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S. Hrg. 109–708

MEDICAID: CREATIVE IMPROVEMENTS

FROM THE FIELD

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 28, 2005

FIELD HEARING IN CHARLESTON, SOUTH CAROLINA

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

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 Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statement: Page 

Senator Coburn ................................................................................................. 1

WITNESSES 

FRIDAY, OCTOBER 28, 2005

Hon. Mark Sanford, Governor, State of South Carolina ...................................... 4

Hon. Tracy E. Edge, a Representative in Congress from the South Carolina .... 12

Judith Solomon, Senior Fellow, Center on Budget and Policy Priorities ............ 18

Donald Tice, D.O., Member South Carolina Board of Medical Examiners ......... 21

Professor Regina E. Herzlinger, Nancy R. McPherson, Professor of Business 

Administration, Chair, Harvard Business School ............................................. 23

Ed McMullen, President, South Carolina Policy Council Education Foundation ........................................................................................................................ 24

ALPHABETICAL LIST OF WITNESSES

Edge, Hon. Tracy E.: 

Testimony .......................................................................................................... 12

Prepared statement with attachments ........................................................... 52

Herzlinger, Professor Regina E.: 

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

Prepared statement .......................................................................................... 94

McMullen, Ed: 

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 104

Sanford, Hon. Mark: 

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

Prepared statement with attachments ........................................................... 33

Solomon, Judith: 

Testimony .......................................................................................................... 18

Prepared statement .......................................................................................... 82

Tice, Donald, D.O.: 

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 89

(1)

MEDICAID: CREATIVE IMPROVEMENTS 

FROM THE FIELD 

FRIDAY, OCTOBER 28, 2005

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10 a.m., at the 

College of Charleston, Wachovia Auditorium, Ground Floor of the 

School of Business and Economics, 5 Liberty Street, Charleston, 

South Carolina, Hon. Tom Coburn, Chairman of the Subcommittee, 

presiding. 

Present: Senator Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. We will ask for your attention, please, if we 

could have it. 

This is the start of the hearing of the Federal Financial Management Subcommittee of the Committee on Homeland Security and 

Governmental Affairs. We are having this hearing today because of 

the problems that those who are dependent on us face in our country in terms of healthcare. 

I am a practicing physician. I have delivered over 4,000 children 

in the last 23 years. I will deliver two babies this weekend—I’m 

going to try to get out of here real quick so I can do what I need 

to do this weekend. And over 50 percent of the babies that I have 

delivered have been Medicaid babies, and so I know a whole lot 

about caring for those people who need our help. 

This hearing is not about money. It is about quality. It is about 

access. It is about care. It is about prevention. And if we don’t have 

those things, the costs go way up. If we do better on prevention, 

access, quality and care, the costs go down. 

So what this hearing is about is, how do we, in the future, develop plans that create dignity, access, quality care, and prevention 

for those that are dependent upon us. 

Several States have wonderful ideas. My own home State is 

struggling with the costs associated with Medicaid, the lack of access, the lack of prevention, the lack of quality, the higher risk nature of obstetrics and the NICU visits that so many babies through 

Medicaid go to that people who are not in Medicaid, for some reason, their children do not end up there. 

2

So what I want to do is to make sure we understand the purpose 

of this hearing. This is not the only State we are going to be doing 

this in. But there is a dollar figure associated with it, and the fact 

is that the Federal Government, and I suspect South Carolina, is 

on this unsustainable course. 

Today, not looking at Medicaid but looking at Social Security and 

Medicare alone, we have unfunded liabilities that will place the 

young people who attend the College of Charleston in extreme risk. 

Those unfunded liabilities at this time are over $40 trillion, not 

looking at Medicaid. What that means for our country and for our 

children and grandchildren is that we will abandon the heritage 

that was left for us and leave a legacy of debt, a legacy of lost opportunity, a legacy of lack of college education, home ownership, job 

realization, and progression. 

So I welcome each of you here. We are very serious. This is the 

19th Subcommittee hearing that my Subcommittee has had since 

April 1. We are working hard to look at the options and the problems that are facing our country from a financial aspect, but I take 

a very personal interest in terms of the healthcare aspect of it because I happen to be very much involved with it. 

Before we ask your Governor to testify, with the following event 

that took place yesterday, I would ask each of you, if this is how 

you want us to solve the problems. 

The Committee on Indian Affairs yesterday decided that the 

Alaskan natives who have their healthcare service through the Indian healthcare, because we cannot create opportunity and access, 

we have decided to give them less than standard care. We decided 

that we would allow people who are trained 2 years in New Zealand to do their root canals, their pulpotomies, their tooth extraction and their curettage repair. 

So I lost the vote in terms of trying to change that and put 

money to that program rather than lessen the quality of care, but 

it portends what is about to happen in our country as we face the 

financial difficulties in front of us. 

And I would ask us all to look at our hearts and say, is it right 

that the way we are going to meet our obligation to those people 

who are dependent on us is to give them less than what we are 

going to have for ourself in terms of opportunity, access, quality, 

and prevention? If that is what we chose to do, then we have undermined the very spirit of what we call America. 

So this is an important hearing in terms of what we need to do, 

how we need to look at things, and the quality and the way we 

treat those that are dependent on us. 

Many have said that you cannot change Medicaid because it will 

not work. Well, I would remind you that many people said we cannot change welfare, it will not work. This country has had a tremendously successful process of giving people back their dignity 

who happen to be caught, through no fault of their own, and 

trapped, and the same people are saying the same thing about 

healthcare reform and Medicaid reform today. 

[The prepared statement of Senator Coburn follows:]

3

PREPARED STATEMENT OF SENATOR COBURN 

Back in 1965, Medicaid was originally designed as a safety net for those in need. 

We have strayed far from our original objective: Medicaid now covers one out of 

every six Americans (46 million) and costs $338 billion a year. This antiquated entitlement program has not only compromised quality of care and eliminated consumer 

choice, it has also managed to bankrupt Federal and State budgets. Something has 

to change. The longer we do nothing about the crisis, the more difficult the inevitable decisions will be. 

I want to applaud Governor Sanford for recognizing the need for intervention and 

for proposing reform measures that might help prevent the program from going 

bankrupt in South Carolina. South Carolina’s Medicaid reform proposal implements 

free-market principles to improve healthcare quality and curb waste. 

THE STATUS QUO HURTS PATIENTS

As a practicing physician, I see fewer and fewer of my colleagues willing to accept 

Medicaid patients. Physicians lose money by participating in the program. For every 

dollar we spend on a Medicaid patient, we are reimbursed 62 cents by the program. 

But it costs us in time too. Interacting with the bureaucracy is an onerous burden 

for over-scheduled providers. Our experience isn’t unique. MedPAC reports that ‘‘approximately 40 percent of physicians restricted access for Medicaid patients.’’ The 

problem is worse among specialists. 

Let me be clear: My complaint isn’t about our reimbursement rates. Nobody’s 

planning on getting rich on a safety net program for the poor. The main reason why 

the flight of physicians is a problem is because it means Medicaid patients have 

fewer and fewer options when it comes to finding a doctor and getting an appointment once they find one. We all know how frustrating it can be when you call for 

a doctor’s appointment and they can’t fit you in for months. With 40 percent of providers trying to limit their Medicaid patients, imagine how much longer these folks 

have to wait, if they get in at all. Or maybe they have to pick a doctor who is much 

further away, or who doesn’t speak their language. 

These delays and restrictions are nothing more than a form of health care rationing. Inevitably, as State governments seek to control costs, they must restrict access 

to services. This is most visible in the restriction of prescription drug formularies, 

which handicaps doctors and limits patients. There are other restrictions as well—

South Carolina has had to place a cap on the number of visits a beneficiary may 

make to an emergency room each year. 

It’s no surprise that nobody wants to be on Medicaid. A Commonwealth survey 

found that 65 percent of Americans would prefer private coverage, and only 10 percent actually preferred Medicaid or Medicare above private insurance—most of 

those never experiencing private care. Patients are well aware of the stigma and 

the other problems with Medicaid. Elected officials have a moral obligation to end 

dependency on inferior State-run programs whenever possible. And for those who 

must depend on Medicaid, compassion demands that we do whatever we can to 

make the program effective, efficient, and equal in quality to that received by those 

not covered by Medicaid. Some would argue that the poor or indigent are incapable 

of taking control of their health care. I disagree. It’s arrogance to assume that Medicaid beneficiaries or their caregivers are incapable of intelligent decision-making 

about their own health. 

Medicaid creates a variety of perverse incentive structures. One of those is the 

so-called ‘‘job lock.’’ There is a point at which the value of the Medicaid benefits a 

person will lose by getting a better-paying job is more than his increased income 

from that job. Some people are forced to choose between free health care and a better paying job. This ‘‘job lock’’ keeps Medicaid recipients trapped in their dependence 

on the State. 

There are other perverse incentives in Medicaid, such as an under-emphasis on 

prevention and an over-emphasis on acute and emergency care. If you were trying 

to help out your diabetic mom or your child with a disability, wouldn’t you want 

to pre-empt a medical crisis by investing more in preventive services and disease 

management, rather than having to visit your loved one in the ICU after an ER admission? Wouldn’t it be better to structure Medicaid more like many private insurance plans—which place an emphasis on prevention? 

WE CAN’T AFFORD THE STATUS QUO

As a physician, I’m most worried about how Medicaid compromises patient care. 

We might be able to bear increased costs of a growing Medicaid program if these 

increases weren’t also associated with such sub-standard options for patients. But 

4

1The prepared statement of Governor Sanford with attachments appears in the Appendix on 

page 33. 

I’m also a father, grandfather, and a Senator, and so I’m also losing sleep about how 

we’re going to afford the program. 

Federal spending and deficits are out of control. This year, the Medicaid alone will cost Americans $338 billion. Medicaid, Medicare, and Social Security—the ‘‘big 3’’ 

of entitlement programs—consume 42 percent of Federal spending (CBO) and that 

number will continue to eat up our children’s future if something doesn’t give. 

I’ve talked about the sub-standard quality of the Medicaid system. At the same 

time that quality has been decreasing, the program’s funding has more than doubled 

over the last 10 years. We’re heading towards a cliff. I worry that the political will 

does not exist to avert this looming crisis—and that States will be on their own. 

As it stands now, they are drowning in Medicaid bills. 

It used to be that police and schools were the biggest slices in the State budget 

pie. Now, it’s Medicaid—eating up 22 percent of State budgets. By the year 2035, 

Medicaid will eat up half of the South Carolina’s State budget. Doing nothing is not 

an option. States don’t have as much fat as the Federal budget. What will you do—

stop building roads? Stop supporting public schools? If something doesn’t give, the 

legacy left by the so-called ‘‘Greatest Generation’’ will be a crushing debt-load on 

our children and grandchildren. 

A SOLUTION TO THE STATUS QUO

We might be able to learn some lessons from welfare reform efforts during the 

last decade. The reform bill successfully transformed welfare from an entitlement 

program into cash assistance in the hands of the States. Back then, as today, critics 

feared that a change to the status quo would threaten the most vulnerable Americans. Instead, the welfare caseload actually decreased by 58 percent during the new 

model’s first 6 years. Today, welfare is more a temporary hand-up on the road to 

self-sufficiency and less a way of life. 

Although almost every State is in a Medicaid crisis, not every State has a leader 

with the courage to risk his own political neck in order to confront the problem 

head-on. With critics circling, Governor Sanford has shown courage to admit that 

Medicaid could bankrupt South Carolina and propose ideas that could pre-empt a 

Medicaid train-wreck in South Carolina. His proposal is better for patients and for 

taxpayers. 

Instead of a defined benefit model, South Carolina proposes a defined contribution 

for Medicaid beneficiaries. South Carolina’s proposal harnesses the consumer-driven 

ideas that made America great. Under the proposal. Medicaid beneficiaries will have 

ownership over their health care services through the creation of the Personal 

Health Account. Patients will be able to select private insurance and enroll in a plan 

just like other South Carolinians. This proposal treats the poor with the dignity 

they deserve by providing them choice and autonomy over their own health care. 

Not only is this approach the right thing to do morally, but it will curb inefficiency 

by moving the program from centralized government control to the marketplace. 

This environment will free providers and insurers from unnecessary bureaucracy 

and allow them to focus on the most important things—the patient, the relationship 

between the patient and the provider, and the high quality of care that citizens of 

the wealthiest and most innovative nation on earth have come to expect. 

I look forward to learning the details of this innovation from its chief architect: 

Governor Mark Sanford. We’ve also got witnesses from the South Carolina legislature, the provider community and the academic community. Thanks to all of you 

for being here.

Senator COBURN. So it is with great pleasure, and also a great 

friend of mine I happened to serve in the U.S. House of Representatives with your Governor, Mark Sanford, welcome. Thank you for 

your leadership, and we await anxiously your testimony. 

TESTIMONY OF HON. MARK SANFORD,1 GOVERNOR OF STATE 

OF SOUTH CAROLINA 

Governor SANFORD. Sir, thank you very much for being here. 

Thank you very much for coming down here on your 19th field 

hearing in helping us to further deliberate what I think is one of 

the most important public policy issues facing our State. I would 

5

1The article from the Wall Street Journal appears in the Appendix on page 34. 1The chart appears in the Appendix on page 36. 

2The chart appears in the Appendix on page 37. 

say that this is on the front burner of top issues that will confront 

the Palmetto State on three different levels. 

One, it directly impacts the health of 850,000 South Carolinians. 

Second, that it is fundamentally tied to our ability to stay competitive in the global climate that we live in. If we cannot stay healthy 

economically, we can’t have the revenue stream that only pays for 

healthcare and education and other things. And third, this is fundamentally tied to our ability to, as you correctly pointed out, 

maintain spending in other categories of government that are very 

important to the people of South Carolina. 

So on a variety of different fronts, thank you very much for being 

here. Before I go any further, thank you for the way that you have 

been standing up for the notion of making choices and setting priorities in the U.S. Senate. Fundamentally, to govern is to choose, 

but one of the tragedies at work in today’s political process is that 

nobody wants to choose. 

And so I would like to submit for the record a Wall Street Journal article 1 talking about how you dare to use the P word, which 

were priorities, in looking at offsets for a sculpture garden in 

Washington State, an art museum in Nebraska, a Rhode Island 

animal shelter, and now the infamous bridge to nowhere wherein 

you suggested an offset. We’re talking $4.5 million per resident for 

the 50 residents versus a 7-minute ferry ride. And you had said, 

why don’t we take some of these moneys and put them into needs 

that exist after Hurricane Katrina. That, fundamentally, to me, is 

governing that notion of making choices. So I would submit that for 

the record. 

Fundamentally, what we are about in this Medicaid proposal 

that we have before the Federal Government is one that is policymakers making better choices so that, indeed, people end up with 

better quality healthcare within the Medicaid population; and, second, it is about allowing individuals to make choices so that they 

can, indeed, end up with a better healthcare system that works 

better for them and their families. 

Let me go back to those three thoughts that I just quickly ran 

through. First of all, the ability to maintain spending. It is important to know that in South Carolina in the year 2000, one of every 

$7 spent in State government was spent on Medicaid. By the year 

2005, it is one of every $5; by the year 2010, it is projected to be 

one of every $4; and by the year 2015, it is projected to be one of 

every $3. 

I have here a number of charts that I will submit for the record. 

This is a chart showing the growth of Medicaid at 9.5 percent each 

year, 1998 through 2004, versus our State revenue growing at 2.4 

percent. 

Another chart shows our overall expenditure, which is roughly 19 

percent of our budget currently, moving quickly to 29 percent over 

the next 10 years.1

Another chart that shows by the year 2010, Medicaid will consume 121 percent of new revenues coming into State government,2

6

3The note appears in the Appendix on page 38. 

4The charts appear in the Appendix on page 39. 

121 percent which means there has to be a substantial tax increase 

or a substantial lessening of other goods and services of government, or a substantial cut to Medicaid. 

I would also submit this note, which I think is interesting.3 This 

is written by a Democratic Maryland Legislator John Houston, 

President of the National Council of State Legislators, and says 

this: I am a Democrat, a liberal Democrat, but we can’t sustain the 

current Medicaid program. It’s fiscal madness, it doesn’t guarantee 

good care, it’s a budget buster, we need to instill a greater sense 

of personal responsibility so the people in need can find themselves 

better care. 

These are a couple of charts to which you alluded to; 

unsustainable at the Federal level.4 If you look at the growth curve 

on entitlement spending on a variety of different fronts, and I will 

submit those for the record. 

Senator COBURN. Without objection. 

Governor SANFORD. Thank you, sir. And where does that leave 

us? It leaves us with one of two avenues. I have here a list of other 

States. For instance, as recently as October 25, Kentucky had announced that it was going to stop paying for non-emergency care 

done in hospital rooms. 

Maryland has just cut $7 million in Medicaid funding for newlyarrived legal immigrants to their—let me say that in English—

newly-arrived legal immigrants and pregnant women in the State 

of Maryland. 

Michigan’s Governor Granholm, Democratic colleague of mine, 

just announced they were going to include a $40 million cut to 

healthcare providers. 

Missouri actually voted—the State senate voted to sunset Medicaid in the year 2008 before finally settling to take 90,000 people 

off the rolls of Medicaid in Missouri. 

In Tennessee, another Democrat colleague, Phil Bredesen, Governor of Tennessee, proposed taking 323,000 people off the Medicaid rolls before settling for the 190,000-person cut. 

Now, one option here in dealing with these budget realities that 

I just enumerated is to make these kinds of cuts, as outlined by 

these colleagues of mine, in other States. I think a far better way 

for Medicaid, the system itself, and most importantly for the recipients of Medicaid, is to look at reform. 

Jeb Bush, just this last week, was able to get a waiver through 

along the lines of what we have proposed. In Illinois, a Democratic 

colleague of mine just announced this week, Rod Blagojevich, who 

we served with in the U.S. House, has shifted 1.7 million people 

over to a managed care proposal. 

Brad Henry, Governor of your home State of Oklahoma, along 

with a Senate task force, has actually asked Robbie Kerr to come 

and testify before that committee on reforms. Vermont, which 

comes from arguably a more progressive political structure than 

the State of South Carolina, has gotten through a Medicaid waiver 

September 27 that would allow for managed care and changes to 

the system. 

7

1The article from the Wall Street Journal appears in the Appendix on page 42. 2The information appears in the Appendix on page 43. 

We think a far better proposal is to allow reforms to take place 

in the system so that it is, one, sustainable; and, two, it allows 

more choices, better quality of care for the population served. 

Going to my second point, that reform to Medicaid is fundamental to our ability to stay competitive in the State of South 

Carolina. I really believe that Thomas Friedman’s flat world is here 

and that we are on an international playing field; we directly compete not just with other States but with other countries around the 

globe. 

And toward that end, I would make two notes. One is that the 

Congressional Budget Office has shown at the Federal level, your 

level, as you correctly pointed out with the contingent liability you 

just alluded to, Federal spending will go from 20 percent, which is 

basically a GDP, which basically where it has been over the last 

50 years, since World War II, to 34 percent in the year 2050, unless 

changes are not made to the entitlement systems. 

So the reality is we know a change is coming. The question is, 

are we going to make it one that is most suited to individual needs 

that exist, versus a blanket system? We think the individual needs 

is very important. And toward that end, I will submit to the record, 

the recent bankruptcy filing by the automaker Delphi, which is the 

largest bankruptcy in automotive history in the United States of 

America. It, in large part, went Chapter 11 because of some 

healthcare contingent liabilities. And one of the things that I think 

is important, and this is a Wall Street Journal editorial of October 

19, 2005, is their note here, the better idea is to introduce more 

competition into the healthcare marketplace.1

A few years ago, a supermarket chain by the name of Whole 

Foods switched to a consumer-driven healthcare plan in which its 

32,000 employees were allowed to pick from a menu of care options. 

After 3 years, the company’s healthcare costs rose by only 3.3 percent, compared with national averages in the double digits, but 

more importantly, job turnover plummeted and there was better 

healthcare. 

So I think that it is as well about how do we stay competitive 

in this global climate that we are living in so that we can have a 

vibrant economy and, therefore, have the revenue that will pay for 

the healthcare, education, and other fundamental needs. 

The last point though is the most important one, and that is the 

one that you correctly identified, which is about quality access and 

prevention. We are talking about 850,000 South Carolinians’ lives, 

and we are talking about, one, how do you better coordinate care 

for 850,000 folks? I have a variety of sheets which I will again, as 

well, submit to the record.2

These are claim sheets pulled from Robbie Kerr’s office, HHS, 

that show a variety of different visits to a single person in need. 

And I think you, as a doctor, would be the first to say, if you have 

a half a dozen different people coming by to visit you, you do not 

have coordinated care. And the notion that you are not going to 

look holistically at one’s health is a tragic mistake in terms of a 

8

quality care. And we do not have coordinated care in the present 

system. 

So you literally have these tear sheets that I can pull from 

Robbie that will show a half a dozen different agencies coming by 

to visit one Medicaid patient in the course of a month, and the result, relatively poor care because it is not coordinated. To look only 

at one’s hand or one’s foot or one’s eye or one’s arm is not the 

whole look that you have got to have if you want to have a good 

healthcare delivery system. 

So, one, this is about coordination. It is as well about prevention. 

How do you spend more dollars earlier so that you can avoid some 

of the very costly procedures that come at the later stages of disease that could have been avoided if you had been more in the war 

to prevent it. 

I would say second this is about outcomes. We are about average 

in what we spend per capita on healthcare, about 25th, but we are 

47th in the Nation in healthcare outcomes. That coordination, we 

believe, is absolutely crucial to bettering the quality of care for 

South Carolinians, and as well for doing what we have tried to consistently stress with the variety of fitness challenges and other 

things of spending more money earlier in the healthcare process as 

opposed to simply reacting to disease. 

The third thing that I think is so important about this from a 

healthcare standpoint is that, right now in South Carolina, I suspect in Oklahoma and other States as well, there is real racial disparity on healthcare outcomes in our State. And I think that this 

is fundamentally an issue of social justice. Because if you look at 

the divide in healthcare outcomes, in a lot of ways there have been 

gaps closed with the civil rights movement in income or in education or in housing, but the health issue has been persistent with 

regard to a consistent divide between where whites end up and 

where blacks end up. And so I would just give you a couple of statistics. 

In South Carolina, for instance, infant mortality rates are basically two-and-a-half times higher for blacks. In South Carolina, life 

expectancy—and this is nationwide—is about 10 years less. Blacks 

have significantly higher mortality rates as a result of heart disease, stroke, and cancer. The bottom line is that nationwide, about 

85,000 African-American deaths could be prevented if you close 

that gap that now exists. 

A Harvard study came out recently that showed if you look within the minority population, with the black population, if with Medicaid you simply move toward a managed care system, seven of 

nine different indices, the gaps begin to close in terms of healthcare 

outcomes. 

And I would say that it is for those reasons that we are asking 

for a reform to the system so that we update, and I stress the word 

update, the way that Medicaid is delivered in the United States of 

America. And I say this particularly because if you look at the 

CMS Journals, what they would show is about 39,000 pages of regulations and manuals for the administration of Medicare and Medicaid, and that stands in stark contrast to the 208 pages that regulate the Federal Employee Health Benefits Program which covers 

9

1The article from the Wall Street Journal appears in the Appendix on page 45. 

about nine million workers at the Federal level; everybody from literally a janitor on Capitol Hill to a Senator like yourself. 

So fundamentally, what we’re asking for in this waiver is, can we 

have an increasing degree of choices for the Medicaid population 

that right now exist for nine million Federal workers, again, ranging from the janitor on Capitol Hill to the Senator. We believe that 

notion of choice, that everybody’s healthcare needs are fundamentally different, is very important to bettering healthcare in our 

State. 

Just a couple of other things that I want to throw out at you and 

submit as well for the record. One is that we have a long history 

of waivers in South Carolina. Robbie and his department—I have 

here one, two, three, four, five, six, seven, eight, nine, ten, eleven 

waivers since 1984 that have been granted by the Federal Government to HHS across a wide swath of different healthcare outcomes. 

We think that this waiver is certainly in line with those others that 

have been granted in the past. 

I would also say not only have we had a history of doing waivers 

in the past in South Carolina, if you look at the number of waivers 

occurring in other States around this country, a wide array. I have 

here a Thursday, August 18, Wall Street Journal article called 

Rocky Mountain Medicaid.1 It’s about a Colorado disability program, CDAS, the State’s experiment with Consumer-Directed Attendant Support for the severely disabled that began in 2002. What 

is important to note is that it has gone so well that the Legislature 

just approved opening the system statewide to 33,000 Medicaid recipients. 

And what is particularly telling is the story of Linda Storey, who 

is a 51-year-old rocker who has been battling multiple sclerosis for 

30 years. Her quote is this, ‘‘It gives you your life back. I’m more 

in control of my health now.’’

I think it is relevant to point out what is stated here is in the 

first 2 years of the Colorado CDAS pilot program, showed that 

monthly spending actually went down. 

People deserve choices. These are the words of the Speaker Pro 

Tem Cheri Jahn, who is a Democrat in Colorado. ‘‘People deserve 

choices.’’ With those choices comes not only greater dignity for the 

individual, but also better incentives for the system itself. Colorado 

has a working example with the Medicaid waiver right now. 

I will give you one other Medicaid waiver, and that is what is 

called ‘‘Cash and Counseling,’’ which began in Arkansas. It quickly 

expanded to Florida, and New Jersey. It has from there expanded 

to 11 other States across this country. It is about disabled longterm care needs. There has been a reduction in the neglect and 

there has been enhanced satisfaction to the customers, the Medicaid recipients themselves, as a result of this program. 

So I could show other examples of things happening with Medicaid waivers in other States, but I know I am running up against 

time. 

In brief, our plan is to allow money to go into a personal 

healthcare account, and then from there people could pick from a 

wide array of different choices from managed care, to medical home 

10

network, to buying into their own healthcare plan if they happen 

to be working for an employer that has a healthcare plan, to a selfdirected plan. It is fundamentally based on ownership, people owning their own account. It is based on the notion of consumer-directed plans, which is what you see in most cases at work in the 

larger healthcare marketplace. It has with it essential safeguards, 

and the government would still approve each of these plans, and 

it would be required of each of the plans that it will require mandatory services. 

Fundamentally, it is about this: Do you allow, with Medicaid, a 

change so that we can fill the cup of each person’s healthcare needs 

and allow them to select a plan that works for them, or does everybody have to drink out of the same Federal healthcare cup in meeting those needs? They are two different paradigms, but one that I 

think is very much built around the individual and the very disparate needs that exist with healthcare at the individual level is 

our plan. 

I will call it quits with what you called it quits with, and that 

was, I pulled here a quote from Tommy Thompson, 1992. He said, 

‘‘for every one of my welfare reform programs that I’ve put into law 

or was able to get a waiver for from the Federal Government, there 

have been critics and there have been nay-sayers, but they want 

to keep the status quo.’’

I don’t want to keep the status quo. The status quo doesn’t work. 

Give us in Wisconsin the chance to be flexible, the opportunity to 

change it, and we’ll show the way for the country to follow. 

As it turns out, his words were prophetic because, as a result of 

that incubation, that change that occurred at the State level, ultimately Federal welfare reform occurred. 

I think that States really have become the incubators of many 

national changes. I think that what is happening with Florida with 

Jeb Bush, what’s happening in Georgia with Sunny Perdue, what’s 

happening in a wide array of different changes is very important 

to this incredibly important national debate. I appreciate the time 

to testify. 

Senator COBURN. Thank you, Governor. 

No previous Governor has proposed such a bold Medicaid reform 

in your State. You could easily leave this problem to successors instead of suffering the criticism in the media. Why are you risking 

your political neck for Medicaid reform? 

Governor SANFORD. I think it goes back to what I was talking 

about, which is we spent a lot of time—I have spent, you know, a 

ridiculous amount of time riding a bike across South Carolina for 

a couple of different weekends, dragging Jenny and the kids, talking about how if we do a couple of little things differently in terms 

of getting a little bit more exercise, a little bit more activity, we can 

end up with very different healthcare outcomes in the State of 

South Carolina if we simply do a few things differently. We’ve been 

trying to raise awareness on that front. 

Medicaid is an extension of that larger thought process of, we 

need to do a few things a bit differently if we’re going to end up 

with different outcomes. The old saying is if you keep on doing 

what you’ve been doing you’re going to keep on getting what you’ve 

been getting. I think that any time that you try and have one-sizeVerDate 0ct 09 2002 11:23 Dec 12, 2006 Jkt 024447 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 C:\DOCS\24447.TXT SAFFAIRS PsN: PAT
11

fits-all with regard to something as personal as one’s healthcare, 

you are going to have problems. Indeed, the statistics have certainly shown that and they have showed that particularly in some 

different populations more than others. 

I think this about fundamentally how do you better quality of 

care, how do you better access. In some parts of rural South Carolina, doctors will not take Medicaid patients anymore because we 

have capitated what the doctor can get. And so it is about quality, 

it is about access, and most of all it is about prevention. How do 

you spend more of the dollars earlier. 

Senator COBURN. I was interested in your projections that in 

2010, 23 percent, I believe you said, of the increased revenue that 

South Carolina would be required to take of Medicaid. I’ve got a 

surprise for you. The money is not at the Federal level. There is 

not going to be significant increases after about 2008 in Medicaid 

FMAP programs. The money is not there. 

And so not only will there be that 23 percent out of your increased revenues, there probably will be a lessening share from the 

Federal Government. There is no way that we can keep the commitments at the Federal level to what we said we were going to 

do. 

Now, we could say we are going to do that. And if you look at 

the growth projection, not just the growth but the velocity of 

growth in Social Security and Medicare, it will consume any flexibility that we would have in Medicaid. And by the year 2018, the 

vast majority of the Federal Government won’t have any other 

services, significant services or growth in any service whatsoever 

except Medicare and Social Security. Not Medicaid, not defense. 

The largest growing and fastest growing component of the Federal 

budget today is interest, and it’s going to continue to grow. That’s 

why pain and making the priorities are so important. 

So what you are really saying is South Carolina’s going to have 

to cut everything else if you do not reform Medicaid; is that correct? 

Governor SANFORD. Correct. 

Senator COBURN. So every other area of South Carolina is going 

to be in decline in terms of revenues based on the mandatory 

match that you have today with Medicaid? 

Governor SANFORD. Correct. 

Senator COBURN. One of the things that I have read in the press, 

your reforms have been accused of being risky and untested. How 

would you assess the level of risk in your reform versus the risk 

by staying with the current system? 

Governor SANFORD. Anything that’s ultimately unsustainable 

comes to an end. I think that what you pointed out, what I pointed 

out with the graphs and charts, is that we’re on an unsustainable 

course. What we do know is that there will be changes in the system, it is just a question of how the system will change. 

We think that going the route that some governors have gone is 

a mistaken one where you simply say we are going to capitate, we 

are going to take 300,000 people off the rolls, we will take 190,000 

people off the rolls, is not the desired choice. We think that you can 

reform the system such that people have more control over their 

12

1The prepared statement of Mr. Edge with attachments appears in the Appendix on page 52. 

healthcare outcomes, and by having competition in the system will 

ultimately better it. We think that is by far the better route to go. 

But are things going to change? Yes. I mean, that is a certainty. 

Senator COBURN. Let me, if I may——

Governor SANFORD. And that is why it was as well raised—you 

talk about risk. It is important to note what has happened with 

other Federal waivers, whether it is in Colorado, whether it is in 

the 15 States that I outlined with the long-term disability program. 

There have been a whole host of waivers, and in every instance, 

whether it is with the Whole Foods example in the private sector 

side, the cases where you have allowed the customer, the Medicaid 

recipient, to have more control over how they spend their 

healthcare dollars, care has gone up, access has gone up, and quality has gone up. And I think that those are the things, the ultimate 

matrix of measurements that anybody should look at when they 

look at defining risk. 

Senator COBURN. Let me invite Representative Tracy Edge, 

South Carolina General Assembly, to join the Governor on this. 

Representative Edge has served in the South Carolina House of 

Representatives since 1996. He is currently a member of the House 

Ways and Means Committee on which he chairs the subcommittee 

with jurisdiction over the Medicaid Program, Health and Human 

Services, Medicaid and Environmental Control. 

Representative Edge, welcome. 

TESTIMONY OF HON. TRACY R. EDGE,1 A REPRESENTATIVE IN 

THE SOUTH CAROLINA HOUSE OF REPRESENTATIVES AND 

MEMBER, AMERICAN LEGISLATIVE EXCHANGE COUNCIL 

Mr. EDGE. Thank you very much. It is my pleasure to be here 

today, and I am thankful that you were able to come here to South 

Carolina and give us this opportunity to explain our waiver to you. 

Mr. Chairman, my name is Tracy Edge, and I represent the 

104th House District in South Carolina’s House of Representatives. 

I am also the Chairman of the South Carolina House Ways and 

Means Subcommittee on Health, Human Services and Medicaid. 

In addition, I am also a member of the American Legislative Exchange Council, or ALEC, and ALEC is the Nation’s largest nonpartisan individual membership organization with both State Legislators and Members of Congress encompassing all 50 States. 

ALEC’s mission is to advance the Jeffersonian principles of free 

markets, limited government, federalism, and individual liberty, 

which are also features of our Medicaid waiver. 

It is my pleasure to be here before you today in support of South 

Carolina’s Medicaid waiver proposal, which I believe is a step in 

the right direction toward empowering South Carolina’s Medicaid 

beneficiaries. 

We have to act now to curb Medicaid’s skyrocketing costs. South 

Carolina spends more than $4 billion annually, or about 19 percent 

of our entire State budget. As our Governor pointed out, that is 9 

percent more than where we were 5 years ago, and our projections 

have us at about 30 or 31 percent within 10 years. I believe it could 

actually happen earlier than that, based upon numbers that I have 

13

been given by our Budget Control Board just this morning. This 

poses a real threat to other funding priorities, such as K through 

12 education or law enforcement or environmental control. 

In my opinion, Medicaid’s problems can be directly attributed to 

the perverse fiscal incentives imposed by its financial structure. 

State governments to doctors to patients, Medicaid does not give 

any incentive to provide or consume healthcare efficiently. In fact, 

the opposite is true. Medicaid’s financing structure actually rewards inefficiency with more dollars. We see that in our budgeting 

every day when it pertains to how we structure our healthcare financing to match Federal dollars. 

As you know, the Federal Government pays more than half of all 

Medicaid spending through the Federal Medical Assistance Percentage, otherwise known as the Federal match. The Federal 

match gives South Carolina Medicaid spending a guaranteed return-on-investment. In South Carolina, the Federal match is 69 

percent. We typically say three-to-one when we talk in terms of 

match dollars. This means that every Medicaid dollar we spend 

yields about $2.85 in Medicaid benefits. 

Ironically, it is the Federal match that is causing Medicaid 

spending to spiral out of control. Medicaid’s Federal match triggers 

a wasteful and inefficient spending spree, since States need to 

spend more in order to get more Federal money. 

We often hear about leveraging State Medicaid dollars with Federal funds, and we’ve been very creative at times in trying to draw 

down those Federal dollars by using what I believe are risky 

schemes in order to provide State dollars for our Federal matches. 

Federal dollars are not free. All taxpayers, including Medicaid recipients, pay Federal, State, and local taxes. 

Low provider reimbursement rates also directly contribute to 

Medicaid’s costs and limit much-needed access to care. A major 

problem that I’ve battled during my term as chairman of the House 

subcommittee, and in my prior service as well in the House, has 

been, how do we combat physicians who will stop seeing Medicaid 

patients because the reimbursement rates are so low? So access 

has been a critical problem. 

Because of this, providers have the incentive to tack on unnecessary tests or stop seeing Medicaid patients altogether just to stay 

in business. We have seen high levels of fraud here in the last few 

years. There was one medical practice in my home county of Horry 

County that was found to have billed the government for $30 million over a 6-year period through Medicaid alone by ordering tests 

that were not needed and prescribing drugs that were not necessary. 

It is crucial that patients have a stake in their own healthcare 

spending. Unfortunately, South Carolina’s Medicaid current fee-forstructure system largely shields beneficiaries from the consequences of their own healthcare decisions. Simply stated, our 

State’s Medicaid system pays claims first, and if it asks questions, 

it asks the questions later. 

It is clear that the case for Medicaid reform has a lot to do with 

money, but more importantly, however, there is a strong moral 

case for Medicaid reform. We cannot and should not confine our 

most needy citizens to an almost-bankrupt system. And by almost 

14

bankrupt, I could get into some of the financing that we are facing 

for our coming year’s budget later. Instead, we should put Medicaid 

beneficiaries on a road to self-sufficiency by empowering them to 

take greater responsibility for their own healthcare needs. Shielding people from liberty and the ability to make their own decisions, 

in my sense, is immoral, and I think we should do everything possible to give them greater responsibility. 

We have a map for the road to self-sufficiency, and the example, 

obviously, is welfare reform. Before the Welfare Reform Act of 

1996, there was an eerie similarity between the Medicaid and welfare programs. Both Medicaid and welfare were means-tested entitlement programs. Both programs were funded by an open-ended, 

Federal-State spending match, and both programs conferred a legal 

right to benefits. 

Now, almost 10 years later, the two programs could not be more 

different. Block-grant funding has caused welfare rolls to drop dramatically. Meanwhile, the Medicaid entitlement continues to keep 

the poor locked in a cycle of government dependency in several 

ways. 

First, it is likely that the mere existence of Medicaid could crowd 

out private sector healthcare alternatives. The Robert Wood Johnson Foundation found that of the 22 studies they reviewed on the 

issue, more than half concluded that the expansion of public health 

coverage was accompanied by reductions in private coverage. Here 

again, we find that you have government interference in the free 

market system which crowds out the free market. 

More importantly, Medicaid and other entitlements do not give 

the poor an incentive to save and invest, as beneficiaries have to 

remain under certain income levels in order to qualify for the benefits. As a result, it is possible that some of the beneficiaries may 

choose to stay below the poverty level, thereby locking them into 

an entitlement system. In other words, the government traps them 

and they don’t know how to get out of the cycle. 

There is no reason why welfare reform should not serve as a 

model for Medicaid reform, and that is why our Medicaid proposal 

here is so important. Only South Carolina, not bureaucrats in 

Washington, know how to best serve South Carolinians on Medicaid. 

Governor Sanford’s Medicaid waiver empowers beneficiaries to 

tailor their own healthcare dollars for their own healthcare needs. 

Each Medicaid beneficiary will receive a Personal Health Account 

so that they can fund their own healthcare in a variety of ways, 

either through Health Savings Accounts, by purchasing a managed 

care plan, by purchasing health insurance from their employer, or 

by joining a medical home network. 

This choice not only turns beneficiaries from government dependents into empowered healthcare consumers, but it also accomplishes the laudable goal of transitioning beneficiaries to self-sufficiency and independence through private coverage. Medicaid beneficiaries should have the same access to high-quality, private 

health insurance as many of us enjoy. 

Just like welfare reform 10 years ago, there are critics who maliciously accuse Governor Sanford, myself, and others who are leading the fight on this proposal as being cruel or heartless. I have 

15

to reject that notion. Giving South Carolinians the opportunity to 

pull themselves out of poverty will work for them and it will work 

for Medicaid, just as it did for welfare reform in the 1990s. 

Mr. Chairman, there are some here today who have screamed 

over the last 3 months from the highest mountaintops that we 

should not pursue the waiver. However, if we would have enacted 

Medicaid cuts like the State of Florida has done over the last 2 

years, they would also be screaming from the same mountaintops. 

In other words, you can’t have it both ways. 

The problem that I, as chairman of the House subcommittee 

which writes the budget for eight healthcare-related agencies has, 

is that every year we are faced with claiming and mounting costs 

that we have to match in order to keep from cutting services. Luckily, we have not had to do what Florida has done. We have been 

able to, by various means, carve together enough money in order 

to finance our growth in Medicaid and other healthcare programs. 

What happens when we cannot do that and we have to make the 

cuts like Florida has? Then we have people who are trapped in an 

inefficient system, no longer getting the services that they once 

were getting. 

I appreciate the opportunity, Mr. Chairman, to appear before you 

today. I take the job that I have quite serious. And I know that scenarios that we have had in the past may also continue to haunt 

us. For instance, 2 years ago we had a $400 million shortfall in revenues compared to expenses in our State budget, yet that same 

year, the growth in Medicaid alone was $180 million. In other 

words, we actually had a reversal of $580 million of revenue. 

What did we have to do to cover Medicaid that year? We had to 

cut law enforcement, we had to cut security in our prisons, we had 

to cut environmental control, and cut back the resources that protect the natural resources of our State. We cannot continue to do 

that. I can tell you, I cannot sit at my dining table with books 

thicker than this year after year and figure out how we are going 

to pay for healthcare at the expense of education and other programs that we have. 

That is why we are pursuing the waiver that we have today. I 

am not going to claim that the waiver is going to have an automatic savings tomorrow, but I do believe that it will curb the rate 

of growth in Medicaid, and that is what is important to me. It is 

important to me to know that in the future we will be able to pay 

for healthcare through Medicaid and other programs that we have 

without having to cut the balance of our budget and cut services 

that other people need. 

Mr. Chairman, I appreciate the ability and the opportunity to be 

here for you today. 

The American Legislative Exchange Council and the Heritage 

Foundation and others have been very supportive in our Medicaid 

reform and the proposals that are contained in Governor Sanford’s 

plan. I’m proud to sit with him here today, and I’m proud to be before you and say that we need to have the plan approved, not only 

for the fiscal responsibility for our State budget, but also to empower our citizens to make the choices that they need to have the 

ability to make. 

16

Again, I will say that some people do not want to give them that 

ability, and the reason is that they want to trap them and keep 

them into the system that they have so that they will be dependent 

upon this particular philosophy or this particular way of life. I 

think that is cruel, and I think we need to break away from that 

system. 

I would be happy to answer any questions that you have, and 

again, I thank you for being here. 

Senator COBURN. Thank you, Representative Edge. 

Give me 5 years ago in South Carolina, what was the growth of 

Medicaid? What was happening? Can you tell me? 

Mr. EDGE. What was happening——

Senator COBURN. In Medicaid growth. Were you seeing the same 

kind of growth, and were there attempts to fix the access and the 

quality, or was access and quality not a problem then? 

Mr. EDGE. It was very difficult to try to do that because, at the 

time, we were having the beginning of 5 years or 4 years, rather, 

of revenues that were going under expenditures. So the toughest 

job that we had was just maintaining the current system. 

We now have a conservative-controlled House, a conservative 

Governor and a conservative-controlled Senate. Quite frankly, 

many reforms that we proposed out of the House pushed by Governor Sanford were blocked because the philosophy in the Senate 

was a little bit different. So, no, we were not able to really pursue 

reforms that we needed to. 

We tried to pass a Medicaid reform proposal for the last 2 years. 

It’s been very difficult to do. It does not go anywhere near as far 

as the waiver goes, however, there were certain controls that we 

were trying to put in place that many in our government were 

fighting because of the change in status quo. 

The status quo is not going to balance our budget in years to 

come when we consistently need $100 million to $150 million of 

new money just for Medicaid, year after year after year. 

Senator COBURN. Let me come back. If we had all the money in 

the world and we had this system, you still would not have dignity 

for the patient, you still would not have access, you still would not 

have care, you would still have the same problems. 

So, it is not just a money problem. It is an access problem that 

people who are using and have to utilize Medicaid today are getting less access, and overall, in this country, less quality and, for 

certain, less prevention. 

And so there are a lot of reasons to be doing this. And as a physician, one of my main reasons for doing it is, because I have seen 

it and worked in it for 22 years, I have seen what Medicaid does 

and the stigmatization of somebody that has a Medicaid card 

versus somebody that walks in with an insurance card. Why can’t 

they have the same thing that everybody else has? By the time you 

compile the dollars and you make the mix, why can’t we give them 

access? Why can’t we give them access to prevention? Why is it 

that somebody who has a mortality rate, infant mortality rate twoand-a-half times better, why is it that they do not have the access 

to the same prenatal care? The system has a lot to do with that. 

And it is not just money. 

17

It is the government control of the system and the inability to 

have the market-allocated resource, and then let’s look at how the 

market is failing and supplement that rather than controlled managed healthcare. 

I thank you for your testimony. 

Governor, I have known you for a long time, and one last question for you is: A lot of people say, well, he is kind of this policywalking numbers guy. In your heart, why do you want to fix this? 

What is your motivation for fixing this? 

Governor SANFORD. I mean, I would go back to what I said earlier, and I want to be sensitive because you have got some great 

folks to come up here and testify. 

But I would simply go back to what I said before, which is: I believe in the fundamental and the dignity of the individual, and I 

believe that God makes every single person out there different, 

which means that every person fundamentally not only has different emotional needs but, frankly, they have different physical 

needs when you talk about one’s health. And, therefore, the idea 

of a system that expands the number of choices so that people can 

pick for them and their families what makes the most sense based 

on their healthcare needs is fundamentally empowering to the individual, but also, I think, a way of creating better quality care for 

this important population of 850,000 South Carolinians. 

If you look at the number that you just cited, which is infant 

mortality two-and-a-half times with one population versus another, 

then why in the world wouldn’t you want an expanded level of 

choice so that particular group might be able to come up with a 

package of benefits based on very different needs that they have 

versus another population? That’s very difficult to do with a onesize-fits-all program, and that is what gets back to the multiple 

conversations that I have had with Robbie Kerr on how do you better Medicaid which is so critically important to thousands upon 

thousands of South Carolinians? 

Senator COBURN. Thank you very much. This panel is dismissed. 

We are going to take a 5-minute break so we can set up. I would 

also ask that our next witnesses please limit their testimony to 5 

minutes. 

I would ask that the materials for the records offered by Governor Sanford be included in the record and in the printed final 

record. 

[Recess.] 

Senator COBURN. The hearing will come to order. 

As I said before, first of all, let me thank each of you all for being 

here. So that you all know how we select hearings—my Ranking 

Member is Senator Tom Carper, and all four hearings are divided 

up Republican and Democrat. We always, whenever we go into a 

State, we allow the State executive to have the option to testify, 

and then because there is a majority and a minority, we have a 

certain number of majority witness, and we always have at least 

one minority witness, and we have that again today. 

So I want to welcome those that are here to testify. Ms. Solomon 

joined the Center for Budget and Policy Priorities in January 2005 

as a Senior Fellow specializing in Medicaid and SCHIP. Prior to 

her current position she was Senior Policy Fellow with Connecticut 

18

1The prepared statement of Ms. Solomon appears in the Appendix on page 82. 

Voices for Children, and Executive Director of the Children’s 

Health Council. She graduated from the University of Connecticut, 

and then Rutgers University Law School in New Jersey. She also 

currently lectures at the Yale University School of Medicine in New 

Haven, Connecticut. 

Ms. Solomon, thank you very much for being here. 

We also have Dr. Donald Tice. Dr. Tice is a Member of the Board 

of Medical Examiners in the State of South Carolina. He has specialized in family practice medicine for over 20 years, has firsthand experience with patient care under the present Medicaid system. He is elected by his peers and appointed by Governor Sanford 

to the South Carolina Board of Medical Examiners. 

Also is Dr. Regina Herzlinger, Nancy R. McPherson, Professor of 

Business Administration, Chair, at the Harvard School of Business. 

Dr. Herzlinger was the first woman to be tenured and chaired at 

Harvard Business School, and the first to serve on a number of corporate boards. She is widely recognized for her innovative research 

in healthcare, including her early predictions of the unraveling of 

managed care and the rise of consumer-driven healthcare and 

healthcare focused factories, two terms that she coined. 

Also with us is Ed McMullen, President of the South Carolina 

Policy Council. Mr. McMullen is head of South Carolina’s only research and education foundation devoted to promoting principles of 

limited government and free enterprise in the Palmetto State, public policy. He has previously served with the Heritage Foundation 

in Washington, DC, which does promote limited government, economic freedom, and individual liberty. 

I want to thank each of you for being here. You will be recognized for 5 minutes. Your complete statement will be made a part 

of the record. And, Ms. Solomon, if you would be so kind to begin. 

TESTIMONY OF JUDITH SOLOMON,1 SENIOR FELLOW, CENTER 

ON BUDGET AND POLICY PRIORITIES 

Ms. SOLOMON. Yes. I would like to thank the Chairman and 

Ranking Member Senator Carper for allowing me to testify today. 

I think it is important at the outset to say there is a lot that we 

agree on. I think we all agree that Medicaid beneficiaries should 

have choices, including provider networks, managed care plans, 

and as many providers as possible who participate in the program; 

that quality, improving quality in the program should be the goal 

of any reform. 

For example, the new emphasis in South Carolina on medical 

homes is a great idea for ensuring access and avoiding unnecessary 

trips to the emergency room. Provider payments impede access; 

they’re too low. I think we agree on all those things. But I think 

where we part company is how to go about making changes in the 

program. I think many of the goals that have been listed do not 

need a waiver; they can be done within the existing rules and 

structures in Medicaid. 

Medicaid is of tremendous importance in this State and throughout the country. In South Carolina, 40 percent of South Carolina’s 

children, and 30 percent of seniors, rely on Medicaid for vital 

19

healthcare services. Nationwide, when asked in a large public survey from the Kaiser Commission on Medicaid and the uninsured, 

over three-quarters of those responding supported the program and 

opposed cuts in benefits. 

Medicaid provides critical support to hospitals, nursing homes 

and other healthcare providers, and it does this in a really efficient 

way. In fact, we were talking earlier about preventive care. In my 

written testimony, we cite a study where Medicaid actually provides better preventive care than private insurance to children. 

Through its EPSDT program, it has a tremendous emphasis and 

puts a lot of responsibility on States to make sure our kids are getting that preventive care. 

And, yes, Medicaid costs are going up and this is a problem, but 

this is a healthcare problem. Healthcare costs are going up, and 

Medicaid is an important part of the healthcare system. 

As we look at changes in Medicaid, we have to realize anything 

we do is going to ripple out over to the larger healthcare system. 

The costs are going up because prescription drugs are going up. 

Enrollment is increasing because employers are not able to afford 

to provide care any longer for many employees. It is not crowd-out. 

Medicaid has provided the safety net that has kept the overall 

rate of uninsurance from going up in this country, and that was 

shown again in the most recent census information at the end of 

August. 

But our States and the Federal Government struggle with the 

costs. As I said, care really has to be taken to avoid harm to beneficiaries. In South Carolina, almost everyone who relies on the 

Medicaid program is poor, with income below the poverty line. People on Medicaid do not have the ability to absorb costs. A substantial body of research shows that even modest cost sharing decreases utilization of effective care, of important care, and also affects health outcomes in a negative way. 

So here are the problems that we see with what South Carolina 

is proposing. First off, it is attempting to save money by looking 

at only 40 percent of the cost of the program. The Medicaid program, children and parents in Medicaid, non-disabled adults, are 

about 80 percent of the beneficiaries in this State, but the cost of 

providing services to them is only one-third of the program costs. 

And that is primarily who would be covered by the waiver. Those 

receiving long-term care services and those who are eligible for 

both Medicare and Medicaid take up about 40 percent of the overall cost of South Carolina’s program, but they are outside of the 

waiver. 

So you are starting with this smaller portion of the program covering the majority of people, and you are trying to extract savings. 

But at the same time, the proposal has a whole list, and I have 

listed them in my testimony, of new entities that the State will 

have to contract with: Managed care plans, administrative service 

organizations, a vendor to develop electronic cards, an enrollment 

counselor, an extremely vital function but very labor-intensive providing counseling to beneficiaries. All of these are going to be private companies, and rightfully will be expecting to make a profit. 

So you are looking at 40 percent of the program covering 80 percent of the people in a very efficient way, primarily because the 

20

provider payments are already very low, and you are going to have 

to extract all that new administrative expense. South Carolina’s 

administrative expenses are very low right now for its Medicaid 

program; it is lean and mean. And I know I have heard Mr. Kerr, 

the Medicaid director, talk about the struggles they have for keeping up with that. But be that as it may, every dollar that will have 

to now be spent on administrative costs is going to come out of the 

benefits going to individuals and the payments to providers. 

South Carolina is not a State with, either in the private market 

or in Medicaid, with a large managed care presence, so there are 

a disconnect here. This idea that there is going to be many managed care companies coming in is really speculation, but yet the 

proposal is based on that. 

And the personal accounts that the State is proposing actually 

will cost money. The House Energy and Commerce Reconciliation 

bill has a demonstration program to allow 10 States to have programs of Health Savings Accounts. When the CBO scored that proposal, it actually costs money. Because by giving people Personal 

Health Accounts, or HSAs, in some ways you are allowing them to 

keep them when they go off Medicaid, which is not a bad thing to 

do, but if we are looking at efficiency and saving money, they are 

going to have money that would not have otherwise been spent. At 

the same time, you still have to cover everybody’s heath costs, and 

that is why that proposal scored and that is why this proposal 

would not save money. 

Before I conclude by just giving a couple of ideas of what could 

be done, I just want to talk about the Cash and Counseling, which 

has been cited as a precedent for this approach. Cash and Counseling has been a very effective demonstration project, but it is a 

very limited approach that cashes out a very predictable benefit 

provided to people with disabilities in Medicaid who are not even 

really a part of this proposal, for the most part, and it allows them 

to budget and direct their own personal care services, which are 

predictable; you know how much you are going to need for a personal care attendant. That has increased satisfaction, it has been 

successful, but is not a model for cashing out the entire Medicaid 

benefit where people’s healthcare expenses—and I know, Dr. 

Coburn, you know this as a physician—are not predictable. For the 

most part, your health can change radically from one day to the 

next. So these are very important things to take into consideration. 

Senator COBURN. Can you wrap up for me in about 30 seconds? 

Ms. SOLOMON. I can. 

Senator COBURN. Thank you. 

Ms. SOLOMON. So what can be done? I think efforts to develop 

medical homes encourage preventive care. Coordinate care. If you 

are finding through your data, as the Governor said, that you have 

people using care, there are plenty of tools in the existing program 

around disease management and care coordination to do that. 

Ask providers and beneficiaries what they think. I think they 

have not been part of this planning process. I think it is very important that they be asked. Start small and proceed carefully. The 

program is just too important to take chances with risky and untested reforms. Yes, we have said that. 

Senator COBURN. Thank you. All right. Dr. Tice. 

21

1The prepared statement of Dr. Tice appears in the Appendix on page 89. 

TESTIMONY OF DONALD TICE, D.O.,1 MEMBER, SOUTH 

CAROLINA BOARD OF MEDICAL EXAMINERS 

Dr. TICE. Yes, sir. Thank you, Dr. Coburn, for the opportunity to 

address this panel. 

I have been a primary care physician for approximately 23 years 

and have worked with Medicaid as a portion of my practice during 

that entire time. 

Medicaid, in my experience, is a prompt payer of claims. They do 

rightly hold the authority to audit records at any time and hold 

physicians accountable. 

Here, though, I would like to present a perspective from the private physician provider standpoint. Medicaid recently updated its 

Medicaid Provider Manual. The manual is clear and concise for 

users. Regretfully, my staff has great difficulty reaching a Medicaid 

representative at any time when an unusual situation arises. Voice 

messages left are rarely or never returned. When a call is returned, 

the representative typically refuses to be put on hold while our 

staff member is brought to the phone. 

This is a most unfortunate condition and discourages field staff 

from calling the representatives for assistance. There is currently 

no designated customer service unit to provide a claims resolution 

for any particular account. Consequently, providers will write off 

charges rather than trying to invest an inordinate amount of time 

getting the issue resolved. The State benefits, but the providers 

have just another reason why he or she does not want to take any 

additional Medicaid recipients into their practice. 

Recently, Medicaid introduced the Select Health Program. Patients were required to read informational materials notifying them 

that their children were placed under the care of a physician that 

was not known to them. A lot of parents never received the materials, some because the database was not current and they did not 

have the current addresses. 

Parents were asked to make an affirmative decision to disenroll 

in the program if they did not want this new physician. The burden 

of informing, educating, and trying to correct a parent’s misunderstanding of their benefits then fell upon the provider’s staffs. Medicaid officially did meet their burden of information and education, 

but really did the parents a disservice by enrolling them into a program without an affirmative choice being made. 

The Medicaid system sometimes interferes with decisions affecting the quality of care given to its recipients. Specifically, private 

offices are not reimbursed for the cost of their supplies. in many 

cases. When patients need immunizations, they have to be referred 

to the Public Health Department because providers are not reimbursed for those services. This fragments the care for the patient, 

and often these patients are non-compliant with medical direction. 

Another primary example where medical care is interfered with 

is when medications need to be injected or infused. Often, administration of products in the office setting could be done at a far reduced cost over that of a hospital setting. Both Medicare and Medicaid could realize tremendous savings if private offices were alVerDate 0ct 09 2002 11:23 Dec 12, 2006 Jkt 024447 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 C:\DOCS\24447.TXT SAFFAIRS PsN: PAT
22

lowed to treat more aggressively and not have to hospitalize patients that could be treated in an outpatient setting. 

Physical therapy modalities cannot be offered in a private office 

because they are not reimbursed. A very common complaint of the 

general population, much less adult Medicaid population, is back, 

neck and joint problems. These services are very difficult to address in the primary care office because most of the services that 

we provide for those are not reimbursed. The patient has to be sent 

to a much higher-expense physical therapy setting or referred to 

the hospital. Continuity of care and considerable cost savings could 

be realized if the care was moved out of the hospital and back into 

the primary care physician’s offices. 

Private outpatient offices are not and cannot be operated like the 

more expensive hospital-based offices or ER fast tracks with their 

much higher administrative costs. If we operated our offices like 

that, we could not survive. 

Patient dignity and sanctity of the provider/patient relationship 

is undermined when patients over 65 with Medicare/Medicaid coverage has had to suffer the loss of healthcare services when Medicaid costs shifted the financial burden of the 20 percent co-pay 

insurance to the physician providers by denying payment when 

Medicaid is a secondary payer. Providers in mass are no longer 

taking Medicaid as a secondary payer, thereby making the patient 

responsible for a much greater financial burden, which they are unable to afford. 

Senator COBURN. For time’s sake, I will give you one more 

minute, if you could sum up for us, please. 

Dr. TICE. Fraud and abuse are also a major problem in the current system. Many patients are working in service industries or 

construction jobs for unreported wages. They are making very good 

livelihoods, but they have Medicaid coverage for themselves and 

their family. People who work and report their earnings and who 

come into contact with these individuals on a regular basis are 

aware of this, including the physician’s office staff. There is currently no good way to report these people, and if the report is 

made, it seems like nothing is really happening. 

I do want to say that possibly a Health Care Savings Account 

might benefit the system and put the recipients more in charge of 

their own healthcare. But caution has to be exercised in that education of Medicaid recipients has historically been difficult, at best. 

That is not only education as far as their benefits are concerned, 

but as far as their diabetes and hypertension and other healthcare 

issues. However, education will be the key to that success. 

There are two important items to remember. One is the responsibility for educating the patients cannot be borne by the outpatient 

offices. Changes in the inequity of the system towards the providers must be addressed. Everyone has to feel that they can make 

a difference by being able to help the State curb the abuses that 

are so obvious. Trust and cooperation must exist between the State 

system and its providers. I appreciate your time and attention. 

Thank you. 

Senator COBURN. Thank you. Dr. Herzlinger. 

23

1The prepared statement of Dr. Herzlinger appears in the Appendix on page 94. 

TESTIMONY OF PROFESSOR REGINA E. HERZLINGER,1 NANCY 

R. MCPHERSON, PROFESSOR OF BUSINESS ADMINISTRATION, CHAIR, HARVARD BUSINESS SCHOOL 

Dr. HERZLINGER. Thank you so much, Dr. Coburn and Senator 

Carper, for giving me this opportunity to testify. 

The Medicaid program is a great program. It provides a muchneeded health insurance safety net for 52 million of our Nation’s 

poor and medically needy, but its price tag threatens the financial 

stability of States, growing at almost 10 percent in 2004 alone, far 

in excess of revenues. 

What is a fiscally-responsible State Governor or State Legislature to do? They can either raise taxes, cut the expenses of other 

programs, cut the benefits or the number of beneficiaries in Medicaid—Tennessee, for example, cut 190,000 people out of its Medicare rolls—or do something else. 

Governor Mark Sanford is to be commended for choosing a different path, for trying to find a different way out of this problem; 

not by cutting, but by turning to the innovations in healthcare. Because this plan is likely to become a national model if it is adopted, 

it has drawn the attention, national attention, of policy analysts 

who question the concept of choice in Medicaid, and especially the 

consumer-driven option. In this testimony, I would like to respond 

to both of these points. 

What about choice? Well, in the rest of our economy we have a 

wide choice of goods and services. Choice is not only what consumers need and want, but choice creates competition, and competition is the key to controlling costs. Most Americans want a 

choice in healthcare, but South Carolina’s Medicaid recipients currently have all too little choice, very few physician networks that 

are organized to treat those with special needs—people with diabetes, with AIDS, with hypertension, with sickle cell disease, treatment limited to the physicians who are willing to take on Medicaid 

enrollees, and virtually no managed care. 

Furthermore, because Medicaid nationally pays providers only 65 

percent of what they receive for treating the State’s employees, 30 

percent of all physicians refuse to accept any new Medicaid enrollees. And Medicaid enrollees experienced, according to a recent 

Journal of the American Medical Association article, much more 

difficulty in scheduling visits for follow-up care than those with 

other types of insurance. Medicaid recipients have more unmet 

healthcare needs than similar adults with private insurance. 

Critics of the Governor’s plan contend that choice cannot materialize in South Carolina because it has so few Medicaid-managed 

care providers currently. But when Georgia requested bids for Medicaid-managed care, 10 firms responded. When Ohio had a conference for its potential conversion to Medicaid-managed care, it 

drew nine new managed care firms into the State, including very 

well-established and well-known firms like Aetna, United Health 

and Anthem, which is the arm of Wellpoint. 

Now, the people who worry about giving Medicaid recipients 

choices are especially concerned about the consumer-driven option. 

24

1The prepared statement of Mr. McMullen appears in the Appendix on page 104. 

They contend that Medicaid enrollees are too poorly educated and 

that they lack access to sources of information. 

Now, first of all, these critics may well believe that when people 

have a choice they overwhelmingly opt for a consumer-driven option. That is not correct. There has been a fairly long history of giving employees choice, and only about 5 to 20 percent of employees, 

when they are given a choice of health insurance plans, choose consumer-directed ones. Switzerland, which has had a consumer-directed plan for a 100 years, in Switzerland, low-income people typically chose plans that give them the most insurance, understandably. 

Nevertheless, what happens when people who are not well-educated, allegedly, use consumer-driven plans, can they use them to 

advantage? The experiences of the disabled who opted for the government based Cash and Counseling programs indicate that they 

derived greatly enhanced satisfaction while controlling costs, even 

though many of the participants had intellectual impairments. 

Senator COBURN. Thirty seconds, please, Doctor. 

Dr. HERZLINGER. Participants substantially increased their satisfaction and unmet need, and as one program participant noted, I 

am not under anyone’s thumb anymore. 

As for the private sector’s consumer-driven experiences with lowincome populations, the experience of Whole Foods, which is the 

supermarket chain, is very instructive. As of 2004, its employees, 

primarily blue collar, saved $14 million for themselves in their own 

savings accounts, turnover plummeted, and costs rose only 3.3 percent in contrast to the rest of the healthcare system. 

These plans have transformed how enrollees approach their 

healthcare. They do spectacularly well with people who have chronic medical problems. They change behavior from, I do this because 

my health plan covers it, to, I do it because if I catch an issue 

early, I will save money in the long run. Thus the firm McKinsey, 

which has no stake in this, not under contract, found that 75 percent of the enrollees in a consumer-driven program complied with 

medicine regimen as opposed to 63 percent of those in other forms 

of insurance. 

Medicaid enrollees are currently treated like second-class citizens. Some providers choose either not to see them or to treat them 

only after considerable delay because of the program’s low payment 

rates, and enrollees have little access to the managed care, and no 

access to the consumer-driven plans available to the rest of the 

population. 

Senator COBURN. All right. Thank you very much. Mr. McMullen. 

TESTIMONY OF ED McMULLEN,1 PRESIDENT, SOUTH 

CAROLINA POLICY COUNCIL, EDUCATION FOUNDATION 

Mr. MCMULLEN. Mr. Chairman, thank you for the opportunity to 

speak with you today. My name is Ed McMullen, and I am President of the South Carolina Policy Council, which is a 20-year-old 

non-profit, non-partisan public policy research organization here in 

South Carolina. 

25

I am here to present an overview of the innovative solutions that 

are being proposed to improve Medicaid in our State. There is no 

question that Medicaid must be reformed. It already consumes 20 

percent of our State budget, and that is up 10 percent from 1995. 

By the year 2015, Medicaid costs are projected to consume 30 percent of our State’s budget. That is a growth rate that cannot be 

sustained. 

In addition, you mentioned the Federal Government will likely 

change the way it sends dollars back to the States. One plan proposes block grants instead of matching funds for States. Such a 

system would provide greater stability for the States, and take 

away the perverse incentive for them to spend more tax dollars to 

get more tax dollars. 

Our State would ultimately benefit from the change, because the 

current matching formula is based on a system that compares our 

State’s per capita income to the U.S. average. And that means as 

our economy grows, and it is, our matching funds will decrease. Already, South Carolina’s Federal matching ratio for fiscal year 2006 

is 3.5 percentage points lower than it was in fiscal year 2004. 

In the long run, economic growth will shrink Medicaid rolls, but 

not in time to stem the massive growth in the program. 

Fortunately, there is progress toward reform in our State. The 

new waiver proposed by Governor Sanford is an innovative marketbased plan to provide quality healthcare to patients that is affordable to taxpayers. 

You have heard about that plan today to provide Personal Health 

Accounts, or PHAs, for Medicaid patients. PHAs would offer greater access to quality care, allow patients to choose their doctors, decrease the number of emergency room visits through preventative 

care, and empower special needs populations with more choices. 

We also know that Health Savings Accounts work in the private 

sector, resulting in decreased premiums and lower out-of-pocket expenditures. 

There is also research on other plans that provide more choices 

to those on government assistance. In States such as Arkansas, 

Florida and New Jersey, participation among elderly and disabled 

populations show high rates of satisfaction, as high as 90 percent. 

Clearly, these consumers are receiving high quality care, and they 

also believe it is an improvement over their previous plans. 

It is important that this plan have the companies in South Carolina, including one managed care company that currently serves 

60,000 Medicaid patients, indicate they are eager to participate in 

this proposed plan. 

Just yesterday I was up in the mountains of South Carolina with 

a group of insurers. We heard today that we’re worried about them 

coming into South Carolina. When they heard this plan, presented 

by Dr. Kerr, they were excited, they were eager, they were anticipating great opportunities for better quality healthcare. 

Healthcare companies support this plan. Consumers indicate 

their preference for more choices, not just in other States, but here 

in South Carolina, when a managed care program for Medicaid receives high marks from patients. Physicians have long argued for 

the need for comprehensive primary care, which this plan does 

allow. 

26

So who opposes the PHA plan? Frankly, the self-described advocates, many of whom are from out of State, who argued against our 

welfare reform in 1994 in South Carolina. Those who fought the 

change in the 1990s made some of the same arguments we hear 

today, including that the children will suffer. 

Those dire predictions have simply not come true. A 2001 study 

for the South Carolina Department of Social Services found that of 

those who left welfare because they were earning money through 

newer, better jobs, 75 percent were still employed a year later. 

Only 10 percent of all those leaving welfare believe their children 

suffered after leaving the program. 

A subsequent study in 2003 found that 65 percent of all who had 

left the welfare rolls were working 40 hours a week or more, and 

95 percent of them felt that leaving welfare created no hardship. 

I would call that good success. 

In spite of the doom-and-gloom scenarios, welfare reform is a success in this State. Furthermore, the Department of Social Services 

has become more efficient. And as the Charleston Post and Courier

reported, South Carolina has been among the national leaders in 

cutting welfare rolls, earning high performance Federal bonuses in 

the process. 

We have to create that kind of positive change in South Carolina’s Medicaid program. Neither patients nor taxpayers can afford 

the cost of this status quo. Medicaid patients deserve high quality 

care, and they should be able to choose it for themselves. They 

should not have to rely on overwhelmed emergency rooms that cannot possibly serve them as well as their own private doctors could. 

Medicaid patients are every bit as capable as other consumers 

when it comes to making informed decisions for themselves and 

their families; they do it every day. They must be given that opportunity again in healthcare. 

The proposed waiver plan is patient centered. It is based on successful approaches to healthcare. It is also cost effective, but most 

importantly, it is a step toward higher quality healthcare for those 

who are often denied the best available services. Such innovation 

clearly deserves a chance in South Carolina. 

Mr. Chairman, thank you for your time. 

Senator COBURN. Thank you, Mr. McMullen. 

Let me ask each of the panelists something. Is there any doubt 

in any of your minds that we have an obligation to help those that 

need us to help them with their healthcare? Does anybody disagree 

with that? 

[All panelists shake their heads.] 

Number two, is there any doubt in any of our panelists’ minds 

that people ought to be able to have some say in their healthcare? 

Anybody disagree with that? 

[All panelists shake their heads.] 

That part of being a part of this country is having choice and 

freedom and expressing of your will. 

Would all of the panelists agree that part of the problem with 

this, the controversy over this might be the fear that somebody 

might be left behind, that somebody might not get what they need 

to get? Does anybody disagree with that? 

[All panelists shake their heads.] 

27

So let me come back and try to understand. If we do not have 

as good access now, and if we do not have as good a quality now, 

and we certainly do not have as good a prevention—we may have 

some in terms of EPDST programs in children, but we certainly do 

not have it with adults in Medicaid anywhere in this country like 

we need to have it, and it certainly does not equate to some of the 

prevention programs that people who are in the private insurance 

sector have, why in the world wouldn’t we want to try to fix that? 

And I do not know if this is the right program or not. What I 

know is Medicaid almost everywhere is broken, and it is broken because those who are counting on us, we are saying, here is your 

healthcare, but it is less than the rest of us are getting, and the 

access is less, and the quality is less, and on basic, on average, the 

outcomes are less. 

So my question to each of our panelists is, what are the alternatives to what has been proposed today? What should we do as 

a Nation? Not just in South Carolina, but how do we fix this? How 

do we fix healthcare? Is choice and competition of allocate and resource and really let competition go for quality and outcome and 

availability and access? Why shouldn’t some doctor in South Carolina be able to say, you are on Medicaid for an X fee? I am going 

to take care of your family all year? Why shouldn’t they be able to 

do that, and that family spend less money and be able to keep that 

for themselves to incentivize to do something else? Why would we 

not want to do something like that? 

Ms. Solomon, I’ll just let all of you go down the line. 

Ms. SOLOMON. Well, as I said, I think it is clear we all have similar goals here. The problem is, we pay providers less in Medicaid, 

and that has an impact on access. So when we are talking about 

trying to save money here, which really is what this proposal is attempting to do, how are we going to do it if we take—first of all, 

we are focusing on the people where the money is not, we are focusing on primarily the healthy people, we are not focusing on 

long-term care, creating new options for long-term care. 

Senator COBURN. Is it not true, in South Carolina, long-term care 

is a separate budget? It is not considered because they have already decided that is how they are going to care for that patient. 

That is not part of this plan. 

Ms. SOLOMON. That is not part of the waiver but it is 40 percent 

of the cost of Medicaid. 

Senator COBURN. I understand that. I would love to talk about 

long-term care——

Ms. SOLOMON. Right. 

Senator COBURN [continuing]. Because I think we ought to 

incentivize people to help keep their parents with them, not in a 

nursing home. 

Ms. SOLOMON. But that is what I am saying, that is where 

maybe we could save some money. But when you are talking about 

80 percent of the beneficiaries and one-third of the cost, and then 

you are talking about building tremendous new administrative 

structures——

Senator COBURN. What are the estimates for the administrative 

cost for this plan? 

Ms. SOLOMON. I have not seen any. 

28

Senator COBURN. So we don’t know? 

Ms. SOLOMON. No, we do not know. But we know that there is 

a myriad of new private companies that will be involved, and all 

have to support employees and so on as part of this structure. 

I am just saying, so the reality is, to get where you want to be 

is going to cost more money and we would not disagree on that, but 

how are you going to give the cost of Medicaid in South Carolina 

for the people that are covered by this waiver, primarily is about 

$2,000 per person per year. The cost of individual health insurance 

this year is over $4,000. The cost of family coverage in the private 

market is $10,000. So there is your disconnect. It is costly, but 

there is not enough money in the system. So this proposal, I don’t 

think, addresses, regardless of the goal——

Senator COBURN. So what is the answer? If it is not this, what? 

Ms. SOLOMON. Well, I think you have to look at the whole program, I think you have to look at the heavy hitters, if you will. 

Look where you have—if people are using the emergency room—

I was involved in a project in Virginia where they were very concerned that children were ending up in the emergency room. So 

what they did is they began to look at the data. Well, children were 

ending up in the emergency room, but on nights and weekends. So 

they called the provider’s offices on nights and weekends, and they 

found that is what people were being told. So what they did was 

they brought in a 24-hour nurse advice line to talk to people, talk 

them through the problem and get them to the next day. That 

solved the problem. 

Look at the data, look at the problem, look at the issues. We do 

not need these large-scale reforms yet. I mean, we are not there 

yet, I do not think. 

Senator COBURN. OK. Mr. McMullen. 

Mr. MCMULLEN. That’s exactly what this plan does. So, I mean, 

when you look at the Governor’s waiver, you clearly have two options. You have, in South Carolina, explosive healthcare costs in 

Medicaid. The Governor clearly stated it, we are either going to 

raise taxes or we are going to start cutting necessary programs 

that are education and safety programs, or we are going to restructure this system. 

We were faced with very similar dilemmas in 1994 with welfare 

reform, and the same advocates from out of State came to South 

Carolina and created this horrible scare tactic of what we can expect with children and families in the streets. And what really happened is exactly the opposite of what they projected to happen. It 

is a working systemic change, and that is what we need in Medicaid. 

Senator COBURN. Dr. Herzlinger. 

Dr. HERZLINGER. I would like to respond as well. 

People who support a single payer typically make this administrative argument and they say it is so much cheaper if you have 

only a single payer rather than having all these different private 

plans competing with each other. 

Well, that is an interesting argument. If that is so, why don’t we 

have the Federal Government buy our houses, buy our homes, buy 

our foods? Certainly the administrative costs would be lower. But 

the question is, what happens to total costs when you have a single 

29

payer, and what happens to total cost if you do not have the kind 

of innovation that Ms. Solomon was just talking about? What kind 

of innovation can give a better value for the money in Medicaid? 

For example, Duke physicians devised a program for congestive 

heart failure, which is a big problem for Medicaid recipients. In 1 

year, they saved 40 percent, and they saved 40 percent not by saying to the doctors I’m going to pay you less, not by saying to the 

recipients you can’t see a specialist; they found a better way of delivering healthcare, so they made it better and cheaper. 

Consumer-driven plans have drastically reduced the rate of increase of healthcare costs while they have given even the sickest 

kinds of enrollees much better health status. 

So the answer is not to limit the purchaser to one buyer, who as 

able and as well-intended as they are, simply cannot do what a 

multiplicity of different individual participants in the Medicaid 

market can do. Our economy is built on competition. You cannot 

have competition with only one buyer. 

Senator COBURN. Dr. Tice, any comments? 

Dr. TICE. Yes. The impetus has to be to try to get the patient 

back into the private care facilities, because we really can deliver 

medicine with much better continuity of care than in an emergency 

room which is very disjunctive care, and we can deliver it at a 

much lower cost. 

Medicaid recipients have been given the opportunity to go to the 

emergency rooms at night or on weekends, wherever they so desire. 

Anyone with a third-party insurance is going to pay more to do 

that. If you want to bring the Medicaid recipients up to the same 

level as the people that have private insurance, then they should 

have the same disincentives as people with private insurance. 

Senator COBURN. All right. Let me give you all an example. I 

held a town hall meeting in Enid, Oklahoma about 6 weeks ago. 

And a farmer there was limping up on crutches and he had a total 

knee replacement and he got an infection in his knee. And he is 

a Medicare patient, but same rules apply on Medicare and Medicaid as far as CMS in terms of outpatient drug therapy. And he 

was offered the option to go spend 30 days in an outpatient hospital, in a hospital setting to get his IV antibiotics twice a day and 

Medicare could pay for that, or he could pay for it himself and stay 

at home. 

Well, the difference in the cost was $30,000 versus $4,200, but 

our government policy is, because we have a one-size-fits-all, we 

cannot seem to figure out a way to make a good way for good judgment to be used in terms of how dollars are spent. 

Well, he was fortunate enough to have had a good wheat crop, 

so he chose, rather than to spend 30 days in a hospital and cost 

the government $30,000 for him to just get IV antibiotics that a 

nurse could give him twice a day at home through a PIC line, he 

chose to spend that money himself. Now, he saved all of us $30,000, which I thanked him for. But 

this is the problem with single-payer systems that are trying to 

manage care. And I would ask you that, couldn’t we use that 

$25,000 better to make sure a baby does not hit a NICU unit, to 

make sure that somebody who has diabetes who is on Medicaid 

gets the kind of counseling that they need so that they never end 

30

up in diabetic ketoacidosis and in the ICU because they did not 

have continuity of care and did not have the opportunity, even 

though we have said we are going to take care of you, but did not 

have the continuity of care. 

So I do not know what the answers are to our problems, but I 

know what we are doing now is not going to work. And I think innovation and attempt at competition—I am not just a doctor, I ran 

a pretty good-sized business, I have a degree in accounting and 

production management, and I became a doctor after my first episode with cancer. It changed my life, and as it does many of the 

people in this room who have ever experienced cancer, it changed 

my life. But what I do know is that with government oversight, 

markets work well to allocate resources and to save us money, and 

I do not think we ought to be extremely afraid of it. 

I would note that Ms. Solomon’s organization was one of the 

leading critics of welfare reform, for good reasons, because what 

the worry was is you are going to hurt people, you are not going 

to help them, you are going to hurt them. And that is an admiral 

goal to voice that opposition. But the choices, I think, that Governor Sanford outlined for us is, not just in South Carolina but as 

a Nation as well, but we either get a cutback, we are either going 

to raise taxes, or we are going to limit options by cutting back everything else in government to meet a commitment. 

And change is tough for all of us. But I will outline to you that, right now our children are on the hook for about $80,000 of Federal 

debt. That is my children. My children range in age from 35 to 28. 

But my grandchildren are on the hook for about a quarter million 

right now. And what we have to do is work together for those that 

have the heart to make sure we never hurt anybody, and those 

that have the numbers that say can’t we do it better, we have to 

find a way in our country to bring those two thoughts together so 

that we can accomplish a legacy for our kids and our grandkids 

that was left for us. 

And because I have a great deal of interest in obstetrics, it is 

atrocious that Medicaid in a minority population, neonatal rates 

are what they are. And it is because of access. It is not because of 

the patients. I treat tons of Medicaid patients. It is because of access. They cannot get the available care. And so consequently, their 

child ends up with a problem. We spend $200,000 in a neo-natal 

ICU unit because they did not have access. We can fix that. We can 

do better. 

And so I will summarize with this: That I would challenge everybody that is here on either side of this issue to think about the patients, think about those that we have made a commitment to, and 

figure out that the numbers do not work now. So how do we come 

together and solve this problem for those people that we said we 

are going to commit to help? And you can make this polarizing or 

you can bring this together and fix it. We can make it polarizing 

in the U.S. Senate, in the U.S. Congress, or we can come together 

and fix it. 

I believe partisanship stinks in our country. I think it is killing 

us. And I believe it is time for leadership. And I believe that the 

people of South Carolina has a problem with Medicaid. I know the 

people of Oklahoma do. And we have to figure out how we meet 

31

the commitments, both for those in Medicaid, but all the rest of our 

country. And I will say, it may involve raising taxes. We may have 

to do it. Because, remember, if we don’t pay for the things that we 

are doing today, that is a tax increase on our kids, and that does 

not fit with the heritage of our country or the legacy that we want 

to leave. 

So I would just put forward and ask that the people in this State 

start working together to try to figure out how do you best do that. 

It is easy to say this will not work and that cannot work, but I 

would hope that you would come together and be a model for the 

rest of us as a Nation. Show us the invasion that can occur. Take 

some risks, make sure the safety net is there. Take some risks and 

try it, try it with a third, try it with a half, try it with two-thirds, 

but don’t continue the status quo. 

Mr. MCMULLEN. Senator, let me just say one thing to that effect, 

because I think it is important to note. This has been a year-anda-half long process, and what has been fascinating to watch is how 

Dr. Kerr over at HSS in South Carolina has worked aggressively 

to bring all the groups together. Yesterday, for the first time, I actually saw Democrats on one side, Republicans on the other, in the 

House and Senate leadership coming together at a table saying, we 

have finally made the changes in South Carolina to bring the people to the table to deal with the issues and concerns. And if South 

Carolina, left to its own devices without all the other clamor going 

on in Washington, I am convinced that with a Governor and leader 

like Mark Sanford, and with the leadership in the House and Senate, Republicans and Democrats, coming together as we saw yesterday in the mountains of South Carolina, we have a great future 

ahead of us in this issue. 

Senator COBURN. Thank you. Any other comments from our panelists? 

Thank you all for being here. Your complete statement will be 

made in the record. If there are people in the audience that would 

like to make a statement, we will leave the record open for 2 

weeks. You can address it to the Federal Financial Management 

Oversight Committee of the Homeland Security Committee, and we 

will make your comments a part of the record. 

With that, the hearing is adjourned. 

[Whereupon, at 11:52 a.m., the Subcommittee was adjourned.] 

(33)

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Æ


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