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78–784 PDF 2002

S. HRG. 107–531

THE ECONOMIC DOWNTURN AND ITS IMPACT

ON SENIORS: STRETCHING LIMITED DOLLARS

IN MEDICAID, HEALTH, AND SENIOR SERVICES

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC

MARCH 14, 2002

Serial No. 107–21

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING

JOHN B. BREAUX, Louisiana, Chairman

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

JEAN CARNAHAN, Missouri

LARRY CRAIG, Idaho, Ranking Member

CONRAD BURNS, Montana

RICHARD SHELBY, Alabama

RICK SANTORUM, Pennsylvania

SUSAN COLLINS, Maine

MIKE ENZI, Wyoming

TIM HUTCHINSON, Arkansas

PETER G. FITZGERALD, Illinois

JOHN ENSIGN, Nevada

CHUCK HAGEL, Nebraska

MICHELLE EASTON, Staff Director

LUPE WISSEL, Ranking Member Staff Director

(II)

C O N T E N T S

Page

Opening Statement of Senator Larry E. Craig ..................................................... 1

Prepared Statement of Senator John Breaux ....................................................... 3

Prepared Statement of Senator Debbie Stabenow ................................................ 3

PANEL I

Dr. Jack Riggs, Lieutenant Governor, State of Idaho, Boise, ID, accompanied

by Karl Kurtz, Director, Idaho Department of Health and Welfare, Boise,

ID ........................................................................................................................... 4

Gail Wilensky, John M. Olin Senior Fellow, Project HOPE, Bethesda, MD,

and Former Administrator, Health Care Financing Administration ............... 26

Barbara Lyons, Deputy Director, Kaiser Commission on Medicaid and the

Uninsured, Washington, DC ............................................................................... 44

Vernon K. Smith, Principal, Health Management Associates, and former Medicaid Director, State of Michigan, Lansing, MI ................................................. 66

PANEL II

Joan W. Lawrence, Director, Ohio Department of Aging, Columbus, OH .......... 89

Barry Donenfeld, Executive Director, Mid-Willamette Valley Senior Services

Agency, and President, National Association of Area Agencies on Aging,

Salem, OR ............................................................................................................. 98

(III)

(1)

THE ECONOMIC DOWNTURN AND ITS IMPACT

ON SENIORS: STRETCHING LIMITED DOLLARS IN MEDICAID, HEALTH, AND SENIOR

SERVICES

THURSDAY, MARCH 14, 2002

U.S. SENATE,

SPECIAL COMMITTEE ON AGING,

Washington, DC.

The committee met, pursuant to notice, at 9:37 a.m., in room

SD–628, Dirksen Senate Office Building, Hon. Larry E. Craig, presiding.

Present: Senators Craig and Carper.

OPENING STATEMENT OF SENATOR LARRY E. CRAIG

Senator CRAIG. Good morning, everyone. The Senate Special

Committee on Aging will convene.

Today we will be examining what I think is a very critical issue

to our Nation’s seniors. I also want to thank Senator John Breaux,

the chairman of the committee, for facilitating this hearing and allowing me to chair the hearing this morning.

Of course, all of us are hopeful that the recession, which began

last year, is at last beginning to ease. Sadly, however, for many,

the downturn’s repercussions remain very, very serious. For seniors, the recession’s painful effects are perhaps nowhere more

starkly evident than in the Medicaid program. Contrary to the perception of some, Medicaid is not just a lifeline for America’s poorest

citizens, but rather, for America’s seniors, Medicaid is now also

very much a middle class program. Funded jointly by States and

the Federal Government, Medicaid today pays nearly two-thirds of

all nursing home and long-term care bills. So when Medicaid is in

trouble, so too is middle America. In trouble it is. As the economy

has contracted, so too have tax revenues, leaving States facing a

collective $40 billion deficit this year—a near record level.

Regrettably, these shortfalls are now colliding painfully with the

demands of State Medicaid programs, which have been growing

rapidly in recent years. Last year, national Medicaid expenditures

jumped about 10 percent, and similar increases are expected this

year. In my home State of Idaho, the rate is even higher—approximately 15 percent. Nationally, Medicaid is now growing between

two to three times faster than other key State programs, including

higher education and corrections.

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Most troubling perhaps are Medicaid’s prescription drug costs,

which are rising much faster than the program as a whole, by approximately 20 percent annually.

Caught in a catch-22 of rising Medicaid costs and sharply declining growth in State revenues, at least 42 of the 50 States are now

projecting Medicaid budget shortfalls this year. In the face of these

pressures, States are turning to an increasingly aggressive array of

strategies to control costs and stretch limited dollars. Many of

these will be discussed by our witnesses today.

I am especially pleased to have with us today Dr. Jack Riggs,

Lieutenant Governor of my home State of Idaho, along with Karl

Kurtz, Director of our State’s Department of Health and Welfare.

Our second panel will discuss similar pressures confronting

America’s area agencies on aging and our State units on aging.

Finally, before we start, let me stress that it is always easy to

look at problems like these and just say the answer is more money.

However, in lean times, the reality is that big new expenditures,

whether Federal or State, are extremely unlikely. Rather, our challenge is to find effective ways to work within our limited resources

to deliver the best services we possibly can for our seniors.

Again let me thank our witnesses for being with us today.

[The prepared statement of Senator Craig follows along with prepared statements of Senator Breaux and Senator Stabenow:]

PREPARED STATEMENT OF SENATOR LARRY CRAIG

Good Morning, and thank all of you for joining us here this morning to discuss

the economic downturn and its effects on America’s seniors. Thank you, too, Senator

Breaux for facilitating my chairing this morning’s hearing.

Of course, all of us are hopeful that the recession that began last year is at least

beginning to ease. Sadly, however, for many, the downturn’s repercussions remain

very, very serious.

For seniors, the recession’s painful effects are perhaps nowhere more starkly evident than in the Medicaid program. And contrary to the perceptions of some, Medicaid is not just a lifeline for America poorest citizens. Rather, for America’s seniors,

Medicaid is now also very much a middle class program. Funded jointly by the

states and the federal government, Medicaid today pays nearly two-thirds of all

nursing home and long-term care bills. So when Medicaid is in trouble, so too is

middle America.

And in trouble it is. As the economy has contracted, so too, have tax revenues,

leaving states facing a collective $40 billion deficit this year, a near-record level. Regrettably, these shortfalls are now colliding—painfully—with the demands of state

Medicaid programs that have been growing rapidly in recent years. Last year, national Medicaid expenditures jumped about 10 percent, and similar increases are expected again this year. In Idaho, the rate is even higher, approximately 15 percent.

Nationally, the Medicaid is now growing between two and three times faster than

other key state programs, including higher education and corrections. Most troubling, perhaps, are Medicaid’s prescription drug costs, which are rising must faster

than the program as a whole, by approximately 20 percent annually.

Caught in a Catch-22 of rising Medicaid costs and sharply declining growth in

state revenues, at least 42 of the 50 states are now projecting Medicaid budget

shortfalls this year.

In the face of these pressures, states are turning to an increasingly aggressive

array of strategies to control costs and stretch limited dollars. Many of these will

be discussed by our witnesses today. I am especially pleased to have with us today

Dr. Jack Riggs, Lt. Governor of my own state of Idaho together with Karl Kurtz,

director of our state’s health and welfare programs. Also, our second panel will discuss similar pressures confronting America’s area agencies on aging and our state

units on aging.

Finally, before we start, let me stress that it’s always easy to look at problems

like these and just say the answer is more money. However, in lean times, the reality is that big new expenditures, whether federal or state, are extremely unlikely.

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Rather, our challenge is to find effective ways to work within our limited resources

to deliver the best services we possibly can for our seniors.

Again, sincere thanks to our witnesses for coming today, and I look forward to

your testimony.

PREPARED STATEMENT OF SENATOR JOHN BREAUX

Good morning and thank your for being here today. This committee has held a

series of hearings on long-term care and will continue to examine the questions surrounding financing and delivery of care for older Americans. Today’s hearing, which

will explore how best to stretch dollars when it comes to services for seniors, is a

timely one. I want to thank Ranking Member Craig for calling today’s hearing and

thereby allowing us to delve into this issue further, as it is clearly one with no easy

answers.

In a time of declining state revenues and limited resources at the federal level,

states are struggling to find ways to cut costs. States are being forced to make some

difficult choices—including cutting back on services affecting seniors. The Medicaid

program-which is a primary payor of long-term care—has not been spared from this

cost-cutting in the states.

Today we will hear data, demographics, statistics and projections—all of which

are necessary to understand the scope of this issue. It is not enough, however, to

simply lay out the problem. We are facing a national crisis when it comes to the

questions surrounding long-term care. States’ financial woes are especially pressing

in light of the wave of baby boomers who will be needing long-term care services

in the decades ahead. We must continue our dialogue and explore potential solutions, which I plan to do in this Committee’s upcoming hearings.

Today’s hearing is just one more step in our efforts to stimulate debate and discussion regarding how best to reform long-term care for our nation’s seniors. I look

forward to having our witnesses share their thoughts on this vital and increasingly

challenging question. This committee’s broader series of hearings and efforts to

stimulate discussion hopefully will help us to formulate ideas to ensure that longterm care will be available to each of us should we ever need it.

Thank you.

PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

Chairman Breaux and Senator Craig, thank you for holding today’s hearing on

the ‘‘Economic Downturn and Its Impact on Seniors: Stretching Limited Dollars in

Medicaid, Health, and Senior Services.’’ As a member of the Budget Committee, and

a strong support of many health care and senior programs, I think is critically important that we examine these issues.

It is my pleasure to introduce one of today’s witnesses, Vernon Smith, Ph.D. Dr.

Smith is from Michigan where he has been an expert on Medicaid and other health

issues for a very long time. As the former Director of Michigan’s Medicaid program,

he has a comprehensive understanding of the program and will provide valuable information for the committee.

Currently, Dr. Smith is a Principal with Health Management Associates, where

he conducts research on economic, health care, and public policy trends and their

impacts on many important health programs. Most recently, Dr. Smith has published reports on the effect of the economic downturn on Medicaid and S–CHIP (entitled MIChild in Michigan) and other programs such as welfare reform. I know that

his work provided important background for the committee as we prepared to hold

this hearing and we are all looking forward to your testimony today.

I would like to take a few minutes to highlight some important points before we

begin. We have known for some time that the funding structure for Medicaid could

lead to hardship during economic downturns. When state’s face declining revenues

they often must debate making cuts to the program. The irony is that these cuts

must be considered when demand is increasing. States also face the difficult reality

that for every dollar they cut from their own budgets for Medicaid; they lose, on

average, the $1.33 federal match as well. In other words, for a limited saving to the

state, dramatic cuts in the program could be the result.

This committee is especially concerned about cuts to Medicaid because many low

income seniors are covered through a combination of Medicaid and Medicare.

Through this coverage, some seniors are very fortunate because they have coverage

for prescription drugs. Ensuring that all seniors who are eligible for Medicare get

good prescription drug coverage is one of my top priorities. States are currently conVerDate 11-MAY-2000 10:36 Jul 02, 2002 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\78784.TXT SAGING1 PsN: SAGING1
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sidering many options to slow their Medicaid spending and it would be especially

devastating if states opted to limit prescription drug coverage.

Related to that issue, I would like to mention that I intend to introduce a bill,

the Senior Nutrition Act, that would help seniors account for the high cost of their

prescription drugs when they are seeking food assistance through important USDA

nutrition programs. I urge my colleagues to contact my office if you are interested

in getting more information and joining me as an original cosponsor.

In closing, I know we are discussing a complex and important issue. Many have

suggested that we need to reexamine the basic funding structure for Medicaid so

that resources are not limited during economic downturns when the need for this

important health care program is at its highest. I think this committee will provide

an excellent forum to begin that debate and I look forward to hearing from all of

our witnesses today.

Our first panel this morning, as I have mentioned, includes Lieutenant Governor Jack Riggs of Idaho and Karl Kurtz, the Director

of the Idaho Department of Health and Welfare; Gail Wilensky,

who is the John M. Olin Senior Fellow, Project HOPE—and former

Administrator of the Health Care Financing Administration; Barbara Lyons, Deputy Director, Kaiser Commission on Medicaid and

the Uninsured; and Vernon Smith, a principal with Health Management Associations and former Medicaid Director for the State

of Michigan.

Governor, I will turn to you and allow you to direct your testimony. I understand that you and Director Kurtz will participate

jointly here.

Please begin.

STATEMENT OF DR. JACK RIGGS, LIEUTENANT GOVERNOR,

STATE OF IDAHO, BOISE, ID; ACCOMPANIED BY KARL

KURTZ, DIRECTOR, IDAHO DEPARTMENT OF HEALTH AND

WELFARE, BOISE, ID

Dr. RIGGS. Thank you, Mr. Chairman. It is certainly an honor

and privilege to be before you today on these important matters.

I come before you in the dual role as both a physician and as an

elected official in the State, looking at the policy issues. I will make

opening comments, defer to the director, and then have a few closing thoughts.

When looking at any complex problem, my initial approach is to

do the analysis first, and of course, in current times, it seems like

much of the news is bad.

There are some things that I think are very obvious. First, we

are in a recession, and many of the existing systems and models

in health care delivery seem to be failing, and we have an ‘‘age

wave’’ coming just a few short years away.

Of course, I would say fundamentally that the economy, through

our tax structure which creates the revenues, is—and it may be

overly simplistic—but I think it is important for us to remember,

that it is the economy that provides the revenues for any of the

programs that we have, and I believe it is a very direct correlation.

When the economy is flat or in recession, there will be a direct correlation and a direct decrease in the level of services to our existing

models.

Typically, I believe, my observation of the legislative process is

that when there is a flattening of the economy and a decease in

revenues, the initial approach is to cut budgets, and therefore,

services will be directly hampered.

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My concern there, of course, is that when—and I speak now as

a physician—when you displace individuals who are receiving Medicaid benefits, especially in long-term care, they will have a diminished health response and will probably end up in our medical system in inpatient hospitals. So I would actually expect to see Medicare costs go up. If you are displacing those who are receiving longterm care or getting prescription drug benefits through Medicaid,

especially the elderly, they will end up in Medicare, and I think

that that is very clear.

When you cut reimbursement to providers, or as we are seeing

the possibility in the prescription drug market, when you cut the

reimbursement and go below what is overhead, access will certainly be hampered. Of course, then you get into a vicious cycle, because when you diminish access, the health of the individual, and

collectively, will decline, which will then cause greater costs on the

Medicare side, because you will have people who are basically more

unhealthy.

Of course, as you mentioned, for States, the typical approach is

to ask for more money, and we in Idaho certainly recognize that

this is probably not the best time for that, because we do recognize

the national situation.

I think part of the approach, therefore, needs to be that we

should as policymakers help address some of what should be the

expectations in the public. My sense as a physician over the years

has been that the individual patients I have dealt with have grown

to have great expectations not only of our system and our Government but also of technology, that it will keep them alive forever.

Unfortunately, as a physician, I have to remind people over and

over that we are born, and we live, and we die, and that is the natural order of things, and if we get later in years, and the end is

inevitable, it is probably better to recognize that and to approach

it gracefully.

I do believe that without a doubt, as people age, if they can stay

at home, it is far better, and I think home-based services is clearly

the best approach. And the money spent in preventive care is much

better than waiting for the emergency to occur and the patient to

wind up in the hospital.

I would suggest that looking at efficiencies in our current programs is really the first step, and that is something that we are

doing in Idaho. I will turn to Director Kurtz, because I know he

wants to share some ideas and things that we are doing looking for

those efficiencies.

Mr. KURTZ. Good morning, Mr. Chairman, and I thank you for

the opportunity to come and talk about the impact of our aging

population on our State budgets.

It used to be that Idaho’s economy followed the Nation’s, but it

always took us a couple years to catch up. That is no longer true.

The economic downturn has hit Idaho hard. As the Lieutenant

Governor said, tax revenues are shrinking, budgets are being cut,

and as we all know, medical costs and therefore Medicaid spending

are headed in the opposite direction.

Every State agency in Idaho has been forced to cut back, Medicaid, and the elderly who depend upon Medicaid are not immune.

For the past several years, Idaho’s Medicaid expenditures, as you

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noted, have gone up at a 15 percent annual increase. In a strong

economy, it is difficult to keep up with that kind of spending increase; in a recession, it is impossible.

The Governor and the Idaho legislature have directed our agency

to limit Medicaid growth to a 6 percent increase in the coming

year. To do this, we must reduce the scope of our Medicaid coverage. Senior citizens are not targeted specifically, but they will

feel the impact. We will reduce pharmacy costs, restrict adult dental coverage to emergency services, and limit what Idaho pays

when a Medicaid patient is covered by both Medicare and Medicaid.

In the interest of time, I will only discuss that pharmacy

changes. I have presented written testimony about the other three

areas, but I will limit my comments primarily to the pharmacy.

According to a 1998 Medicaid study, 12 percent of Medicare enrollees rely on Medicaid to pay for their prescriptions. The cost of

prescription medications is spiraling out of control. In 1999, Idaho

Medicaid spend $64 million prescriptions. That level of spending

ranked it as the third-largest expenditure category in our Medicaid

program. Two years later, in 2001, that cost had gone up 58 percent, topping $101 million.

Idaho individuals age 65 and older account for less than 6 percent of Medicaid enrollees, but they account for nearly 25 percent

of our prescription drug costs. Those costs continue to climb. We

project spending on medications to be $121 million this year, ending June 30, and it will be our No. 1 expenditure in our Medicaid

program next year, at over $139 million. In 4 short years, our prescription drug costs have more than doubled.

The proportion of dollars spent on senior citizens will rise even

faster. In the 1990’s, according to the recent Census, the growth

rate in the number of citizens 65 and older in Idaho was higher

than 37 other States, so that population is increasing.

The dollar figures that I have quoted may sound small in comparison with other figures that you hear on a daily basis here, but

let me assure you that in Idaho, that money is a large sum. In fact,

our total Medicaid budget in Idaho is second only to the appropriation for public education.

So what are we doing to control Idaho’s Medicaid pharmacy

costs? No. 1, we will reduce the drug acquisition payment that

pharmacists receive. We will intensify our review of pharmacy

claims. We will deny prescription refills until an individual has

used 75 percent of the previous prescription. The fourth step is a

big one—we will implement a prior authorization system that kicks

in after a Medicaid client has four prescriptions in any one month.

Prior authorization will be required for anything above four. About

10,000 Medicaid clients, many if not most of whom are senior citizens, have more than four prescription drugs.

A Medicare drug benefit will help Idaho and all other States as

we try to gain some control over Medicaid spending.

With that, Mr. Chairman, this concludes my testimony. Again, I

appreciate the opportunity to provide an Idaho perspective on this

critical issue of Medicaid and its impact on seniors.

Senator CRAIG. Thank you, Karl.

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Dr. RIGGS. Thank you, Mr. Chairman. I have just a couple of

closing thoughts.

I think that a fundamental question that we as policy setters

need to be asking is ‘‘where are we headed?’’ I think we have a

clash of the past and the future that is occurring, and we are seeing that right now. By ‘‘the past,’’ I mean some of those models that

were created many years ago, in fact decades ago, of our health

care delivery system and especially the Medicare and Medicaid

models.

What is happening is that you are being asked to put more

money, in fact billions of dollars, into what I would call a very old

model, and I do not believe you would be asked to put billions into

50-year-old technology in communication, transportation, or defense.

By ‘‘the future,’’ I am referring to the age wave. The baby

boomers, who are just a few years away from being Medicare age,

is a wave in our demographics that I believe will overwhelm the

system. I would use the analogy that many people criticized the

Y2K preparation for the future. I would argue that because of that

preparation, that is what really averted a real problem. I think

there is still time for such preparation for the age wave, but we are

seeing the front end of that wave right now.

One or two examples of innovation—the Eden Alternative of Dr.

William Thomas, which is the alternative where pets and children

are brought into nursing homes, I think is being very well-received

and is an example of an innovation. I would point to medical savings accounts; changing the attitude of younger people so that as

they look toward their later years, they are actually being prepared

for and thinking about the future. I would propose, as I am sure

other people have, that a redesign of Medicare, which I know is a

politically contentious discussion, really needs to be done, because

that model cannot continue.

In closing, I would say that keeping our economy strong regardless of the model is critical. So whenever there is a discussion, if

we can be proactive at keeping our economy strong, that is the revenue stream that funds whatever system exists, so that is critical.

The age wave that is coming, I would really characterize as a

tidal wave that will crush our existing models, and it is only a few

years away.

The encouraging point that I want to leave with you is that I believe there is still time to act, but there has to be innovation in

that action.

Thank you, Mr. Chairman, and I am certainly happy to respond

to any questions that you might have.

Senator CRAIG. Governor and Director Kurtz, thank you both

very much. That is a pretty stark reality that Idaho faces and that

we all face.

[The prepared statements of Lieutenant Governor Riggs and Mr.

Kurtz follows:]

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Senator CRAIG. Now, once again, let me introduce Dr. Gail

Wilensky to the committee. She is former Administrator of the

Health Care Financing Administration and currently John M. Olin

Senior Fellow of Project HOPE, where she is one of the country’s

foremost authorities on health care, Medicaid, and Medicare.

Here come the solutions. Gail, welcome to the committee.

STATEMENT OF GAIL R. WILENSKY, JOHN M. OLIN SENIOR

FELLOW, PROJECT HOPE, BETHESDA, MD AND FORMER ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

Dr. WILENSKY. Thank you, Mr. Chairman, for inviting me here.

As you indicated, I am at Project HOPE now. I also co-chair the

Presidential Task Force to Improve Health Care Delivery for our

Nation’s Veterans. But I am here today to share ideas as a health

economist and a former HCFA Administrator, and I am going to

try to make about half a dozen points.

First, we all need to recognize that States are caught in a doublebind. They are finding their revenues squeezed because of the economic downturn at the same time that they are finding themselves

pressed because of the rapid increase in Medicaid expenditures— 11 percent this year, and the Congressional Budget Office predicts

next year 9.5 percent, not quite so bad, but still quite steep.

Part of that increase reflects deliberate actions on the part of the

States. In the last several years, States have expanded benefits,

they have included populations that were not previously included,

they have expanded their outreach, and they have increased payments to providers. I do not say these are bad things. I think these

are basically good things that States did. They are now struggling

because of the change in the economy, and because of increases, in

some areas that one not their doing increased health care spending

across the country for hospitals in particular and for prescription

drugs, as we have heard, in Idaho as well as elsewhere.

There is no question that the States are finding themselves hardpressed, and unlike the Federal Government, most States by then

constitutions are required to be in balance at all times, which is

facing them to act.

When you look at what the States are doing, they are mostly relying on reductions in payments to providers as a way to do a quick

fix. Looking around the country, you see this going on in Indiana,

where payments for nursing homes, hospitals, and pharmacies

were cut in the fall, and more proposals are being made to continue

these reductions. Some States are using preferred drug lists, some

requiring prior authorization, as we have heard Idaho is going to

be doing. Maine is also proposing to reduce reimbursements, and

Illinois is proposing some additional reductions to reimbursements.

The problem, of course, is that Medicaid has typically been the

lowest payer around, so the reductions in provider payments raises

the question about whether access will be affected. In general,

probably in the short term, it will be OK, although I am worried

about nursing homes. This is an area that has been of particular

concern to this committee because of the frail nature of the vulnerable populations in nursing homes. It is particularly a problem because unlike the other areas, Medicaid is the dominant payer for

nursing homes—a point that you have already made—so that if

27

Medicaid reduces payment, there are not a lot of other places to

turn to to make up those payments. In fact, a recent report have

seen from Lewin Associates, confirms what most people have suspected, which is that Medicare has been cross-subsidizing Medicaid’s underpayments in nursing homes. If some of the extra Medicare payments for nursing homes are not continued this year, as

may happen, it is likely to catch the nursing homes particularly

short, an industry that has already proven itself to be quite fragile.

In the short term, I am very concerned and would encourage the

committee to continue its vigilance in providing oversight for the

nursing home population.

States need to be careful about how they proceed. Some of their

strategies can backfire. We have seen this happen in the past. A

decade ago, one of the States limited the Clozerol, one of the

antipsychotic drugs, and had schizophrenics ending up back in institutions—hardly humane treatment for the schizophrenics and

certainly not cost-saving for the State.

There was a report in The Wall Street Journal a couple of weeks

ago about a state that had required the use of generics whenever

available, only to find out that sometimes, branded drugs that have

just come off patents are actually cheaper than generics.

So state have to act very carefully. The better ideas unfortunately are not quick fixes. They involve looking at clinical protocols

to try to have the best use of some of the new, expensive therapeutics; they require using disease management for high-cost illnesses such as congestive heart failure and diabetes.

There is an interesting proposal called a ‘‘partnership program.’’ It encourages middle-class individuals to protect their assets by not

having to count their value as part of their spend-down if they buy

long-term care insurance, thereby lessening the likelihood that

they will end up on Medicaid if in fact they need extensive longterm care.

But none of these, to be perfectly honest, is the kind of quick fix

that many States need right now. I am a trustee of the United

Mine Workers Health and Retirement Fund. They have a very old

and frail population and are using a combination of generic drugs,

preferred products, geriatric case management and disease management for diabetes and congestive heart failure. This program

seems to have saved some money, and I believe it has improved

health care, but in all honesty, it has taken a couple of years to

implement.

The Federal Government had better watch out. My experience as

a HCFA Administrator is that when States get pressed, they become very fiscally creative. When I was there, it was called ‘‘provider taxes’’ and ‘‘voluntary donations.’’ Now it is called ‘‘upper payment limit,’’ where the States basically bill Medicaid for more than

they are actually reimbursing; some of the public facilities get the

increased match, either make and get back or do not make the increased payment to the public facilities, and only the Feds have

spent more money.

If the Federal Government wants to temporarily increase the

match rate under Medicaid, it ought to do so outright so that everybody plays by the same rules, and all States benefit appropriately. The Federal Government ought to be very careful not to

28

tolerate, these other types of strategies, even understanding the

States’ fiscal crisis.

Finally, it is obvious that a Medicare prescription drugs benefit

would help the States a lot. I believe that prescription drug coverage ought to be part of a reformed Medicare program, but inadequate and unfair benefits are not Medicare’s only problems. You

heard reference to the ‘‘age wave’’ which is coming, the 78 million

baby boomers who will start to retire at the end of the decade.

Medicare has already made many promises and it is not clear how

it will be able to pay for all these promises. While is is important

to reform Medicare, adding a new benefit to a fiscally fragile program, without tackling the rest of reform Medicare needs, is a bad

idea, and I encourage you not to do it.

Senator CRAIG. Gail, thank you very much for your insights that

I know come from current and past experience. Your studies are

very valuable to us.

[The prepared statement of Dr. Wilensky follows:]

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Senator CRAIG. Now let me once again introduce Dr. Barbara

Lyons, Deputy Director of the Kaiser Commission on Medicaid and

the Uninsured, an organization that has focused heavily on the

interplay of the economic forces of health care delivery.

Barbara, welcome before the committee.

STATEMENT OF BARBARA LYONS, DEPUTY DIRECTOR, KAISER

COMMISSION ON MEDICAID AND THE UNINSURED, WASHINGTON, DC

Ms. LYONS. Thank you for the opportunity to testify this morning

on Medicaid’s role for seniors.

Medicaid is the nation’s major program for financing health and

long-term care for 44 million low-income Americans, including over

4 million seniors. Low-income seniors depend on Medicaid for help

in three primary areas—paying for medications, paying for longterm care, and paying for Medicare’s financial obligations.

The downturn in the economy, coupled with the increased pressure on State budgets, place Medicaid’s protections at risk. The

scope of Medicaid assistance for seniors today varies by income and

by State. The poorest elderly receive coverage for the full range of

Medicaid benefits. These beneficiaries, known as ‘‘dual-eligibles,’’ rely on Medicaid primarily for wrap-around benefits not covered by

Medicare, namely, prescription drugs and long-term care. A smaller

share of seniors receive Medicaid help primarily for the payment

of Medicare premiums, referred to as ‘‘buy-in assistance.’’ The elderly comprise 10 percent of Medicaid beneficiaries overall,

but account for one-quarter of Medicaid spending, largely due to

their intensive use of acute and long-term care services. In fact,

nearly three-quarters of Medicaid spending on the elderly is devoted to long-term care services.

As was stated earlier, Medicaid is the only program that covers

ongoing nursing home care, paying for nearly half of nursing home

costs nationally and financing care for over two-thirds of the nation’s nursing home residents.

Medicaid assistance with community-based long-term care has

been growing but remains limited, with fiscal concerns constraining

the broader development of these efforts.

States’ fiscal condition began to deteriorate at the end of 2000.

The slowing of State revenue growth combined with increasing

Medicaid costs has created significant budget stress in many

States. These trends are projected to continue, with Medicaid projected to increase at an average annual rate of about 8 to 9 percent

over the next several years. Spending on services, especially nursing home care, prescription drugs, as well as the buy-in subsidies

for the elderly, are all factors in Medicaid spending growth.

According to our analysis of CBO’s spending projections, the increased cost of caring for the elderly was the second-largest factor,

following the disabled, behind the $12.4 billion increase in Federal

Medicaid spending last year.

The trends in Medicaid expenditures track the trends in private

health care spending. Cost increases in the private market put

pressure on Medicaid to keep pace. To maintain access, Medicaid

programs are pushed to raise payment rates for providers and to

pay for the escalating costs of prescription drugs.

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Medicaid long-term care spending has also been rising and may

reflect the pressure to improve nursing home quality. As Gail stated, low Medicaid payment rates to nursing homes have historically

limited access, and longstanding concerns about the quality of care

in nursing homes persist.

Federal law gives States broad discretion to restrain Medicaid

expenditures, but decisions to trim eligibility, reduce benefits, or

cut payments to providers are not easy. States must also consider

the implications of losing the Federal matching funds to their

health care financing systems. Some States are trying to hold the

line and not reduce funding this year, but others have already initiated budget reduction actions for fiscal year 2002.

Historically, States look to cutting provider payments to hospitals and nursing homes as a first step in reducing spending. As

States prepare their budgets for fiscal year 2003, many are again

likely to turn to curbing provider payments, with implications for

access and quality. In addition, as was heard earlier today, most

States are focusing on controlling prescription drug spending,

adopting strategies including prior authorization, capping the number of prescriptions, higher copayments, and reducing payments for

prescription drugs and dispensing fees.

It is unclear what the ultimate effect of some of these strategies

will be on overall spending and quality or whether they will have

the unintentional effect of limiting access to essential medications.

Low-income elderly beneficiaries often require multiple prescriptions to manage health conditions and therefore constitute a substantial portion of those most affected by these strategies.

The pressure on Medicaid resulting from the aging of the population and rising health care costs is unlikely to abate. Consideration of short- and long-term alternatives to assure adequate coverage and financing are likely to be essential to Medicaid’s future

success in serving as this nation’s safety net program.

To conclude, budgetary problems, coupled with the pressure of

rising health care costs, portend difficult times ahead. Medicaid is

an essential source of coverage for seniors but also for low-income

families and others with disabilities. Given the vulnerability of the

population served by Medicaid, it is critical that attempts to constrain costs not compromise the quality of care available even in

tough economic times.

Thank you. I look forward to working with the committee on

these issues in the future.

Senator CRAIG. Dr. Lyons, thank you very much.

[The prepared statement of Ms. Lyons follows:]

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Senator CRAIG. Now, our last speaker on the first panel, Dr. Vernon Smith, who is currently a principal with Health Management

Associates but also, as I mentioned, formerly Medicaid Director for

the State of Michigan. He has done extensive work counseling

States and others regarding Medicaid and related health, economics, and budgetary issues.

Doctor, thank you for being with us this morning.

STATEMENT OF VERNON K. SMITH, PRINCIPAL, HEALTH MANAGEMENT ASSOCIATES, LANSING, MI; AND FORMER MEDICAID DIRECTOR, STATE OF MICHIGAN

Mr. SMITH. Thank you, Mr. Chairman, members of the committee. I am very pleased to be here today to talk with you about the

effects of the economic downturn on Medicaid and on the seniors

and others whom the program serves.

Medicaid is of course a critically important program in the Nation’s health care safety net for seniors and others on Medicare.

Medicaid is extremely important, because Medicaid pays premiums, coinsurance, deductibles, for services, notably prescription

drugs and long-term care, that Medicare does not cover.

Medicaid’s role in supporting persons on Medicare has grown to

the point where 35 percent of Medicaid spending is for persons also

on Medicare.

Medicaid is now the largest health program in America, even

larger than Medicare. In terms of the number of beneficiaries, this

fiscal year, Medicaid will serve 44 million persons, and Medicare

will serve 40 million persons.

In terms of expenditures, if my estimates are correct, this year, total Medicaid expenditures will be $250 billion; for Medicare, a

total of $249 billion, and net of premium receipts, around $227 billion.

The economic downturn has caused State revenues to take a nose

dive just when Medicaid expenditures are skyrocketing. The State

revenue outlook is not good at all. With the decrease in revenues

this year at the State level, it would take an increase in State revenues of 8 or 9 percent in 2003 from this year for States just to

achieve the same level of revenue in inflation-adjusted terms that

they had 2 years before in 2001. This is extremely unlikely. In fact,

States say they will be lowering their revenue forecasts still further

this spring.

What this means is more pressure for across-the-board State

budget cuts, and the current round of Medicaid cuts may be just

the beginning. Already States have decided or are in the process

of deciding to make major cuts in an effort to slow the growth in

Medicaid spending. Examples abound across the country, and Barbara and others have described those already, in terms of cutting

or freezing payment rates, cutting or restricting benefits, or cutting

eligibility, in some cases, specifically, eligibility for persons with

high medical bills who qualify under the medically needy category

of Medicaid.

The current economic downturn has forced States to reduce Medicaid spending even if it means cutting services that have obvious

value and even when the cutbacks have obvious adverse impacts on

seniors and health care providers who serve them, and for States,

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the frustrating thing is that the total spending cuts may be double

or triple the general fund savings that are realized in order to

make the budget reduction targets, because states must also cut

federal matching funds.

When Medicaid was adopted by the U.S. Congress in 1965, no

one expected Medicaid to become one of the largest programs in

State budgets; no one expected Medicaid to allocate 35 percent of

its spending to low-income Medicare beneficiaries, and no one expected States to have the fiscal capacity to finance a program

whose costs would increase at twice the rate of State revenues over

the long run. But that is what has happened.

States seemingly have run out of strategies to control the growth

in Medicaid spending. The prospect is that simple economics will

put States under increasing pressure to scale back their programs.

To the extent that that does occur, the brunt of program cutbacks

will be borne by those on whose behalf most current expenditures

are made—and those are low-income persons who are disabled and

elderly.

Mr. Chairman, I am very pleased to have the chance to talk with

you about this and look forward to working with you. I am happy

to answer any questions.

[The prepared statement of Mr. Smith follows:]

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Senator CRAIG. Doctor, thank you very much.

I do have some questions of all of you.

As you know, this committee is not an authorizing committee, it

is an oversight committee. But we do believe that we play a valuable role with hearings like this and with testimony and the building of a record that clearly evidences the reality that we all face,

both at the Federal level and at the State level. As health care progresses as rapidly as it has, and the costs occur, the programs that

we are dealing with here are being rapidly outpaced. Then, of

course, as you have mentioned, with economic downturns and

States facing the reality of mandatory balanced budgets we run

into some very difficult circumstances.

This question would probably be for you, Governor, and Director

Kurtz. You described Idaho’s recent and I think ambitious, plan to

restrain Medicaid spending growth.

You have done this without fundamentally cutting core benefit

eligibility other than prescription drugs; is that correct?

Mr. KURTZ. Mr. Chairman, that is correct. We have looked at

coverage areas rather than eligibility.

Senator CRAIG. Do you believe that that is going to get you

where you need to go?

Mr. KURTZ. Mr. Chairman, I do not think it will. As Dr. Smith

said, our Medicaid program has been increasing about 15 percent

a year. Our State revenues on a very good year increase 4.5 to 5

percent. So you have this gap, and to cut that gap, we need to look

at how can we impact that line of increase, and we will have to

look at eligibility as one of those criteria. Right now, our Medicaid

program is right at the minimum in terms of our pregnant women

and children programs, our CHIP program; our basic Medicaid program is at the minimum, so we are going to have to work with the

Federal Government in terms of how do we impact those eligibility

requirements.

Senator CRAIG. A few questions of you, Karl, and probably Gail.

Some of these things States are doing in relation to cutting the

benefit or at least payment to providers is short-term or might

work. In the long term, providers begin to deny services simply because they cannot afford to provide them, and that ultimately

comes about.

Overall, the analysis that we are going to have to have 8 or 9

percent annual increases in state revenues just to stay current

with growing Medicaid costs. And yet, returning to such high revenue growth is just not going to happen under almost any estimate,

although we might see substantial comeback in state revenues— Karl, you just mentioned the reality that even with a robust economy Idaho experienced, Medicaid was outpacing that, and to get

back to that level will be quite an accomplishment by next fiscal

year if we can get there.

I guess I am speaking generally but I would like all of you to

comment on this difficult set of circumstances, and the reality that

we are moving very slowly here as it relates to any form of Medicare prescription drug reform, although they do seem to be linked

together in most policymakers’ lexicon today here on Capitol Hill.

Dr. WILENSKY. I don’t think the longer-term projections for Medicaid growth are double-digit; It is less than the 9.5 percent growth

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that CBO is projecting next year. The growth may be faster than

State revenues growth, but my understanding is that it is more in

the 6 or 7 percent range.

Senator CRAIG. What is slowing that?

Dr. WILENSKY. For one thing, there is pressure not to use the

upper payment limit, which has artificially increased spending—it

was basically free money on the part of the State—and some of the

benefit expansions that we had seen earlier are going to slow down;

the increased payments. Some of the causes that increased were

good spending in the late 1990’s will not continue that is basically

the rationale that the Congressional Budget Office is providing.

I think there are ways that States can slow down Medicaid

spending by doing things better. The problem is that the are not

quick fixes. In the 1990’s, most States used managed care strategies for their acute care population and for a while slowed down

the expenditures. They have run that gamut in my estimation, almost all of the States that could reasonably do that.

There has been less effective innovations in long-term care treatment. Arizona has tried to use managed care and other strategies

in long-term care. You are going to hear from the Ohio aging director about some ideas that we were discussing that they are considering or doing in Ohio. The types of disease management programs

that are sometimes being instituted for high-cost, high-volume diseases really do slow down spending. Health care spending, as you

know, tends to be highly concentrated with relatively small numbers of people using very large volumes of dollars.

So there are some creative strategies. I am attracted to the longterm care partnering program which encourages middle-class individuals to buy insurance to protect their assets that are now counted in spend-down. This discourages attempts to distributing assets

for people who realize they are going to have substantial long-term

care needs.

None of them is going to be a silver bullet in the next year or

two as States find themselves in a fiscal crunch, but they could

allow for smarter spending over a longer period. But of course,

there is the broader issue that was alluded to, which is whether

Medicaid as we now know it really is the program for the 21st century in much the same way that people are asking whether Medicare as we now know it is the right program to accommodate the

retirement of the baby boomers.

Those are difficult questions. These programs have provided important services for the populations they were intended to serve,

but I think it is fair to say that what might have been sensible for

1965 might not make it for 2010.

Senator CRAIG. Thank you.

Dr. Smith, you follow this, you discuss strategies, you advise

States.

Mr. SMITH. The States face a very, very difficult prospect for the

future. The long-term forecast for Medicaid expenditure growth

from CBO through 2012 is 9 percent per year. There is no State

that could possibly expect its revenues to continue to grow that

rate.

Medicaid has continued to increase as a share of State expenditures whether you measure it in terms of general funds expendiVerDate 11-MAY-2000 10:36 Jul 02, 2002 Jkt 000000 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 C:\DOCS\78784.TXT SAGING1 PsN: SAGING1
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tures or as total expenditures. The prospect is only that under the

current financing structure, Medicaid will continue to take funds

away from other worthwhile public purposes that are funded by

State dollars, whether it be corrections, public health, education, or

whatever.

That is not a good prospect, and it does suggest, as Gail indicated, that perhaps there needs to be some evaluation of the financing structure of the program, especially one where the program relies so critically on the availability and stability of State

funding as the primary source of funding. All the important decisions about Medicaid programs are made by the States, and they

depend on the availability of State revenues. The fundamental

problem is whether States can sustain this program, which they

believe in and want to support and have demonstrated their commitment to year after year by making appropriations even though

it took money away from other worthwhile purposes. But even in

the most optimistic of projections, the growth in Medicaid costs will

far outstrip growth in State revenues.

Senator CRAIG. Let me add another question that you might

want to respond to, and then I will turn to you, Barbara. Can we

cut further without seriously risking further provider defections

from the program?

Mr. SMITH. I think it is fair to say that every time Medicaid

makes a cut, it does have consequences. It has consequences in

terms of the health care services that States make available. Medicaid only pays for services which people need, and when you make

cuts, whatever they may be, it has an effect on the people who are

served by the program. It also has an effect on the providers who

provide those services and have a commitment to serve the low-income populations.

I think it is inevitable that when States are forced to make cuts

in provider payments—especially, as Gail pointed out, when Medicaid is already kind of the low-dollar payer—that that does have the

effect of diminishing even further the pool of providers who are

willing to serve and accept Medicaid as a source of payment.

So it is sometimes dramatic when you see a large group—in the

newspapers in the last couple days, there has been some discussion

about pharmacies possibly dropping out because of cuts in payment

rates—but it is not just pharmacies, it is nursing homes, all of

whom do not participate in Medicaid, hospitals, all of whom do not

participate in Medicaid, doctors, dentists who do not participate in

Medicaid. When Medicaid is forced to make these cuts as they inevitably will have to under the current structure, it will only further erode the participation of the providers.

Senator CRAIG. Thank you.

Dr. Lyons.

Dr. LYONS. Yes, I would concur with what Vernon has said.

Thinking about the program, again, the majority of the spending

in Medicaid is on elderly and disabled folks; these are people with

serious, complicated, multiple health and long-term care needs. So

any discussions of cutting the program could have very serious impacts on these populations who need access to health care services.

Medicaid is also an important source of Federal funds to the

States, so I think that Vernon’s testimony actually very clearly lays

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out how much more money you lose by making a cut in State funding because you lose those Federal funds as well, and that money

is very important to States’ health care systems that serve elderly

and disabled populations.

Thinking about the future, I do think there are short-term strategies which need to be considered which run the gamut from trying

to achieve more cost-efficient care, but also looking at options to

provide fiscal relief to the States, including raising the Federal

match rate, increasing savings through the prescription drug rebate program, and providing some relief to States for senior prescription drug spending.

I think those are important things that could be done relatively

quickly that would help States in the immediate timeframe.

Longer-term, certainly there needs to be a broader discussion of

whether there are better ways to provide care for these populations

as we look toward the future. That could involve shifting responsibility from the States to the Federal Government for certain aspects of Medicaid.

But those discussions are complicated, they are hard, they affect

States differently. They have implications for the State budgets as

well as implications for the Federal budget and so require lots of

discussion and debate to get to that point. But looking at the budgetary problems that we are facing and the aging of the population,

these are discussions that we also need to engage in.

Senator CRAIG. Karl.

Mr. KURTZ. Yes, Mr. Chairman. In terms of looking at provider

payments, I think that what we really need to look at coverage

areas—do we cover a service rather than reducing provider payments—because the key element is that we have adequate providers and providing access to that care.

I think the other challenge we need to work on, and we are attempting to do, is getting our recipient enrollees engaged in their

own health care, and making their own decisions around health

care. That is one of the real encouragements I see in terms of our

Children’s Health Insurance Program, is working with those children—it is a long-term investment, as Gail said—but getting those

children healthy and getting them educated about how do you become a good user of health care, so it is not a crisis, but it is health

prevention and wellness. It is a long-term solution—it is not a

quick fix—and some of us need some quick fixes.

We have a number of proposals from advocates, providers, and

other groups for expanding Medicaid, and we have put a freeze on

those. We are not going to be covering new services and/or new

classes of people coming into the Medicaid program.

Senator CRAIG. Governor.

Dr. RIGGS. Thank you, Mr. Chairman.

On the reference to quick fix, I agree there are no quick fixes,

because as I alluded to, I think the quick fix in the legislative process is just to cut reimbursement. I think the good news here is that

I do believe there are greater efficiencies. There are ultimately better ways to do these programs. If there is some light at the end

of the tunnel, hopefully, what we are being squeezed by right now

will get us to be more innovative, because traditionally, we shift

the budget here, do this and that.

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I would point out what I would call the confusion of having Medicare, a program for those over 65, a medical program, and yet if

you have particular financial liabilities or lack of funds, you also

qualify for Medicaid. I think it is very confusing not only for providers but for the recipients to have this blending of programs.

Then, of course, we get into the debate of whether it is the Federal

responsibility or the State responsibility, so we have a blended— and a not very well-blended—program of which criteria do you

meet.

I would say that it would be far simpler if you are over 65—or

whatever the age should be—you have Medicare, and if you have

means-testing, then you get the extended care services and so on,

rather than forcing this distortion of two models that now overlap.

Let me add on the access issue that I do not think there is any

question that as things get tighter, access also gets tighter. I would

say that in Idaho, we have seen it, I have seen it. I have known

of physicians who have always accepted Medicaid and Medicare

who, with cuts in both programs, say it is to the point of being

below the operation overhead cost, and they are just at a point— and we all know there is a nursing shortage now nationally—so

those costs have actually gone up. You have forces that cannot coexist, and something has got to give, and for some, it is access, just

saying, ‘‘I just cannot afford to see Medicaid or Medicare patients

any longer.’’ Senator Craig. Concluding thoughts by any of you? I

will give you a minute.

Gail.

Dr. WILENSKY. You have hit on one of the biggest weakness in

Medicaid, is the dual-eligible program. I agree with Lieutenant

Governor Riggs that having Medicaid and Medicare overlapping

programs is exceedingly expensive, is very clumsy, and does not

provide the best source of care. I would very much rather have a

Medicare program that had differential support for differing income

levels so that people were on one program.

We need to decide whether Medicaid should continue as a Federal-State matching program. I thought the jig was up in the nineties because of provider taxes and donations. The foundation for

cost control has been the State’s share. States have indicated that

when pressed, State share does not mean what the Feds think

State share means. I believe we need to rethink the right program

for the low-income population.

Finally, who gets to pay for long-term care. The proposals used

to be that the Feds would take acute care, and the States would

take long-term care. I was amused to notice in the last round of

the National Governors’ Association proposals, they proposed giving long-term care to the Feds, and they would take acute care. We

clearly have not yet had a fulsome discussion about where long

term care should be, who should control it, and who should pay.

Senator CRAIG. Concluding remarks from anyone else?

Dr. Smith.

Dr. SMITH. I would just like to build on what Gail said and what

Lieutenant Governor Riggs also said in terms of the blending or

the coordination between Medicare and Medicaid. I think this is

really one of the key issues that needs to be looked at today. These

two programs, established by the same Federal law, based on the

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Social Security Act, should work together; but in fact they do not

work so well together. There needs to be some effort, which would

require some change in Federal law, in order to have these programs work in a coordinated way so they work together, and they

work together for the good of the patients as well as the providers.

I would also suggest that there are some things just in terms of

thinking about how to deal with the solution. Gail referenced who

is responsible for what, but I think you could certainly build a case

that the Federal Government has responsibility for the seniors, and

that might in fact be a place where States could be provided some

of the fiscal relief that they need if in fact the Federal Government

were to assume the greater share of financing for the services that

Medicaid provides to this group.

We do have a situation that needs to be looked at. When States

have this shortage—I was just thinking about Idaho and the other

10 or so States that have Federal matching rates for Medicaid at

around 70 percent—when the State budget dictates that cuts have

to be made, States have to cut. In the case of Idaho and these other

10 States, to save $1 million for State funds to apply to the shortage, you have to cut the budget by around $3.5 million. And it is

the $3.5 million that has the impact on the providers and on the

beneficiaries in those States. If there is some way that we can address that so that States can better finance the program, that

would be good.

Senator CRAIG. We have just been joined by one of my colleagues

and a member of the committee, Senator Carper, and I will turn

to him, before we release you, for any opening comments he might

have or questions of you.

Senator.

Senator CARPER. Thank you, Senator.

I want to welcome each of you. Thanks for joining us today. It

is nice to see some of you again and to meet others for the first

time. I understand one of you is from Idaho, and you might even

know the Governor there, who used to serve here. I had the pleasure of serving with him when I was Governor of Delaware and a

member of the National Governors’ Association.

Would you give him a message for me?

Dr. RIGGS. Certainly.

Senator CARPER. I used to encourage him to consider at some

point in time seeking the chairmanship of the National Governors’ Association, which as you know rotates from Democrat to Republican. The current chairman is John Engler of Michigan, and succeeding him will be a Democrat, Paul Patton of Kentucky, and

there will be a vacancy for the position of vice chairman, which will

go to a Republican. Just tell your Governor that I cannot think of

a better candidate than him.

Dr. RIGGS. I will relay that back.

Senator CARPER. I used to encourage him to do that; I said he

was just made for the job. He will do a great job. Give him my best.

Dr. RIGGS. I will relay that message this evening.

Senator CARPER. Thanks very much.

I apologize for arriving a bit late. We have been holding a hearing over in the Commerce Committee, where I testified with respect to future passenger rail service for our country.

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I am not going to ask each of you to repeat your testimony; I

have a copy of it and will have a chance to review it later. What

I will ask you to do is to take 30 seconds apiece, and say, if there

is nothing else that the Senator from Delaware walks out of here

with, I want him to keep this in mind. Just take 30 seconds. If he

remembers noting else, this is what I would like him to keep in

mind. I will just ask each of you to give me your best 30 seconds

for the long haul, please.

Lieutenant Governor, do you want to take the first shot?

Dr. RIGGS. Certainly. I would say that with the coming ‘‘age

wave,’’ if we think we have problems now, we have no idea what

a few years will hold for us. It is just time to do a redesign of both

Medicare and Medicaid and really create some efficiency and look

at the whole system and build a better model. It is time.

Senator CARPER. Thank you.

Mr. KURTZ. Senator, I am Karl Kurtz from Idaho. Looking at

how we can get a handle around prescription drugs, the impact

that seniors have on our Medicaid program in the area of prescription drugs, would be a take-home message; how do we as a partnership between Federal and State, our providers, and the clients that

we serve build a better mousetrap in terms of prescription drugs.

Senator CARPER. Thank you.

Dr. WILENSKY. In the short time the States have to respond, they

are probably going to respond by reducing provider payments. I

think the biggest danger is for nursing homes, where Medicaid is

the dominant payer. There is not a lot left there.

In the medium term, you can have better delivery of services.

There are smarter ways through disease management and other

kinds of programs, clinical protocols for the better use of new prescription drugs. But ultimately, we have to decide what Medicare

should look like and what Medicaid should look like—Medicare for

the baby boomers and Medicaid because it is not clear that the

Federal-State partnership that was set up in the 1960’s makes

sense for the 21st century.

Senator CARPER. Thank you.

Ms. Lyons.

Ms. LYONS. Medicaid is an essential source of coverage for lowincome seniors, families, and others with disabilities. As we try to

deal with these current budget stresses, I think it is critical that

we remember that if States are forced to cut back either by lowering provider payments or cutting eligibility, the needs do not go

away; so it shifts those needs to families and to providers who do

not get compensated adequately for providing care. So policymakers need to address the financing of Medicaid to shore it up

and strengthen it as the safety net program it has been for the past

35 years.

Senator CARPER. Thank you.

Mr. Smith.

Mr. SMITH. Medicaid has grown so fast over the last decade that

it has become as large as Medicare, even larger in terms of the

number of persons served—44 million compared to 40 million. The

costs of the program have put stress on the States and their ability

to continue to finance the program. As a result, they have had to

undertake serious reductions in the program, and there needs to be

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a review of the structural financing of the program if it is to be successful into the future as it has been in the past.

Senator CARPER. Last week, we voted by a fairly wide margin to

pass an economic stimulus package and sent it to the President,

which he has signed. I did not support it. I actually supported a

more expensive package back in October, November, and December, but I thought March 8 was a little bit late. The package that

we passed, I said to one of our reporters back in Delaware that if

I were the Governor of a State right now, especially a State that

was hurting for revenues, I would be having a heart attack; and

if I were the budget director for a State that was having a tough

time with revenues, I would be in intensive care, given the effects,

specially for those States that piggyback on the Federal Tax Code,

and given I think the very positive effect that the accelerated deprecation will have on business investment that we need, by the

same token, it serves to undercut State tax revenues rather considerably in my State and I know in other States.

In earlier versions of the bill, we had an offset to help States particularly on the health side, but we could not work out a consensus

there.

In Idaho or any other States that are represented here, how are

you going to deal with the impact on your revenues and your

mounting Medicaid costs?

Dr. RIGGS. You pose an excellent question, and I am not sure

that we have an excellent answer. We pieced together our budget

for this year—the legislature will probably adjourn tomorrow—and

it is razor thin. We have gone to every available source of revenue

that we had, the budget stabilization funds and those sorts of

thing, and there just is not money sitting anywhere.

The only approach left for those who want more services, whether it be in this area or in education in Idaho, would be to raise

taxes. Clearly, there is nowhere else to go. So it has been a challenge.

Again, you all know the state of the Federal budget just a year

ago; to see such a drastic change in 12 months has been truly remarkable, and it has been a challenge. That is why my sense is

that we are going to squeak by right now, but with the problems

that we see looming in the very near future, we will not be able

to get by because of the number of elderly that are going to be coming into the system. It will not work.

Senator CARPER. Other comments?

Mr. KURTZ. Looking specifically at the impact on our State revenues, there are estimates between $25 and $75 million over the 3-

year period. In a State where we only generate a little over $1.9

billion in tax revenues anyway, that is a significant item. We were

haggling between the departments and the legislature about $1

million quite often; so a $25 million swing is a significant point of

discussion.

Senator CARPER. I am sure it is.

Lieutenant Governor, go ahead.

Dr. RIGGS. If I could add—and this was part of my testimony before you arrived—my fundamental belief is that whatever system

we have, it is the economy through our tax structure that creates

the revenues for whatever the system is.

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So that most fundamentally, I believe that whatever we can do

to keep the economy strong is very, very critically important. I see

obviously the relationship that——

Senator CARPER. Yes. Unless you have a strong economy and the

jobs and revenue that flow from that, you do not have much. I understand that in Delaware, and clearly you do in Idaho.

It is good to see you all. Thank you very much for joining us

today and for your testimony.

Senator CRAIG. Let me thank the first panel for being here and

for your contribution. We greatly appreciate it.

Thank you.

Let me ask our second and final panel to come forward, please.

Thank you both for being here. Our second panel this morning

will focus on senior services programs. We will hear from Joan

Lawrence, Director, Ohio Department of Aging, and Barry

Donenfeld, Executive Director, Mid-Willamette Valley Senior Services Agency, as well as the current President of the National Association of Area Agencies on Aging. We thank you both for being

here.

Joan, please proceed.

STATEMENT OF JOAN W. LAWRENCE, DIRECTOR, OHIO

DEPARTMENT OF AGING, COLUMBUS, OH

Ms. LAWRENCE. Thank you, Mr. Chairman. I appreciate the opportunity to appear before this committee, whom we in the aging

network count on for the kind of oversight you do and the ideas

that you generate.

We are glad you chose Ohio to be part of the panel. We think

we are really representative of the Nation in many ways. We are

very diverse—we are rich, we are poor, we are urban, we are rural;

and I think something that a lot of people do not know is that onethird of our counties are Appalachian, so we have a significant

number of problems that accrue to being in that area.

I am Director of a Cabinet-level agency, but I am not the Medicaid agency. We have a contract with the Medicaid agency for our

home health program. It represents nearly two-thirds of our budget

at this time, and it is fast-growing—or, it was fast-growing, at

least. We were serving 25,000 nursing home-eligible seniors. That

may change a bit with the funding changes.

Our funding in the department is basically 58 percent Federal,

42 percent State, and at the local level, 51 of our 88 counties have

senior levies of some kind to enhance services.

I am hitting my 71st birthday this year, so I am one of those seniors who is healthy and generally enjoying life, but I am here today

to represent the others who are not.

I was glad—no one picked up on it in Lieutenant Governor Riggs’

testimony—he referred to a proposal to change the way we look at

seniors in Medicare to a group called ‘‘pre-seniors’’ who are 65 to

75. I like that.

Senator CRAIG. I am soon going to like that also.

Ms. LAWRENCE. Well, there is a lot of truth to it, too, and we

should look at the populations differently. Eighty-five and over is

where the problem really hits home the most.

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The economic downturn has had a significant effect on Ohio’s

seniors. We have had, as has everyone else, shrinking personal income and sales tax revenues. Before the budget was even cold, in

addition to a 1.5 percent cut we made through the budget process,

another 6 percent cut. For the first time in some time, our in-home

health program, which we call Passport, was affected. Normally,

we have been protected from those cuts. The 6 percent cut produced waiting lists immediately. It was drastic—going from 700 per

month enrollment to 500—and managing that enrollment is very

difficult. In just 2 months, we had over 1,000 on the waiting list,

and of that 1,000, 15 percent, or 150, entered nursing homes directly.

Interestingly, we are going to be able to demonstrate to the Governor—and I hope it will do some good—that the amount of general

revenue we saved in our home health program is going to be equal

to the amount we spend on the increased nursing home placement,

even though it is only 15 percent. So I am hoping that that might

make a difference in the future.

It is compromising our ability to implement the Olmstead deci- sion and will continue to do so. Our waiver cost is about $11,200

including administration. Nursing home average is $52,000. So the

difference in cost is quite significant. Here is where we come to

you. Part of the problem is that the Medicaid program is biased

and has been since it was created toward institutionalization. Medicaid will pay—it is an entitlement—if you are Medicaid-eligible,

nursing home-eligible, Medicaid pays, there is no question about it.

There are cheaper alternatives to nursing home placement, but

because Medicaid does not pay for it—it does not pay for room and

board, does not pay for other services—we cannot use that opportunity for some of our clients.

The Governor is very eager to implement our report on ‘‘Ohio Access for Persons with Disabilities’’ and is severely limited in doing

so because of the way we fund these services.

We are hoping that some of that will change. I talked to someone

recently who is working with getting people out of nursing homes

who could live at home if they had the ability to have the money

follow them. She has 25 people waiting, and she is struggling to

find housing and other services.

We even have a waiver in our State budget to allow 200 people

to get some extra money so they can move out of nursing homes

if they are able to, with health and safety, and we can hardly find

200 because the funding to pay for the housing is just simply not

there.

I thought—and I feel like I want to say it because at this point,

no one has mentioned it—Illinois just recently got a waiver from

CMS for prescription drug coverage, and CMS did something that

I think is very helpful. They said that if any other State wants to

follow exactly what Illinois proposed, they could do it without going

through the waiver process. I think that is a step in the right direction, and I hope they will continue along that track.

I have several examples of how senior services have been affected—I will let you read them—but one thing that really surprised us was that the waiting lists for home-delivered meals have

doubled in some areas of the State just in the recent period of time.

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So what we suggest to you in general is that we should help people help themselves. Most long-term care is done by friends, neighbors, family, as you know, and I think Congress can be very, very

proud of the National Caregiver Support Program that was enacted

with the reauthorization of the Older Americans Act. It is making

a big difference. I think you are going to see good results. It really

does help people who are doing all the work.

We have to give people real choice in long-term care. That is a

real challenge for you, and you have heard that you really do have

to look at Medicare and Medicaid together—you just do. When I

hear our Medicaid director suggest that a program does not make

any difference in Ohio because it saves Medicare money—that it

does not save Medicaid anything—that is something I think we

need to somehow nip in the bud.

We have to support people in their efforts to plan for long-term

care. We just put on the web last week a Long-Term Care Consumer Guide that incorporates not only the regulatory information

and the basic facts about nursing homes—all of them—but includes

for the first time family satisfaction surveys, and it will include by

the end of the summer resident satisfaction surveys; we are in the

process of doing those now.

Finally, I will just agree with everyone else about prescription

drugs. It would be a critical place to start. The Governor is trying

to get a drug discount card in place through the legislature, a little

different from what the President is proposing, and we are having

trouble. The pharmacists claim it will drive them out of business

and similar things that you have probably heard.

So the effort goes on in Ohio and in the rest of the Nation, and

I thank you for listening.

Senator CRAIG. Joan, thank you very much.

[The prepared statement of Ms. Lawrence follows:]

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Senator CRAIG. Now let us turn to Barry Donenfeld, Executive

Director, Mid-Willamette Valley Senior Services Agency, and currently President of the National Association of Area Agencies on

Aging.

Thank you, Barry.

STATEMENT OF BARRY DONENFELD, EXECUTIVE DIRECTOR,

MID-WILLAMETTE VALLEY SENIOR SERVICES AGENCY, AND

PRESIDENT, NATIONAL ASSOCIATION OF AREA AGENCIES

ON AGING, SALEM, OR

Mr. DONENFELD. Thank you, Senator.

Ranking member Senator Craig, Senator Carper, good morning.

I am pleased and honored to be able to visit with you for a few

minutes this morning.

I am the Area Agency on Aging Director for Marion, Polk, and

Yamhill Counties in Northwest Oregon. My testimony today will

have three parts—sharing with you from NAAAA’s national perspective some reflections on the difficulties older persons are having due to the economic downturn; briefly describing Oregon’s community-based approach to long-term care; and discussing some innovative and cost-effective ways that our agency has stretched limited resources, improved and enhanced services, and prepared for

the future.

As I discuss these different topics, I will try to just touch on important themes and refer you to my detailed written testimony for

lots more information and lots of statistics.

I will start with information gathered by NAAAA. AAAs typically

serve older women having difficulties with daily tasks like bathing,

eating, and dressing. AAAs throughout the country report that they

are working more and more with vulnerable and hard-to-teach individuals as well as persons with disabilities.

For the last year and a half, NAAAA has heard repeatedly from

AAA directors through the country that things are tough and that

seniors are needier than ever. The economic downturn is definitely

affecting older people. Here are a few anecdotal snapshots from

around the country.

New York City—and I would like to qualify this by saying that

very little of this is related to the events of September 11; these

events were in play prior to those horrible events—New York City

has a $36 million cut to their Department of Aging. To absorb

those budget cuts, they are eliminating weekend meals, they are

shutting down seven senior centers, they are eliminating plans to

build four new senior centers, they are eliminating service contracts, and they are reducing all of their contracts across the board.

In Alabama, it has been reported that there is a 50 to 75 percent

increase in requests by seniors for employment assistance, with the

greatest increase occurring since August of last year.

My home State of Oregon has been hit hard as well. We have the

highest unemployment rate in the country, and we are not recovering yet. At my agency, we have experienced a projected 20 percent

annual growth rate in requests for public assistance. Our local utility companies report between a 16 and 37 percent increase from

this same time last year in requests for payment assistance, and

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many of the individuals requesting such assistance are in fact seniors.

My State of Oregon has a reputation for long-term care innovation. Most of that results from listening to our older residents and

realizing from our own experience that nursing homes cost four

times more than community-based care. I talk to lots of seniors, as

I am sure the distinguished Senators do. I have never heard a senior say to me—and you probably never have, either—‘‘I want to go

to a nursing home.’’ It simply does not happen.

Using Federal Medicaid waivers, Oregon has figured out a way

to minimize nursing home placements while maximizing community-based options. We save lots of money, and we use it to serve

lots more people in the ways that they want to be served.

We are the only State in the country that has fewer people in

expensive nursing home care than we did 20 years ago. The Oregon

long-term care system serves seniors and people with disabilities

with a one-stop shopping approach. Most of the system is administered through local AAAs like my own, whose staff serve as navigators and gatekeepers.

Also, as we developed options for Medicaid clients, these choices

became available for older adults and people with disabilities who

are not eligible for Medicaid, allowing them to stretch their personal resources further and delay or eliminate reliance on public

resources.

A final part of my testimony today will focus on ways in which

our agency has strategically viewed threats such as funding decreases and other challenges such as demographics as opportunities

for innovation and creativity.

Oregon is graying faster than most States. People 85 and older

are the fastest-growing age group in our State. They will double in

20 years. Nearly one in five is low-income, and 50 percent have significant long-term care needs. As this group ages and the boomers

join them, the demands and pressures, as you have heard from previous witnesses, on the long-term care system will be staggering.

At our agency, we have taken a variety of actions to respond to

these pressures. We have developed lease-purchase arrangements

that will allow us to own two buildings and land after 15 years. For

both buildings, planning began with feasibility studies that revealed that the cost of purchasing an operating space would actually cost less than continuing to lease commercial space. In 15

years, when we are no longer paying rent, we will have $500,000

a year to plow back into our programs.

Ten years ago, we began an innovative way of stretching limited

Title III-C nutrition funds by developing a seven-county partnership with two other AAAs, Oregon Cascades West and Lane Council of Governments. Currently, this partnership provides 650,000

meals a year to about 11,000 seniors in 32 communities. The economy of scale created immediate financial rewards for all three

agencies. The initial rate for the meals was down 12 percent.

Today, 10 years later, we pay 69 cents less per meal than if the

consolidation had not occurred. During this project, the three programs have realized a savings in excess of $1.8 million—a lot of

money in a small State like Oregon.

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If all we had done was save money, this consortium approach to

Older Americans Act nutrition services would have been a big success. But we were not only able to cut costs but also to improve

and enhance the actual meals service through the reinvestment of

savings. We started a dual-entree system, including one ‘‘hearthealthy’’ choice per day. We have a high-quality program featuring

from-scratch cooking tailored to the tastes of Northwest seniors,

and we started a frozen meal program that provides weekend

meals, serves rural communities too small for a meal site, and gets

homebound meals to geographically isolated individuals.

Since this frozen meal program began in 1996, it has grown by

nearly 62 percent, all paid for with savings from the reinvention

of how we contract for the noon lunch program.

Building upon the successful food service consortium, we are

jointly contracting for in-home services with the same partners. We

do not expect to leverage the same type of savings as the food

project, but we have already stabilized costs and made sure that

we are always likely to have a stable in-home services contractor

in place.

Thank you for the opportunity to share this information with

you. I hope I have offered you some suggestions that can be replicated in other parts of the country. I look forward to answering

your questions.

[The prepared statement of Mr. Donenfeld follows:]

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Senator CRAIG. Barry, thank you very much. I have watched Oregon from Idaho for a good number of years, and I know that in

the areas that you are involved with, there has been a great deal

of effort to innovate and create different approaches.

This would be a question for both of you. First, Joan, and then,

Barry, you mentioned that you had ‘‘saved lots of money.’’ But

Joan, in your testimony, you cited a startling statistic that Ohio’s

home- and community-based Passport Medicaid waiver program

keeps people out of nursing homes and in their homes for about

$11,000 per year versus $52,000 a year that a nursing home would

cost—and yet you testify that Ohio this year is cutting the Passport

program and not nursing home care.

If the cost-effectiveness of home-based care is as dramatic as you

say, I guess I would have to ask why is the legislature doing that?

But I would also then ask the question of Barry, can you give us

some similar analyses, particularily because you have spoken to

similar savings that have occurred in Oregon by shifting away from

institutional care and toward home and community-based care?

Ms. LAWRENCE. Thank you, Mr. Chairman.

Actually, the 6 percent cut came from the administration. As you

know, States have to have a balanced budget, so it was simply that

we had to come up with—I think it was $1.5 billion that they were

looking for. They protected Medicaid from cuts——

Senator CRAIG. So it was a holdback based on budgets?

Ms. LAWRENCE. Yes. There was no real discussion of whether or

not to cut nursing homes per se. There is going to be conversation

not just about nursing homes but about hospitals. We have already

negotiated, as some of the other speakers have alluded to, a change

in our prescription drug reimbursement. We are going from the average wholesale price minus 11 to average wholesale price minus

9—or am I saying it the wrong way—in any event, the way it saves

more money. The pharmacists are challenging that, but I suspect

it will hold up.

So our Medicaid director has listed a variety of things that might

keep us in check. She did, however, testify at the legislature a

week or so ago that she felt that through the end of this fiscal year,

through June 30, she would not have to propose additional cuts.

Next year, the Governor is assuming that some of the cuts will continue, including ours. When I said I was hoping I could get him to

change his mind, it was for next year; I am going to be saying just

what I said here.

Senator CRAIG. I see.

Barry.

Mr. DONENFELD. In our State, I think we have had the opposite

experience. We have been on a 20-plus-year journey of essentially

having as many of the people who qualify for Medicaid long-term

care be in community-based settings as opposed to nursing homes,

to the point where now only one in four of our Medicaid long-term

care clients are in a nursing home setting, and the other 75 percent

are in some type of——

Senator CRAIG. But comparatively speaking, how much does community-based care save over what would be a contemporary nursing home cost?

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Mr. DONENFELD. Our community-based rate, which is then a

blend of all the different community settings, some higher and

some lower, runs at about $785 a month, and our nursing home

runs at around $2,800 a month—so roughly four-to-one. That has

been fairly consistent over the 20 years. The rates, of course, over

that period of time have all gone up due to inflation, but that ratio

has remained fairly constant.

We have also learned that any time we have attempted to reduce

access to community-based options, the nursing home counts do in

fact go up, and you wind up spending the same or more dollars because of the entitlement to the nursing home placement than you

do, and you are serving people in ways that they do not wish to

be served.

So we have deliberately, I think, in a bipartisan way in Oregon

prioritized maintaining the community-based side of the long-term

care system as a very high priority.

Senator CRAIG. One last question before I turn to my colleague.

Mr. Donenfeld, you singled out specific ways that you and your programs have stretched existing dollars to better maximize service to

seniors, and I am particularly interested to your approach of pooling resources and purchasing among different area agencies on

aging in your region.

In your experience in Oregon and as the national President of

the Association of Area Agencies on Aging, do you believe that this

kind of pooled approach could or should be used more widely nationwide, and can such pooling and group purchasing be done in

the absence of special waiver circumstances such as you have in

Oregon?

Mr. DONENFELD. Let me try to answer all of those questions. Yes,

I believe it could be done in many parts of the country. This is an

Older Americans Act program, so it does not require any special

waivers. It is something that each State could do, depending on the

view of the State Unit on Aging toward these arrangements. Our

State Unit on Aging was extremely receptive and extremely cooperative, and I would imagine that most of the State Units on Aging

would be with a project like this that has the ability to both stretch

resources and actually improve the daily quality of the program at

the same time.

Should it be used? I think that in our area, it was relatively easy

to make that decision because the population dynamics of the seven

counties are very similar. The profile of the older people who live

in the seven counties, even though they are served by three different agencies, is very similar.

So I think that in places where those kinds of similar profiles

would exist, it would be very simple to take this approach. In other

parts of the country—take the San Francisco Bay area, where there

are multi-ethnic and cultural groups, many of which have separate

meal programs that serve ethnic food based on the diversity that

exists there—it might be much harder to take that kind of approach, because a contractor would not get the economy of scale

that he got from being able to cook the same menu for essentially

three times as many people as he would if each of us had bid our

program separately.

Senator CRAIG. I see. Good point.

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Mr. DONENFELD. So I think that is applicable in many parts of

the country where there are geographically contiguous areas with

similar profiles; in other areas, it may not be so applicable.

Senator CRAIG. Thank you.

Let me turn now to my colleague, Senator Carper.

Senator CARPER. Ms. Lawrence, where do you live?

Ms. LAWRENCE. I live just north of Columbus.

Senator CARPER. In Worthington?

Ms. LAWRENCE. Close.

Senator CARPER. Where?

Ms. LAWRENCE. Southern Delaware County; close to Worthington.

Senator CARPER. No kidding. I am from Delaware.

Ms. LAWRENCE. Whom do you know in Worthington?

Senator CARPER. I went to Ohio State; I know a lot of people

there. I went to Whetstone High School, graduated from Whetstone

High School.

Senator, if you will just indulge me, I went back to my high

school reunion about 2 years ago. I was Governor then, and I drove

in with a State trooper. We were trying to find this golf club where

they were having the reunion for Whetstone High School. It was

getting close to 7 o’clock, and at 7 o’clock, they were supposed to

take the class picture, and the last thing I wanted to do was to

miss being in the class picture having driven all the way from

Delaware to be there for the event.

If you know where the Columbus zoo is, this golf course was

close to the Columbus zoo. We found the zoo, but we could not find

the golf club. So it was 6:45, and time was bearing down on us, and

we decided to stop at a convenience store and get directions.

A friendly looking fellow was coming out of the convenience

store, and I said, ‘‘Sir, we are trying to find my high school reunion. It is at such-and-such golf course. Could you tell us where

it is?’’ He said, ‘‘It is not far away. Go down there, take a left, then

a right, and it is about a mile.’’ We said thanks a lot, and he asked, ‘‘Where are you from?’’ I said, ‘‘I am from Delaware.’’ He said, ‘‘What do you do there?’’ At the time, I was Governor of Delaware,

and I said, ‘‘I am the Governor.’’ Keep in mind, for people who do

not know, that Delaware is a little town 30 miles north of Columbus. He said, ‘‘Well, I work in Delaware almost every day of the

week.’’ I could just see this guy going to work on Monday morning,

saying, ‘‘I did not know we had our own Governor. I thought Taft

was Governor. I met this guy at the convenience store, and he said

he was the Governor.’’ [Laughter.]

Ms. LAWRENCE. I believe it—and I think, by the way, in Delaware County at last count, we had 30 golf courses, so no wonder

you could not find it.

Senator CARPER. I served with Bob Taft, your Governor, and he

is a good friend, he and Hope, so when you see him, give him our

best from the ‘‘other’’ Delaware, if you would.

Would each of you take a minute and describe for us the prescription drug assistance programs that your States offer to senior

citizens?

Ms. LAWRENCE. Well, my description, Mr. Chairman, Senator

Carper, is not going to be very long because unless they are on

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Medicaid, we do not do much. We do have in our department a

Golden Buckeye Card program which offers 10 percent discounts in

retail stores that participate, and many of the pharmacies do.

The Governor this session of the legislature has been trying to

get, with our help, an extension of that discount so that it could

be more like 20 percent, or 25 percent, with help from the pharmacists and with help, we hope, from the manufacturers with rebates through, perhaps, a prescription benefit manager. But that

bill has not yet made it through the process, largely because the

pharmacists and the retail chains are very upset that some of that

discount comes out of their pockets.

We are still hopeful that we can get it. I keep thinking we should

be able to turn the argument, because the pharmacists do grant

those discounts to everybody who has insurance coverage or who is

on Medicaid, but this last full-paying customer, the senior without

coverage, is to pay full price so that they can protect their profit

margin.

In any event, we do hope we get it. Unfortunately, I do not have

any other piece of decent news. There are a lot of people talking

about the tobacco money, so they set aside $500,000 for prescription benefit assistance, but no one has been able to figure out how

to use it effectively. They are considering using it now for advertising the existing discount card programs, which most seniors do not

know exist.

So that is not a very good answer, I am afraid.

Senator CARPER. But a straight answer. Thank you.

Mr. Donenfeld.

Mr. DONENFELD. Senator Carper, Senator Craig, my answer

would be very similar. Unfortunately in Oregon, we do not have,

other than as Joan mentioned, for Medicaid beneficiaries a prescription drug assistance program at all. Our legislature in its last

session set aside some funds to start one next fiscal year, which

have been cut as a result of our recent budget crisis. It was a very

small amount of money, and it was going to provide limited assistance to the poorest of the poor, and now that is not going to happen

at all.

So I do not know—given our current budget deficit, with the

changes that you referred to, Senator, from the economic stimulus

package—there was a report in our local paper yesterday that Oregon is going to lose $148 million from those changes, which brings

our budget deficit up to about $1 billion. I do not think we will get

there any time soon.

Senator CARPER. OK. In our State, we have taken a combination

of funds from a foundation, moneys that are donated by a foundation for the purpose of providing for some of the medical needs of

our poorest elderly citizens, and we have added to that a portion

of moneys that we have received through the tobacco settlement,

and we provide prescription assistance to senior citizens, people 65

and over, people who are disabled and unable to work, up to about

200 percent of poverty. In our little State, we have about 750,000

people, but we are able to literally serve the needs of thousands

and thousands of people now.

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We do not use all the tobacco money for this purpose, but I would

say maybe a bit less than half of it. That will probably grow over

time.

Delaware is not alone in providing that kind of prescription assistance. Our neighbors in Pennsylvania and other States do as

well. Senator Craig, Senator Breaux and I and others are mindful

of the interest and I think compelling need for a prescription drug

program within Medicare. I think that if we were inventing Medicare anew today, we would include in it a prescription assistance

program, because there are so many things that we can do with

prescription medicines today that we could not do in, say, 1965.

I think of my own mom, who is an Alzheimer’s patient and lives

in a nursing home now in Kentucky, close to my sister and close

to my mother’s sister. She takes any number of prescription drugs

which help keep her alive that frankly were not around when

Medicare was created. They actually help to give her a pretty decent quality of life given the fact that she has fairly advanced Alzheimer’s disease.

We are only going to get better at developing new pharmaceuticals to treat, whether it is Alzheimer’s or Parkinson’s disease

or a variety of other maladies which make the later years of our

lives, and sometimes not so later years of our lives, pretty unpleasant. It is important that we have the ability to ensure that as those

medicines are developed and can help keep people out of nursing

homes or keep people out of hospitals, they are made affordable

and available to those who need them.

One of the challenges for us—and it always comes down to

money; we have talked about that already, but it always comes

down to money—one of the challenges for us is to take the roughly $300 billion that we put in our budget resolution a year ago for

Federal prescription drug assistance and to use that to help meet

a portion of the need. It does not begin to meet all of the need that

exists.

Someone told me last year that if you added up all the expected

or anticipated prescription costs for people 65 and over for the next

decade, it would add up to several trillion dollars. Well, let us just

say that that several trillion is $3 trillion—it might be a little

more, it might be a little less; we will just assume that it is $3 trillion—and he Federal Government comes in with $300 billion.

There are a lot of people in our country who get prescription benefits from an employer; they are retired, and they receive some help

from their employers. What is important for us is that we actually

do agree on a prescription assistance program, and if it is $300 billion or $350 billion or $250 billion, what is really critical is for us

to design something so that we do not induce other States to pull

out and withdraw their coverage, or that we do not induce other

employers—in my own State, Dupont, Hercules, Chrysler, General

Motors—they need to stay in the game, providing prescription assistance for their retirees, and for foundations, like the Nemours

Foundation in my States, which helps as well.

So the key for us—and it is a tricky one—is, as we develop a program for the Federal Government to provide assistance to some of

the neediest people, that we do not provide an incentive for others

to cut and run. Right now for States, given the kind of revenue sitVerDate 11-MAY-2000 10:36 Jul 02, 2002 Jkt 000000 PO 00000 Frm 00123 Fmt 6633 Sfmt 6633 C:\DOCS\78784.TXT SAGING1 PsN: SAGING1
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uations that a lot of our States are facing, if there were a Federal

program and States had the opportunity to cut their costs in this

area and simply shift the burden over to the Federal Government,

my guess is that one or two would.

Ms. LAWRENCE. You would hear the great sucking sound.

Senator CARPER. You surely would. That is one of the challenges

that we face and one that, as we go forward, we would welcome

your help in addressing.

Ms. LAWRENCE. Mr. Chairman, Senator, you are absolutely right,

and the more you leave us hanging out here without prescription

drug coverage, the more of us will attempt to come up with something. The maintenance of effort is going to be real challenge.

There are some good programs. I wish we could do what Delaware

did, but we are a bigger State, and it makes a difference in the

ability to even dream about it.

I read recently about an individual city in Kentucky that has put

together the kind of package Delaware did—a foundation and then

manufacturers’ rebates—and they are covering everyone up to 200

percent of poverty. No one has to worry about a prescription. That

is good, but of course, it is just that city.

Senator CARPER. It is really good unless you are at 201 percent

of poverty, and you have a huge prescription drug need. You cannot

wipe every tear from every eye, but we are doing our best to help

where we can.

Ms. LAWRENCE. Mr. Chairman, Senator Carper, you are right.

The hard part is for you to design something that does not take

away all that is already going into it, but I want to go back to

something I said about nursing home placement versus home and

community-based care and the need for alternatives.

One of the questions we get from the Federal level but also from

the State level is if we were to add an ability to pay for assisted

living to some extent as a first step—we keep people in home and

community-based care, and 50 percent of them eventually do go to

a nursing home, but if half of that 50 percent could go in the interim for a year or whatever they could to an assisted living facility, that is a savings right there. How do you keep that from expanding to a much bigger coverage group? Well, one way would be

to tie it to the waiver program recipients; start with the people who

are already receiving in-home care and can no longer safely stay

at home and let them use another system in between.

That would be one way to try to control the costs but do something that is cost-effective.

Senator CARPER. Thank you.

Thank you, Mr. Chairman.

Senator CRAIG. Thank you, Tom.

Joan, Barry, thank you very much for your time and your testimony. It is extremely valuable as we wrestle with this sizable problem in our country that begs for a solution now.

Tom has mentioned his interest, and I share that interest. I hope

we can step back from the politics of the issue and look at it anew

and design a new Medicare prescription drug program for this

country that accomplishes what we want to accomplish as far as

seniors and still allows that level of community participation that

you are talking about, which is every bit as important for the payVerDate 11-MAY-2000 10:36 Jul 02, 2002 Jkt 000000 PO 00000 Frm 00124 Fmt 6633 Sfmt 6633 C:\DOCS\78784.TXT SAGING1 PsN: SAGING1
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ment. What is most important is the community involvement in the

caring for our seniors. I do not think we ever want to create a Federal program that just does it all, the character of our country

being what it is. I think community involvement will be an extremely valuable part of any solution—the dynamics of those communities, large and small, who reach out, provide for, and participate in the caring for this particular demographic group which is

a pretty darn valuable group.

Thank you all very much. The committee will stand adjourned.

[Whereupon, at 11:21 a.m., the committee was adjourned.]

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