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PRESIDENT’S F ISCAL YEAR 2014 

HEALTH CARE PROPOSALS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 17, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

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

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

ADMINISTRATION WITNESS 

Sebelius, Hon. Kathleen, Secretary, Department of Health and Human Services, Washington, DC ........................................................................................... 5 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

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

Prepared statement .......................................................................................... 29 

Hatch, Hon. Orrin G.: 

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

Prepared statement .......................................................................................... 32 

Sebelius, Hon. Kathleen: 

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

Prepared statement .......................................................................................... 34 

Responses to questions from committee members ......................................... 41 

(III) 

(1) 

PRESIDENT’S FISCAL YEAR 2014 

HEALTH CARE PROPOSALS 

WEDNESDAY, APRIL 17, 2013 

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

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

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

(chairman of the committee) presiding. 

Present: Senators Cantwell, Nelson, Menendez, Cardin, Bennet, 

Casey, Hatch, Grassley, Crapo, Roberts, Thune, Isakson, Portman, 

and Toomey. 

Also present: Democratic Staff: Mac Campbell, General Counsel; 

David Schwartz, Chief Health Counsel; and Matt Kazan, Health 

Policy Advisor. Republican Staff: Chris Campbell, Staff Director; 

Kim Brandt, Chief Healthcare Investigative Counsel; and Stephanie Carlton, Health Policy Advisor. 

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

Warren Buffett once said, ‘‘Price is what you pay. Value is what 

you get.’’ This morning we are here to discuss the health care proposals in the President’s fiscal year 2014 budget. As we do, we 

must determine the value in what we are paying. Specifically, I 

would like to focus on the value of Medicare and Medicaid. These 

programs touch the lives of more than 100 million Americans, 

nearly 1 in every 3 citizens. 

I also want to examine the progress the administration has made 

in implementing the health reform law. If the administration implements it correctly, millions more Americans will gain access to 

health care next year as a result of the law. These programs fall 

under the purview of our witness this morning, Secretary Kathleen 

Sebelius, and the President’s budget affects all of these programs. 

I am sure you are quite busy, Madam Secretary. In just 167 

days, millions of Americans will begin enrolling in health insurance 

plans in their State’s marketplace. Time is short. You need to use 

each of these days to work with States to make sure the marketplaces are up and running, ready to help uninsured Americans access affordable coverage. The President’s budget requested a total of $5.2 billion for program management at the Centers for Medicare and Medicaid Services. Of this, $1.5 billion will be devoted to establishing and supporting the health insurance marketplaces. 

2 

I am concerned that not every State, including Montana, will 

have an insurance marketplace established in time. I want to hear 

how the money requested in the budget will be used to ensure 

those marketplaces will be ready to go on Day 1. The President’s 

budget also requests $554 million for outreach and education for 

the health and insurance marketplaces. 

For the marketplaces to work, people need to know about them. 

People need to know their options, how to enroll. I would like to 

hear the administration’s outreach plan leading up to the enrollment period which begins October 1st. What has been done? I want 

these new marketplaces to be simple and successful. 

I think it would be good that small businesses be able to focus 

on job creation, not confusion. More importantly, I want to know 

the plan moving forward to better communicate the benefits of the 

Affordable Care Act. I am concerned that lack of clear information 

is leading to misconceptions and misinformation. 

People generally dislike what they do not understand. I hear 

from people on the ground in Montana that they are confused 

about the law. People are worried about the impacts of new rules 

and how marketplaces will affect their families and businesses. I 

especially hear that from small businesses in Montana. They just 

do not know what to do. 

I reached out to Steph Larsen, who works in Montana with the 

Center for Rural Affairs. She has been traveling across the State, 

talking to business groups and consumers about the new marketplaces. She reported that few people are attending the informational meetings, and those who are often express a lack of understanding about the marketplaces and what they offer. Steph told 

my staff, ‘‘There is a lot of misinformation about how all that is 

going to work.’’ 

This difficulty is compounded by the unknown as to what the 

marketplaces will look like. My constituents do not understand the 

role of tax credits, because they simply do not have enough information. The administration needs to do a better job. 

And it is not just Montanans. There was a poll last month by the 

Kaiser Family Foundation that found that 57 percent of Americans 

say they do not have enough information about the law to understand how it will affect them. 

The lack of clear information is leading people to turn to incorrect information. In fact, 40 percent of Americans thought the law 

establishes a government panel to make end-of-life decisions for 

people on Medicare. Forty percent thought that under the Kaiser 

poll. Of course, the law does not provide that. 

The poll also found that 57 percent of Americans thought the law 

includes a public option. Of course, the law does not do that either. 

The administration’s public information campaign on the benefits 

of the Affordable Care Act, I think, deserve a failing grade. We 

need to fix it. 

The budget also offers belt-tightening measures to address the 

deficit. The President’s budget proposes $379 billion in Medicare 

and Medicaid spending reductions. There are some proposals I 

agree with to cut our debt: for instance, wealthy beneficiaries 

should pay higher premiums. 

3 

Also, we should not pay private plans offering Medicare benefits 

at a higher rate than traditional Medicare. And efforts to root out 

fraud must be strengthened, because every dollar invested in fighting fraud generates a 500-percent return in taxpayers’ money received. That is good. 

But there are other policies that concern me. I am concerned the 

proposed level of cuts to nursing homes may be too high and reduce 

access to care. I also have concerns over the President’s chained 

CPI proposal. Moving to chained CPI not only impacts Social Security, it also reduces payments to Medicare providers and increases 

out-of-pocket costs for some seniors. 

Cutting Social Security and Medicare will hit our seniors with a 

one-two punch. These chained CPI changes are on top of the $360 

billion in cuts to Medicare that the President specified in his budget. Cutting our debt will require compromise. Everyone will need 

to pitch in, but we cannot balance the budget on the backs of 

America’s seniors. 

A plan to reign in our budget deficits cannot just be cuts to Medicare. It cannot just be a package of tax increases. We need a balanced approach that is fair to all. The administration’s budget also 

recognizes the need to work with Congress to reauthorize the Temporary Assistance to Needy Families, otherwise known as TANF. 

This program is a vital lifeline for our Nation’s poorest families. 

I look forward to working with my Finance Committee colleagues 

to update the TANF program so that it is a more efficient job creator and a pathway out of poverty. 

I am happy the budget makes an investment of $5.9 billion in 

early learning, including child care. This will allow us to make sure 

over 100,000 more kids start off on the road to success with early 

education. Montana families understand the value of good education in maintaining our responsibilities as parents and neighbors. 

Secretary Sebelius, as we think about these issues and their effect on the budget, let us remember Mr. Buffett’s advice. While the 

price is what we see in the budget, the value of what we receive 

is what matters. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. Thank you for 

scheduling today’s hearing. Secretary Sebelius, we want to thank 

you for taking time to come here to speak to us today. 

Last week, the President released his proposed budget for fiscal 

year 2014. Although the budget was 65 days late, it does not appear that the administration used that extra time to find ways to 

address the critical problems facing our country. 

Perhaps most significantly, the President’s budget fails to address the fundamental challenge of health care entitlement spending in any significant way. What this document lacks in courage, 

it more than makes up for in the same partisan rhetoric and policies. 

4 

Keep in mind, CBO Director Doug Elmendorff has stated that 

our health care entitlements, Medicare and Medicaid, are our ‘‘fundamental fiscal challenge.’’ Apparently, if this budget is any indication, the administration is not interested in taking up this challenge. 

Under the President’s budget, Medicare and Medicaid spending 

will reach nearly $11 trillion over the next decade. Annual mandatory health spending will nearly double, from $771 billion in 2013 

to $1.4 trillion in 2023. That is, if their numbers are right. Although we are projected to spend nearly $7 trillion on Medicare 

over the next 10 years, the Hospital Insurance trust fund will continue to run significant deficits. 

According to the 2012 Medicare trustees’ report, the trust fund 

has $5.3 trillion in unfunded liabilities, and it is expected to be insolvent by the year 2024. Under this budget, the fund will continue 

on its path to insolvency. 

The budget also fails to address many problems facing Medicaid, 

even though we will be spending more than $4 trillion on that program over the next 10 years. Under this budget, Federal Medicaid 

spending as a percent of GDP will increase by 25 percent, from 1.6 

percent to 2 percent over the next decade, thanks to the expansion 

of the program courtesy of Obamacare. 

It is unacceptable that a program that is the biggest line item 

in most State budgets and is crowding out essential spending in 

both education and public safety is barely addressed. All told, we 

will spend more than $22 trillion over the next 10 years on our 

major entitlement programs: Medicare, Medicaid, and of course Social Security. 

The President’s budget would reduce that amount by only $413 

billion, or roughly 1.8 percent. No one seriously disputes that entitlement spending is the main driver of our debts and deficits, yet 

for the most part this budget has opted to ignore that reality and 

kick the proverbial can even further down the road. 

These programs need serious structural reforms if they are going 

to be around for future generations. Entitlement reform is one of 

the fundamental challenges of our time. It will require a united effort from members of both parties. 

Sadly, this budget fails to show this much-needed courage. I hope 

that we all will be willing to come to the table on serious structural 

reforms to our entitlement programs. I believe the President wants 

to do the right thing. What we need now is action. As you know, 

on January 1st I went to the Senate floor and unveiled five bipartisan entitlement reform proposals, five structural reforms to Medicare and Medicaid that have been supported by both Republicans 

and Democrats in the recent past. 

I have put these ideas forward in hopes of starting a bipartisan 

conversation on entitlement reform. I have shared these proposals 

with the President, and I am ready and willing to work with him 

on solutions to these problems. 

Secretary Sebelius, I will look forward to talking with you about 

these critical issues, and I want to thank you once again for being 

here, and I want to thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

5 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. Welcome, Secretary Sebelius. We appreciate you 

coming here. You have a big job, and we wish you the very best. 

Your full statement will be in the record. Just tell us what you 

think, and let her rip. 

STATEMENT OF HON. KATHLEEN SEBELIUS, SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC 

Secretary SEBELIUS. Good morning. Thank you, Chairman Baucus, Ranking Member Hatch, and members of the committee. I appreciate the opportunity to be with you today to discuss the President’s 2014 budget for the Department of Health and Human Services. 

This budget supports the overall goals of the President’s budget 

by strengthening our economy and promoting middle-class job 

growth. It ensures that the American people will continue to benefit from the Affordable Care Act. 

It will provide much-needed support for mental health services 

and will take steps to address the ongoing tragedy of gun violence. 

It strengthens education for our children during their critical early 

years to help ensure they can succeed in a 21st-century economy. 

It secures America’s leadership in health innovation so that we remain a magnet for the jobs of the future. It helps reduce the deficit 

in a balanced, sustainable way. 

I look forward to answering the members’ questions about the 

budget, but first I would like to briefly cover a few of the highlights. 

The Affordable Care Act, signed into law in March of 2010, is already benefitting millions of Americans. Our budget makes sure we 

can continue to implement the law. By supporting the creation of 

new health insurance marketplaces, the budget will ensure that, 

starting next January, Americans in every State will be able to get 

quality insurance at an affordable price. 

Now, our budget also addresses another issue that has been on 

all of our minds recently: mental health services and the ongoing 

epidemic of gun violence. I know, Mr. Chairman, that the Senate 

later today will deal with legislation around keeping dangerous individuals from getting their hands on a gun. 

As a Secretary of Health, a mother, and a new grandmother, I 

hope that the Senate gives very serious consideration to that 

common-sense bipartisan legislation that could indeed make this 

tragedy that is seen every day on streets across America less frequent than we see each and every day. 

Now, we know that the vast majority of Americans who struggle 

with mental illness are not violent, but recent tragedies have reminded us of the staggering toll that untreated mental illness can 

take on our society. That is why our budget also proposes a major 

new investment to help ensure that students and young adults get 

the mental health care they need, including training of 5,000 additional mental health professionals to join our behavioral health 

workforce. 

6 

Our budget also supports the President’s call to provide every 

child in America with access to high-quality early learning services. 

It proposes additional investments in new Early Head Start–Child 

Care Partnerships, and it provides additional support to raise the 

quality of child care programs and promote evidence-based home 

visiting for new parents. 

Now, together, these investments will create long-lasting, positive outcomes for families and provide huge returns for the children 

and society at large. Our budget also ensures that America remains 

a world leader in health innovation. The budget’s significant new 

investments in NIH will lead to new cures and treatments and help 

create good jobs. 

The budget provides further support for the development and use 

of compatible electronic health record systems that have a huge potential for improving care coordination and public health. Even as 

our budget invests for the future, it helps to reduce the long-term 

deficit by making sure that programs like Medicare are put on a 

more stable fiscal trajectory. 

Medicare spending per beneficiary grew at just four-tenths of 1 

percent in 2012, thanks in part to the $800 billion in savings already included in the Affordable Care Act. The President’s 2014 

budget would achieve even more savings. For example, the budget 

will allow low-income Medicare beneficiaries to get their prescription drugs at lower Medicaid rates, resulting in savings of more 

than $120 billion over the next 10 years. 

In total, the budget would generate an additional $370 billion in 

Medicare savings over the next decade on top of the savings already in the Affordable Care Act. To that same end, our budget 

also reflects our commitment to aggressively reducing waste across 

our Department. 

We are proposing an increase in mandatory funding for a health 

care fraud and abuse control program, an initiative that saved the 

taxpayers nearly $8 for every $1 spent last year. We are investing 

in additional efforts to reduce improper payments in Medicare, 

Medicaid, and CHIP, and to strengthen our Office of Inspector General. 

This all adds up to a budget guided by the administration’s north 

star of a thriving middle class. It will promote job growth and keep 

our economy strong in the years to come, while also helping to reduce the long-term deficit. 

Now, I know many of you have questions, and I am happy to 

take those now. Again, thank you for having me here today. 

The CHAIRMAN. Thank you, Madam Secretary. 

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

The CHAIRMAN. I frankly have to leave this instant to take a 

phone call and will be right back. Senator Hatch, why don’t you 

take over, and I will be right back? 

Senator HATCH [presiding]. Secretary Sebelius, I am curious as 

to how your Department is funding overall efforts under the health 

law, now that much of the initial funding has been depleted. A 

quick review of the HHS budget in brief seems to suggest that you 

are diverting funds from other areas of the Department to put toVerDate Nov 24 2008 17:01 May 22, 2014 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 R:\DOCS\87928.000 TIMD
7 

wards implementation. Some estimates estimate as much as half a 

billion dollars might be moved from other portions of the budget. 

Would you describe the authority under which you believe you 

have the ability to conduct such transfers, and whether or not you 

believe that Congress should be notified when these transfers 

occur? 

Secretary SEBELIUS. Senator, we did request additional funding 

with the continuing resolution in 2013 and were not given additional resources by the U.S. Congress, although we have the duty 

to implement the law. So I have, for 2013, used both my transfer 

authority, which is statutorily in our budget, as well as the nonrecurring expense fund, for one-time IT costs, and a portion of 

funding for the prevention fund to use for outreach and education. 

You heard Chairman Baucus describe the level of concern and 

questions in States around the country, and we want to make sure 

that Americans fully understand the benefits that are coming their 

way and the decisions that they can make. We have requested in 

the budget that is before you, in the 2014 budget, an additional 

$1.5 billion to fully implement the Affordable Care Act. 

Senator HATCH. All right. 

Federal Medicaid spending as a percentage of the economy, according to the budget, will increase by 25 percent over the next 

decade, driven by the Affordable Care Act expansions in long-term 

care spending. Now, that is more than $4 trillion over the next decade, and that is not even counting the trillions of dollars States 

will spend on Medicaid. 

According to the National Governors Association, ‘‘Medicaid represents the single-largest portion of total State spending.’’ Now, 

Madam Secretary, this budget backs off of prior proposals to lower 

spending on Medicaid, such as the blended FMAP rate and provider tax reductions. 

Now, this is especially discouraging since there are bipartisan 

proposals that would have achieved significant Medicaid savings 

and improved patient care. In fact, your predecessor under President Clinton, Secretary of Health and Human Services Donna 

Shalala, said that Medicaid per capita caps mean ‘‘there are absolutely no incentives for States to deny coverage to a needy individual or to a family. It is a sensible way to make sure that people 

who need Medicaid are able to receive it.’’ 

Unfortunately, your fiscal year 2014 budget only proposes to save 

one-half of 1 percent in Medicaid, and it lacks any serious reforms 

to the Medicaid program. Now, my question would be, why does 

your budget completely fail to address one of the country’s fundamental, most serious challenges? 

Secretary SEBELIUS. Well, Senator Hatch, I think there is a very 

positive story to tell about Medicaid. Believe me, as a former Governor, I am dealing with my former colleagues and the CEOs of 

States around the country each and every day. Medicaid spending 

last year, between 2011 and 2012, actually decreased by almost 2 

percent per beneficiary—decreased by 2 percent. That is virtually 

unheard of. 

We are engaged in a series of what I would call very innovative 

strategies around the dual-eligible population, often those individuals whom you have just referred to in nursing homes, around 

8 

progress on reforming high-quality, lower-cost Medicaid health care 

delivery, working with States who are engaged in just exactly what 

States do the best, which is very innovative strategies looking at 

their overall health care spending. 

So I think that the Medicaid story is one that is enormously positive, where Governors are very much engaged. We have been very 

pleased at the number of Governors who are interested in expanding their Medicaid population and providing health benefits for 

some of the lowest-income workers in a very cost-effective strategy. 

Senator HATCH. Would you be open to work with us on bipartisan ideas to improve patient care and of course save money in the 

Medicaid program? 

Secretary SEBELIUS. I would be happy to work with you and others on that. 

Senator HATCH. Well, thank you so much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

As you somewhat know, Madam Secretary, I am a bit of a Johnny One-Note on implementation of the law, especially with respect 

to sign-ups and exchanges, et cetera, and am very concerned that 

not enough is being done so far. Very concerned. When I am home, 

small businesses have no idea what to do, what to expect. They do 

not know what the affordability rules are. They do not know when 

penalties may apply. They just do not know. 

I mean, I was talking to one CPA. He is not histrionic; he is 

being straight with me. He says, ‘‘Max, I just have to tell you, my 

clients, small business people, are just throwing their hands up, 

and I do not know what to tell them.’’ That is just from a small 

business perspective, let alone all the other issues that are going 

to be arising here. 

As I discussed earlier and as you well know, a lot of people have 

no idea about all of this. People just do not know a lot about it. 

The Kaiser poll pointed that out. I understand you have hired a 

contractor. I am just worried that that is going to be money down 

the drain, because contractors like to make money more than they 

like to do anything else. That is their job. They have to worry 

about their shareholders and whatnot. 

Also, the other agencies are all involved. I think people are going 

to be really confused. You could maybe give some thought to onestop shopping somehow, so you go to one location, a business person, to get the answers. I just would tell you, I just see a huge 

train wreck coming down. You and I have discussed this many 

times, and I do not see any results yet. What can you do to help 

all these people around the country wondering, ‘‘What in the world 

do I do? How do I know what to do?’’ 

Secretary SEBELIUS. Mr. Chairman, as you know—and we have 

had these discussions a number of times—we certainly take outreach and education very, very seriously. It is one of the reasons 

that I think we were incredibly disappointed that our request for 

additional outreach and education resources was not made available in the CR of 2013. 

Having said that, we have engaged in efforts with the Small 

Business Administration, which is doing regular meetings around 

the country with our regional personnel. We have just released a 

9 

Request for Proposal for on-the-ground navigators, individuals who 

come out of the faith community, out of the business community, 

out of the patient community, out of the hospital community, who 

will be available to answer questions, walk people through scenarios, hold seminars. 

We do regular seminars and webinars, but we also understand 

that people have a lot of questions, and we are deploying as many 

resources as we can to answer those questions and get folks ready 

to engage in open enrollment on October 1st. 

The CHAIRMAN. Well, do you have benchmarks? Do you have 

dates by which a certain number of people know what is going on? 

I mean, all these polls, for example, show that we are not making 

much headway. Do you have a goal that 2 months or 30 days from 

now, when that same poll is taken, that that percentage is down 

by X percent, in 60 days from now it is down by X percent, so people know where to go and what to do? 

Are you surveying the professional accountants who work with 

businesses to get a certain percent who feel confident? I mean, you 

need data. Do you have any data? You have never given me any 

data, you just give me concepts, frankly. Government is not a business, but you are going to have to have some data benchmarks to 

figure out how much progress you are or are not making. 

Secretary SEBELIUS. Well, we do not have benchmarks for how 

many people know what. We do not intend to do polling and testing 

in terms of what people know. We do have some very specific 

benchmarks around open enrollment, and we have a campaign and 

a plan to lead up to open enrollment. 

The CHAIRMAN. And what is it, the campaign and the plan? 

Secretary SEBELIUS. Well, Mr. Chairman, as we have discussed, 

there will be people on the ground starting this summer. There will 

be—— 

The CHAIRMAN. How many? 

Secretary SEBELIUS. I cannot tell you at this point. 

The CHAIRMAN. At what point in the summer? Geographically, 

what States? This is the kind of information I am asking for. You 

are only going to be able to do a decent job if you know the answers 

to these questions. 

Secretary SEBELIUS. Yes, sir. And I would be happy to give you 

all of the specifics. As I said, we just put out the Request for Proposal. I cannot tell you about the numbers because we do not have 

the information back yet about how many people in which States 

are going to be actively engaged on the ground, but I will be happy 

to share that with you as we move forward. 

The CHAIRMAN. And it depends upon States that have exchanges 

and those that do not. There are just a lot of factors here. 

Secretary SEBELIUS. We will be focusing the Request for Proposal 

for navigators at this point on the States where the Federal marketplaces will be in place. 

The CHAIRMAN. What is a navigator? 

Secretary SEBELIUS. A navigator is going to be an individual who 

will go through training and be available to help educate individuals or groups of people—— 

The CHAIRMAN. How many Americans know what a navigator is? 

Secretary SEBELIUS. Pardon me? 

10 

The CHAIRMAN. How many Americans do you think know what 

a navigator is? 

Secretary SEBELIUS. I have no idea. 

The CHAIRMAN. I will bet you it is about—well, we have 2 here. 

All right. You can understand my angst. I am going to keep on this 

until I feel a lot better about it. Thank you. 

Next, Senator Nelson. 

Senator NELSON. Thank you, Mr. Chairman. Madam Secretary, 

thank you for your public service. 

Back when we passed the health care bill in this committee, I 

was kind of lonely in offering an amendment. There was great 

angst that was taken in the White House for my amendment, 

which was that the Federal Government, in paying for drugs for 

Medicaid recipients, when they became 65 years of age, they were 

suddenly eligible under Medicare for their drugs with the prescription drug bill. 

But, lo and behold, the U.S. Government, the taxpayers of America, were not going to pay for the price of the drugs with the discounts or rebates that they paid when they were 64 years of age, 

but, when they turned 65, they got their drugs under Medicare, 

and we were paying premium prices for the same drugs, for dualeligibles. 

My amendment was defeated 10 to 13, and a very strong position 

was taken by the White House in opposition. The President has reversed course in this budget. It, when I offered the amendment, 

saved $117 billion over 10 years. Now it is $123 billion in savings 

in the President’s budget, and CBO scores it and says it is something in excess of $140 billion. Why the change? 

Secretary SEBELIUS. Well, Senator, I think that the wisdom of 

your original proposal has finally been seen. There is no question— 

again, you and I have both worked at the State level in prior lives. 

Having negotiated Medicaid rates as a Governor and then having 

that same individual, as you say, move into a premium class, did 

not make a lot of sense, particularly as we are looking to, not only 

save dollars in these very important public insurance programs, 

but save dollars for the individual who is, again, responsible for 

part of the drug benefit. 

So I think this proposal captures what you were trying to do 

years ago and will save these important programs some significant 

dollars at the State and Federal level, which is all good news. 

Senator NELSON. Well, you know the attacks against the President’s proposal and the amendment 4 years ago. It is going to reduce research, it is going to limit access, it is going to result in 

higher consumer prices. How do you respond to those attacks? 

Secretary SEBELIUS. Well, I think that we have a pretty good 

track record on Medicaid negotiated rates and the wide variety of 

drugs available to individuals in the Medicaid program. There is no 

question that the dual-eligible population, the approximately 9 million Americans who qualify for both Medicare and Medicaid, are 

often the most expensive population in any Medicaid program in 

any State in the country, so having a sensible, and I think proven, 

way to lower some costs around that population, while not slashing 

benefits, is a win-win situation. 

11 

Senator NELSON. Madam Secretary, we are losing a lot of money 

to Medicare fraud, Medicaid fraud as well, and we are going to be 

having a hearing on this in the Aging Committee. Can you give us 

some sense of, do you see that we are going to be making any 

progress, and what new activities are trying to stop this hemorrhaging of all the money? 

It is so bad in Miami that people open up a store front, and there 

is no activity in the store front, and they start billing Medicaid. Of 

course, just recently there was this person down there who was 

billing, and ended up getting $50 million for mental health services. That is one way to save a lot of money. 

Secretary SEBELIUS. Well, Senator, I could not agree more. I 

think that is one of the reasons the President’s budget has asked 

for additional mandatory fraud resources, because we have a very 

good story to tell. This President asked the Attorney General and 

me to elevate the anti-fraud effort to a Cabinet-level position. We 

created a new joint task force. Unfortunately, in your State are 

some of the hot spots, I would say, in the country. 

But we have implemented a variety of strategies: more on-theground strikes, more prosecutions, more money than ever before. In 

fact, we have doubled the amount returned to both the Medicare 

trust fund and Medicaid beneficiaries but, in addition, implemented re-credentialing for some of the known areas where providers were just entering the program and billing. 

We have a much stricter standard to get in in the first place. We 

also have implemented predictive modeling, a computer-based system which tries to track the billing irregularities the same way a 

credit card company could go after someone who suddenly charged 

five flat screen TVs from Dubai to your credit card, and they can 

spot that and call you in advance and stop the payment going out 

the door. We finally have that capability within the Medicare system. It never existed before. So we are trying to approach this from 

multiple fronts. 

I think the story is good, but there is a lot more we could do. Returning almost $8 for every $1 we spent last year I think is very 

good news, but clearly this is a huge program. Thousands of providers, millions of dollars go out the door every day. We take fraud 

and abuse incredibly seriously and want to use more resources to 

really beef up the efforts that have proven successful. 

Senator NELSON. Mr. Chairman, in closing I would just say that 

all the new doctors we are going to need to implement the health 

care bill, we cannot keep cutting graduate medical education, 

which is a Medicare subsidy for residents. That has happened to 

my State, it has happened to your State, it has happened to Nevada. That is inadequate in the President’s budget. 

Thank you, Mr. Chairman. 

Senator HATCH [presiding]. Well, thank you, Senator Nelson. 

Senator Roberts, you are next. 

Senator ISAKSON. Mr. Chairman? Mr. Chairman? Down this way. 

Senator HATCH. Yes? 

Senator ISAKSON. Could I be so rude as to interject for 1 second? 

Last week I accommodated Senator Roberts and let him take one 

question out of my time so he could go to a meeting. I have to leave 

too, but I have one relevant point for Ms. Sebelius with regard to 

12 

Chairman Baucus’s question on the navigators. So, if Mr. Roberts 

would yield for just one second? 

Senator ROBERTS. I would be more than happy to yield to my distinguished colleague. It’s ‘‘Se-bee-lius,’’ by the way, not ‘‘Se-baylius.’’ He was the composer, she is the Secretary. [Laughter.] 

Secretary SEBELIUS. From my Senator. 

Senator ISAKSON. I stand corrected. 

Senator HATCH. Both are good at composition, is all I can say. 

Senator ISAKSON. Right. Madam Secretary, Senator Baucus 

asked you the question about these navigators. 

Secretary SEBELIUS. Yes, sir. 

Senator ISAKSON. I understand you are about to award $54 million in contracts to hire navigators in the States with exchanges. 

Is that correct? 

Secretary SEBELIUS. That is correct, sir. 

Senator ISAKSON. Yet, CMS’s rule on medical loss ratio is putting 

most agents and insurance brokers in the business of selling health 

insurance out of business because of the 85-percent threshold for 

the medical loss ratio. 

So we are spending $54 million to hire navigators, yet, because 

of the rule on the medical loss ratio, we are cutting out most of the 

people who provide these services in the private sector, which costs 

the government nothing. 

I have legislation with Ms. Landreiu and some others to amend 

that, because I think we need to revisit that medical loss ratio rule 

and see what effect it actually has on people getting credible information from people who make a living doing it, and have for years. 

Secretary SEBELIUS. Well, Senator, I would be happy to take a 

look at the legislation. There is no prohibition, first of all, for 

agents and brokers to be navigators. Second, exchanges at the 

State level can designate agents and brokers as part of the funding 

stream to do the outreach, but we certainly have not eliminated 

their ability to do their jobs and to actually bring people into insurance companies as they have for a long time. 

The medical loss ratio, as you mentioned, deals with what is 

characterized as medical costs versus what is characterized as 

overhead costs. You are correct that the rule does not include an 

agent and broker’s salary or commission as part of what is characterized as a medical cost. 

Senator ISAKSON. I appreciate your looking at it, because, as it 

is applied, what it basically does is preclude those people from 

being compensated by the way the ratio applies. That is the reason 

that we think it ought to be—— 

Secretary SEBELIUS. Well, they could easily be in the 20 percent 

of overhead. They just cannot be counted in the—it is basically 80/ 

20, but they cannot be counted in the 80 percent that has to go to 

medical costs. 

Senator ISAKSON. Thank you very much. 

Thank you, Senator Roberts. I appreciate it. 

Senator HATCH. Senator Roberts? Re-start the time for him. 

Senator ROBERTS. I thank the Senator for his contribution and 

his question. I know the Secretary will be taking a hard look at 

that. And she was an insurance commissioner for our State of KanVerDate Nov 24 2008 17:01 May 22, 2014 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\87928.000 TIMD
13 

sas prior to becoming Governor, so she certainly has that background. 

Madam Secretary, we have 83 hospitals, as I think you know, 

that are designated critical access hospitals. In the budget on page 

53, I noticed that we are going to take a whack—another Lizzie 

Borden whack—at the critical access hospitals’ Medicare reimbursement rate, and there is a mileage requirement. We are back 

to that. 

I can remember years ago when we had somebody from—at that 

point it was Health, Education, and Welfare—indicating it was 100 

miles, but it was all right to not include Goodland because they 

had 4-wheel drive. I could never figure that out. So, I hope we do 

not go back to that. I wish you would take a look at the critical 

access situation. The chairman of the committee has a lot of feeling 

about that in Montana, and I know in a lot of other rural areas, 

so, if you could take a look at that, I would appreciate it. 

Then, on page 56 of the budget, there is a line here in regards 

to IPAB. Well, my opinions about IPAB are well-known. I think we 

would probably be at odds with that, but I think they will ration 

patient care. They are going to set the Medicare reimbursement according to a formula here. I will not read the whole thing. It is a 

growth rate to meet the target, and they are going to save $4.1 billion. So we have $1.4 billion out of the critical access hospitals, $4.1 

billion in regards to IPAB. They are not even set up yet. 

I just do not understand. They have not been set up, and we 

have no idea how the recommendations are going to be implemented, yet we are going to expand and strengthen them. I wish 

you would take a look at that and see if you could get back to us. 

I apologize for handing three questions to you, but, because of the 

time limit, I wanted to cover these three. 

About 53 people—we think 53 people—have died, and over 700 

people have become ill as a result of the meningitis crisis. I am 

talking obviously about pharmacy compounding. The FDA has put 

forth a legislative proposal which has been detailed on the Commissioner’s blog, and she has stated: ‘‘Funding will be necessary to 

support the inspections and other oversight activities outlined in 

this framework, which could include registration or fees.’’ 

I am working on legislation, and so are the members of the committee, that would hopefully be of help here, both to guarantee the 

efficacy of the program and then access to compounding. It is not 

mentioned in the President’s budget. I have looked, and we cannot 

get a cost estimate. 

If you could provide that, with regards to the legislative proposal 

put together by the Commissioner of FDA, I would greatly appreciate it. If you could comment on that or anything else that I have 

brought up, you have about 2 minutes. 

Secretary SEBELIUS. Well, I would be happy to, Senator. First of 

all, I will try to get a specific cost estimate for the very important 

legislation I think that you and your colleagues are working on 

with the Food and Drug Administration, which I think would give 

some additional authorities over the non-traditional compounding 

and make sure that traditional compounding can move forward. 

I do not think that the FDA has a legislative proposal that is 

specific. They have been working around some principles with the 

14 

HELP Committee, so that may be part of the confusion. They do 

not have a draft piece of legislation. I think they have been providing technical assistance to the HELP Committee, but I will see 

where we are on a dollar recommendation. 

With IPAB, the President has recently sent to the leadership of 

the House and Senate, majority and minority, a request for recommendations for potential candidates. The legislation contemplates the President making appointments, but in consultation 

with the House and the Senate, so those letters have been received 

by leadership. 

The President’s budget does suggest that the Independent Payment Advisory Board would not kick in unless Medicare spending 

exceeded the inflation by more than 0.5 perent, CPI plus 0.5 

perent. We do not anticipate, according to the latest CBO initiatives, that that would hit until about 2019 on the track that we are 

on. 

So we are in the process of consulting with leadership around potential members, but, as you know, those members would have to 

be confirmed by the Senate, so there will be multiple steps and opportunities for consultation before that board would ever occur. 

Finally, I share your concern about the incredible importance of 

critical access hospitals, particularly in rural communities, and we 

will certainly take a look at the specifics in the budget and be back 

in touch. 

Senator ROBERTS. I appreciate that. Thank you. 

Secretary SEBELIUS. Certainly. 

Senator HATCH. Thank you, Senator. 

Senator Casey? 

Senator CASEY. Thank you. 

Madam Secretary, thank you for being here today and for your 

great public service. This is hard work that you are doing, especially with regard to health care, in addition to the other responsibilities you have. I appreciate the time we spent prior to the 

hearing. 

I wanted to ask you about children. But, as a preface to that, I 

wanted to note in the budget a couple of highlights, some of which 

you have already referred to, but the parts of the budget that focus 

specifically on children bear mentioning. 

The home visiting program, as well as Early Head Start and the 

Child Care Partnerships, both of which you have set forth on page 

4, the Child Care Quality Fund, child support, and fatherhood initiatives, all of those are so important, and I want to commend you 

and the Department for that. I know that for NIH, the proposed 

increase is $471 million. That is commendable and necessary, despite all of the challenges we have. If we are not investing there, 

we are making a big mistake. 

But I wanted to focus on maybe two questions, really, on children. First, with regard to the Children’s Hospital graduate medical education program, I am told that we have three great examples in Pennsylvania: two in Philly, one in Pittsburgh—with Children’s in both cities, and then St. Christopher’s in Philly. But I am 

told that these hospitals comprise less than 1 percent of all hospitals, yet train nearly half—the number, I guess, is 49 percent— 

of all pediatricians. 

15 

This is a budget allocation which has been in the 6-figure mil- lions. The proposal in the budget is just $88 million in funding for 

that program. I think that is a mistake. I do not agree with it. I 

do not know how we are going to get the trained pediatricians that 

we need and I think the Affordable Care Act contemplates, if we 

do not have that investment. If you could give us the rationale for 

that $88 million. 

Secretary SEBELIUS. Well, Senator, first of all, I do not disagree 

at all that the children’s hospitals provide not only incredibly important service and health care for children, but also training opportunities for pediatricians, so they are sort of doing double duty. 

What the President’s budget reflects is graduate medical education direct costs. What is eliminated from the budget recommendation is the overhead and administrative costs. We feel 

that this is sufficient to provide the number of residency slots. 

Often children’s hospitals operate, frankly, at a more significant 

margin than other hospitals do, and it is not a choice we would 

have made in better budget times, but providing the direct costs for 

the number of residency slots that are currently in hospitals is one 

way to make sure that we train the pediatricians of the future. 

Senator CASEY. Well, I hope we can spend some time on this, because, when you have that small of a percentage of hospitals providing that level of training, I think we should go back to work on 

that so we can get back to you and spend some time on that. 

I also wanted to ask—and I raised a similar question or two with 

regard to Marilyn Tavenner’s confirmation hearing—how children 

will fare in the new world of the exchanges and how you see the 

Department’s role in monitoring the impact on children with regard 

to the exchanges and making sure that, if a child would, under a 

different set of circumstances, get a particular level of care, that 

they are going to still be able to get that same kind of care and 

treatment under the exchanges. 

Secretary SEBELIUS. Well, I think it is a great question, Senator. 

The CHIP program, which does offer, I would say, enhanced benefits for children, as you know, continues to exist. One of the benefits for children that is sort of an indirect benefit, but I think can 

be very real, is that there is a lot of evidence that indicates that, 

if parents have insurance, children are more likely to go to the doctor on a regular basis. 

If the family does not have a health home, in spite of the fact 

that a child may have access to services, if the family really does 

not have family coverage, then the likelihood of actually accessing 

those services is significantly diminished. So I would say there are 

some value-added benefits around family coverage that do not exist 

right now that will be the case in the future. 

While the exchange programs will not have a specific mandated 

package of benefits for children, what I think does exist in the commercial market right now, particularly in the employer market 

which is being modeled as the benchmark plan, is a pretty robust 

set of services and supports around children’s health, and it is 

there because of employee demand. 

So we will watch that very closely, and we would be delighted 

to continue to work with you and your office. I know looking out 

for American’s children is certainly one of the areas that you have 

16 

taken a great leadership role on, and we would be happy to work 

with you as these plans are being implemented. 

Senator CASEY. I appreciate that. I hope, as some of the benefits 

from medical homes play out for families, that that will have a 

positive impact on kids, especially children with chronic and complex medical conditions. 

Secretary SEBELIUS. Well, certainly the medical home model, I 

think, and coordinated care models, both offer some enhanced benefits for children who have, as you say, chronic or multiple conditions. Right now, too often that care is segmented into a variety of 

specialists who do not talk to one another, who may not coordinate 

with the family, so I think testing some of those models around 

chronic conditions—while people often think of that as an older 

Americans issue, I think there are cases where certainly it will be 

of enormous benefit to some of our youngest patients. 

Senator CASEY. Thanks very much. 

Senator HATCH. Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. 

Madam Secretary, thank you for your extraordinary service during a very difficult time. I want to bring up a couple of subjects in 

regards to the implementation of the Affordable Care Act and how 

the budget submitted by the President would advance those goals. 

Shortly after the passage of the Act, you and I had a chance to talk 

about the commitment we made to minority health and health disparities, the elevation of the Institute at NIH and the offices in all 

the relevant agencies, including HHS. 

You made a commitment then to adequately fund those initiatives, and I thank you for following up on those commitments. 

There is some concern today as to whether there is adequate budget support to implement the type of grant-making in the offices, including your Office of Minority Health, and whether the Institute 

at NIH has adequate resources in order to make the type of progress that we would like to see made as a matter of what is right 

policy for this country, as well as smart policies that reduce health 

care costs. 

Can you just give me an update as to how your strategy is being 

implemented to fund this commitment? 

Secretary SEBELIUS. Yes, Senator. I think that there is no question that we have taken very seriously the charge to not only track 

health disparities, but reduce health disparities. The passage of the 

Affordable Care Act and the full implementation of the Affordable 

Care Act, I think, will advance that cause, probably faster than any 

other single thing that we could possibly do to close the gap in 

health coverage. 

Having said that, while the budget, I think, in some of the offices 

within the Secretary’s office may have a reduction of some grant 

funds, the overall budget has a significant increase in funding for 

minority health issues, and that is one issue that we take very seriously. I think there are an additional couple hundred million dollars that are both in the Health Resources and Services Administration and some funding within the NIH. 

Unfortunately, NIH funding does not increase as significantly as 

we would like, and they also lost $1.5 billion through the sequester 

cuts. So we are in a more restrained situation I think than we 

17 

would be otherwise, with not only a tight budget moving forward, 

but also a fairly significant cut in their grant-making authority 

that hit in 2013. 

Senator CARDIN. Thank you. I understand the challenge of sequestration, and I would just urge us to be as strategic as we can 

to make sure that mission moves forward. 

Secretary SEBELIUS. Yes. 

Senator CARDIN. I am going to make a request of you to personally take a look at a regulation that has been issued as it relates 

to pediatric dental care. Ms. Tavenner was before this committee, 

and I questioned her and then submitted questions for the record. 

As you are probably aware, you are in the process of implementing a regulation that would allow for stand-alone pediatric 

dental policies to have separate deductibles, with no assurance that 

in fact individuals will have that coverage. I believe both of those 

actions by HHS are contrary, clearly to the intent of Congress, but 

I think also contrary to the legal ability to issue such regulations. 

We intended that pediatric dental care be an essential benefit. 

‘‘Essential benefit’’ means people have affordable coverage. A $700 

deductible per child is not a quality plan, it is 2nd-class coverage. 

Most families will not reach $700 a year in pediatric dental care. 

Why would they then buy insurance, particularly if it is not going 

to be required? That to me is contrary to what Congress intended, 

and I believe it is contrary to law. 

So I would just ask if you would personally review this regulation and the legal basis of this regulation and make an independent judgment as Secretary as to whether you believe this is 

the right policy and the right legal path for us to take as it relates 

to pediatric dental care. 

Secretary SEBELIUS. Senator, I will commit to do that. I know 

that concerns have been raised about what is a proposed regulation. The comment period is still very much open, and so this is not 

a settled formula going forward. But I hear your concerns. We have 

heard them from a number of people, and I will commit to taking 

a personal look at exactly what the impact would be on the very 

families we want to serve. 

Senator CARDIN. Thank you. I appreciate that, Madam Secretary. 

Secretary SEBELIUS. Sure. 

The CHAIRMAN. Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. 

Madam Secretary, welcome back to the committee. Thank you for 

being here. 

I have worked with several of my colleagues on this committee 

on a white paper which we issued yesterday, and it outlines concerns we have about the electronic health record program that was 

created by the stimulus bill. 

One of the chief concerns is that the program was not thoughtfully planned and that CMS and the Office of the National Coordinator for Health IT are insufficiently focused on the issue of interoperability. 

I am also concerned that the Office of the National Coordinator 

has a philosophy that is focused on simply pushing Federal taxpayer dollars out the door and using the dollars out the door as a 

18 

measure of success of the program without sufficient oversight of 

those payments. I am wondering if you agree with that. 

Secretary SEBELIUS. I do not. 

Senator THUNE. Well, it is noted in our report that providers 

simply self-report that they have met the necessary criteria to receive Federal incentive payments for adoption of health IT with no 

documentary evidence necessary. 

Your agency’s Office of the Inspector General has warned that 

this is a potential problem. The Inspector General issued a report 

last year saying that Medicare ‘‘does not verify the accuracy’’ of the 

self-reported information by health providers claiming the incentives prior to the payment, and even noted a few examples of providers who had reported themselves eligible but had not actually 

met the requirements. 

So my next question is, do you agree that self-attestation is a 

problem in terms of them certifying themselves eligible? 

Secretary SEBELIUS. Well, Senator, we take the adoption of electronic health records very seriously. I cannot imagine any other industry which represents close to 17 percent of our GDP which is 

trading information on paper files. 

So this is a significant move forward. We have about one-third 

of the individual providers online, with another third in the queue, 

and almost two-thirds of the hospitals are now in the process of 

adoption. 

I think what has to be attested to—my understanding is—will be 

able to be tested more thoroughly when the interoperability standards go live in 2014, as you know, in Meaningful Use Stage 2. That 

is not yet up and running. There is a lot of concern. 

It is sort of the gold standard of electronic health records. If they 

cannot talk to each other, it is really not a venture that takes us 

very far. We understand that. But it is not live and running, and 

it has been the focus of both the Policy Committee and the Production Committee from Day 1. 

Senator THUNE. Well, in responses to questions from this committee, Ms. Tavenner, the nominee to head CMS, stated in written 

comments that there will now be a delay in implementation of 

Stage 3. I asked the question. But given that it seems clear that 

the leap to interoperability is not possible from the already existing 

requirements for Stage 2 to Stage 3, what are your plans for Stage 

3 that ensure taxpayer dollars are being wisely used to invest in 

interoperability? 

Secretary SEBELIUS. Well, again, we have not gotten to implementation of Stage 2 yet, so you may be reading the final chapter 

before we launch it. 

Senator THUNE. Right. 

Secretary SEBELIUS. January of 2014 is when the portion of 

Stage 2 that deals with meaningful use will be up and running, 

and I think we have full plans and a timetable to then move to 

Stage 3. But we do not right now have a plan about what could 

or could not happen, because we need to fully implement Stage 2. 

Senator THUNE. But are the rules for Stage 2 not final? 

Secretary SEBELIUS. The rule is final? Yes. Yes. 

Senator THUNE. All right. Well, in terms of—— 

19 

Secretary SEBELIUS. But it is not up and running yet. The timetable has not been reached. 

Senator THUNE. The thing I guess I would say I am concerned 

about is, the leap from the current Stage 2 requirements, particularly with regard to interoperability, is going to be very difficult in 

terms of the challenge that is going to be faced by a lot of rural 

providers. So my next question is, what are you doing to ensure 

that small rural providers’ needs are being considered in terms of 

Stage 2, and then ultimately Stage 3? 

Secretary SEBELIUS. Well, Senator, part of the framework of this 

implementation was really to create information and technology exchanges in every part of the country. They are focusing most specifically on critical access hospitals and on small providers, knowing that the luxury to have a big IT department or have people 

who could implement this in a significant period of time was not 

there. 

So in every State there are individuals who are sort of the—I 

compare them to the farm extension services, folks who are on the 

ground who literally come office to office, hospital to hospital, 

spend time on how to convert what the best strategies are, how to 

be engaged and involved. 

We have found, at least in a State like Kansas, which shares the 

challenges I think that you see in your State, that that strategy 

has been enormously effective, and small providers are engaged 

and enrolled with those extension operations and find them to be 

kind of their service team on the ground. 

Senator THUNE. Well, the only thing I would say is, I hope that, 

as we move forward with this, that the focus really will be on the 

issue of interoperability. 

Secretary SEBELIUS. You bet. 

Senator THUNE. Because we have asked questions numerous 

times at the committee here of folks who have testified in front of 

the committee about what is happening with regard to interoperability. It may be that a lot of providers are creating their own 

health electronic records, but the idea that somehow they are going 

to be able to communicate with others just seems to be nonexistent in many cases. 

So, you have these silos out there, but until they can talk to each 

other, we have not solved this problem. And that is why I say, a 

lot of the money that has gone out the door, that seems to be the 

metric instead of, what is the metric or what is the measuring stick 

for whether or not we are succeeding in the issue of interoperability? 

Secretary SEBELIUS. Well, I would say, again, Senator, from the 

outset—and I would certainly agree with you that that has to be 

the north star of whether electronic records work—it is not whether paper files are in somebody’s computer, but it is whether or not 

you can measure, share information, not only across a State, but 

across the country and conceivably across the globe. 

So that has been part of the framework of the formula to look 

at what sort of IT systems would qualify, what the specs have to 

be. It is part of what has to be attested to, that a conversion to an 

electronic record system has to have the capacity to actually get to 

Stage 3 along the way and demonstrate that. It does not have to 

20 

be part of the operating system from Day 1, but it has to have the 

capacity to add that on. 

There are very specific kind of specs as a part of what qualifies 

for the incentive payments, so I think that has been part of what 

the technical committee that has been the advisor to the Office of 

the National Coordinator from the beginning has been focused on: 

how, at the end of the day, you make sure that these systems actually work. 

We were strongly advised, Senator—and it came at the dismay 

of, I would say, some of the biggest IT companies—but we were 

strongly advised not to choose one system, not to have one winner 

in this market and everybody else a loser, but rather to focus on 

a series of specs that would, at the end of the day, make sure that 

these systems were interoperable but then would allow providers, 

hospitals, and others to either make conversions to the systems 

that they had or purchase any variety of new equipment. That has 

really been the framework, to have it be more open-source, but certainly with interoperability at the end of the day. 

Senator THUNE. I am glad to hear that you are focused on these 

specs. I do not know that these specs exist. Again, the selfattestation model that is being used seems to lack the kind of documentary evidence that the folks who are eligible for some of the assistance that is coming with this are actually focused on, these 

right metrics that you are talking about. 

So I guess the only thing I would say in conclusion is that we 

look forward to engaging with you and your department on this, 

and we are going to continue to solicit feedback from stakeholders 

about where they are. I think this report that we put out will 

maybe put a fine point and additional focus on that. So, thank you. 

Secretary SEBELIUS. Thank you. 

Senator CANTWELL [presiding]. Thank you, Senator Thune. 

Madam Secretary, welcome. Thank you for being here. Thank 

you for your help on the basic health plan. I appreciate that very 

much. I also thank you for the President’s budget as it relates to 

$1 billion for mental health programs for substance abuse and 

mental health services and $460 million for the mental health 

block grant services. I think that will go a long way to helping 

States deal with these issues, so I very much appreciate that. 

I wanted to follow up on my colleague from Pennsylvania’s question, particularly as it related to graduate medical education. This 

is a big issue for all of us in the country, obviously, with the shortage that we are looking at, something like 90,000 specialists and 

primary care physicians by 2020. 

For us in the WWAMI region—Washington, Wyoming, Alaska, 

Montana, and Idaho—we are even below the national average now, 

so that is why we care so much about this issue. 

When it comes to figuring out the impact, he mentioned Children’s Hospital, which I could say probably the same about Seattle’s Children’s Hospital. But the issue is also trauma centers or 

burn centers like Harbor View Hospital. So, when you look at this 

reduction in indirect medical education, it impacts that workforce. 

They have residents there whom they are not reimbursed for under 

the Medicare model. 

21 

So how do we look at this issue when there is specialized training that goes on at these trauma centers, and they want to get 

their graduate medical education? How do we look at this and 

make sure that these facilities can keep running and operating 

during this time period? 

Secretary SEBELIUS. Well, again, Senator, I think certainly the 

training of new doctors is of critical importance. We know what an 

important role graduate medical education funding through Medicare plays in that training, which is why I would say, even in these 

very difficult budget times, there was an attempt to make sure that 

we were funding the direct costs, as well as doing some additional 

looking at where there were real gaps in services. 

A lot of the workforce analysis looking forward indicates that it 

is in primary care providers, gerontologists, others where we often 

have significant gaps. So we have not only tried to have a budget 

that supports the direct cost of graduate training, but also shifts 

some of the unused GME slots from areas that may have been 

more focused on specialty care into areas specializing in primary 

care, pediatric care, gerontology care, hoping that the effort to address people’s preventive care needs at the front end will be met 

by a health care provider. 

So we would be interested in working with you and hearing from 

you about the impact of this on a critical center like the burn center and the trauma centers that you have in your area. 

Senator CANTWELL. Thank you. We will get you some information on that. 

Secretary SEBELIUS. Sure. 

Senator CANTWELL. I do not know that that is the intended consequence, but I think people are concerned that that will be the unintended consequence, because those costs are not covered. 

Secretary SEBELIUS. You bet. 

Senator CANTWELL. So maybe there is something we can do 

there. 

If you could comment, too—at the University of Washington, we 

train so many primary care physicians. I think we are number-one 

in the Nation. But we are also very high on the list, in the top five, 

of institutions with NIH funding. So this NIH budget issue is a 

very big issue. We understand what you have done. 

Obviously, for these institutions we are hoping to get closer to $32 billion than $31.5 billion. And you think, that is close, what 

is the difference? Why does that matter? Well, for us, the total economic impact for research is 8,800 jobs and $470 million in wages, 

so this will be a big impact to us. In fact, one of our professors was 

quoted in the Wall Street Journal as saying, ‘‘People are asking me 

whether they should leave science.’’ 

So, given what is already in the budget, what is being discussed 

as far as sequestration, are we having a chilling effect on this investment in science? What can we do to help mitigate the sequestration’s impact on NIH funding? 

Secretary SEBELIUS. Well, I think that the President has proposed a budget going forward and a way to have a sustained and 

balanced approach to both reducing the deficit, but making some 

of the critical investments that we need to make. Actually, the 

budget anticipates removing sequestration. 

22 

Senator CANTWELL. I should just add—sorry to interrupt—we are 

all cheers about the magnificent contribution for brain research. 

Thank you. 

Secretary SEBELIUS. Well, I think that is an example of the 

President’s belief that we cannot cut our way to prosperity in the 

future, that we must invest. Certainly scientific research is one of 

the most critical investments to keep the innovation and research 

at the front end. 

So he very much supports outlining the mapping strategy, which 

could have a huge impact not only on cures of the future, but when 

you think about health costs related to everything from autism to 

Alzheimer’s. If we want to really get our arms around what is happening to health costs in the future, this kind of brain mapping has 

an enormous impact. 

As you say, I think Dr. Collins estimates that there is about a 

7:1 return, that every dollar in research grants generates about $7 

in economic activity in the community where those research grants 

end up, in terms of jobs and scientists. So this is clearly a win-win 

investment that the President very strongly believes in and supports. 

Senator CANTWELL. Well I hope, as we continue to talk about and 

see the impacts of sequestration, the administration will speak out 

on this, because it is a very short-sighted approach, particularly 

when it comes to the NIH budget. 

I hope that we can get organizations and institutions, whether it 

is the Institute of Medicine or others, to put pencil to paper and 

really measure this, as you just did with that 7:1 ratio. We may 

be saving a few dollars now, but it will cost us millions, if not billions, more if we do not continue the investment in research. So, 

I hope we can make that point to our colleagues here. Thank you. 

I think, Senator Portman, you are next. 

Senator PORTMAN. Thank you, Senator Cantwell. I think I am 

last and only, as well as next. [Laughter.] 

Senator CANTWELL. You never know who might come back. 

Senator PORTMAN. Exactly. Well, thanks very much. 

Madam Secretary, thank you for being here. We just had an interesting exchange about the need for us to do more research. I 

would just make the obvious point that that part of our budget is 

being squeezed more and more and more by the reality that the 

mandatory spending part of the budget—which is now 65 percent 

of the budget, which is the part that is on auto-pilot, that is not 

appropriated every year—is the fastest-growing and now obviously 

biggest part of the budget and one reason the research dollars are 

tough to find, and one reason children’s hospitals are concerned as 

they see the squeeze, including our great Children’s Hospital in 

Cincinnati. On the mandatory side of the budget, of course, the 

number-one cost driver is health care, by far. 

The Congressional Budget Office, which is a nonpartisan group 

here in Congress, has just given us another report. This one is 

looking forward to the next 10 years, what is going to happen in 

terms of our budgets. They say there will be a 110-percent increase 

over the next decade, from $800 billion to about $1.65 trillion—a 

110-percent increase in health spending on the mandatory side. 

23 

They also make the point that if we do not address this problem, 

obviously it continues to grow. Then, over the next 3 decades, they 

say that the health spending in essence bankrupts the country, because you cannot raise income taxes, at least not high enough, to 

catch that level of spending. It just cannot be done. 

I think it is indisputable that that is our number-one problem in 

terms of the budget. Since we are here today talking about the 

budget, I just wanted to get your thoughts on that. 

The White House has proposals in the budget that, as I read it, 

would reduce that growth from about 110 percent over the next 10 

years to about 100 percent, but it is actually 104 percent because 

it also assumes a permanent Medicare doctor fix, and that estimate 

also does not include the $90 billion in the canceled sequestration 

cuts to Medicare which would further decrease health savings. So 

it is somewhat more than a 104-percent increase in spending rather than 110 percent. No structural reforms. 

The question is, with the trustees having told us the Medicare 

trust fund is insolvent in 2024, and again, with everyone who has 

looked at this saying our number-one driver in all this is Medicare, 

and once again the Medicare funding trigger having been ignored— 

so no proposal from the administration, even though it is required 

by law—my question is, what do you suggest in terms of dealing 

with this problem which everyone now acknowledges? How are we 

going to close these tens of trillions of dollars in unfunded liabilities that the trustees have estimated? Where is the administration’s plan to bring long-term solvency to our Medicare program? 

Secretary SEBELIUS. Well, Senator, I think that there is no question the President is eager to work with Congress to have a longterm strategy that both ensures that we keep the commitments 

that we made to seniors and others in the mid-1960s around benefits in their senior years, as well as looking at the viability of funding and support for Medicare and Medicaid into the future. 

I think, in the last 3 years, there is an enormously positive story 

to tell, a very different story than we have seen really over the history of the Medicare program. Last year alone the per-beneficiary 

cost rose at the smallest level that it has ever done in history. It 

is a four-tenths of 1 percent increase per beneficiary. 

As you know, part of the growth right now deals with demographics, not health costs. I think that effort is very much under 

way to really re-think and re-look at how we pay for health care, 

shifting from a volume payment to a value payment, testing models 

for the first time ever that could lead to significantly better care 

at lower cost. Those efforts are very much under way. 

Medicaid spending is down 2 percent from 2011 to 2012, again, 

a decrease in year-over-year spending. Again, that has not been 

seen before. So I think, structurally, the CBO has revised its estimates recently based on that cost trend. We know that the Affordable Care Act added about 8 years to the life of the trust fund. 

The budget on the table adds another 4 years. But if this cost 

trend continues, I am optimistic that we can revise that even further. We would be eager to look at a longer-term strategy around 

how we make sure that the commitments to seniors and the most 

disabled Americans are fulfilled and not shifting the costs onto 

24 

them by destroying Medicare as we know it, but also looking at the 

longer-term funding challenges. 

Senator PORTMAN. Well, with all due respect, no one is talking 

about destroying Medicare as we know it. People are looking at 

sensible ways to reform the program so it is strong and can be 

there in future generations. And by the way, the Congressional 

Budget Office’s report is from a few weeks ago, so it does include 

that data. Your own data indicates the same thing, which is, these 

costs are unsustainable by any measure. So I hope you will look at 

some reform that is more structural. 

I know that you support in the budget some means-testing, for 

instance, but I would ask you also to look at Medicare Part D. 

Marilyn Tavenner, whom you know is your nominee for CMS, came 

before this committee and told us the actual costs for Part D are 

40 percent less than the original estimates. CBO has now reduced 

its 10-year cost projections by over $100 billion in each of the last 

3 years. 

Your Deputy Administrator has said that Part D costs have remained flat for years and are expected to decline in 2014. You have 

also reported that, over the past 3 years, the average monthly benefit premium has stayed essentially flat, right at about 30 bucks 

a month. 

So I believe this indicates that there is something going on in 

Part D, which is frankly that the private sector has to compete for 

the business of tens of millions of seniors. That is one reason that 

those costs have been less than projected. 

So I encourage you to learn from and not undermine Part D. I 

notice in your budget you target Part D again, particularly the 

Medicare Advantage programs, which as you know, given your 

Ohio roots, is critically important in our State: over a third of seniors enjoy it. So I would just ask for you to take a look at that Part 

D success rate. In my view, I think that is where some of the structural reforms can and should be made. I thank you for your time 

today and for your service. 

Secretary SEBELIUS. Thank you, Senator. 

The CHAIRMAN. Thank you, Senator. 

Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. 

Madam Secretary, thank you for coming. There is a lot to ap- plaud in the budget, certainly the $100-million investment to advance research education and outreach for Alzheimer’s Disease, 

something that took my mother’s life; the funding for community 

health centers is incredibly important; the quality primary care in 

communities throughout the Nation. Those are all great things. 

There are still tough decisions to make, and savings to be had. 

I think we did a lot of that in the Affordable Care Act. I have long 

held that real long-term savings can and should be found by encouraging the efficient delivery of health care through measures 

such as increasing the use of electronic medical records—we are on 

our way there—promoting the efficient and well-managed delivery 

of medication, and improving coordination between acute and postacute providers to ensure the appropriate care setting. Do you 

share those views as they relate to how we save money in those 

areas? 

25 

Secretary SEBELIUS. Yes, Senator. I think all of those are an 

enormously important shift in the way health care is delivered as 

opposed to just paying for volume, really looking at value proposals. 

Senator MENENDEZ. Yes. So, with that having been said, I am a 

little dismayed at some of the so-called savings that are identified 

in the Medicare program that, in my mind, are nothing more than 

another set of cuts. 

I look at that, and I say to myself—following on on Senator 

Portman’s question as it relates to Part D—is it not true that the 

Part D program currently costs about 40 percent less than the 

original estimates and that the CBO has reduced cost projections 

by more than $100 million a year for each of the last 3 years? 

Secretary SEBELIUS. Yes, sir, that is accurate. I think that some 

of the negotiating authority that you actually directed to CMS as 

part of the Affordable Care Act had a beneficial effect on some of 

those Part D negotiated—— 

Senator MENENDEZ. Is it not further true that under the Affordable Care Act, that with the donut-hole rebates and other costcontainment provisions, that beneficiaries have not only saved 

about $6 billion in drug costs since the law was signed, but that 

their premiums have been essentially flat? 

Secretary SEBELIUS. Yes, sir. 

Senator MENENDEZ. And so, given that the program is proving to 

be successful in providing seniors access to the drugs they need at 

costs that continue to be below estimates, could you ensure that 

the imposition of Medicaid-style rebates in the Part D program will 

not ultimately lead to restricted formularies, increased premiums, 

and higher out-of-pocket costs for beneficiaries? 

Secretary SEBELIUS. Well, Senator, we are confident that the 

kind of drug strategies that provide available drugs for dualeligibles are similar to what can be in place for those same individuals, as Senator Nelson said, when they are 64, and it should not 

change when they are 65. So we are confident that this will not 

only be a savings to the government, but actually make sure that 

beneficiaries have access to the critical drugs they need. 

Senator MENENDEZ. So you do not believe that such a move will 

create restricted formularies? 

Secretary SEBELIUS. No, sir. 

Senator MENENDEZ. You do not believe that it will create increased premiums? 

Secretary SEBELIUS. I think that there is no question that there 

may be some formularies that are in place, but, as you know, a 

dual-eligible does not lose any of his or her Medicare benefits, so 

they must have the same benefit package going forward. 

Senator MENENDEZ. So how do we ensure that the research and 

development that makes us the leader in the world and that makes 

us globally competitive, and, maybe even more important than 

that, creates life-saving, life-enhancing drugs, does not get diminished? 

Secretary SEBELIUS. Well, I share those concerns, Senator, but I 

feel that Medicare Part D, in spite of the fact that it has come in 

under the original estimates when the benefit was first created, is 

still paying at a much more substantial rate than the Veterans AdVerDate Nov 24 2008 17:01 May 22, 2014 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 R:\DOCS\87928.000 TIMD
26 

ministration, than Medicaid programs, than a variety of other programs, so we are still paying premium dollars for a number of 

those drugs. 

For these 9 million individuals, the budget assumes that, on balance, this is an appropriate way to both save some dollars going 

forward, but also make sure that those beneficiaries receive the 

critical medications that they need. 

Senator MENENDEZ. I just do not think we will have the research 

and development dollars. If I may have another minute, Mr. Chairman? 

The CHAIRMAN. Sure. 

Senator MENENDEZ. With reference to hospitals, one question I 

had raised with you is, the imputed floor issue at CMS is pending. 

It is something that was part of the Affordable Care Act. It is a 

critical issue to New Jersey hospitals, and we are awaiting a response. I just want to bring it up again, because it is probably life 

or death for a whole host of New Jersey hospitals. 

In line with hospitals—the Medicare cuts to hospitals—the President’s budget calls for about $11 billion in cuts to graduate medical 

education and a $177-million cut for children’s graduate medical 

education programs. Both of these are critical to train the next generation of doctors. 

One of the things we heard about as we were in this committee 

debating the Affordable Care Act, which I was proud to support, is, 

how do we have the health care workforce to deal with millions 

more whom we obviously aspire to cover, looking at the age of 

many doctors, particularly in certain parts of our country? 

So how is cutting back on the programs specifically designed to 

train new physicians going to provide for the needed increase in 

the workforce that we recognize we need? 

Secretary SEBELIUS. Well, Senator, I understand the concerns 

about the reduction in graduate medical education. The budget is 

based on a design that would provide to hospitals and children’s 

hospitals the direct cost for those residency training programs. It 

does not provide the overhead and administrative costs. 

We feel that having the direct costs continuing to be paid should 

not diminish the number of residents who can be trained in those 

programs, but, again, it would not be a budget choice in a different 

budget time. It is a time of very scarce resources, and we are trying 

to make sure that we can fulfill all of our obligations. 

Senator MENENDEZ. Well, I appreciate that. 

Mr. Chairman, this is a concern. At the end of the day, after all 

the effort we exerted to provide coverage that was affordable— 

which was a big goal of the committee, to make sure we tried to 

control costs and at the same time amplify the universe of which 

Americans would be further covered who presently are not and stop 

having people going to the emergency room—it creates the necessity for a cadre of physicians in our country, and cutting in this 

particular field, while I understand the challenges and the tradeoffs, is just undermining the very essence of some of the goals that 

we intended under the Affordable Care Act. So, I hope we will be 

able to visit it as we move forward in our deliberations in the days 

ahead. 

Thank you, Madam Secretary. 

27 

Secretary SEBELIUS. Thank you, Senator. 

The CHAIRMAN. Thank you, Senator. 

Madam Secretary, I know you are busy. I would just like to ask 

a bit more about the concept of 1-stop shopping, one resource center, someplace for businesses to go to so they do not have to deal 

with so many different agencies with respect to the implementation 

of the Affordable Care Act. Does that make any sense? 

Secretary SEBELIUS. Well, Senator, there will be a 1-stop shop 

with the Shop Exchange up and running in January 2014, so business owners will be able to enter the marketplace through a 1-stop 

area, get the information about what is available, have a choice of 

plans. If the business owner qualifies for the employer tax credit 

based on the number of employees and the wages of those employees, that will automatically be part of the program. 

So there will be a 1-stop shop available to small business owners 

who, as you know right now, often pay 18 to 20 percent more in 

the market than their large competitors, and we are very confident 

that they will have better choices, better prices, with the new marketplace that will be up and running. 

The CHAIRMAN. The real concern here is from the business perspective more than consumers, individuals. I think I heard you say 

that the shop—I have forgotten what it is exactly called—will be 

delayed. 

Secretary SEBELIUS. No, sir. That is not accurate. The shop will 

be up and running in every market in the country. For the States 

where the Federal Government will be operating the marketplace, 

we are delaying one portion of the shop plan, which is that employers, if they choose to do so, could offer a wide variety of plans to 

their employees. 

Year 1 for the Federal marketplaces, employers will have a 

choice of coverage for their employees, but that choice will then be 

passed along. Year 2 and beyond for the Federal marketplaces, the 

employer, if he or she chooses, can then turn to the employees and 

say, you can choose among 15 different plans. 

For State-based marketplaces, that employee choice could be 

available from Day 1. But we will have two steps. So, in 2014, all 

employers will have a choice. They will have a choice of plans to 

offer their employees. They just will not be able to say to that employee, should they choose to do so, you can choose any plan in the 

shop market. 

The CHAIRMAN. All right. Well, as I said, I will be watching it. 

Secretary SEBELIUS. Yes, sir. 

The CHAIRMAN. We will be doing all we can. Let us know what 

help you need too. It is a 2-way street. 

Secretary SEBELIUS. I will be happy to do that. 

The CHAIRMAN. All right. 

Secretary SEBELIUS. Yes, sir. 

The CHAIRMAN. Thank you. 

Secretary SEBELIUS. Yes. 

The CHAIRMAN. Good luck. 

Secretary SEBELIUS. Thank you. 

The CHAIRMAN. The hearing is adjourned. 

[Whereupon, at 11:44 a.m., the hearing was concluded.] 

(29) 

A P P E N D I X 

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