn. It is the Prescription Pharmaceuticals and Biotechnology Newsletter. Here is what they said: CMS itself has ‘‘no 

idea how they are going to do it, he declared. They do not have a 

staff so they are probably looking to quit like I did, he joked.’’ And 

then he goes on to say, ‘‘Congress gave them about $1 billion in 

new funding to hire more people but there is going to be complete 

chaos in this whole area brought in from the outside world and at 

CMS in the next couple of years.’’

He went on to say, when he was asked about how they were 

going to deal with coverage decisions, which you have just referred 

to ‘‘this is something CMS has no clue how to do, by the way. It 

is completely new for them and they are not particularly well set 

up to do it.’’

Thank you, Mr. Scully, for your observations. So a law that I 

think is fundamentally flawed and extremely complex and has 

avoided the obvious of using Medicare to deliver a prescription 

drug benefit, is now going to be implemented by an agency that 

Mr. Scully announced in his sayonara is totally unprepared for the 

job. Well, there is good news for America. Anything more we can 

tell them, in terms of what we are doing to help them here? 

Ms. DeParle, what you have said here, when you start describing 

how to deal with the computer program, you can imagine how 

much fun it is for me to stand in front of a group of seniors and 

28

explain how this is going to work in their real lives. And Ms. 

Wilensky, there is an assumption in your testimony and others 

that all seniors are going to sign up for this. We have to at least 

prepare for that eventuality. 

I think there is more skepticism out there at this point, when 

you are told you cannot buy a Medigap policy and the like. And the 

skepticism is built on this same complexity. 

I guess the horse is out of the barn here, but do you conclude 

as I do that we have created the mess that we now find ourselves 

in with this legislation? 

Ms. WILENSKY. It is a complex program, there is no question. Let 

me try to guess at the answer as to how did it happened in 1965? 

The original Medicare looked exactly like BlueCross BlueShield, 

which was the predominant financing system in the private sector. 

It is an interesting question about how did they pull it off. My 

guess is the government made Medicare look like what everybody 

else had. 

The problems of turning to Medicare, and this is clearly a discussion for a different committee, and putting the drug benefit in traditional Medicare had to do with whether having Medicare use its 

usual administered pricing was the best way to provide this new 

drug. This has been subject to a lot of controversy in the Clinton 

Administration and in the current Bush Administration. I believe 

it was the majority consensus that that was not going to happen. 

The question of whether this is the right answer, whether it is 

workable, is something else. I think it can be done but it is a complex issue. 

Senator DURBIN. But you have admonished—admonished is not 

the right word. You have warned us, make any changes here and 

all bets are off. And I am sitting back here and saying well first, 

I did not vote for it because I thought it was not fair. I thought 

the pharmaceutical companies made out like bandits in this deal. 

I do not think it really was designed for seniors as it should have 

been. 

Now to step back and kind of be forewarned any changes are 

going to delay implementation and complement it, that I think on 

its face is obvious. Any changes have to be assimilated into the program and its administration. 

But it strikes me that if there is a way to cut through the complexity of this, to get down to something that is just basic that you 

can understand and explain it to the average person, that is going 

to help us in setting up computer programs and appointing people 

to administer them. 

So I may not follow your warning about changes. I think honestly 

a few changes might be for to benefit of the program we need to 

make it more reasonably understood and easily administered. 

Ms. WILENSKY. Solve some problems and create others. And obviously that is your job as members of the Congress to decide. 

Ms. DEPARLE. The one I talked about, in particular, the problem 

of keeping track of beneficiary spending, if you could fill in the 

doughnut hole, that might help you some there. But the problem 

is that would cost hundreds of billions of dollars, I suppose, which 

is why it is there to begin with. 

29

Senator DURBIN. If you are not negotiating with the pharmaceutical companies to keep prices under control, then frankly the 

costs are going to outstrip the resources of this program is such a 

short period of time. But again, that gets down to the policy side 

of it. 

But I really do go back to the original premise. We created Medicare in 8 months. We may have modeled it after BlueCross 

BlueShield. We were up and running and rolling in 8 months after 

the bill was signed into law. 

Now with a 2-year timeframe, people are in a genuine panic in 

this town as to whether or not this can happen. I think it reflects 

on the fact that we made this too complicated. It should have been 

more straightforward. 

Ms. DEPARLE. That is part of it. And also, the Administrative 

Procedure Act and the rulemaking requirements are much more 

onerous now than they used to be. But I do not think you have any 

disagreement here that this is very complex. 

Senator DURBIN. Ah, for the good old days. 

Mr. Chairman, with your permission, I would ask my full opening statement be included in the record. 

Senator VOINOVICH. Without objection. 

Senator DURBIN. Thank you. 

[The prepared opening statement of Senator Durbin follows:]

PREPARED OPENING STATEMENT OF SENATOR DURBIN 

The Center for Medicare and Medicaid Services (CMS) has a monumental task 

ahead. The Balanced Budget Act of 1997 was a complex bill that forced the agency 

to go in directions it had never gone before, but BBA pales in comparison to this 

new Medicare bill. 

In the next 20 months, CMS will have to not only figure out exactly how this bill 

is going to work at a practical level, it will also have to set up complex new administrative systems and ensure seniors know how to get their benefits. 

Seemingly, the most challenging part, from a management perspective, is the constantly changing environment the bill creates. Prescription drug plans can drop in 

and out of the program, as can PPOs; drugs can drop on and off formularies; drug 

prices can rise at unpredictable levels; and seniors can rise above or drop below eligibility levels for low-income benefits and means-testing limits. These are only a few 

of the fluctuating parts of the bill that will make CMS’s job hard and confuse seniors. 

Take the drug discount card, which should be the simplest part of the bill. However, even it is complex at the management level and confusing at the senior level. 

Different drug cards will offer different discounts for people on different drugs at 

different pharmacies in different locations for different fees. The volume of calls 

CMS will get from confused citizens will probably rival any previous piece of major 

social legislation. 

While CMS is answering questions from seniors, it will also have to monitor pharmacy benefit managers, pharmacists and Prescription Drug Plans to make sure the 

savings garnered from drug manufacturers are being passed to the seniors. CMS 

will have to ensure there is appropriate management of the $600 each low-income 

senior will receive; ensure people are not being disenrolled; ensure there is pharmacy network access where it is supposed to be, guarantee beneficiary privacy is 

being protected, and make certain enrollment fees do not exceed $30. 

CMS will also need to monitor drug prices on a weekly basis to identify drug discount card programs that are deviating from ‘‘expected changes’’ in drug prices. 

These are no small tasks, and my list is not even fully comprehensive. This Committee appreciates the job you have ahead of you and wants to make sure you have 

the resources to do it. The seniors of America are depending on it.

Senator VOINOVICH. Before we go to Senator Pryor, have you finished your testimony? Would you like a few more minutes? 

Ms. DEPARLE. I had a couple of more points to make. May I? 

30

Senator VOINOVICH. Sure, go ahead. 

Ms. DEPARLE. I was talking about the difficulties of the computer 

system, so let me just go on to say that is just one example of a 

lot of high risk activities that CMS will have to undertake. 

And as you pointed out, Mr. Chairman, if these things are not 

done perfectly all of you will be hearing about it. So it is not as 

though CMS can just do it quickly. They have to be very careful 

about how they do this. And they have to do it under the structures 

of the Administrative Procedure Act. 

And my experience was, when I was there, we did a very simple, 

pretty straightforward rulemaking about modifying the conditions 

of participation for hospitals and got 50,000 comments. And there 

have been others that have gotten more comments than that. 

And I cannot imagine that a drug bill that is going to involve $500 billion or so changing hands over the next 10 years is going 

to elicit few comments. I think it is going to be a massive number. 

So the rulemaking is going to be very difficult here, too. 

In the meantime, CMS has a lot of other challenges. Just finishing up the implementation of the other provisions of a MMA 

could be a full-time job. Dr. Wilensky talked about the AWP 

changes to the other Part B drugs. There are all sorts of other administrative changes, changing Medicare Plus Choice into Medicare 

Advantage. So just finishing up MMA could be a full-time job. 

And then, in addition, they have to run all the other day-to-day 

things that go with managing the Medicare program. And then 

there is Medicaid and S–CHIP, which all of you care about as well, 

and which some of you do not think the agency is doing an adequate job with now. So all of that is on their plate. 

I made three recommendations to this Subcommittee, the first of 

which was that you request that CMS provide you with an updated 

strategic plan, including a human capital plan of the sort that you 

talked about, Mr. Chairman, detailing what they are going to need 

to get this job done. And I recommend that you provide them with 

the resources. 

The MMA took a step in the right direction in giving the agency 

$1 billion but it really did not say what the money was to be used 

for. And it disappears in September 2005. That really does not 

make sense. And so in the next budget, the Administration should 

tell you what it is going to need to really manage this benefit. And 

the Congress should look seriously at that request and try to help 

CMS here instead of asking it to do more and more with less and 

less. 

There are also some gaps in their current budget. I mentioned 

the fact that it is my understanding that the OIG and the DOJ are 

facing layoffs in their program integrity efforts. It seems to me to 

be the wrong time to have that happening with Medicare spending 

getting up to almost $300 billion this year. 

Senator VOINOVICH. Where did you say that was, what gaps? 

Ms. DEPARLE. First of all, it is my understanding that the funding that the Congress gave to the Department of Justice and the 

Office of Inspector General under HIPAA, the Health Insurance 

Portability and Accountability Act, to do Medicare program integrity activities, that is now flat and that those programs are facing 

layoffs. That is my understanding. 

31

And if that is the case, it seems to me to be the wrong time to 

be doing that when Medicare spending is supposed to increase to 

almost $300 billion this year, without a prescription drug benefit. 

We are introducing a whole new prescription drug benefit that, depending on whose estimates you believe, is going to cost at least 

$500 billion over the next 10 years. We need to pay attention to 

the program integrity side of this, as well. 

In addition, the agency has been, for years, sort of robbing Peter 

to pay Paul to come up with its beneficiary education plans. It 

seems to me that needs to be a more serious plan that they work 

out with the Congress and where there is a specific appropriation 

for beneficiary education. And that has not been the case in the 

past. 

Second, I would recommend that you give CMS more flexibility. 

I talk in my written testimony about personnel flexibility. They 

need to be able to bring back retirees. They need to be able to hire 

more high-level staff without FTE restrictions. I suggested to them 

that they might want to put together a SWAT team of some people 

with experience in writing regulations and things like that from 

other agencies. 

Those kinds of things are what happened when the original 

Medicare was implemented back in the 1960’s and I think they 

need to do some of those things now. 

Finally, I would agree with Dr. Wilensky that the Congress 

needs to make sure that it allows CMS time to focus, that if you 

add new legislative mandates this year or next year on top of requiring the prescription drug benefit to be up and running January 

1, 2006 you will probably not be able to get it done. So you need 

to understand that there are going to be some other things that 

will probably suffer in the next few months as they focus their time 

on the drug benefit. 

Thank you, Mr. Chairman. 

Senator VOINOVICH. Thank you very much. I am really grateful 

to the two of you for coming here today. 

Senator Pryor, you came in late and I do not know what your 

schedule is, but I would invite you to ask some questions. 

Senator PRYOR. I am OK. I want you to go first. I will go second. 

Thank you. 

Senator VOINOVICH. Do you believe that we are going to be able 

to pull this off? 

Ms. WILENSKY. It can happen. It will be hard. 

I have thought about whether at some point it would be prudent 

to have a backup plan in case CMS is a quarter late. What happens if CMS is not really ready to have educational materials 

mailed out October 1 but could be ready by December 1? Is it possible to have the first year be a three-quarter year? 

I would recommend, without having given it sufficient consideration, that that type of planning be put in place because it is easy 

to imagine the need arising. Controversial regulations are very difficult to deal with. 

I had two during my tenure, CLIA and the proposed rule for the 

RBRVS, the reform payment for physicians. HCFA got 100,000 

comments on RBRVS. 

32

I do not know whether there is anything that is that controversial. A lot of comments are part of letter campaigns. But the agency, under the APA, has to respond in writing at the interim final 

rule with how it has dealt with each of the issues that have been 

raised. And that is difficult. 

There are a lot of reasons that the timeframe is a very tight 

squeeze. Understanding what would be acceptable to the Congress 

and the Administration if the agency is a quarter behind schedule 

for the first year is very important. 

Obviously, should the Congress choose to go in a completely different direction in terms of a drug benefit bill, that would stop the 

clock at that point. But I would assume until such time as that 

were to happen, the perception is this is the legislation you have, 

recognition that change really impedes its implementation, and 

have a backroom plan for what happens if CMS is a quarter late. 

I recognize there are a lot of political issues about why that 

would be difficult to make public. 

Senator VOINOVICH. Ms. DeParle. 

Ms. DEPARLE. I agree. Yes, I think it can be done. But I would 

want to be working with the Congress on a contingency plan and 

I will tell you why. 

I think Dr. Wilensky is right that the rulemaking on this will be 

very difficult. Just the amount of time that it takes to get a rule 

written, cleared through the Department, cleared through OMB, 

and then out on the streets and then to allow sufficient time for 

the public to comment is going to take a number of months. 

But that is not even the thing that makes me the most concerned. It is more that this bidding process that has to occur for 

the prescription drug plans and the Medicare Advantage plans to 

say how much they are going to charge beneficiaries and what 

their drug plan is going to look like. All that has to be done by October 2005 so that if a beneficiary in Cleveland is thinking about 

signing up for this they will know here are the plans that are available to me. Here is how much each one of them would charge me 

in a premium. Here is how much my subsidy will be if I am a lowincome person. 

There is a lot of details that will have to be final when they get 

a piece of paper in the mail in October that says here is what you 

have. That is my concern, is getting all of those things finalized. 

And also, if it is not done well, I am harking back to your concern about beneficiary education. The soft kind of beneficiary education that has been occurring so far that Senator Lautenberg 

highlighted, that is one thing. But when you get down to sending 

someone a piece of paper and telling them here is how much the 

premiums are under the plans you are looking at, you need to 

allow them some time to figure out, ‘‘OK, I take Lipitor. Is that on 

here? Can I get that?’’

And I am just concerned that you want to do this right. That is 

very important, I think, to you and the Congress and to all of us. 

If I were at CMS, I would work with the Congress to design a contingency plan, as well. 

Senator VOINOVICH. I want to clarify something. I go to meetings 

and I think I have had 9 or 10 meetings already in Ohio where I 

33

have had listening sessions with senior citizens and get a chance 

to get some input from them. This is complicated stuff. 

It seems to me that if it is going to work they are going to have 

to have the best information that they can have to make good decisions. We are going to need a whole lot of help. Governor Taft and 

I are going to go to an OSHIIP training session this month to find 

answers so that we are more sophisticated in terms of our interface 

with people. I also am bringing all of my regional representatives 

in so that they are better educated. But this is going to be a monumental undertaking in Ohio to make sure it gets done. 

So the first thing you would do if you were in Dr. McClellan’s 

place is to look at the big picture and determine what the reality 

is and then maybe come back with some suggestions on how to 

maybe do it better? 

But one fact, and I want to clarify this, is that this is a monumental task. It is not something you can snap your fingers at and 

have it done. At some of my listening sessions seniors will ask me 

why they cannot have it now. I try to explain to them that there 

is a whole lot of work that has to be done before this program can 

be rolled out. I suspect also that there might be some consideration 

given to cascading implementation over a longer period of time. 

This would give the agency some experience with the program 

rather than just launching the rocket and not knowing if it will get 

off of the ground and what will happen when it does. 

Ms. WILENSKY. Senator Voinovich, it would have been easier if 

the Congress had chosen to stagger the changes that came in place, 

for example, of not doing anything to the Part B drug coverage 

until 2006 and only then start to change Part B coverage. Or having fewer changes with regard to other parts of payments, for it to 

change to the rurals, changes to oncologist payments, which involve 

a lot of recalculations with regard to physician payments. I am not 

suggesting delaying these changes, either politically or at a policy 

level, would have been necessarily desirable. 

It is the fact that these changes, each of which probably could 

have been accomplished and may well be accomplished during the 

relevant time period, are happening at the same time as Part D 

coverages is starting is what makes it so difficult. The Medicaid 

changes are also huge—neither of us have spoken about Medicaid 

but next week I am going to speak twice about it, so I have been 

thinking about what happens to the dual eligibles. 

Many changes are required so that beneficiares are regarded as 

being seniors first and second, in terms of whether they are Medicare or Medicaid participants, plus all of the other Medicaid 

changes that are going on because of waivers and the children’s 

health insurance program and all of the HIPAA changes. It is astounding how much one agency has going on, change in at least 

three different areas, only one of which is Medicare Advantage and 

Part D drugs. 

That is the part most peole don’t understand. I do not know if 

it will help you in responding to your seniors, as to why implementing the new benefit is so difficult and takes so long. 

Of course, in 1965 we had a very narrow program, basically hospital and physician coverage, modeled to look like something that 

34

was out there, BlueCross and BlueShield. The complexity of all 

that this agency does now, did not exist then. 

Again, I am not willing to say it cannot be done. But it is important to understand how many moving parts there are, not just because the delivery mechanisms are complex but because so much 

is included in this one bill that impacts a single agency. That is ignoring all of the problems that have been raised about the unusual 

numbers of people who are retiring. 

I had the advantage of thinking about this problem in the early 

1990’s. We could see what was going to happen over the next decade because of the age structure of the workforce, recognizing it 

was a significant problem on the horizon, and having the advantage of knowing it would be somebody else’s problem. 

Senator VOINOVICH. Thank you. Senator Pryor, thank you for 

coming today. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you Mr. Chairman. Thank you. 

Let me first ask a question based on my old job as Attorney General of the State of Arkansas. In my 4 years there, we had a number of incidents where scam artists would come to seniors and convince them to purchase fake drug cards. Then these unsuspecting 

seniors would purchase these cards and would take them down to 

the local pharmacy, to realize that the cards were worthless. 

We also had another occurrence where legitimate companies 

were aggressively marketing drug cards. But when you actually 

took the drug cards to the pharmacist, they really did not live up 

to the senior’s expectations. So now the Congress has passed into 

law and the President has signed a bill that will have a national 

drug card. 

So my question for the two of you is, given potential for fraud 

and scams, etc., should CMS somehow begin educating the public 

to beware of bogus drug cards and how to recognize the real drug 

card? I would just like to get your thoughts on that. 

Ms. DEPARLE. Yes. It is my understanding that there has been 

a spike in the incidents of the type you are describing where there 

have been perhaps some new shysters who are going door-to-door 

with what they are offering as cards and asking for payment for 

them. And I think the agency has put out an alert on that. But it 

may be that it will require something more aggressive either from 

CMS or the Justice Department. 

Ms. WILENSKY. I have read that exact situation you are describing has indeed been happening. There has been an alert. There is 

a lot of money at stake here. That usually invites scam and fraud 

artists to join. It will be very important that while everything else 

is going forward that some attention is being paid to this issue so 

that you do not frustrate the seniors and bilk them of their funds 

and, of course, bilk the taxpayers as well. 

Senator PRYOR. One thing, Mr. Chairman, that does concern me 

about this is a lot of times these scam artists and these folks who 

are going to rip seniors off and prey on the unsuspecting, a lot of 

times they will take some sort of event out there that sounds plausible and all of a sudden they come in and offer some sort of service. 

35

We had that after 9/11 where people would come in and try to 

rip people off and say we are sending money to New York City, and 

they were not. 

Unfortunately, you see these types of scams in many situations. 

I just see the potential right there so I am glad to hear that CMS 

is taking steps. 

Let me also ask about something else that made a lot of news 

in the last few weeks and that is where Tom Scully, potentially, 

told one of his employees not to be candid with Congress. In my 

view it is extremely important that CMS, your former agency, is 

candid with Congress because we are the policymakers. We are 

going to pass this law. And now a lot of us feel like we did not receive accurate information as we were deliberating this. 

Let me just ask, from your experience at HCFA, now CMS, are 

you aware of anything like this happening on your watch when you 

were there? When you told someone in the agency not to provide 

information to Congress? Are you aware of anything like that? 

Ms. WILENSKY. I am not. I actually had a conversation about this 

with Guy King, who was the chief actuary for 16 years or so, including the period when I was there and during both President 

Carter and the Reagan/Bush Administration. 

There does seem to be some change. He indicated it would have 

been very uncommon for the HCFA actuary to have had conversations with the Congress on new legislation unless they involved the 

Trust Fund. Otherwise that conversation normally would not have 

occurred. 

There is a long history of CBO and HCFA actuaries having different estimates. And my experience has been that once CBO has 

made an estimate about the cost of new legislation Congress really 

did not care what administrations said because Congress basically 

follows its advisers, the CBO, and not the Administration. That is 

why the CBO was created. 

But I am not aware of anybody either being directed or to not 

come forward with information or threatened if they did. 

Ms. DEPARLE. I worked with the CMS actuary, Rick Foster, for 

3 years when I was Administrator and it was an honor to work 

with him. And not only did I not ever instruct him not to give information to Congress or to be candid with Congress, in fact I 

urged him to speak directly with members of Congress whenever 

they needed information and not even to tell me what they asked. 

Because I do think there is a public interest in members of Congress having as complete and accurate information as they can 

have. Actuaries can be wrong. So can economists. But I think we, 

as citizens, have an interest in your having as much information 

as possible when you make your decisions. 

Senator PRYOR. Thank you and I agree with you both on that. 

Mr. Chairman, if I may, I would just like to ask one or two more 

questions. And that is a little bit of a follow up on Senator Durbin’s 

question a few moments ago. He quoted an interview by Tom 

Scully. One of the things Mr. Scully said is that CMS is not going 

to be a passive payer anymore. CMS is going to be a market organizer. 

36

I am interested if you have any thoughts on Mr. Scully’s comment there that CMS’s role has changed so much that it will now, 

under this bill, be a market organizer. 

Ms. WILENSKY. Well, CMS follows administered pricing for the 

most part. That is set in statute. Medicare pays a price for individual physician services or hospital discharges or nursing days 

that is not negotiable. So to that extent, it has been passive. 

But it has not been passive in a lot of other ways in terms of who 

is allowed to participate or determining quality and appropriateness. This mix of authorizing complicates what the agency can do. 

Prices are set, whether or not the service is being performed with 

different quality or even if it was medically appropriate. 

I presume what Mr. Scully was referencing to is the bidding 

process that will go on both for Medicare Advantage and for the 

Part D private prescription drug plan participation. We will see 

whether or not there is enough participation to have very much 

competition. 

I am a big supporter of the Federal Employees Health Care Plan 

which negotiates the prices and benefits that the plans offer. 

I think it is a little early to predict a dramatic change for Medicare. The bidding process system is influencing only, at least at 

this point, a relatively small part of the Medicare program. If the 

CMS actuary is correct and there is substantial participation in the 

Medicare Advantage program, which is one of the reasons that 

there was such a big difference between CMS and CSO, the agency 

may become involved in price negotiations and become more of a 

market organizer. 

But I would like to remind the Congress that both the actuary 

and CBO radically overestimated the participation of private plans 

in the Medicare Plus Choice program, and the actuary was even 

more bullish than CBO. So I think it is a little early to predict a 

major change in function for the agency. 

The basic choice is either to do administered pricing or to rely 

on competitive purposes to moderate spending. This bill moves towards a bidding process and is why CBO has said that it would not 

score additional savings if administered pricing power was granted 

to CMS regarding Part D drugs. 

Senator PRYOR. Do you have any comments on that? 

Ms. DEPARLE. No, I am sitting here trying to guess what he 

means by that. I am not even really sure. 

Senator PRYOR. Mr. Chairman, if I might ask one last question. 

Again, Mr. Scully in this interview said ‘‘You are going to find that 

most of the expertise to pull this off, this new Medicare drug benefit at CMS, lies on the Medicaid side of the agency. I can tell you, 

having run the place for 3 years, the relationship between the people who run Medicare and the people who run Medicaid is a little 

like the Serbs and the Croatians. They do not really talk to each 

other that much.’’

I am curious about your experience there with the Medicare side 

versus the Medicaid side and who, in the agency, has the expertise 

to administer this? 

Ms. WILENSKY. The reason Medicaid would be more relevant, although not at the Federal level, is Medicaid covers prescription 

37

drugs. So a lot of the issues that need to be dealt with are dealt 

with in Medicaid. 

But the major role of the Federal Government in Medicaid is 

mostly oversight. Medicaid is basically a State program that has 

Federal oversight, very different from Medicare which clearly is a 

Federal program. 

I disagree with the characterization of the people running Medicare and Medicaid. When I went to HCFA, I pulled the people out 

of Medicare who were working in both Medicare and Medicaid and 

created a center for Medicaid or Medicaid bureau because I was 

afraid Medicaid was getting short shrift by having the same people 

working in both areas, given that Medicare dominates everything 

that HCFA did. And it was a way to try to give more attention and 

focus to the people who did work in Medicaid. 

But I am not aware, or do not believe, at least when I was there, 

that there was any friction or difficulties between the group working on these two programs. 

Some of the issues in Part D will have to be helped by bringing 

in people from the private sector who have worked for PBMs. People who have worked for insurance companies that worked on the 

prescription drug side, could provide some private-sector expertise. 

The fact is I do not think either Medicare or Medicaid provides 

the right expertise. 

To the extent that you are using private prescription drug plans, 

however, it does not require the hands-on expertise that Medicare 

needs when it is trying to price out DRG 351 or which of all of the 

9,000 CPT codes should get included in the RBRVS. 

One of the advantages of having the kind of program structure 

that is in the legislation is Medicare actually is not responsible for 

individual price negotiation of individual drugs or their presence on 

a formulary. That is done by the plan. Medicare’s major involvement is in determining the bidding process and the definition of 

geographical areas, and the appeals and the rights processes that 

are put in place. 

So I am not even sure that private prescription drug experience 

you mentioned is needed. 

Ms. DEPARLE. I agree. I would not characterize it that way, either. I did not see friction. 

I think every administrator struggles with trying to balance the 

focus on the two programs. And frankly, I came out of the State 

of Tennessee where I had worked on Medicaid issues. And I think 

the agency’s focus is, to some extent, reflective of the Administration’s focus and the Congress’ focus. 

President Clinton was very interested in Medicaid so we spent 

quite a bit of time on it. But the fact is for every one letter I got 

from a member of Congress about Medicaid, I got 50 about Medicare. And perhaps that is somewhat symptomatic of the time I was 

there, because I was there during the Balanced Budget Act. And 

as we have discussed, every provider in the country was upset 

about getting their Medicare reimbursements cut. 

So I found it was difficult to spend as much time on Medicaid 

as I would have liked. But I did not find the Serbs and Croatians. 

What I think he is referring to is that there are two career staff 

in the Medicaid bureau who had experience with the prescription 

38

drug rebate law, which I know you know about. And they had a 

lot of the intellectual capital when we began looking at prescription 

drugs and the pharmaceutical companies and all those sorts of 

things that CMS has never dealt with before. Those two gentlemen 

had the experience in dealing with them. 

But as Dr. Wilensky says, substantial intellectual capital will 

have to be built now, building on what is there in Medicaid as well 

as bringing in some people from the private sector. 

A lot of this though is not even going to be intrinsic to prescription drugs. It is just getting rules written, figuring out how to oversee contracts, the hard stuff that you talked about earlier in your 

statement. And for that, I think, you could bring over some good 

people from SSA if there are some people there who could be 

spared, as well as from some of the other agencies who do that 

kind of thing, and get them on a SWAT team to help the agency. 

That is what I would be looking at. 

Senator PRYOR. Thank you. 

Senator VOINOVICH. I want to thank you very much for being 

here today. I can assure you that not only your written testimony 

but the responses that you have made today will be sent over to 

Mr. McClellan. I think your suggestion that it might be good to 

have him in here to have an opportunity to spend some time with 

us is a good one, to ascertain what it is that he thinks we need 

to do to be of help to him. 

I think the issue of workforce flexibilities in order to hire the 

people that they need to get the job done is one issue. Another, I 

think is the issue of the budget, a $1 billion deal. But what will 

CMS need, in terms of additional money, to get the job done once 

this program is up and running? This is just a one-shot deal. 

Looking at some of the other areas in the Department where 

they have been shortchanged in terms of dollars are also issues 

that we need to really get at right away. 

One of the things I have learned here and Senator Pryor probably joins me in that because he was an attorney general, is Congress in so many instances has really no appreciation for the management challenges of some of these programs. 

We get this idea that we pass a law, snap your fingers and it is 

all done. A lot of my colleagues have never been a mayor. They 

have never been a governor or an attorney general. And so they 

just have no idea about how much work it takes to get something 

done. 

It seems to be illogical because if you look at any organization 

its strength really is in the people that are in that organization. We 

just do not pay enough attention to that. 

So I am really grateful that the two of you have come over here 

today. Dr. McClellan can learn a great deal from your testimony. 

I was thinking about whether we would do that or not, but I 

would like to invite him in and give him a chance to share with 

us his observations and maybe discuss some of these issues that 

you have raised. Are we too ambitious? Are we being asked to do 

too much at the same time? Are some of the things that Congress 

asks for in this legislation things that maybe we could delay for a 

year or 2 years rather than trying to get it all done at one time? 

39

Or is the alternative cascading some of this over a period of time 

so we get a little more experience with it, so that we can determine 

whether or not the grand plan is really doing the job that we expect it to do? 

Again, thank you very much. The hearing is now adjourned. 

[Whereupon, at 11:53 p.m., the hearing was adjourned.] 

(41)

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