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90–720 PDF 2004

S. HRG. 108–229

ENHANCING MEDICARE FOR THE 21ST CENTURY:

A PRESCRIPTION BENEFIT FOR SENIORS

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ST. LOUIS, MO

AUGUST 27, 2003

Serial No. 108–19

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

LARRY CRAIG, Idaho, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MIKE ENZI, Wyoming 

GORDON SMITH, Oregon 

JAMES M. TALENT, Missouri 

PETER G. FITZGERALD, Illinois 

ORRIN G. HATCH, Utah 

ELIZABETH DOLE, North Carolina 

TED STEVENS, Alaska 

RICK SANTORUM, Pennsylvania 

JOHN B. BREAUX, Louisiana, Ranking 

Member 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

DEBBIE STABENOW, Michigan 

LUPE WISSEL, Staff Director 

MICHELLE EASTON, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator James Talent ....................................................... 2

PANEL I 

Claude Allen, Deputy Secretary Department of Health and Human Services ... 5

PANEL II 

Ron Levy, President and CEO for SSM Health Care, St. Louis, MO ................. 23

Audrey Vallely, Senior Citizen, Pacific, MO .......................................................... 29

Frederick G. DeFeo, M.D., President of Missouri State Medical Association ..... 33

(III) 

(1)

ENHANCING MEDICARE FOR THE 21ST 

CENTURY: A PRESCRIPTION BENEFIT FOR 

SENIORS 

WEDNESDAY, AUGUST 27, 2003 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

St Louis, MO 

The committee met, pursuant to notice, at 10 a.m., in Little Theater, Harris-Stowe State College, 3026 Laclade Avenue, St. Louis, 

MO, Hon. James M. Talent presiding. 

Present: Senator Talent. 

Mr. GIVENS. Good morning. I am Henry Givens, Jr. I am President of Harris-Stowe State College and we are honored to have all 

of you with us this morning. The Honorable Senator James Talent, 

distinguished panelist, city and state legislators, community leaders, members of the Harris-Stowe State College family, distinguished guests, ladies and gentlemen, welcome to Harris-Stowe 

State College and a special welcome to this historic event. 

Harris-Stowe is greatly honored and privileged to have been chosen as a site for this Congressional hearing relating to healthcare 

benefits. The information that you will receive today, is one of the 

utmost importance to a significant portion of the population in metropolitan St. Louis and in the Nation at large. 

We are all deeply indebted to our U.S. Senator from Missouri 

who has brought these distinguished panelists to our community. 

As you know, Senator Jim Talent campaigned for the U.S. Senate 

on a platform of healthcare, job economic growth and national defense. Missourians elected him to serve our great State in the U.S. 

Senate last November. 

Senator Talent served for 8 years in the U.S. House of Representatives and 8 years in the Missouri House. Now, as a freshman U.S. Senator, he holds important Senate leadership positions 

and is working diligently to be Missouri’s healthcare advocate. 

Let me just mention a few of the important bills that he has already sponsored in the U.S. Senate. The Small Business Fairness 

Act to provide healthcare to small business owners and workers. 

Another key legislation is the Sickle Cell Treatment Act to expand treatment and services for patients with this disease. This 

legislation has been rightfully called the most significant sickle cell 

disease legislation to be introduced in 20 years. 

Senator Talent has a long record of public service to the citizens 

of Missouri and now to the American people all across the nation. 

It is, therefore, my distinct privilege and great honor to introduce 

2

the convener of this highly important congressional hearing, the 

Honorable James M. Talent, Senator from the great State of Missouri. Senator Talent. 

OPENING STATEMENT OF SENATOR JAMES M. TALENT 

Senator TALENT. Thank you, Henry. That was more than I deserve and better than I often get, so I appreciate that very much. 

It is a great pleasure to be here at Harris-Stowe. When I visited 

last, Dr. Givens said, you need to come by and see our new Emerson Center. I said, well, not only am I going to come by and see 

it, we may use it for something that we are doing in town, and he 

was very generous and offered, and we took him up on it. It certainly is a magnificent facility, a part of a magnificent institution. 

I could spend the whole hearing talking about Harris-Stowe, but 

suffice it to say that, under Henry Givens leadership, this institution has continued to play a vital role in the African-American community, but more broadly speaking, in the St. Louis community as 

well. 

We were just talking about the partnerships in which HarrisStowe is at the center. I know that that role is going to grow, and 

I have been pleased to help in any way I can. We are grateful, 

again, to the college and to Dr. Givens for allowing us to be here. 

I am going to convene now, a hearing of the U.S. Senate Special 

Committee on Aging. It is a committee that I wanted to be on and 

was pleased to be appointed to when I went into the Senate, because of the importance of the issues that this committee confronts, 

one of which, of course, is prescription drugs, but also the future 

of Medicare in general, how to strengthen it, and how to strengthen 

Social Security. 

These issues are our key not only to the tens of millions of seniors today, but to all of us, because all of us are hoping, if we are 

not already senior citizens, to someday become senior citizens. We 

are all going to have to confront these issues. 

Today we are going to discuss improvements to the Medicare program that I hope and believe are going to provide Missouri seniors 

and the disabled with access to quality, affordable healthcare, including prescription drug coverage. 

Whoever is chairing the hearing gives a brief opening statement 

and then introduces the first panel, and I am going to do that, and 

then asks some questions of the panel. 

Typically, we do not have questions directly from the audience in 

a Senate hearing. I chafe at that. But what we’ve done is ask you 

to fill out question cards and I have one here. 

Medicare consists of two distinct parts, Part A, which is a hospital coverage, and Part B, which is the supplementary medical insurance, which is technically voluntary but which almost everybody 

participates in. 

Medicare has been that way since it was introduced in 1965, and 

I like to refer to Medicare as a tremendously important program 

that’s done good for millions and millions of people, including both 

of my parents. But it is a program that was devised in 1965 and 

has not, structurally, really changed since. 

Now in 1965, if you think about it, really nobody who had health 

insurance coverage had prescription drug coverage. It was a pretty 

3

small part of people’s treatments. I have asked physicians about 

this—we have physicians here today. In those days, you got prescription drugs if you had any problems with infections, usually on 

a short term, or for pain. It just was not a regular course of disease 

management or treatment. In fact, disease management really 

wasn’t known that much then. 

So Medicare reflects those times. It was fine when it was introduced, but now, just about everybody who has health insurance 

coverage has prescription drug coverage, and most people who have 

coverage have access to options that will help them with things like 

wellness and disease management. 

About 16 percent of the Missouri population is enrolled in the 

Medicare program. This is a vital issue for Missouri seniors, and 

today’s hearing is going to focus on the legislation which Congress 

is currently working on and how it can help seniors and the disabled have access to quality, affordable prescription drug coverage. 

Now the good news: Legislation has recently passed the Senate 

and the House to provide for prescription drug coverage in a context where we are going to strengthen access to Medicare for everybody. We have an historic opportunity. This is something people 

have been talking about for a long time. The window is now open, 

and I am hopeful that we are going to get this bill through this 

window in the next couple of months. 

We are going to hear testimony from several panels of witnesses 

on several related issues. The Senate passed bill provides benefits 

to seniors including new prescription drug coverage as well as a 

voluntary option that offers seniors the kind of choices that other 

people who are insured currently enjoy. 

I am going to introduce the panelists at the end of my remarks. 

Let me say also a comment about this hearing and the context of 

it. I did a number of town hall meetings earlier in the year on prescription drugs and heard from seniors about what they wanted in 

a prescription drug plan. It was all common sense. It was exactly 

what you would expect. 

They wanted coverage that would apply to everybody, be voluntary, as immediate as possible, have reasonable co-pays and 

deductibles, and not force them or their doctors to prescribe only 

certain kinds of prescription drugs. 

The bills that have passed the House and Senate, I am pleased 

to say, are consistent with all those principles. They’re very different, but each of them respects those important principles. 

I am hopeful that the conference committee between the House 

and Senate will produce a final bill in the next couple of months. 

When it does, we will have another series of meetings around Missouri to explain what is in the bill so that people know the details 

of it. 

We don’t have those details available, but I wanted to have a 

hearing to touch base on the underlying principle. I wanted to get 

an authoritative official from Washington who could discuss these 

issues and be available to answer questions, and that’s really why 

we are here today. 

Under both the House and Senate bills, seniors will pay an estimated $35 a month premium, about a dollar a day, for prescription 

drug coverage delivered through a Medicare—approved healthcare 

4

plan. The deductibles in the House and Senate bill vary from $250 

to $300 a year. 

Both bills provide additional help for lower income seniors and 

people who have very high prescription drug costs. So folks in those 

situations will save more, although everybody will save. 

Both bills provide for immediate implementation of a Medicare 

drug discount card that will save people from 10 or 15 to 25 percent. We can do that right away. The rest of the plan will take several years to set up, so there is some immediate relief, which is 

something that is important to me. The President has asked Congress to provide seniors with that card starting in 2004. 

Low-income seniors will also immediately receive—or receive 

within the six months after the President signs the legislation, 

which is as close as Washington gets to immediate, a $600 to $800 

subsidy in each of the next 2 years while the full plan is implemented. 

In addition to the prescription drug benefit, the Medicare 

package would allow seniors to choose from a variety of Medicareapproved health care plans to fit their individual health needs. The 

idea here is to try and create a system for seniors which is similar, 

if they choose, to the Federal Employee Health Benefit Plan, which 

has worked very well for Federal employees. 

These plans will offer seniors more benefits, such as better preventative care for diseases like cancer, heart disease and obesity. 

Care coordination, which is like disease management for conditions 

such as diabetes, heart disease and Alzheimer’s Disease, protection 

against high out-of-pocket costs, and greater choice of the doctors 

and hospitals they want for treatment. 

Everything about the new Medicare plan is voluntary, and that 

is important—and that’s both in the House and Senate bills—and 

that will be in the conference report as well. 

Both bills include provisions that seniors have told me are important and I agree reasonable deductibles, strong catastrophic protection, provisions to help low income seniors and voluntary options. 

Senator TALENT. Today’s hearing is divided into two panels. I 

will briefly introduce the panelist, they will testify, and then I’ll 

ask some questions, including questions that have been submitted 

to me from the audience. 

The first panel features Claude Allen, is the Deputy Secretary of 

Health and Human Services at the U.S. Department of Health and 

Human Services in Washington. He flew into town this morning 

just to participate in the hearing. I am pleased that he was able 

and willing to do that. 

Our second panel features Missourians who will testify about 

their hands on experiences with the Medicare program. The first 

witness on the second panel is Audrey Vallely a senior citizen. I 

had a chance to meet Audrey before, and she’s going to tell us 

about her experiences on Medicare. 

I expect that she will be a very effective witness, and we are 

looking forward to hearing your story, Audrey. I want to thank you 

for being here, and also congratulate you on the birth of your first 

great-granddaughter. You must have married very, very young to 

have a great-granddaughter. 

5

The second witness on the second panel is Dr. Frederick DeFeo, 

the President of the Missouri State Medical Association, which represents 5,000 doctors. 

Our third and final witness on the second panel is Ron Levy, 

who’s wearing two hats for us today. He’s the Regional President 

and System Vice President of SSM Health Care. He’s going to 

speak on behalf of that organization, as well as on behalf of the 

Missouri Hospital Association. 

I want to thank all of the witnesses for being here and everybody 

in the audience for coming. I also want to say that I will be available after the hearing, along with my staff, to visit with the folks 

here. If you have additional questions about prescription drugs or 

any other issue, if you don’t have a chance to speak with me today, 

I invite you to call my office here, which is 432–5211. 

Thank you all. We will go right to the first panel. Usually the 

first panelist is somebody working in the Administration, and we 

have a very high-ranking official from the Department of Health 

and Human Services, Claude Allen. 

Deputy Secretary Allen is the No. 2 man at the Department. He’s 

at the Federal Government’s principal agency for protecting the 

health of all Americans and providing essential human services. 

The Department includes some 300 programs covering a wide 

spectrum of activities. As Deputy Secretary, Mr. Allen works closely with Secretary Tommy Thompson on all major policy and management issues, and he serves as the Department’s Chief Operating 

Officer. 

He’s going to describe the President’s plan to strengthen and 

modernize Medicare, and he’ll focus on the prescription drug and 

voluntary health plan components. 

Thank you, Secretary Allen. I appreciate your interrupting a vacation to come in, so I am very grateful. Please proceed with your 

testimony. 

STATEMENT OF CLAUDE ALLEN, DEPUTY SECRETARY 

DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Mr. ALLEN. Thank you, Senator. Thank you very much. Senator 

Talent, I want to thank you and Chairman Larry Craig for inviting 

me to Harris-Stowe State College here in St. Louis to discuss Medicare reform, and in particular, the value of a prescription drug benefit in the Medicare program. 

I have submitted written testimony for the record and I will summarize here in my oral statement. 

Senator TALENT. Yes, please do. 

Mr. ALLEN. Thank you. President Bush and Secretary Thompson 

are strong believers in Medicare and know the tremendous benefit 

it has been to our country. Medicare is nearly 40 years old, however, and is out of date with modern medicine. That is why the 

President has urged Congress to provide more choices and benefits 

to Medicare beneficiaries. 

Senator Talent, I want to thank you for your leadership on this 

important issue and for helping pass Senate Bill 1. Through your 

hard work and the work of your colleagues in Congress, we truly 

are in the midst of making the most sweeping changes to Medicare 

since the program began in 1965. 

6

To bring about real change in Medicare, we need to combine the 

strength of the current program with the best of the current private sector and health insurance market, the Federal Government’s 

experience in running the largest employer sponsored health insurance program and Medicare’s experience in running a program for 

40 million seniors and Americans with disabilities. 

As successful as this program has been, it has not kept pace with 

decades of dramatic improvements in healthcare. As a result, Medicare beneficiaries today lack many of the options and benefits, such 

as prescription drug coverage, available to millions of other Americans. 

If we were creating the Medicare program today, we would model 

if after what consumers are receiving in today’s healthcare marketplace, more choices and better benefits. All seniors should have the 

option of a subsidized prescription drug benefit as part of modernized Medicare, as well as better coverage for preventative care and 

serious illnesses. 

Beneficiaries should have the option of keeping the traditional 

plan with no changes, but we must offer more choices for better 

health plan options like those available to all Federal employees 

and their families. 

Medicare legislation should strengthen the program’s long term 

financial security with better management, streamlined regulations 

and administrative procedures and stronger fraud and abuse enforcement. Most importantly, Medicare should encourage high quality healthcare for seniors. 

The President’s framework in both bills in Congress, gives seniors the choice of options and under all of the options seniors get 

more benefits, including prescription drug assistance. 

I want to just go over those options with you briefly. In the first 

option, seniors can stay and from additional Medicare and get the 

fee for service system they enjoy currently with more benefits including prescription drug coverage. 

In the second option, seniors can choose enhanced Medicare and 

get prescription drug coverage, full coverage for disease prevention, 

including screenings for cancer, diabetes, and osteoporosis, and protection from high out of pocket costs associated with lengthy hospital stays or lengthy care. 

Then last, under the third option, seniors can choose what we are 

calling Medicare Advantage. Medicare Advantage will give the benefits of low cost, high coverage managed care plans, which many 

seniors prefer and receive currently, and a subsidized prescription 

drug benefit. 

All comprehensive Medicare drug benefit proposals will require 

significant lead time prior to implementation. But we know that 

seniors need help right now. That is why the President’s framework and Congress both have designed to provide significant and 

immediate assistance to low income beneficiaries with their prescription drug costs. 

To ensure that seniors are provided help with their prescription 

drug costs as soon as possible, they will be provided with a drug 

discount card that is estimated to achieve discounts of 10 to 25 percent on the costs of prescriptions by pooling the buying power of 

Medicare participants and other cost saving measures. In addition 

7

to the discount card, the President’s framework would provide low income seniors with a $600 annual subsidy for drug coverage. 

One of the priority areas that I deal with on a daily basis at the 

Department, is the elimination of health disparities that we see in 

healthcare among communities of color. Statistic after statistic 

shows that communities of color fare worse than White Americans 

among diseases such as cancer, diabetes, cardiovascular disease, 

HIV/AIDS and conditions such as obesity and hypertension. 

The Medicare options that I described will increase the options 

for healthcare services for minorities. By providing better benefits 

and more choices, African Americans, Native Americans, Hispanic/

Latino and Asian American/Pacific Islander seniors will have better 

options for obtaining healthcare. 

By providing assistance for health insurance, increasing sources 

of primary care, such as through the president’s community health 

center initiative, and working with communities of color to break 

down the stereotypes and distrust of the healthcare profession, we 

can end health disparities in this country. 

I would be remiss if I did not mention the great work of historically Black colleges and universities, like Harris-Stowe State College, perform every day to help end health disparities. 

Senator Talent, seniors and people with disabilities in America 

need access to a prescription drug benefit. They need modern benefit options in Medicare. This is the year to get it done and we look 

forward to working closely in a bi-partisan manner with the conference committee to get a good bill on the president’s desk as soon 

as possible. 

Again, I want to thank you for inviting me here today and look 

forward to answering any questions that you may have or the audience informs will be presented. 

[The prepared statement of Mr. Allen follows:]

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Senator TALENT. Thank you, Mr. Deputy Secretary. Now I am 

going to ask you some questions that I have heard from seniors 

around Missouri and others. Of course, this subject is something 

that those of us who have elderly parents—and my Dad died last 

October and my Mom died about 15 years ago—are as or even more 

interested in understanding than they are——

Mr. ALLEN. Absolutely. 

Senator TALENT [continuing]. Because sometimes folks aren’t as 

interested in their own health as their kids may be. 

Mr. ALLEN. That’s right. 

Senator TALENT. There’s many children of folks on Medicare who 

are worrying about their mom and dad getting their prescription 

drugs. So everybody is concerned about it and they raised these 

issues with me. Let me just raise some of them with you——

Mr. ALLEN. Certainly. 

Senator TALENT [continuing]. Since you are the expert on this. 

Assuming we get this bill passed this year, let’s start with the drug 

discount card, how soon will that be available? 

Mr. ALLEN. As we said, we would like to have it available as soon 

as possible, and so what we are predicting is, as soon as the legislation’s signed, the drug discount card—the 10 to 25 percent discount 

that seniors and those on Medicare would be entitled to—would be 

available within 6 months after the date of passage. So we are anticipating that will be 6 months after signing of the legislation. 

Senator TALENT. Now I hope that we will expedite that as much 

as possible, No. 1, and No. 2, that the procedures for getting the 

card will be as clear as possible and we’ll make it available to seniors as soon as possible. 

Mr. ALLEN. That’s exactly right. At the centers for Medicare/

Medicaid services, we have already begun working in this area. As 

we have had some experience already with drug discount cards, we 

believe we can get it up and operational in that amount of time. 

Six months is the outside window that we are shooting for. We 

would try to get it sooner, if possible. 

Senator TALENT. You understand the skepticism of Missourians 

who have dealt with big bureaucracies before and, I mean, 6 

months is an outside target for me. Since we are fairly certain that 

this is going to happen, I hope the Department is planning now 

and will be able to swing into gear. 

Mr. ALLEN. That’s exactly right. We are already planning for 

that. It is a high priority for both the President and Secretary 

Thompson because we know that, of all the benefits, while we are 

looking at Medicare needing major reforms, are they going to take 

a period of time? 

The one area that seniors cannot wait for is getting the prescription drugs. 

Senator TALENT. Particularly for those with the greatest need. 

Along those lines, there will be an additional subsidy for low-income seniors. Now I have to preface this by saying that we are discussing what we think will be in the bill when it comes out of 

what’s called a conference committee. But the details haven’t actually been finalized, much less voted on by either House. However, 

this is what we expect. 

16

There will be a subsidy of $600 to $800 for lower income seniors. 

Now what do we mean by lower income, what do you think the bill 

is going to have? 

Mr. ALLEN. That is an area that is being worked out in the conference committee, we don’t know that right now. 

Senator TALENT. Right. 

Mr. ALLEN. So that’s one of the areas. But we do know that both 

in the Senate bill and the House bill, that there is clearly provision 

for a benefit of between $600 and $800. I believe the figure right 

now is $600, that low income will receive. But the question as to 

what qualifies as low income has not been finalized yet, and that 

is one of the issues the conferees are working through. 

Senator TALENT. Well, I am going to stick my neck out just so 

you all get a ballpark figure and the percentage I have heard 

tossed around is 135 percent of the Federal poverty line, which 

would be roughly an income of about $12,000 a year for an individual. 

Mr. ALLEN. That is correct. 

Senator TALENT. Now it could be somewhat higher, somewhat 

lower than that, but that’s the ballpark. 

Mr. ALLEN. That has been——

Senator TALENT. Is that a fair ballpark? 

Mr. ALLEN [continuing]. Pretty much, that is a fair ballpark I’d 

say, yes. 

Senator TALENT. I am going to add one point about implementation because it’s a little bugaboo of mine. I went back and looked 

up how long it took the government to institute all of Medicare in 

1965 when it was passed, because we’ve said that system was great 

then, it’s a little out of date now, we’ve been a little critical of it, 

and I think, properly so. 

But they were able to get it all instituted in 8 months in 1965. 

It would seem to me that we could try to do this additional benefit 

inside of the 2 years that we are now planning. 

Mr. ALLEN. Right. Right. 

Senator TALENT. So I know that you will attempt to do that, and 

I feel like we should be able to. 

Mr. ALLEN. Certainly. Senator, I think the point that you made 

at the outset, Medicare as we know it is 40 years old. The Centers 

for Medicare/Medicaid Services, they’re using 40 years old software. 

I don’t know of any major corporation in this country today—major 

insurer—that uses 40 year old software. 

So there’s a lot of work that has to be done and that’s such reforms are necessary. So we will be working very diligently to get 

it done. That’s why, again, the first part, the prescription drug 

card, will come on line within 6 months after passage. Then we’ve 

targeted 2006 for full implementation of the Medicare program. 

Senator TALENT. OK. Well, it’s good to give an outside date so 

people don’t get disappointed, but I would hope we could do it faster than that. All right, another issue that comes up concerns a seniors keeping existing coverages, will the new program be voluntary? 

So let’s first ask a questions submitted by Velda O’Guard from 

Mexico, Missouri, Velda, where are you? Are you here today? There 

you are, ma’am. Thank you. 

17

She asks—and this is a question I often get—if the bill passes, 

will it affect her Medigap insurance? Would you like to address 

Medigap/Medicare supplemental? 

Mr. ALLEN. Certainly. 

Senator TALENT. Tell us how you think it will affect that. 

Mr. ALLEN. That is a question of great concern that many seniors 

that I have heard from as well, whether it will affect your Medigap 

Insurance, and the answer to it is that, most seniors who are currently receiving and utilizing Medigap Insurance will be unaffected 

at all by this. 

However, there will likely be some changes for those seniors who 

get some of their insurance through private coverage. If you get 

some of your drugs through private coverage, you may be affected 

in your Medigap plan. But the way we are trying to structure the 

legislation and implement the legislation will be to your advantage. 

It will work this way: while the final details are still being 

worked out, it is possible that the final bill will recommend some 

changes to Medigap plans that cover prescription drugs so that 

they better fit with the new coverage scheme. Therefore, the 

Medigap will be benefited to you, as a recipient, under the Medicare plan and having a Medigap plan will actually get an increased 

benefit through. So you should not be harmed, but you should actually be benefited is what we are targeting. 

Senator TALENT. Working to make certain that any changes are 

favorable. It’s like if the bank finds that you are out of balance, but 

it’s to your benefit. 

Mr. ALLEN. Correct. 

Senator TALENT. I mean, that’s the idea here. For example, 

Medigap options now, as I understand them, don’t have very good 

catastrophic coverage, isn’t that right? 

Mr. ALLEN. That’s correct, they don’t have very good catastrophic 

coverage. 

Senator TALENT. One of the emphasis here is that we need to 

protect seniors from catastrophic prescription drug costs. I mean, 

one of the things I want from this bill is that, once it passes, nobody will have to go to bed at night worried that if they get some 

new prescription or set of prescriptions, the cost will take all their 

savings away. That there will be great coverage on that high end. 

Probably Medigap will be pushed more in the direction of providing good catastrophic. 

Mr. ALLEN. That’s right. I think, Senator, the point that you 

made is very clear, that the way that we are trying to structure 

this is that the benefits will be to your advantage rather than to 

your detriment. So if you can think of it as enhancing your benefits 

rather than taking something away from you, that’s what we are 

trying to structure it as. But, again, this is all being worked out 

still in conference. 

Senator TALENT. Now we have said several times—and this is 

something I insisted on from the beginning in discussions with everybody, and not just me—most of the Senators did as well —that 

this program be voluntary. 

That people who want to stay in traditional Medicare coverage 

can and still get prescription drug coverage, and people who want 

18

to take advantage of these new options can and will get prescription drug coverage. 

One point I want to make to folks is that newly retired seniors 

in today’s world are generally coming off of privately-sponsored 

health insurance that looks a lot more like what these new options 

are going to look like, then what traditional Medicare looks like. 

If we want to give them the opportunity to stay in the kind of 

coverage they’re used to, we have to be able to provide more choices 

because that’s what they’re used to. So I think this is the kind of 

situation where, if the Congress does this right, we’ll find many 

seniors choosing to stick with the traditional Medicare because 

that’s what they’re used to, but then as folks retire over the years, 

more and more of them will go into one of those options because 

that’s what they’re used to. Would you anticipate that happening? 

Mr. ALLEN. We do. In fact, one of the key issues is that currently 

about one in ten seniors currently receive their benefits through a 

private corporation plan. 

Senator TALENT. That was going to be my next question, so why 

don’t you go ahead and——

Mr. ALLEN. I think that’s right. 

I think your point is exactly right. Because of this, companies 

tend to be the larger firms, almost one in three Medicare beneficiaries is actually receiving their healthcare coverage from a 

former employer. 

So we are looking at a number of issues here. There was recent 

study put out by the Employer Benefit Research Institute that 

completed analysis. What they had said is that they believe that 

it is possible that about 1 to 3 percent of all Medicare beneficiaries 

will be impacted by the changes. 

What Congress and the administration are working to guard 

against, is having those private companies drop their coverage and 

therefore leave many of their employees in a lurch. So we are working very closely to ensure that that does not happen by giving incentives to employers to continue their coverage for their retirees 

by providing two options. 

One option would be to either continue the primary drug coverage that the company has for their employees, or, two, to accept 

the new government subsidy by wrapping around the private employers coverage around the Medicare program. 

So we are trying to minimize the impact of those individuals who 

will be retiring who have private company insurance coverage, so 

that they’re not impacted adversely and that we also do not damage the work that’s being done in the private sector because it’s 

very important that insurance is far better than a government program. 

Senator TALENT. Now on behalf of the Missourians I have talked 

to—and really for the record here since I get this question probably 

more often than any other because about one out of three people 

get some kind of benefit from the employer from which they are retired—how will the new benefit affect retiree coverage in terms of 

what the law may say and also employer practice. Employers may 

just say, oh well, now that the Federal Government’s covering this, 

I am going to drop my coverage. I am glad you raised that issue. 

19

We are caught in a tension because employees are dropping that 

coverage already. 

Mr. ALLEN. Right. 

Senator TALENT. If we don’t do anything because we are afraid 

that if we do something, employers may drop the coverage, we’ll be 

in a situation where we have no safety net as time goes on as more 

and more drop coverage. 

Mr. ALLEN. Right. 

Senator TALENT. Much less for the folks who don’t have the coverage in the first place. So what we are trying to do—and this is 

going to be hard so—I will look at this very carefully when it comes 

out of the conference committee—is to try and structure this so 

that we can provide the benefit without giving any kind of great 

incentive to companies that are free to do so contractually to drop 

their existing coverage. 

Mr. ALLEN. Right. I think that’s exactly right, that we have to 

be very careful not to structure the benefit package so it provides 

an incentive for private employers to drop coverage, but at the 

same time does not prevent them from making business decisions 

and put their employees at risk—their retirees at risk—because it’s 

a contractual obligation that has been to those employees. 

Senator TALENT. Right. Where it is a contractual obligation, they 

have that protection. It is a concern, but I personally don’t think 

it should keep us from moving forward. 

Sarhonda Browne is here. Where are you, Sarhonda? There you 

are. Good to see you. She’s from North View Village Nursing Home. 

I enjoyed my Saturday morning there. We had hot dogs and a little 

music festival. She’s asking, how would the new Medicare prescription drug coverage benefit affect long-term care seniors, those in a 

long term residential care setting? 

Mr. ALLEN. Those long term care residents in residential settings, if they are on Medicare, for example, if Medicare is supporting their stays in those facilities, they, too, will benefit by both 

the discount drug card. 

But more specifically because they’re low income, they will be 

benefited by the direct subsidy, the $600 to $800 subsidy, that will 

be provided in terms of drug purchasing power that they’ll be provided. 

So if they’re already participating in the Medicare program, receiving those benefits, those will be their benefits as well, enhanced 

under the program. So it will be consistent with what we are doing 

across the board. 

Senator TALENT. Yes, my understanding as we debated this bill 

is that those residents will benefit like others who are under Medicare, so they’ll get whatever additional benefits that they can get. 

Mr. ALLEN. Exactly. 

Senator TALENT. The bill does not itself contain anything extra 

for them as residents of a long-term care facility. Now earlier in 

the year, when Congress resolved the budget issues, you probably 

recall Congress passed money through to state governments, and 

a large part of that money was passed through for Medicaid, which 

is where most of those residents, of course, get most of their governmental support. Not all of that, what was passed through for 

Medicaid, ended up going into Medicaid, as you know. 

20

Mr. ALLEN. Exactly. 

Senator TALENT. But that was the intention at the time, that 

that money—and there was a considerable amount of money—be 

used to help residents at that time. 

Mr. ALLEN. Right. The Medicare reform does not address that in 

that regard. At least not so far as from the conference committee 

that we’ve seen. 

Senator TALENT. I’ll tell you another question I get from folks, 

as seniors and as taxpayers, is what’s the final cost of the legislation going to be? You know, can we afford it? This is a good question. Let’s hear your response and I’ll tell the folks I see. 

Mr. ALLEN. The President has stated very clearly that the program will be $400 billion over 10 years, and this represents a significant expansion of the Medicare program thus far. In fact, it’s 

about a 10 percent increase over the current projected Medicare 

spending. At the same time, it will not cover all of the projected 

drug spending over the next decade, so we will be looking at that. 

It’s important that any final program is targeted to those seniors 

who need it most and who need the most help, low income seniors, 

those with lower incomes and those with higher drug costs, while 

providing some relief for all seniors who want to enroll. 

So we are trying to make sure that we are addressing across the 

board seniors, but, again, our focus will be on low income and those 

who have the highest drug costs. 

It is also important that this benefit expansion be coupled with 

the reforms that are necessary. That’s what we are trying to be 

very careful about, is making sure that we are providing the prescription drug coverage, but the reforms that are necessary to ensure the longevity of Medicare and the stability of Medicare and to 

the future for the next generation of those who will be retiring, 

those with disabilities that will be needing the program. 

So those are the areas that we are—but the dollar figure that we 

are looking at, and continue to stick by, is the 400 billion over 10 

years. 

Senator TALENT. That money has been budgeted. This is a fair 

question, and I think that of all people, seniors know what it’s like 

to be on a budget. They are often the ones that ask the question. 

There are three responses that I give them, and part of it is what 

you say. First of all, that’s one of the reasons why it is important 

that the benefit target the assistance, so that while everybody will 

benefit, those who are the neediest, who have the highest drug 

costs or the lowest income would benefit the most from the bill. 

Both the Senate and House bills do that. 

But everybody is going to benefit, and there’s no reason why you 

can’t when you have a pool as big as the pool of Medicare recipients. It should be possible to put together plans that really take 

into account the deficiencies of that kind of a big purchasing pool. 

The second point—and it is a kind of an emotional point with me 

but I have just talked to too many people, we are going to hear one 

of them in the second panel—there are too many people who really 

are choosing between other vital needs and their health. They’re 

skimping on their health. 

The government undertook to provide this benefit 35 years ago. 

The rest of the health care world is updated, and it is time for the 

21

Congress to do the same thing with Medicare. I mean, I think it’s 

owing. 

I also believe if it’s done right, it may not cost that much, because if somebody is able to stay on a prescription drug program 

that keeps them healthy, they don’t have to go to the hospital, 

which, by the way, Medicare pays for. So we can end up, in many 

cases, avoiding traumatic episodes that will cost us a lot more. 

The other thing, and that’s why it is key that we, at the same 

time as we provide the benefit, do it in the context of voluntary options that strengthen and improve Medicare. You mentioned this as 

well. Because the whole idea here is through competition and 

choices to make the dollars go further and still provide good quality 

healthcare. If we do that, then we help solve some longer-term 

problems with Medicare. 

Mr. ALLEN. That’s right. Senator, I think you are absolutely right 

in what you raise, and two points I would make about that. To give 

you some good examples, we continue to talk about the need to give 

voluntary options to seniors, those who would be personally in 

Medicare. 

Well, one example of it is, is that while we think we can not only 

put out say $400 billion over 10 year, both the bills, the House and 

the Senate bill, contains a trust fund that would—the money would 

go into—that would be, in a sense, ensure that money would be 

available for that purpose. 

But one of the things that, and why it’s so important that we reform Medicare is make it modern, to update it. The keys to ensuring that we can bring down the costs of the services and the cost 

of, for example, prescription drugs, is by using modern techniques, 

disease management, addressing preventative care. These are 

issues that are going to ensure that seniors will have the available 

programs and services, but at the same time, help us to achieve 

those efficiencies across the board. 

Two examples right here in Missouri I’ll give to you that show 

you. Currently, under the traditional program Medicare, we don’t 

cover diabetes management. This is a map of Missouri here that 

demonstrates across the board diabetes management. It talks 

about those counties in Missouri that are below the state average— are in the red—those that are below the national average are in 

the blue. 

When you look at this, you’ll see that diabetes management, by 

managing someone’s diabetes, you have an opportunity to bring 

down the cost of care. Well, that currently is not provided under 

the traditional program. Under the enhanced Medicare program 

and Medicare Advantage program, these will be standard parts of 

the benefits that you would receive for diabetes management. 

The same is true when you look at something like influenza and 

pneumococcal immunizations. Regular immunizations for pneumococcal and influenza should be standard practice for seniors. Currently, again, in the blue you see those areas where Missouri is 

below the national average. We are below the state average are the 

red counties. 

Here’s another example, by having options that are voluntary for 

those who choose them, can get these services as a standard part 

without additional costs to those beneficiaries. 

22

Senator TALENT. When you’re in Washington you’ll often have 

people describe some additional benefit or something and say it’ll 

really end up saving us money. After a while you get a little skeptical, but this is something that really can save money 5 percent 

of the folks in Medicare for those who get sick, cost us—isn’t it 

about 55 percent of the cost? 

Mr. ALLEN. Exactly. 

Senator TALENT. Many of those folks have chronic diseases like 

diabetes and kidney disease where, in the rest of the health care 

world, insurance has adapted over time to emphasize more and 

more management, wellness, and prevention of traumatic episodes. 

Mr. ALLEN. Exactly. 

Senator TALENT. Traditional Medicare, as good as it is, just 

doesn’t do that very well. 

Mr. ALLEN. That’s correct. 

Senator TALENT. To the extent that we can get people into disease management coverages like that, we will save them ill health 

episodes and also end up making the system more affordable in the 

long run. 

Senator Frist, who’s the Senate Majority Leader, and I put a provision in the Senate bill that—you’re aware of the pilot program? 

Mr. ALLEN. Yes. 

Senator TALENT. We believe so strongly in this—Senator Frist is 

a physician, and I have often been a patient, so we each have our 

own expertise in this area. We believe so strongly that we want to 

put more resources into identifying the high-risk type of cases and 

diseases and helping our hospitals and our doctors manage that 

care better in our patients. I hope we can save that provision in 

the conference committee. 

Mr. ALLEN. Senator, just one last point on that, and to bring it 

home once again, and we are here at Harris-Stowe State College, 

and the importance that this has to communities of color. 

The African American community, the Latino/Hispanic community, the Native American community, Asian American/Pacific Islander communities have a great disease burden in terms of the diabetes, cardiovascular disease, cancer, all of these different diseases, and what these maps show, and what we do know, is that 

many of these individuals benefit from Medicare, and yet their the 

ones who need the greatest choice. 

So, therefore, when we talk about Medicare reform, we are also 

talking about closing the health gap and ending healthcare disparities. That’s why I take it personally as a mission on behalf of the 

Department, the Secretary, the President, to talk in communities 

of color, to raise this issue that we need to be getting behind Medicare reform now because it’s our people, it’s our families, it’s our 

loved ones who are bearing the disease burden here. 

Giving them the choices and the options to have access to quality 

care that they choose is a vital issue of great importance to all of 

us because if we help those who carry the greatest disease burden, 

we are helping all of us because it increases all of the quality of 

health that we all have. 

Senator TALENT. Well, Secretary Allen, I think I’ll let you have 

the last word. I know you have to go and catch a flight, but thank 

you for being here. I think it was informative. 

23

We are going to have our second panel, and I want to emphasize, 

again, that I’ll be around afterward to visit with folks personally. 

So why don’t we take a 5-minute break while we assemble the next 

panel. 

Mr. ALLEN. Thank you, Senator. [Recess.] 

Senator TALENT. We are reconvening the hearing and will go 

right to our second panel. I will just briefly reintroduce them, they 

will give their statements and then we will ask some questions. 

Our first witness is Ron Levy. As I mentioned earlier, Mr. Levy 

is the Regional President and System Vice President of SSM 

Health Care, St. Louis. He’s also going to speak on behalf of the 

Missouri Hospital Association, which represents 140 Missouri hospitals and health systems. 

In his position with SSM, Mr. Levy oversees 1700 physicians and 

10,400 employees who work in seven hospitals, three medical 

groups and a managed care organization. He has a distinguished 

27-year career with SSM Health Care. 

He currently serves on the boards of the Missouri Hospital Association’s St. Louis Regional Health Commission, the St. Louis 

ConnectCare and a variety of community service organizations, including Catholic Community Services. 

He is going to describe for us how he thinks the Prescription 

Drug and Medicare Improvement Act of 2003 will benefit hospitals 

and the patients they serve, and discuss any concerns that he may 

have as well. 

Thank you for being here, Mr. Levy. Please, give us your statement. 

STATEMENT OF RON LEVY, PRESIDENT AND CEO FOR SSM 

HEALTH CARE, ST. LOUIS, MO 

Mr. LEVY. Thank you, Senator Talent, and thank you for the opportunity to testify here today. SSM Health Care is very proud to 

the be the first ever healthcare provider to win the nation’s highest 

quality award, and that’s the Malcolm Baldrige National Quality 

Award. This award was presented to SSM this past May by Vice 

President Dick Cheney and the Secretary of Commerce, Don Evans. 

SSM Health Care, our national system, has more than 23,000 

employees dedicated to caring for patients and their families in 

four states, Illinois, Missouri, Oklahoma and Wisconsin, where we 

also operate not just hospitals, but long term care facilities and 

home health agencies. 

In 2002, our healthcare system discharged more than 170,000 

people and provided more than one million outpatient visits. Of 

those hospital discharges, more than 67,000 were Medicare beneficiaries. For SSM hospitals, that represents 40 percent of the care 

and service we provide to our patients is provided to Medicare 

beneficiaries. 

As the Senator mentioned, I am also representing the Missouri 

Hospital Association here today, and the MHA has been serving 

Missouri hospitals for more than 80 years. The Association currently represents 141 hospitals. It counts among its membership all 

the licensed Community Acute Care Hospitals in the State of Missouri. 

24

SSM Health Care and the Missouri Hospital Association are 

pleased to express support for Senate Bill 1 and the Prescription 

Drug and Medicare Improvement Act for 2003. 

In times of need, Americans depend upon the promise of hospitals to be there 24 hours a day, 7 days week should any 

healthcare need arise. Medicare beneficiaries are no different and 

now, by this bill, those beneficiaries will enjoy an enhanced quality 

of life as a result of this additional benefit. The Medicare program 

should enjoy savings as a result of drug therapies that will reduce 

hospital admissions and lengths of stay. 

The payment updates included in Senate Bill 1 are more important than ever before for our nation’s hospitals and our hospitals 

here in Missouri. The adequacy of Medicare payments is especially 

important as society takes steps to promote further competition in 

the healthcare marketplace, and as we also experience additional 

regulation in an effort to contain healthcare cost. 

Adequate payments will help hospitals invest in the latest technology and sustain a professional workforce to most efficiently deliver the needed services. 

Moody’s Investor Service recently forecast greater credit volatility for not-for-profit hospitals and health systems in the future 

citing the luminous financial challenges, including the rising 

healthcare cost for our labor and benefits to our employees, the increasing cost of drug supplies that we provide to our patients, such 

as the new drug alluding stint for cardiac catheterizations. Obviously, we are facing a major increase in medical liability insurance. 

So these costs are having a major impact on our healthcare delivery system today. 

Senate Bill 1 does assist hospitals in a number of ways, and 

these include the following: 

First, by providing a full market basket update and payment for 

hospitals for the first time in almost 20 years. 

Second, eliminating the disparity between small urban and rural 

hospitals and large urban hospitals by equalizing the inpatient 

base payment. 

Third, by eliminating the cap on small urban and rural hospitals 

that qualify for a disproportionate share of hospital payments. 

Fourth, improving and expanding the critical access hospital program. 

Fifth, by restoring a more reasonable indirect medical education 

payment for our teaching hospitals. 

Sixth, provision of payments for rural home health agencies and 

many other supportive provisions. 

I’d like to highlight a few of these important provisions in a little 

more detail. First, our inpatient services. According to the American Hospital Association, Missouri hospitals stand to gain $530 

million in new funding because of this bill over the period of 2004 

to 2013. The additional sum set forth in the Senate Bill will go a 

long way to help seniors receive the inpatient care that they need 

and we support. 

Regarding rural hospitals. The Senate Bill provides about $25 

billion over the next 10 years to increase Medicare payment to 

rural hospitals and physicians starting in 2005. As rural hospitals 

struggle to survive—and I know because I used to be a rural hosVerDate 0ct 09 2002 12:03 Jan 05, 2004 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\DOCS\90720.TXT SAGING1 PsN: JOYCE
25

pital administrator in a previous life—we appreciate the language 

in a Senate Bill that eases the disparity between Medicare reimbursements for rural and/or urban hospitals. 

There’s also a temporary fee increase for rural ambulance services that are currently stretched thin. 

We note—— Senator TALENT. Let me jump into clarify while it is fresh in the 

minds of folks who are listening. These updates for rural hospitals—maybe you could describe why they are necessary and comment on this. 

For years, the government’s reimbursement for rural hospitals 

has been based on the assumption that their costs are less than for 

urban hospitals, which in some areas is true but increasingly in 

other areas they are not. So they’re actually getting less than hospitals in other areas are getting. 

So this update really just brings them up to where the other hospitals are. Do you want to elaborate on that a little bit? 

Mr. LEVY. Yes, and actually, why my current expertise is probably more urban oriented—— Senator TALENT. Right. 

Mr. LEVY [continuing]. But I do remember—and it has been an 

issue for a number of years. Just as you said, Senator, rural hospitals, while we think they may cost less in their care delivery, 

they have other challenges; economies of scale, they pay the same 

prices for drugs and supplies—in fact they may pay more because 

they don’t have access to large purchasing groups, et cetera. 

So their costs of care delivery has escalated at a similar, if not 

a greater rate, than urban hospitals. 

Senator TALENT. It may cost them more, not less, to get physicians practicing in that area, for example. 

Mr. LEVY. Yes. The ability to bring them up to a level of payment 

that is at or equal to the urban counterparts, is a very positive 

thing to do. We have to realize that rural hospitals are really the 

fabric of our rural communities; we can’t afford to see any further 

closure or diminishing levels of service they provide in those communities. 

Senator TALENT. Thank you for that clarification. 

Mr. LEVY. I was just going to say that Senator Talent is a strong 

supporter of full funding for rural hospitals and I think you can see 

that and hear that, and we do appreciate your efforts, Senator, to 

maintain these rural health provisions as the bill moves through 

Congress. 

Regarding indirect medical education. There’s also a small increase in the Senate Bill in subsidies for teaching hospitals. Every 

state has a teaching hospital, and the indirect medical education 

dollars are essential to training physicians in the future. 

Missouri currently has 32 teaching hospitals, including two within SSM, SSM Cardinal Glennon’s Children’s Hospital and St. 

Mary’s Health Center in Richmond Heights, which also receive the 

indirect medical education funding. This provision would allow millions of more dollars to flow to Missouri to help train physicians 

of our future. 

Senator TALENT. That’s crucial for Missouri indirect medical education—the extra costs that hospitals have for teaching residents 

26

and medical students. At the same time that physicians are providing care, residents and interns that go around with the physicians during their rounds and that costs money. 

Yet teaching is essential to the quality of the whole healthcare 

system. We have a disproportionately large number of teaching 

hospitals in Missouri, so this is a very important provision for Missouri. 

Mr. LEVY. It is, and I think at the same we are very fortunate 

in Missouri to have the number of teaching hospitals we do. 

Senator TALENT. Oh, yes. It’s a real plus. 

Mr. LEVY. Because it can provide additional physicians for us in 

this state. 

Senator TALENT. Yes. 

Mr. LEVY. Regarding disproportionate share payments, both bills 

increase the funds that states would be allotted under Medicaid for 

hospitals that treat a disproportionate share of the poor, starting 

in 2004. Again, Senator Talent, we appreciate you signing on a bipartisan letter to the Medicare conferees in support of the increase 

disproportionate share adjustment. 

The Medicare statute requires that states make DISH adjustments to the payment rates of certain hospitals treating large numbers of low income and Medicaid patients. DISH payments help reimburse hospitals’ costs for treating Medicaid patients, particularly 

those patients with complex medical needs, such as those duly eligible for Medicare and Medicaid, and make is possible for communities to care for those who lack health coverage. 

Missouri would receive approximately $67 million in fiscal year 

2004 and $57 million in fiscal year 2005 under the proposal advocated in our letter. 

In conclusion, all in all, we believe that the Prescription Drug 

and Medicare Improvement Act in 2003 and the Senate Bill 1 that 

was passed in the Senate will benefit hospitals, will benefit our 

senior citizens by providing them with the hospitals with increased 

reimbursement and flexibility to manage patient care, and certainly help our senior citizens in paying for the care and drugs they 

need. 

What this means is that hospitals like SSM will have more opportunities to help patients and/or community through improved 

service, which is one of the hallmarks of quality of care. 

Again, I thank you for the opportunity to testify today. 

Senator TALENT. Thank you, Mr. Levy, and we will probably 

have a couple more questions after the other witnesses are finished. 

[The prepared statement of Mr. Levy follows:]

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Senator TALENT. Now a real treat for the Committee: Audrey 

Vallely is here to testify. As I mentioned earlier, Audrey is a St. 

Louis senior citizen who is currently on Medicare. She is the mother of two and a grandmother of four. She currently lives in Pacific, 

where I have discovered we have several good mutual friends. She 

lives across from her great-granddaughter. 

Like many seniors, Audrey’s on limited income and has difficulty 

paying for her prescription drugs and doctor bills because the current Medicare benefit is simply not generous enough. She’s told me 

that sometimes she doesn’t take her medicine for her ailments because she can’t afford to pay for them. 

Today she will share her experiences as a Medicare beneficiary 

and explain why she’s hopeful that the improvements in Medicare 

will benefit her and other seniors, and also any concerns she may 

have. 

Audrey, thank you for coming and sharing with us. Please, give 

us your statement. Thank you. 

STATEMENT OF AUDREY VALLELY, SENIOR CITIZEN, 

PACIFIC, MO 

Ms. VALLELY. Thank you. Good morning. My name is Audrey 

Vallely. As Senator Talent said, I live in Pacific. I am the mother 

of two children, who are with me today; the grandmother of four 

children; and the great-grandmother of a new baby girl. I am also 

a senior who is enrolled in the Medicare program. 

I have been on Medicare since I was 62 years old, and I am 

proud to be 77 today. I have osteoarthritis, a degenerative bone disease, and another sinus disease called Meniere’s that causes me to 

become dizzy. I had an operation for the sinus condition, but the 

dizziness returns from time to time. 

I should be taking at least two types of prescription drugs for these conditions. My medicine costs over $100 a month for maybe 

15 pills. Because I am living on a limited income, I cannot afford 

to pay for these medicines. Instead, I go to my local pharmacy and 

take over-the-counter pain relief. Sometimes that makes me feel 

better, sometimes it doesn’t. 

I know I should see my doctor for these conditions, but I simply 

cannot afford to do this as often as I want. One office visit costs 

me $107. I know that I am lucky that my health is not bad, especially as some of my friends with diabetes and cancer pay over 

$200 or $300 a month for just their medicines. 

Still, sometimes it is a choice between buying prescription drugs 

or paying rent, buying food or just living with air conditioning in 

the summer. Also, I have to drive to the doctor and gasoline costs 

$1.74. It goes up and down. 

Everyday I am hopeful that Congress will pass a meaningful prescription drug bill to help me and other seniors. I understand that 

the bill now in Congress will help lower my prescription drug costs, 

and the cost of my doctor’s visits to give me enough money to live 

on. 

I also like that I’ll be able to go to my pharmacist if I need to 

refill a prescription. Anything you can do to lower my price of prescription drugs and doctor’s visits will go a long way to help me 

and my friends at the Route 66 Senior Citizens home in Eureka. 

30

Thank you very much for letting me be a part of your program 

today. 

[The prepared statement of Ms. Vallely follows:]

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Senator TALENT. That was excellent, and just let me add, I am 

also a member of the Energy Committee, and your comment about 

gasoline and the price of it going up and down showed more common sense than I have heard in about 8 months on that committee, 

so I appreciate your contribution there as well. 

Mr. Levy, I understand, has to leave pretty soon. Is that correct, 

Ron? 

Mr. LEVY. That’s OK. 

Senator TALENT. Can you stay? 

Mr. LEVY. Yes. 

Senator TALENT. OK. Well, that’s good, I don’t have to reshuffle 

that, and we’ll go right to Dr. DeFeo. 

Our final witness is Dr. Frederick DeFeo who’s the President of 

the Missouri State Medical Association, which represents 5,000 

Missouri doctors. The MSMA’s mission is to serve its members by 

promoting the science and art of medicine, protecting the health of 

the public and bettering the medical profession in Missouri. 

Dr. DeFeo specialized in internal medicine. He’s an Associate 

Professor of Medicine at the University of Missouri, Kansas City. 

He’s here today to explain the concerns that doctors have with the 

current system, concerns he feels patients have, and how the Senate passed prescription drug bill might benefit them, as well as any 

other concerns that he may have. 

We are very honored to have you with us. Thank you for your 

time, Doctor. Please, go ahead. 

STATEMENT OF FREDERICK G. DEFEO, M.D., PRESIDENT OF 

MISSOURI STATE MEDICAL ASSOCIATION 

Dr. DEFEO. Thank you, Senator. Medicare is 38. I remember the 

promise of President Johnson’s great society, but, as a 19 year old, 

I was far more interested in the goings on in that little country 

across the Pacific. How different the world is today, and how different is medicine. 

In 1965, when a patient had a problem, the standard was to 

admit that patient to the hospital, do appropriate tests resulting in 

a diagnosis, and then some kind of therapy. Now the hospital has 

almost become the venue of last resort and more work is done in 

the outpatient setting. 

In 1965, chronic disease was likely to result in early death and 

disability. Even presidents with coronary artery disease were likely 

to have heart attack after heart attack. Diabetics developed blindness and died of kidney and heart disease. Chronic lung patients 

were admitted to hospitals in the fall and died in great numbers 

as colder air came in. 

Now care of patients with chronic disease out of the hospital is 

standard. Heart disease patients live longer, more productive lives. 

Diabetics have preserved their sight and their kidneys, and chronic 

lung disease patients stay out of hospitals and breathe better. 

In 1965, the paperwork burden for physicians was minimal. Now 

Medicare regulations seem more numerous than the tax regulations, and requirements for such unfunded mandates as the Advance Beneficiary Notice, the counting of points when I try to do 

a history and physical of a patient so that I can get the correct billing, and form after form after form that requires the physician perVerDate 0ct 09 2002 12:03 Jan 05, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 C:\DOCS\90720.TXT SAGING1 PsN: JOYCE
34

sonally to note such things as oxygen saturation and frequency of 

diabetic testing. 

In 1965, the list of available pharmaceuticals was small, with the 

most expensive common drugs being the new antibiotics that might 

be used for a relatively short term for an infection. 

Now we have new, more powerful and safer drugs for many 

chronic diseases, but they are far more costly and used for a far 

longer percentage of the patient’s life span. But they better control 

cholesterol, diabetes, lung disease, hypertension, gastrointestinal 

disease, and even cancer with successful outcomes that were undreamed of in the 1960’s. 

The realities of the 21st Century show up in the design flaws inherent in this mid–20th Century program. Short term problems, financial hardships for many Medicare beneficiaries because of an 

antiquated cost sharing requirements. Without supplement insurance, the Medigap insurance, beneficiaries might pay more than 

$34,000 a year out of pocket. Who can afford that on a fixed income? 

Fewer employers provide supplemental insurance as part of retirement benefits. The cost of Medigap insurance is rising, perhaps 

even faster than Medicare spending, and there is no coverage for 

prescription drugs. 

Medicare beneficiaries are finding fewer physicians willing to 

provide care. Physician revenue, worse than hospital revenue, is 

generally decreasing because of such flawed ideas as the Sustainable Growth Rate formula, which ties physicians’ payments to the 

economy, rather than the acuity of the patients they’re taking care 

of. 

Physician costs over all are increasing with very little ability for 

physicians to pass these costs on. Regulatory burdens drive physicians away. Audits for Medicare are so onerous that they may actually destroy a physician’s practice. 

Rural physicians and hospitals have significant payment bias 

against them in favor of urban. The best percentage in Missouri is 

still less than the one national average. The rural gets about .92, 

in St. Louis and Kansas City it’s about .97, but still less than the 

one that’s the national average. 

Medical education, which at Truman Medical Center and UMKC 

I am long a part of, is being imperiled because of decreasing payments to our teaching hospitals. The long term problems. The funding for the current system is a tax-based, pay-as-you-go system, but 

the myth of a trust fund for all these years still persists. 

Recent changes, rather than adding any new dollars to the system, merely cut the pie into more pieces, thus ensuring decreased 

payments for everyone. The solution is hard: modernize Medicare. 

Reconfigure the cost sharing to a single modest deductible for all 

services, including those services not covered by Medigap insurance. 

Add a pharmaceutical benefit designed to help those with catastrophic drug expenses. Decontrol prices. Consumer concern and 

competition should ensure lower prices in the long run. 

Review, revise and simplify the regulatory burden for physicians 

and require that Medicare carriers give clear guidance for their 

35

regulation. Reconfigure the basis for funding Medicare while there 

is still time. 

The Senate passed Medicare bill is a good beginning. It provides 

the prescription drug benefit as has been described. If patients cannot afford to take their medication, then they will be admitted to 

the hospital for far more expensive after the fact care. 

It provides some relief for rural hospitals, teaching hospitals, and 

hospitals in a critical area—and that’s the Rural Equity Act, Senate Bill 816, co-sponsored by Senator Talent—eliminating the cap 

on small rural hospitals for disproportionate share programs, and 

establishing a floor on geographic adjustments for physician services, and increasing payments for health clinics, helping medical 

education and critical access programs by increasing payments for 

these areas. 

It provides critically needed regulatory relief for physicians. Reforming the appeals process to simply the appeal of a Medicare denial of claim, streamlining the process for reviewing doctors’ billing 

records, simplifying the process by which doctors correct Medicare 

billing mistakes and appeal actions against them, and exempting 

doctors for penalties when rules violation were the result of false 

written advice from the government. 

Finally, the Senate resolution expressing the need to address the 

flawed physicians Sustainable Growth Rate formula should be a 

part of the final bill. Patients cannot see physicians who are not 

there. Medicare reform is necessary. The prescription drug benefit, 

regulatory relief, and help for our poorest hospitals and clinics will 

mean more patients with quality healthcare that is affordable. 

Fixing the SGR formula will ensure physicians will be there to 

treat our elderly. Our seniors deserve no less. We will all join them 

far too soon. Thank you. 

[The prepared statement of Dr. DeFeo follows:]

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Senator TALENT. Thank you, Doctor, that was a very compelling 

testimony. I have a few questions. We covered a fair amount of 

ground with Secretary Allen in terms of what the bill is designed 

to do, so I think I’ll go a little bit into where we are currently. 

Mr. Levy, maybe you could explain a little bit more the market 

basket issue that you raised. You mentioned that it hasn’t been updated for 20 years. Now that’s a phrase that’s very well known to 

those in the field, and maybe not so well known to people outside 

it, so just say exactly what that means so that people understand 

how important that is. 

Mr. LEVY. Essentially, it is the general rate increase that our 

hospitals will receive for the payments by patient. We have received increases, they’ve just not kept up with the rate of medical 

inflation or general inflation and so, when we use the market basket, does this basket of service keep up with the general inflationary trend. 

This is the first time that I recall we are potentially going to receive a full increase of 31⁄2 percent, which is roughly the rate of inflation, probably a little less than medical inflation, so that’s the 

biggest increase that we’ve seen in years. 

Senator TALENT. Audrey, I had a couple of questions which your 

testimony addressed. You talk about the choices that you are making because of the high cost of prescription drugs and the fact that 

you don’t have any coverage in basic Medicare. 

Of your friends who are also on Medicare, would you say the situation you’re describing is common? Is it uncommon? Are most of 

your friends making those same kinds of choices or only a few? 

Give us a picture of what’s going on. I know that you go to the Senior Center a lot, and you know a whole lot of folks so you’re in a 

pretty good position to tell us this. 

Mr. LEVY. Well, from just my——

Senator TALENT. Oh, I was asking Audrey, but then you can comment on it, Ron. 

Mr. LEVY. Oh, I am sorry. 

Senator TALENT. Unless you’re going to the Senior Center a lot, 

too. 

Mr. LEVY. No, no. I have gone to Senior Centers to visit. I am 

sorry. 

Senator TALENT. So have I. 

Ms. VALLELY. You are welcome to ours. From what I overhear, 

a lot of people in our Center, some of the husbands worked at the 

automobile factory, so therefore they have good coverage for insurance. 

My insurance alone—I have ACF. ACF is no more. They turned 

it over to United Health, but United Health did not want to pay 

it anymore, so now I have to pay for United Health. So the insurance that my husband thought he was leaving for me, it’s no more. 

OK, so I have to pay for that, plus pay for everything else. 

Some of the ladies that come to the Center, that may be the only meal they get. They can pay $2 for a meal and get a good substantial meal, but it is a good meal. 

Senator TALENT. It is pretty good. I have had those meals. 

Ms. VALLELY. I mean, they try to give you a good meal. 

Senator TALENT. Right. 

39

Ms. VALLELY. They don’t have transportation. When they go, 

they have to go on the bus, OK. Now a lot of those ladies that I 

had talked to, if they have a dental appointment, that means they 

can’t go to the doctor in the same month because the dental problem is way up there and Medicare doesn’t take care of that. 

Another one has an ongoing—she has so many problems and she 

takes like 20 to 40 pills a day. Her children have to help her with 

that because her husband was a farmer and she does have Medicare, but there’s not much else coming in. 

Senator TALENT. You mentioned farmers. A whole other issue is 

farmers and small business people getting access to healthcare. 

They can’t leave anything for widows if they don’t have the health 

insurance themselves. 

Ms. VALLELY. Right. 

Senator TALENT. So you are one of those in a situation where you 

had, initially, some retiree health benefits through your husband 

and that was then ended. 

Ms. VALLELY. I did have—the insurance and the Medicare took 

care of my husband. He had eight strokes, he had a stomach aneurism, he had five ruptured disks, he had all these and massive 

mastoid operation, two carotid arteries—they paid for that fine, 

with his insurance. We didn’t have any out of pocket. 

When he died, it took care of it, you know. But here I am and 

I have to go to a doctor that is—in Florida, where I lived, the doctor bill was $64 because my insurance never paid for the doctor’s 

visits. Now it’s jumped up to $107 here. 

In Florida you could go to the little health centers and get most 

of your stuff done and it was like going to the emergency room, and 

then Medicare would pay for it. But up here you can’t do that. 

Senator TALENT. You raise a point that bears on this issue because if people have a chronic problem, we want them to be able 

to go in and see their physician as much as they need to. In fact, 

more up to date insurance coverages encourage people to do that 

because it actually saves money if they stay well. 

But you—— Ms. VALLELY. Go to the dentist often. 

Senator TALENT. Yes. That’s another point. You’ve made the 

point that traditional coverage under Medicare actually is a disincentive to get that kind of regular wellness and consultation that 

keeps you healthy, and then you get sick, you go to the hospital, 

and Medicare has to pay a lot more. 

So one of the things we want to do is give people choices that 

will enable them to stay healthy over time. 

Ms. VALLELY. Also, may I point out, that the doctor that I go to 

is tied up with HMO. So he doesn’t see you but every 3 months. 

When you go into to see him, he looks at you, sometimes he takes 

blood pressure, sometimes they weigh you, but it’s still $107 for 

him to write out that little piece of paper. 

Senator TALENT. Are you in Medicare+Choice, are you in traditional Medicare, what are you in? 

Ms. VALLELY. I am sorry. 

Senator TALENT. I am sorry, ma’am. Are you in a Medicare option, an HMO or are you in the traditional Medicare? 

Ms. VALLELY. Oh, I am not in HMO. 

40

Senator TALENT. That’s right. So you’re in the traditional Medicare. 

Ms. VALLELY. Right. It’s hard and it’s hard on me. I make just 

so much money, half of what my husband was drawing. Together 

we were fine, but now that he’s gone, I am very limited. Sometimes 

it is hard. 

If you have to go to the dentist or the eye doctor—I was supposed 

to go to the eye doctor to check on my eyes in April. Well, I haven’t 

gone because I had to go to the dentist, I had a broken tooth. That 

cost $900. I have—that’s money, plus what my little dental insurance, 80 percent off, did. What I want to know is, are we going to have a $250 deductible 

on all this insurance? 

Senator TALENT. It’s quite likely there will be a deductible, although it will be lower or won’t be there if you are below a certain 

income level. What that income level——

Ms. VALLELY. Do you have to pay for it? 

Senator TALENT. Yes, ma’am. There will be a deductible—I 

mean, I can’t be absolutely certain, but I am 95 percent certain 

that the bill that emerges will have a deductible for seniors who 

are earning above a certain amount. 

Now if you’re below a certain amount, the deductible will essentially be gone. There may be a small co-pay. What exactly that figure’s going to be, we are going to have to work on. It’s hard to predict now. 

Ms. VALLELY. Well, and sometimes—— Senator TALENT. You mentioned dental care. The House bill contains some provisions for a dental care option, the Senate bill 

doesn’t. I agree with you—and we were talking before—that this is 

very common, periodontal disease is the most common disease, and 

we don’t, as a system, do a very good job of taking care of it. 

Ms. VALLELY. If you can’t eat, if you can’t use your teeth to eat, 

then you don’t eat, which makes problems in your stomach, which 

sends you to the bathroom. 

Senator TALENT. But the two most miserable common things to 

have are a backache and a toothache. 

Because Audrey talked about emergency rooms, maybe you or 

Dr. DeFeo would tell us how a prescription drug benefit might take 

some of the strain off of emergency rooms in hospitals. 

Dr. DEFEO. Well, I can tell you from the viewpoint of Truman 

Medical Center in Kansas City, which is the inner city hospital in 

Kansas City. Our emergency room was overflowing every day, and 

part of the reason are people who come in who cannot afford their 

medications. 

Not just the senior citizens, but other indigent patients or—this 

is not for Medicaid, but that the Medicaid benefits for drugs have 

gone down so far, that they haven’t met the other requirements for 

Medicaid. So this is an every day occurrence at Truman Medical 

Center. 

Approximately, I would say, 5 percent of our admissions have to 

do with patients who could not get their drugs, and if they had gotten them, would not have been admitted to the hospital. 

Senator TALENT. That’s bad for them, but also our emergency 

rooms are under stress now. One of the reasons is that there are 

41

a number of folks who are there who, we would prefer would get 

care some other way, because they don’t have what we think of as 

a true emergency, but they are there because they don’t have any 

other options. Would you——

Dr. DEFEO. That’s correct. 

Senator TALENT [continuing]. Agree, Mr. Levy? 

Mr. LEVY. I would totally agree. One of the things that we’ve 

started to track very closely is the readmission rates for our patients to our hospital. Particularly our diabetic patients, congestive 

heart failure patients. 

Generally if the cost is so high for the medications, as Audrey 

has so well described, and people aren’t accessing the needed medications, particularly those that do have chronic disease, the formula is simple. 

If it is a cost that is too high and it limits the access, the emergency rooms get busier, these patients wind up being readmitted 

to the hospitals, and it winds up costing us more for the care and 

treatment of those patients. 

The bottom line is, it just complicates the care delivery for the 

senior citizens of our country. It is like playing a chord on a piano, 

but we are missing a few notes and the chord doesn’t sound very 

good. 

Senator TALENT. You are hearing from a couple of people who 

are not, speaking for themselves individually—it is not that these 

two gentlemen would stand to gain personally from this benefit, 

but the institutions or the systems that they represent is paying 

extra costs now in doing things that they would rather not do because a benefit doesn’t exist. 

Let me go into something that you mentioned, Dr. DeFeo, because it’s a concern I have had, and I just don’t think the average 

person is aware of it, and so I am going to be make a brief statement then ask you to comment. By the way folks, you’ve all been 

very patient and we are wrapping this up. I only have a couple 

more questions. 

You mentioned regulatory reform for people in the system. Now 

what I don’t want anybody in the audience to think is, OK, here’s 

a doctor who’s trying to get out of filling out some necessary form 

for quality or safety. The next time you’re in to see your physician, 

ask him or her about this issue. 

Ask to see the facilities—just to stick your head in and see what 

they have to do to maintain the records that are necessary to submit in the current system, many of which I just have to believe 

really don’t do any good for anybody. 

Another thing that’s a concern. Several years ago, when I was in 

the House, I had some hospital officials come up to me and say that 

the government had claimed they had filed overcharges in Medicare amounting to several thousand dollars, and was now trying to 

recover criminal penalties of hundreds of thousands of dollars from 

this hospital, which is especially unfair when you figure that—I 

would guarantee you, if you were the most expert person in the 

world in filling out these forms for reimbursement, you would occasionally make mistakes because they’re much more difficult than 

even tax forms. 

42

We have some folks from CMS, which is the organization that 

runs this, and I want to say this on behalf of what you said. This 

is not a group of people who are trying to get out of legitimate responsibilities. Do you want to elaborate on that? Are you aware of 

the fact that the conference has reached some conclusions about 

reg reform, and I think they’re going to keep all those Senate provisions in that you like. 

Dr. DEFEO. I have heard that they had reached conclusions, I 

haven’t heard what they’re going to mean, yet. For instance, when 

I admit a patient to the hospital, in order to submit a reasonable 

charge, I have to document four, five things in one category, eleven 

things in a second category, nine things—kind of like a check list. 

If you think of a typical high school dropout, they would say, OK, 

did he check A, B, oh, he missed D, there’s F and G, oh, he didn’t 

have eleven of them, so therefore the payment can’t be X. It has 

nothing to do with the patient and his severity. It has to do with 

can I mark these boxes down. It’s—— Senator TALENT. Then think of the time that physicians, who we 

want to be spending time with patients—Audrey, you mentioned 

that one. They didn’t go to med school to sit around filling out 

forms. It is extremely demoralizing being in the profession. 

Dr. DEFEO. I teach medical students and residents, I take care 

of patients, and it seems like I spend half my time filling out paperwork. We have a—— Senator TALENT. It may be. If not half, I bet it’s close. So this 

is important, because we are all paying for this. We have a system 

where there’s never enough hours to go around, so I get particularly upset whenever I see money being wasted. I mean, that gets 

us nothing. I am glad you raised that, and I think we are going 

to do something about it. 

The funny thing is, all these voluminous forms do not keep that 

small percentage of the shrew corner cutters and the cheaters from 

cheating. They’re still out there cheating. They find ways around 

it. 

One other thing I wanted to raise, and maybe, Ron, you might 

be in a position to address this because you talked about reimbursement rates being driven down and held down. With the system that we have now, the government tries to figure out, based 

on its analysis, what a particular procedure should be compensated 

for. 

I have now been around long enough, 10 years in the Congress, 

to constantly see situations where the government sets a price and 

somebody concludes, after a while, that it was too high, so people 

are making too much off of that, and then what the government 

will do is drop it like an ax. This happened in the home health 

business a few years ago. 

It creates tremendous instability in the system and drives people 

out of business; or, and this has been more common, driving it 

down, down below what people need to get their cost, and then 

physicians and hospitals can’t afford to take care of Medicare patients. Do you want to comment on this at all? 

Mr. LEVY. I think that’s an experience that has been ongoing for 

the last 20 years, ever since we implemented the system of payment called DRGs where you get paid by case. The concept is a 

43

great concept, and for a while it really worked because the incentive is, how can we deliver care better and more efficiently. 

At SSM, we really do believe it’s not an either/or. We believe that 

the more we work on improving the quality of care by improving 

our work processes, by reducing our variation, by putting standards 

of care in place, when we do that, we do improve the quality, because we measure the outcomes, and we also become more efficient 

in the delivery of care. 

But the more efficient we become in the delivery, instead of gaining that incentive of here is what you are going to be paid, that 

price has dropped. 

Senator TALENT. Yes. 

Mr. LEVY. There’s nothing wrong with continual cycles of innovation, we have to continue to do that and continue to be efficient in 

our care delivery. It’s gets to a point, when you add on the regulation that you’re talking about in the paperwork, where difficult decisions are being made that you can no longer provide the service. 

In St. Louis, I think everybody’s familiar with what we face in 

North County with one of our hospitals, DePaul Health Center, 

making a decision that we might not be able to provide trauma 

care anymore. 

Senator TALENT. Yes. 

Mr. LEVY. I think that your point is an important point. If there 

is one thing that you could do, it is on the issue of regulation. I 

think we have to free up some of our time to be able to provide the 

care and service to our patients. Seventy-five percent of a nurse’s 

time is paperwork. 

Senator TALENT. Now, repeat that? 

Mr. LEVY. Seventy-five percent of a nurse’s time is paperwork. 

That’s not what they’re supposed to be doing. They’re supposed to 

be at the bedside caring for the patient and working with our physicians. 

The burden on physicians today and the burden on hospitals is— that’s probably one of the many cost inflators, and so we have to 

continue to pay for nursing care, what our physicians do, technology changes and patients are sicker in our hospitals. 

I think your point about not continually depressing or quickly 

dropping the prices—we have to have a sustained commitment to 

paying for the care of the elderly and the indigent in this country. 

Senator TALENT. Thank you, and I raised that and I’ll close now, 

because it bears on what we were discussing before when people 

ask about the cost of the prescription drug benefit. It really is true 

that if we can take steps to strengthen and improve the system at 

the same time we adopt this benefit, then we can get efficiencies, 

we can get savings that will free up a lot of dollars for this kind 

of care. They’ve just described some of them. 

I am pleased and grateful to this set of witnesses, and if I may 

say so, especially to you, Audrey. I appreciate you coming. The 

other two gentlemen are honorable in their service, but you came 

a ways and I am grateful to you, grateful to everybody here in the 

audience and, again, to Harris-Stowe, thank you very much. 

I will be available afterwards to visit with folks and discuss any 

concerns that you may have. 

Thank you all for coming, I’ll adjourn the hearing. 

44

[Whereupon, at 11:55 a.m., the Committee was adjourned.]

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