```

[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]

 
                THE PRESIDENT'S FISCAL YEAR 2008 BUDGET 
                    FOR THE CENTERS FOR MEDICARE AND 
                           MEDICAID SERVICES 

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 13, 2007

                               __________

                           Serial No. 110-14

                               __________

         Printed for the use of the Committee on Ways and Means

                     U.S. GOVERNMENT PRINTING OFFICE

40-303 PDF                 WASHINGTON DC:  2008
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Washington, DC 20402-0001

                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 6, 2007, announcing the hearing.............     2

                                WITNESS

Leslie V. Norwalk, Acting Administrator, Centers for Medicare and 
  Medicaid Services..............................................     6

                       SUBMISSIONS FOR THE RECORD

American Association for Homecare, statement.....................    47
Heart Rhythm Society, statement..................................    50

                THE PRESIDENT'S FISCAL YEAR 2008 BUDGET
                    FOR THE CENTERS FOR MEDICARE AND
                           MEDICAID SERVICES

                              ----------                              

                      WEDNESDAY, FEBRUARY 13, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:03 p.m., in 
room 1100, Longworth House Office Building, Hon. Fortney Pete 
Stark (Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 06, 2007
HL-1

              Hearing on the President's Fiscal Year 2008

              Budget with Acting CMS Administrator Norwalk

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the Medicare portions of the President's Fiscal Year 2008 budget 
proposals. The hearing will take place at 2:00 p.m. on Wednesday, 
February 13, 2007, in Room 1100, Longworth House Office Building.
      
    The Subcommittee will examine the President's Fiscal Year 2008 
budget proposals relating to the Centers for Medicare and Medicaid 
Services (CMS) programs. In view of the limited time available to hear 
witnesses, oral testimony at this hearing will be from invited 
witnesses only. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Committee and for inclusion in the printed record of the 
hearing.
      

FOCUS OF THE HEARING:

      
    On February 5, 2007, President George W. Bush submitted his Fiscal 
Year 2008 budget to Congress. The spending and policy proposals related 
to the Centers for Medicare and Medicaid Services in the Department of 
Health and Human Services fall under the jurisdiction of the Committee.
      
    In announcing the hearing, Chairman Stark said, ``The programs 
administered by the Centers for Medicare and Medicaid Services are 
vitally important to American families. Congress and the Administration 
must work together to ensure that these programs are working 
effectively for beneficiaries, providers, and taxpayers. I welcome the 
opportunity to discuss these critical issues with Acting CMS 
Administrator Leslie Norwalk.''
      

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FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    Chairman STARK. In an effort to accommodate those who want 
to get home before they get snowed in and have to spend the 
night here, I will proceed before all of our colleagues are 
here. I think they'll be coming in and out from the debate on 
the floor, and I appreciate Ms. Norwalk's coming over.
    I think the Government is closing early this afternoon, so 
we'll try and move along.
    It's our first hearing, I'm happy to have Ms. Norwalk here.
    I understand that Ranking Member Camp is on his way, and 
I'm happy to have him here.
    I want to thank you for appearing at our first hearing, and 
I know it won't come as a surprise to you, Ms. Norwalk, that 
I'm disappointed by the President's budget, and there's a bit 
of a difference between the Congress and the Administration's 
priorities, I think, for health care.
    From 1984 to 1995, this Subcommittee and various Republican 
Administrations would often disagree about how to split 
reimbursement between rural and urban providers, or what 
percentage to take off market basket for various providers, but 
we all worked toward the same goal, and that was preserving and 
improving Medicare as a guaranteed defined benefit for 
America's seniors and people with disabilities.
    Instead of renewing that spirit, the President's budget 
cuts some 300 billion out of Medicare and Medicaid over the 
next decade and leaves some 50 billion in overpayments with 
private, mostly for-profit plans in place.
    Even worse, this budget enhances provisions inserted into 
law as part of the Part D prescription drug plan, which will 
hasten Medicare's fiscal problems, or demise, perhaps.
    The so-called 45 percent trigger, rather than a 
recommendation, would allow the President to be empowered to 
force across the board automatic cuts to limit Government 
spending, and that is a sure path to turning Medicare into a 
voucher program.
    The President's budget increases the number who have to pay 
higher part B premiums, and expands the income relating to drug 
premiums.
    This is a tax increase on upper income beneficiaries who 
have already paid more for their Medicare through payroll 
taxes.
    I feel it's designed to convert Medicare from a program 
that covers all seniors to one which only covers those without 
other options, and leads us further down the road to 
privatizing Medicare as we lose the support of upper income 
Americans who may begin to view Medicare as a social program 
rather than a general insurance entitlement.
    The President has also proposed to, in my opinion, reduce 
the amount of employer-based health benefits that 160 million 
Americans now enjoy.
    With his tax changes, employers would be inclined to drop 
coverage and employees would basically be given a voucher and 
left to find coverage in the expensive, unfair, and often 
unavailable individual health marketplace, health insurance 
marketplace.
    The voucher would be worth as much as six times more for 
high-wage earners than low-wage earners who will only get about 
1,100 bucks in value.
    In addition to that, because the proposal lowers annual 
income, it would decrease low-wage workers' Social Security 
benefits by as much as one-third when they retire.
    I'm not sure this was an intended consequence, but it 
certainly wouldn't be a very popular feature.
    The President's own analysts predict that only 3 million of 
the 47 million uninsured would gain insurance under this 
proposal. That's less than 6 percent.
    Millions would lose comprehensive coverage in exchange for 
high-deductible plans that probably would do little to help 
their family meet their health care needs.
    If you have a history of illness, you're older, work in a 
line of business the insurance industry considers high-risk, or 
wouldn't be able to buy insurance at any price, you would be 
denied insurance at any price.
    That could be defined as reform, but I hardly think that 
it's an improvement.
    The President proposes cuts to Medicaid. I know that's not 
entirely our jurisdiction, but his plan allows States to use 
Medicaid funds to expand coverage, and it seems to me that--or 
it doesn't allow them to do it, and you can't have it both 
ways.
    We spend 3.7 billion more for health savings accounts which 
benefit, generally, upper-income families, and we think only 
about 100,000 of those policies exist, and we short-change the 
State Children's Health Insurance Program (SCHIP) program that 
covers more than 6 million children by at least $12 million.
    I only use those figures to illustrate that we are helping 
precious few people, and we are not using any of these savings 
to help those most at need.
    So, that's why I believe we're going to have to set aside 
this budget and wait and see what our budget Committee comes up 
with, and wait and see what Mr. Camp and I can negotiate, and 
come back to you after we've started from scratch and put 
forward something that I think both sides of the aisle on this 
Committee can agree on.
    Maybe Mr. Camp has already decided that, in which case I'll 
recognize him to lay out a fair program for us.
    [The prepared statement of Chairman Stark follows:]
         Prepared Statement of The Honorable Fortney Pete Stark
       a Representative in Congress from the State of California
    This is the first hearing before our Subcommittee since our recent 
reorganization. I look forward to working closely with Dave Camp as our 
Ranking Member. And, I'd like to welcome the new members to our 
Subcommittee: Reps. Xavier Becerra, Earl Pomeroy, and Stephanie Tubbs-
Jones are new to our Subcommittee, though not the Committee. Rep. Kind 
joins us on the Subcommittee as a new Member of the Ways and Means 
Committee as well. Of course, welcome back to all the seasoned veterans 
as well. Now, to get to the subject before us.
    Ms. Norwalk, thank you for appearing for our first hearing. I know 
it won't come as a surprise that I am disappointed by the President's 
budget. There is clearly a wide gulf between Congress and the 
Administration's priorities for health care.
    From 1984-1995, Members of Congress and various Republican 
administrations would disagree on how to split reimbursements between 
rural and urban providers, or what percentage to take off of market 
basket updates. But, we all worked toward the same goal: preserving and 
improving Medicare as a guaranteed benefit for America's seniors and 
people with disabilities.
    Instead of renewing this spirit, the President's budget guts some 
$300 billion out of Medicare and Medicaid over the next decade while 
leaving some $50 billion in overpayments to private plans in place. 
Even worse, this budget enhances provisions inserted into law as part 
of the Republican prescription drug program that hasten Medicare's 
demise.
    First, the President loads the so-called ``45% trigger'' with real 
ammunition. Rather than recommending legislation to Congress, the 
President would be empowered to make across-the-board automatic 
Medicare cuts to limit government spending. This is a sure path to 
achieve the goal for Medicare to ``wither on the vine.''
    Second, the President's budget increases the number of people who 
will have to pay higher Part B premiums, and expands that income-
relating to Part D drug premiums. This is a tax increase on upper 
income beneficiaries who have already paid more for Medicare through 
payroll taxes. It is designed to convert Medicare from a program that 
covers all seniors to one which covers only those without other 
options--another way to privatize Medicare.
    In addition to the changes in Medicare, the President has proposed 
to undermine employer-based health benefits where 160 million Americans 
get their health insurance today. Instead, employees will be given a 
voucher and left to find coverage in the broken, unfair, expensive 
individual health insurance marketplace. The voucher will be worth as 
much as six times more for high wage earners than lower wage workers 
who will get only about $1100. Then, as a kicker, because the proposal 
lowers annual income, it also would decrease low-wage workers' Social 
Security benefits by as much as one-third when they retire.
    Even the President's own analysts predict that only 3 million of 
the 47 million uninsured would gain ``insurance'' under this proposal--
less than 6%. Millions would lose comprehensive coverage in exchange 
for high deductible plans that do little to help them meet their 
families' health needs. If you have a history of illness, are older, or 
work in a line of business the insurance industry considers high risk, 
you won't be able to buy insurance at any price. This certainly could 
be defined as health ``reform,'' but it's not an improvement.
    Next, the President proposes cuts to Medicaid that weaken the 
health care safety net. These cuts undermine the President's plans to 
allow states to use Medicaid funds to expand coverage. You can't have 
it both ways.
    Meanwhile, the President spends $3.7 billion more for health 
savings account expansions--which benefit upper income families and 
only 100,000 have been sold--while shortchanging the SCHIP program 
which covers more than 6 million children by at least $12 billion--and 
that's just the bare minimum needed to maintain coverage for those low-
income children who have it today. If the President's SCHIP plan were 
enacted, states would have to cut children off their insurance. This is 
not the way to help the 8 million and increasing number of children 
without health insurance.
    Secretary Leavitt said at a hearing before us last week that 
Medicare and Social Security have made the most significant 
contributions to society of any public program. I agree. That's why I 
believe we should set aside the President's budget and start from 
scratch.

                                 

    Mr. CAMP. Thank you, Mr. Chairman, and welcome, 
Administrator Norwalk.
    I hope today's hearing will be not our last opportunity for 
this Subcommittee to look at what we need to do to strengthen 
and improve the Medicare Program, and obviously, absent any 
changes, Medicare will not be able to keep up with the 
challenges that will face it in coming years.
    We're all familiar with the problems plaguing the program--
ever-increasing payments to hospital and other providers, 
beneficiary premiums that have nearly doubled in the past five 
years, and the hospital trust fund will run out of funds in 
2018.
    Identifying the problems is the easy part. The real 
challenge lies in finding solutions that we can work toward to 
strengthen and improve the Medicare Program, and far from being 
perfect, the Medicare proposals in the President's budget do 
deserve examination, and I believe are an important step in 
addressing these problems.
    Like Chairman Stark, I too have concerns with some of what 
the President has presented, but I hope these proposals can 
serve as a beginning to start our discussions about what we can 
do to slow Medicare spending growth and to help protect 
Medicare beneficiaries from escalating health care costs.
    So, to begin ways to strengthen the Medicare Program, we 
should look at the success of Medicare D. Since its inception, 
premiums paid by Medicare beneficiaries have declined. Ten-year 
projected costs of Part D are 270 billion lower than predicted 
just 2 years ago. Seniors are reporting satisfaction rates 
above 80 percent, while saving an average of $1,200 a year.
    So, in light of these successes, I believe we must continue 
to enact reforms in traditional Medicare to ensure seniors will 
have access to high-quality and affordable health care for 
generations to come.
    Thank you, and I appreciate the Chairman holding this 
hearing.
    Chairman STARK. Why don't you go ahead and enlighten us in 
any way you'd like?

                STATEMENT OF LESLIE V. NORWALK,

                     ACTING ADMINISTRATOR,

           CENTERS FOR MEDICARE AND MEDICAID SERVICES

    Ms. NORWALK. Thank you, Mr. Chairman.
    If I might start off by expressing my condolences over the 
loss of Congressman Norwood. I'm sure he was an important part 
in the health care debate in his role as a dentist, and I know 
that we will all miss him, and I'm certainly sorry for all of 
our losses.
    Chairman Stark, Representative Camp, and distinguished 
Members of the Subcommittee, I am pleased to be here today to 
discuss the proposals of the President's fiscal year 2008 
budget for programs administered by the Centers for Medicare 
and Medicaid Services (CMS).
    As you know, CMS is the largest purchaser of health care in 
the world. We provide health care coverage to nearly 1 million 
beneficiaries. That's one in every three Americans.
    Medicare and Medicaid combined pay about one-third of the 
Nation's health expenditures and represent more than 84 percent 
of the Health and Human Services (HHS) budget.
    Medicare outlays are expected to be $464 billion in fiscal 
year 2008 and the Federal portion of Medicaid outlays is 
projected to be $203 billion.
    CMS accounts for nearly a fifth of the President's budget.
    The President's Medicare budget aims to transform Medicare 
into a financially sustainable quality-based payment program. 
In the last year alone, experts ranging from the Medicare 
Payment Advisory Commission (MedPAC) to the Medicare Trustees, 
to Federal Reserve Chairman Ben Bernanke, have all underscored 
the importance of taking actions now to address Medicare's 
long-term financial challenges.
    Specifically, MedPAC cautioned in its March 2006 report to 
Congress that, quote, ``even if policymakers succeed at moving 
providers toward greater efficiency, they may still need to 
make other policy changes to help ensure that that program's 
financing is sustainable into the future.''
    The Administration takes these cautions very seriously. To 
promote long-term efficiency and sustainability, the budget 
includes a series of legislative proposals that would yield net 
savings to taxpayers of $4.3 billion in fiscal year 2008 alone, 
slow the annual rate of Medicare growth from--the rate of 
growth from 6.5 percent to 5.6 percent and the rate of Medicaid 
growth from 7.3 percent to 7.1 percent over the next 5 years.
    The proposal would reduce growth in Medicare beneficiary 
premiums, as well.
    Most importantly, these proposals increase the likelihood 
that future generations can enjoy the program's benefits.
    Over the past 6 years, this Administration has worked hard 
to efficiently and effectively manage Medicare, Medicaid, and 
SCHIP. Together with Congress, we have made great strides 
improving care and coverage to millions of Americans who are 
now leading healthier, more productive lives.
    One of the best examples of our progress is and new 
Medicare prescription drug benefit. Just 1 year since its 
inception, more than 90 percent of people with Medicare have 
coverage for prescription drugs. More than 10 million are low-
income beneficiaries who are receiving comprehensive coverage 
with low or zero premiums and nominal cost sharing.
    Beneficiary satisfaction with the benefit is high, and 
costs are significantly lower than originally projected.
    Since last year's mid-session review, projected payments to 
Part D plans for the 10-year period 2007 to 2016 have dropped 
by $113 billion and that's due to better competition and plan 
bids.
    The estimated average beneficiary premium for basic 
benefits is now $22 per month. That's 42 percent lower than the 
original projections when the Medicare Modernization Act (MMA) 
(P.L. 108-173) was originally passed.
    To further illustrate the success of the Medicare Program, 
Medicare Advantage is providing valuable assistance to millions 
of seniors.
    Specifically, on average, in 2006, beneficiaries enrolled 
in Medicare Advantage plans saved about $82 a month in out-of-
pocket expenses and are expected to save even more in 2007.
    Ensuring the sustainability of the Medicare Program is 
CMS's highest priority.
    Several additional ways we are working to achieve this goal 
include revising how we pay for post-acute care services across 
different settings, expanding the successful competitive 
acquisition policy to include clinical lab services, and pay-
for-performance expansions.
    We are proposing a hospital payment increase of 3.25 
percent, which is larger than the historical average, but just 
marginally lower than the expected market basket update of 3.9 
percent. This would result in a larger update than the 
historical 10-year average of the 63 percent of market basket 
that hospitals have enjoyed over the past 10 years.
    We proposed other changes that slow the rate of growth in 
Medicare providers, including Medicare Advantage plans.
    Our proposed payment changes under part A and B have 
significantly impact on the Medicare Advantage program. The 
interaction of the proposals for Parts A and B payments would 
reduce the Medicare Advantage benchmarks by $15.2 billion over 
5 years.
    It cannot be stressed enough that program and policy 
changes are critical to maintaining benefits for years to come.
    Under current law, and based on the budget's economic 
assumptions, the trust fund assets to fund Medicare Part A 
benefits would expire in 2018. The President's budget proposals 
extend the life of the hospital insurance trust fund for an 
additional 4 years.
    In addition to Medicare and Medicaid, CMS also administers 
another critical program, SCHIP. The SCHIP program provides 
access to health care benefits to over 6 million uninsured low-
income children. We are looking forward to working with 
Congress to get this important program reauthorized.
    Finally, I'd like to quickly highlight a critical budget 
recommendation that would help ensure access to affordable 
basic private health insurance for all Americans. That's the 
affordable choices initiative.
    This initiative would make resources available for States 
to help people with poor health or limited incomes purchase 
insurance. It also would help the non-group insurance market 
become more robust so people of all incomes and health status 
have access to affordable health insurance without regard to 
whether the employee provides it.
    Individuals will benefit now only from improved health 
care, but also from the peace of mind that comes with knowing 
that health insurance needs will be covered. Furthermore, the 
health care community will benefit from the expansion of the 
insured population.
    In closing, CMS is committed to working with Congress on 
continued improvements to Medicare and Medicaid and SCHIP, 
through innovation, modernization, and we can make both 
Medicare and Medicaid programs stronger.
    Steps taken now, or not taken, to adopt rational, 
responsible, and sustainable policies will directly impact our 
ability to preserve the promise of health care coverage for 
American seniors, people with disabilities, and other 
vulnerable populations.
    Thank you, and I'm happy to answer questions you might have 
and look forward to working with you on these difficult budget 
issues.
    [The prepared statement of Ms. Norwalk follows:]
     Prepared Statement of Leslie V. Norwalk, Acting Administrator
               Centers for Medicare and Medicaid Services
    Good afternoon Chairman Stark, Representative Camp, and 
distinguished members of the Subcommittee. I am pleased to be here 
today to discuss proposals in the President's fiscal year (FY) 2008 
Budget related to programs administered by the Centers for Medicare & 
Medicaid Services (CMS): Medicare, Medicaid and the State Children's 
Health Insurance Program (SCHIP). I also would like to highlight the 
President's proposed Affordable Choices initiative and health care tax 
proposal aimed at making insurance coverage more accessible and 
affordable for all Americans.
    For the past 6 years, this Administration has worked to manage 
Medicare, Medicaid and SCHIP efficiently and effectively. Together with 
Congress, we have made great strides in modernizing and improving 
health care benefits, with millions of Americans now living healthier, 
fuller lives. Perhaps the best example of such improvements is the 
Medicare prescription drug benefit (Part D) enacted by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). 
Available to beneficiaries for the first time in January 2006, the 
program has been a resounding success. At last count, more than 90 
percent of people with Medicare now have coverage for prescription 
drugs from Part D or another source, including almost 10 million low-
income beneficiaries receiving comprehensive coverage with low or zero 
premiums and nominal cost-sharing. Beneficiary satisfaction with Part D 
is consistently at 75 percent or more, reaching above 90 percent for 
low-income beneficiaries receiving extra help.\1\
---------------------------------------------------------------------------
    \1\ KRC Research survey for the Medicare Rx Education Network, 
conducted September 1-7, 2006.
---------------------------------------------------------------------------
    Strong enrollment and beneficiary satisfaction are just two aspects 
of the Part D success story, however. Equally important, Part D 
premiums and estimated program costs have been declining steadily 
thanks in part to competition among plans, smart choices by 
beneficiaries, and lower-than-expected growth in prescription drug 
spending. Since last year's mid-session review, projected payments to 
Part D plans for the ten-year period 2007-2016 have dropped by $113 
billion, of which $96 billion is directly attributable to competition 
and lower plan bids. The average beneficiary premium for basic benefits 
is now estimated to be around $22 per month, down from $23 in 2006 and 
42 percent lower than the original projection.
    We also are seeing exciting trends in the Medicare Advantage 
program. Through Medicare Advantage, beneficiaries have access to 
integrated health and prescription drug benefits, often with lower 
premiums and cost-sharing than under fee-for-service Medicare. Medicare 
Advantage is a particularly important program for lower-income Medicare 
beneficiaries, who might otherwise struggle with Medicare's cost-
sharing or supplemental insurance premiums that can be costly. Fifty-
seven percent of beneficiaries enrolled in Medicare Advantage report 
income between $10,000 and 30,000 compared to 46 percent of fee-for-
service beneficiaries.\2\ Racial and ethnic minorities also benefit 
from the Medicare Advantage program; minorities represent 27 percent of 
total Medicare Advantage enrollment, compared with 20 percent in fee-
for-service.\3\ Enrollment in Medicare health plans has now reached an 
all-time high of 8.3 million beneficiaries, up from 5.3 million in 
2003.
---------------------------------------------------------------------------
    \2\ CMS analyzed the 2005 Medicare Current Beneficiary Survey 
(MCBS) to determine low-income and minority enrollment in Medicare 
health plans and in fee-for-service.
    \3\ CMS analysis of 2005 MCBS data.
---------------------------------------------------------------------------
    SCHIP also has been a great success since its enactment. SCHIP 
generally targets Medicaid-ineligible uninsured children who are under 
19 years old from families with incomes at or below 200 percent of the 
federal poverty level. States have a high degree of flexibility in 
designing their programs. Every state, the District of Columbia, and 
all five territories have had approved SCHIP plans since September 
1999.
    In FY 1998, the first year of SCHIP, 980,000 children were enrolled 
for at least part of the year. According to the latest data available 
from the states, by FY 2006 SCHIP enrollment of children had increased 
substantially, with 6.6 million children covered for at least part of 
the year. When combined with Medicaid, a total of 36.1 million low-
income children received coverage for at least part of 2006. We look 
forward to working with Congress to reauthorize SCHIP this year.
FY 2008 Budget Proposals
    The President's FY 2008 budget offers a plan for building on past 
successes to further modernize the Medicare and Medicaid programs and 
secure their long-term future. Growth in net Medicare spending is 
approaching 7 percent per year over the next five years and is even 
higher over ten. Working closely with beneficiaries and providers, we 
believe we can improve the quality, efficiency and ultimate viability 
of the Medicare program.
    The Budget also proposes important steps to preserve and expand 
access to health insurance coverage for low-income children and other 
vulnerable Americans. SCHIP reauthorization, the President's proposal 
to equalize the tax treatment of health insurance received through an 
employer or purchased in the non-group market, the President's 
Affordable Choices initiative and other proposed insurance market 
reforms would make health insurance more affordable and accessible for 
millions of Americans, enabling them to live healthier, more productive 
lives.
Medicare Initiatives
    Over the past six years, the Administration has made significant 
strides to promote greater quality and value in the Medicare program. 
The President's FY 2008 Budget would build upon these efforts, helping 
to transform Medicare into a quality-based payment program and 
improving its financial sustainability.
    Federal Reserve Chairman Ben Bernanke, the Medicare Trustees, and 
the Medicare Payment Advisory Commission (MedPAC) all have underscored 
the importance of taking action now to address Medicare's long-term 
financial challenges. Testifying before the Senate Budget Committee on 
January 18, 2007, Chairman Bernanke stated ``if early and meaningful 
action is not taken, the U.S. economy could be seriously weakened, with 
future generations bearing much of the cost.'' Similarly, after 
discussing ``serious concerns'' with Medicare's financial outlook, the 
Medicare Trustees cautioned in 2006: ``We believe that prompt, 
effective, and decisive action is necessary to address both the 
exhaustion of the HI [Hospital Insurance] trust fund and anticipated 
rapid growth in [Medicare] expenditures.'' \4\ Finally, in its March 
2006 Report to Congress on Medicare Payment Policy, MedPAC suggested a 
number of strategies to address Medicare's long-term sustainability: 
constraining payment rates for health care providers, rationalizing 
benefits, increasing the program's financing, and encouraging greater 
efficiency from health care providers. Concluding that increasing 
efficiency is most desirable, MedPAC cautioned: ``[e]ven if 
policymakers succeed at moving providers toward greater efficiency, 
they may still need to make other policy changes to help ensure that 
the program's financing is sustainable into the future.'' \5\
---------------------------------------------------------------------------
    \4\ 2006 Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds at pp. 3-4.
    \5\ Report to the Congress: Medicare Payment Policy at pp. xv; 6-8 
(March 2006).
---------------------------------------------------------------------------
    Recognizing the gravity of these warnings, the President's Budget 
strives to induce providers toward greater efficiency with payment 
policies that increase the role of competition and create a strong 
financial incentive for providers to slow cost growth through greater 
productivity and other improvements in efficiency. In addition to 
encouraging appropriate, high-quality care for people with Medicare, 
the proposals would reduce the growth in premiums for most 
beneficiaries. Under current law, and based on the Budget economic 
assumptions, the assets of the HI trust fund would start to decline in 
2015; the Budget proposals would reverse that decline and increase the 
value of the HI Trust Fund throughout the ten-year window.
    When combined with Medicare administrative proposals,\6\ the FY 
2008 Medicare legislative proposals, including those described below, 
would save $5.3 billion in FY 2008 and $75.9 billion over five 
years.\7\ The net effect is a reduction of less than one percent in the 
rate of growth for Medicare over the five-year budget window. 
Medicare's current average annual growth rate over the next five years 
is projected at 6.5 percent per year. Under the President's Budget, 
that rate of growth would slow to 5.6 percent per year. Specifically, 
the Budget would:
---------------------------------------------------------------------------
    \6\ The Medicare budget assumes administrative savings of $1.0 
billion in FY 2008 and $10.2 billion over five years. Savings will 
result from new efforts to strengthen program integrity in Medicare 
payment systems, correct for inappropriate provider payments, and 
adjust payments to encourage efficiency and productivity.
    \7\ The savings estimates are net of a proposal in which Medicare 
funds are transferred to Medicaid to pay premiums for certain low-
income individuals.

      Foster Productivity and Efficiency: Responds to 
inefficient health care delivery and rapid spending growth with 
provider payment adjustments that would account for expected 
productivity gains and induce providers to achieve efficiencies that 
restrain costs;
      Rationalize Medicare Payment and Subsidies: Ties payment 
to reporting of medical errors and expands value-based purchasing for 
hospitals; encourages appropriate payment for five common post-acute 
care conditions; addresses excessive Medicare payment and beneficiary 
coinsurance for power wheelchairs and oxygen equipment;
      Improve Program Integrity: Facilitates proper 
coordination of benefits through improved data sharing; creates 
incentives for providers to recoup their debts; strengthens the 
integrity of the administrative appeals process by limiting Mandamus 
jurisdiction as a basis for obtaining judicial review;
      Increase High-Income Beneficiary Responsibility for 
Health Care: Eliminates annual indexing of income thresholds for 
reduced Part B premium subsidies, and extends the income-related Part B 
premium adjustment to Part D premiums; and
      Improve Long-Term Sustainability: As a fall-back response 
if there is no Congressional action, applies a -0.4 percent sequester 
to the Medicare payment amount for all providers in the first year that 
general revenue funding for the Medicare program exceeds 45 percent. 
The sequester reduction would grow by an additional 0.4 percent in each 
successive year that the general revenue funding remained above 45 
percent.

    A table of all Medicare legislative and administrative proposals 
included in the Budget along with budget impacts is included as 
Attachment A. The entire HHS Budget in Brief is available online http:/
/www.hhs.gov/budget/08budget/2008BudgetInBrief.pdf
Medicaid Initiatives
    Many of the most vulnerable Medicare beneficiaries also rely on 
Medicaid for help with Medicare premiums and other cost-sharing, and 
additional benefits. In 2006, 4.9 million Medicaid enrollees were aged 
65 and over; an additional 8.3 million were blind and disabled. 
Collectively, these groups accounted for more than 25 percent of total 
Medicaid enrollment in 2006. The President's Budget makes a number of 
proposals to preserve and strengthen the Medicaid program, building on 
past efforts to create service efficiencies and to assure its fiscal 
integrity. Even with these changes, the Medicaid baseline continues to 
grow at an average annual rate of more than seven percent, exceeding 
the increase in Federal and State budget revenues.
    In FY 2008, we are proposing a series of legislative changes that 
will result in gross changes of $12 billion over the next five years, 
which will keep Medicaid up-to-date and sustainable for years to come. 
The President's FY 2008 Medicaid reform proposals would slow the 
average annual growth rate in Medicaid over the next five years from 
7.3 percent per year to 7.1 percent per year.
Access Initiatives
    In addition to taking steps towards securing the future of Medicare 
and Medicaid, the President's Budget demonstrates commitment to 
preserving and expanding health insurance coverage for all Americans. 
When it comes to health care, the tax code is biased in favor of 
individuals who receive insurance from their employers. To remove this 
inequality, the President proposes replacing the existing--and 
unlimited--exclusion for employer-sponsored insurance with a flat 
deduction for those with at least catastrophic health insurance. As 
long as a family has at least a catastrophic health insurance policy, 
they will be able to deduct the first $15,000 from their income ($7,500 
for an individual), regardless of whether they receive their health 
insurance policy from their employer or purchase it in the non-group 
market. This will foster a true marketplace for health care, encourage 
competition, improve the efficiency of the system, and reduce the ranks 
of the uninsured.
    The Federal Government's current system of paying for health care 
results in billions of dollars being spent inefficiently through a 
patchwork of subsidies and payments to providers. In addition to 
directly funding the care provided to people enrolled in programs like 
Medicare and Medicaid, health care entitlement programs finance 
payments to institutions that either indirectly pay for uncompensated 
care or subsidize their operating expenses.
    The health care system could operate more efficiently if some 
portion of institutional payments instead were redirected to help 
people with poor health or limited income afford health insurance. The 
uninsured often use emergency rooms as a source of primary care, which 
leads to suboptimal care and spending outcomes. If this public spending 
were focused on helping the uninsured purchase private insurance, 
people would receive the care they need in the most appropriate 
setting. The health care system needs to be transformed in a way that 
avoids costly and unnecessary medical visits and emphasizes upfront, 
affordable private health insurance options.
    This transformation could happen by subsidizing the purchase of 
private insurance for low-income individuals. However, any such health 
care reforms would need to be State-based and budget neutral, not 
create a new entitlement and not affect savings contained in the 
President's Budget that are necessary to address the unsustainable 
growth of Federal entitlement programs. The Federal Government would 
also maintain its commitment to the neediest and most vulnerable 
populations, while acknowledging that States are best situated to craft 
innovative solutions to move people into affordable insurance. The 
Secretary of HHS will be working with Congress and the States in the 
upcoming year to achieve health care marketplace reforms, called 
``Affordable Choices.''
    The Administration also is committed to working with Congress to 
reauthorize the SCHIP program this year. SCHIP has provided $40 billion 
over the last ten years to states to provide health care coverage to 
low-income, uninsured children who are not eligible for Medicaid. 
Specifically, the Budget proposes to:

      Reauthorize SCHIP for five years;
      Increase funding by approximately $5 billion ($4.8) over 
the next five years;
      Redirect approximately $4 billion in unexpended funds--
taken together with the increase in funding, nearly $9 billion will be 
made available for the program, enough to meet projected demand for 
targeted enrollment in fiscal year 2008; and
      Refocus the program on low-income, uninsured children and 
pregnant women in families with incomes at or below 200 percent of the 
federal poverty level, as Congress originally intended.
Conclusion
    Experience with Medicare Part D to date demonstrates the great 
potential of market reforms to save Medicare dollars, while also 
promoting beneficiary choice and satisfaction. Moreover, greater 
flexibility for states under the Medicaid program has allowed 
reductions in cost growth, without significant benefit compromises. 
Through continued innovation and modernizations such as these, we can 
make the Medicare and Medicaid programs even stronger. Continuing on 
this path is critical.
    The President's FY 2008 Budget demonstrates a real commitment to 
improving America's health care system by further modernizing and 
improving Medicare and Medicaid; strengthening health care coverage for 
low-income and vulnerable populations; and taking steps to make health 
care more affordable and accessible for all. This is a critical time in 
the life of Medicare and Medicaid. Steps taken now--or not taken--to 
adopt rational, responsible, and sustainable policies will directly 
impact our ability to preserve the promise of health care coverage for 
America's seniors, people with disabilities, and low-income, vulnerable 
populations. We look forward to working with Congress in the coming 
year to reauthorize SCHIP, strengthen our existing programs, and 
improve access to affordable health insurance for all Americans.

                                 

    Chairman STARK. Thank you.
    I'm going to ask for some information that we have 
previously been unable to get from CMS, but I know that you've 
mentioned to me in testimony the, quote, ``extra benefits'' of 
Medicare Advantage plans, and I wonder, if I picked three areas 
of the country, a rural plan, because people talk to me about 
how we've got these plans in rural areas, and say one in New 
York, and one in Los Angeles or one in Florida, and we have not 
been able to get a list from you of the extra benefits that 
these plans are supposedly providing.
    I'm willing to guess or bet that the extra benefits come 
nowhere near having a value of the overpayment, i.e., that 
amount above 95 or even 100 percent of fee-for-service in those 
areas.
    I'd really appreciate it if you would ask your staff to 
quantify that for us.
    [The information follows:]

          In 2007, enrollees in MA plans are receiving, on average, 
        additional benefits with a value of $86 per month. Plans 
        provide an average of about $108 in additional benefits; 
        primarily cost sharing and premium buy-downs, as well as 
        specific benefits such as routine vision and dental care. Plans 
        charge, on average, a monthly premium of about $22 for these 
        benefits, yielding a net average value for enrollees of $86 per 
        month.
          For example, in Fremont, California, a beneficiary between 
        the ages of 65 and 69 in poor health has access to a $0 premium 
        plan that offers: $10 copay for plan doctors, unlike Original 
        Medicare which generally charges 20% coinsurance for most 
        doctor services; a $3000 out-of-pocket limit for A/B benefits, 
        providing peace of mind in knowing that catastrophic expenses 
        will be covered; enhanced drug coverage with a $0 deductible 
        and generic gap coverage for no additional premium; and vision 
        services and physical exams not covered under Original 
        Medicare.
          As another example, in Tampa, Florida, a beneficiary between 
        the ages of 65 and 69 in poor health has access to a $0 premium 
        plan that offers: drug benefits with no deductible, free 
        generics and generic coverage in the gap; unlimited inpatient 
        hospital services with a $100 copay per days 1-5 of a stay 
        instead of Original Medicare's $992 deductible and coinsurance 
        for stays beyond 60 days; copays of $0-$10 for plan doctors 
        with no deductible instead of Original Medicare's $131 
        deductible and 20% coinsurance; and preventive dental services 
        not covered under Original Medicare.

    I further--I don't know whether--somebody hit me here. My 
clock doesn't seem to be running, either, so I'll run over if 
you don't nudge me.
    I'll give you an example.
    A major Medicare Advantage plan in my district charges a 
$99-a-month premium. Okay? That's on top of a 93.50 Part B 
premium.
    In that plan, if you're hospitalized, you're charged 275 
bucks a day for the first 10 days. That's $2,750 out of your 
own pocket.
    Now, if that person had been in traditional Medicare, 
they'd pay a single deductible of 992. That's far less than 
half.
    I think that in many cases, that these Medicare Advantage 
plans may not come anywhere close to providing extra benefits. 
Eyeglasses are worth a couple hundred bucks, I suppose, a year. 
We can buy that now, I think, as Federal employees, if we want 
to get a insurance extra.
    I really think--and I have no quarrel with these plans if I 
thought they weren't draining funds away from CMS that we could 
use for SCHIP or other good things, and I think it's incumbent 
on us to make sure that our constituents are getting a bargain 
and aren't getting oversold for the accessories, the white 
walls and the Kleenex dispensers, at the risk of getting the 
decent automobile that we'd like them to get.
    So, that I'd like to see some more--and I don't know if 
there's a competitive reason, and if that information is, for 
some reason, secret, or a trade secret, I'd be happy to see it 
sanitized, but I do think that we've heard this in general. 
We're pretty sure, because you've heard it from MedPAC, as have 
we, that we are over-paying the Medicare Advantage plans.
    That doesn't come as any news to you, does it?
    Ms. NORWALK. I might characterize it a bit differently, 
but----
    Chairman STARK. Okay, but MedPAC has suggested--now, I'm 
just saying that they are the one group who stands out, not 
having contributed anything, and we're going to--Mr. Camp and I 
are going to have to talk to all those doctors out there who 
haven't got a fix for their payment system, and all those 
hospitals in New York City and in Oops, North Dakota, and 
wherever else, just to make sure--and in Texas, I got a 
hospital that's upset with me--Baylor, I think, a little 
hospital down there someplace in Texas there, Sam?
    Mr. JOHNSON. Baylor.
    Chairman STARK. Yes. They all want to know why they're 
going to get cut.
    I think that we're going to have answer for that, and I 
hope decide within this Committee how we're going to adjust 
those cuts, and the Medicare Advantage plans look like they've 
kind of been left out of the loop, and I don't want them to 
feel that we're overlooking them in our efforts.
    Mr. Camp, why don't you make some suggestions on how we're 
going to solve these--he's going to tell us how we're going to 
solve the physician reimbursement----
    Mr. CAMP. I wish I had that answer.
    Just briefly on the Medicare Advantage, can you just sort 
of highlight what they do?
    Ms. NORWALK. If I can make about five different points. Let 
me run through what those five are.
    The first is the fee for service impacts and how the fee-
for-service payment changes impact the Medicare Advantage 
program, because they do.
    Budget neutrality adjustment changes that we've been making 
already, which continue to go into effect over the next years, 
the better benefits, let me run through a couple of what those 
are, and our actuaries provide this $86 projection for 2007, 
and we can get you that information.
    Then generally, the populations that are particularly 
advantaged through the Medicare Advantage program.
    The first point, the fee for service impacts. Our changes 
to Parts A and B, the proposed changes that we make do have a 
significant impact on the Medicare Advantage program 
benchmarks.
    Given how the benchmarks are determined, Medicare Advantage 
payments would be reduced $15.2 billion over five years, so 
they actually not spared. They may not have been specifically 
addressed in the budget proposals, but they are not spared the 
impact, mainly because of the interactions and how we determine 
the payment rates that go to Medicare Advantage plans.
    In addition, in 2007, we made a $2.3 billion adjustment to 
plans because of budget neutrality, something that was passed 
in the Balanced Budget Act, and that we're phasing out.
    To address more specifically your point, Mr. Chairman, on 
the better benefits, 86 percent of beneficiaries have access to 
zero premium plans for Part C and Part D, so they don't pay any 
additional premium, and all States except for Alaska have at 
least one Medicare plan with a drug benefit that doesn't have 
a--has no Part D premium, so that's one advantage.
    Another is gap coverage. Forty-one States have at least one 
plan that has no coverage gap at all.
    Hospitalization. More than 80 percent provide coverage for 
hospital stays beyond the original Medicare benefit and 
coverage of ER and post-stabilization care for emergencies 
occurring outside of the country.
    Vision and hearing. You mentioned glasses. More than 75 
percent cover routine eye care and hearing tests. More than 60 
percent have coverage for hearing aids and 64 percent have 
coverage for eyeglasess.
    For physical exams, while there is a welcome to Medicare 
physical for the first 6 months, over 90 percent of Medicare 
Advantage plans cover a routine physical without regard to your 
age or where you are in the Medicare Program.
    In non-Medicare-covered stays in a skilled nursing 
facility, more than 90 percent do not require a 3-day stay 
before a skilled nursing stay is covered.
    So, all of these things, and we've got some specifics from 
our office of the actuary, who determined the $86 savings per 
month, and we'll be happy to share that with you. I don't know 
if we've got the rural, Los Angeles, and New York or Florida 
plans, but we'll put together some information there, too.
    Mr. CAMP. I'll be happy to yield.
    Chairman STARK. I would just--my question there was not the 
$86 savings necessarily to the beneficiary, but I'm just trying 
to get a dollar value on a plan.
    Let's say it offers vision and hearing, and saves some 
people some money and doesn't have a doughnut hole or something 
like that, but how much more is the Government paying for those 
benefits or in the, quote, ``overpayment''?
    Ms. NORWALK. The way that the Medicare Advantage payments 
are structured under the statute is a couple of things happen.
    First of all, the statute sets forth something called 
benchmarks, and these are determined often based on historical 
practices--a rural floor, an urban floor, a percentage increase 
from fee-for-service or from the final year, and then 100 
percent of fee for service.
    What the plans do is, the plans come in with a bid, and the 
plan bids are actually just around the cost for Part A and part 
B. They're very similar to that.
    The statutory benchmarks, often there is a difference, and 
I think this is that what you call an overpayment, I don't 
characterize it as such, and let me tell you why I don't.
    Any money that is spent between that benchmark that's 
statutorily determined in the plan bid, it's also statutorily 
described where that money goes.
    Twenty-five percent of that difference goes back to the 
Federal treasury, and 75 percent of it is returned to 
beneficiaries in the form of additional benefits, as opposed to 
going into the pockets of the plan.
    That is part of the reason I think why beneficiaries see 
such comprehensive benefit packages, at least more 
comprehensive than the original Medicare Program and some of 
the things that I outlined here.
    Now, in terms of who it helps, from a disproportionate 
perspective, we see that more minorities as a percentage are in 
the Medicare Advantage plan and so are more low-income 
beneficiaries, so we think that it particularly helps those 
minorities and low-income beneficiaries who really need these 
additional benefits and who could use that extra money in their 
pocket to provide them with better health care coverage.
    Mr. CAMP. If I might reclaim my time, I appreciate the 
macro approach, but I think what the Chairman is asking is an 
individual basis, and if you could submit maybe later to the 
Committee some of that information on what individuals face as 
they receive these plans.
    I just want to get one quick point in, and get your 
thoughts on the physician formula.
    I think there are steps the Administration could take to 
help us solve this very difficult issue. Obviously, we've had a 
number of updates and sort of had a very checkered past on 
that, but removing prescription drugs from the physician 
formula is something that would, both retrospectively and 
prospectively, would really help us fix the problem.
    Can you comment on why the Administration has not removed 
drugs from the Surgeon General's Report (SGR) to this date and 
what other steps might the Administration take to help Congress 
and physicians finally overcome this growing problem?
    Ms. NORWALK. Yes. The budget does recognize that this has 
been a problem ever since I have been at CMS, nearly 6 years 
now, and it is certainly continuing to be an issue.
    We would like Medicare to move from a passive payer to be 
more of an active purchaser, and we very much look forward to 
the changes or to the recommendations that MedPAC is going to 
be making in the next few weeks, and have been reading their 
testimony very carefully.
    In terms of the specific questions around the SGR and 
drugs, for example, we took a very close look, and the legal 
analysis told us that we could not take it out retrospectively.
    Taking out the drugs for the SGR on a prospective basis 
really doesn't solve the problem in 2008-2009. In fact, I don't 
think it even begins to dent the problem for years out. It's 
something that we'd be willing to talk with you about, but from 
a retrospective basis, that has been my understanding the 
entire time that I've been at CMS.
    We do think that a change in incentives is very important. 
I know that when Mark Miller, who is the executive director of 
MedPAC, testified last June, he talked about volume and 
intensity of services.
    The way that the SGR formula is currently characterized 
doesn't do much to incentivize an individual physician. In 
fact, you could argue that the current formula is a 
disincentive, because physicians want to be able to earn enough 
money. So, we don't really reward efficient behavior of 
physicians.
    In working with MedPAC, working with Members of Congress, 
and working with the specialty societies, I think it's going to 
be a critical thing that we do over the coming months, so that 
we can look at the bigger picture and address these issues on a 
go-forward basis.
    Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. Thank you, and thank you for yielding.
    Mr. Doggett would like to inquire.
    Mr. DOGGETT. Thank you, Mr. Chairman, and thank you, Ms. 
Norwalk.
    As you know, I have been among many Members of Congress who 
have expressed concern on the Part D program concerning extra 
help.
    The first question I have for you, though, really relates 
more generally to the question of the non-responsiveness of 
your agency, and I understand you're the acting administrator, 
and you were not the administrator when we had the last hearing 
on Part D.
    As you know, 146 Members of Congress sent a short inquiry 
about the low-income or extra help program to the agency in 
May. We did not receive any response, despite repeated attempts 
to get one, until October.
    Eleven Members of this Committee, including the now 
Chairman, Mr. Rangel, because we got so little information at 
the hearing itself has June, sent a list of questions to the 
agency in June which the agency did not bother to answer until 
shortly before your testimony today in January.
    Can we count on more responsiveness from the agency this 
year on questions, whether they're about the extra help program 
or some other aspect of the jurisdiction of this Committee?
    Ms. NORWALK. Absolutely. I think it's very important that 
we be responsive, wherever it is that it's permissible and so 
forth. So, absolutely should be more responsive.
    Mr. DOGGETT. I hope that will happen.
    Even if we find areas of policy disagreement, just being 
able to get a straight answer in a timely fashion is really 
important to our work.
    Specifically, on those seniors who are entitled to extra 
help, that is, free prescriptions, or almost free prescriptions 
because of their condition, how many of those people have not 
been signed up in any kind of prescription drug program as of 
today?
    Ms. NORWALK. We estimate 3.25 million beneficiaries who are 
low-income have not signed up as of today.
    Mr. DOGGETT. Those tend to be some of our poorest seniors 
who, when this proposal or drug program was originally 
proposed, were identified as the ones who most needed help.
    Ms. NORWALK. Absolutely.
    Mr. DOGGETT. As you know, the inspector general has called 
for new legislation to empower you, and you addressed that in a 
letter you responded to me this week.
    Do you know, does anyone at the center know the names of 
the individuals that are among that 3.25 million?
    Ms. NORWALK. We know the names of the individuals who 
haven't signed up for the benefit, because we know the names of 
all Medicare beneficiaries, and we estimate, of the--we 
probably don't know precisely----
    Mr. DOGGETT. You don't have the names of the 3.25 million 
people----
    Ms. NORWALK. No.
    Mr. DOGGETT [continuing]. That you just identified?
    Ms. NORWALK. We probably have some subset of those, mainly 
because they've lost their Liability Insurance Supplement 
(LIS), many of them will have lost their LIS coverage last 
year, but I don't think that we have 3.25 million names that I 
could hand you.
    Mr. DOGGETT. In these belated responses that you send to 
us, you have referred to your efforts to get these people 
Medicare coverage as data-driven.
    It would seem to me that the names of the people entitled 
to get the extra help would be at the top of the data-drive 
list.
    Ms. NORWALK. Absolutely.
    Part of that relates to the individuals who may have 
creditable coverage that, just in terms of the number of 
populations and the interactions, so while I suspect we have a 
fair number of them and we need to do as much data-driven as 
possible, we've provided a grant to the National Council on 
Aging to help us identify and make sure that we do very 
targeted outreach, but I totally agree with your premise that 
this is a group that we can hardly do enough to reach out to, 
and we need to make sure that all of our resources, combined 
resources--I'm more than happy to do events with you or family 
any Member of this Committee to ensure that we can reach out to 
them.
    Mr. DOGGETT. Well, I guess, while I'm sure more events are 
always helpful, my concern is that the center continues to do 
the same thing that has been unsuccessful in getting these 3.25 
million people in the past.
    When Chairman Rangel sent the letter on behalf of a number 
of us last June, one of the questions that he asked was whether 
CMS would require the plans to do the enrollment, would require 
a checkoff and ask the plans to refer beneficiaries to extra 
help by screening them and advising them about this in the 
enrollment materials.
    The answer that came back was that CMS would not require 
that.
    Why is that?
    Ms. NORWALK. Well, I don't think we have the statutory 
authority to require it, but I frankly think it's a very good 
idea not only that plans have an incentive to enroll these 
beneficiaries because they get payments directly from the 
Federal Government for the most part, rather than from the 
beneficiary in terms of paying premiums, so consequently----
    Mr. DOGGETT. Do you think that legislation to authorize 
doing that would be helpful?
    Ms. NORWALK. I'd like to talk to the plans about it first, 
because I suspect that many of them are doing it on their own, 
and if they're not, we could certainly recommend it to them,
    Before we go ahead and open up the Part D program, which I 
think is, as a general rule, working quite well, if we can do 
things on a collaborative basis, which we often do, I think 
that would be a good approach.
    Mr. DOGGETT. The Internal Revenue Service, as the inspector 
general noted, does have information, certainly not on a poor 
senior who doesn't file a tax return, but would have the names 
of some of these 3.25 million people; do they not?
    Ms. NORWALK. Well, it really depends how many of the 3.25 
million file taxes, and given that under the current LIS 
program in terms of the setup, Social Security payments are 
included on our side and not included on the tax side, so we 
think that probably not a whole lot of them, and certainly 
we're looking at ways to get people identified and get this 
benefit any way possible.
    I'm not sure if that is the best approach, if that's the 
most targeted approach, but I think it would make sense for us 
to work with the IRS and talk with them about the likelihood of 
being able to identify these people.
    Mr. DOGGETT. I hope you will do that, because as you know, 
that's something we've asked since last May for you to do, and 
if you could get around to doing it now, it would be great.
    Ms. NORWALK. Okay.
    Mr. DOGGETT. Just one last question, related to what Mr. 
Stark was asking about on Medicare Advantage.
    You're aware that the Commonwealth Fund has estimated that 
you paid under the Part D program the Medicare Advantage plans 
$922 more per enrollee of the 5.6 million people enrolled 
there, than for people under traditional Medicare.
    Do you agree with that evaluation? Does that sound about 
right?
    Ms. NORWALK. It doesn't sound about right. I don't have the 
study in front of me, obviously, but I'm more than happy to 
take a look at it and get back to you.
    [The information follows:]

          I believe that the more appropriate comparison between 
        payments to MA plans and fee-for-service payments is the costs 
        of delivering similar benefits. When you compare plan bids for 
        providing Medicare part A and B services with fee-for-service 
        Medicare costs for the same services, the difference is about 3 
        percent. The vast proportion of the rest of the dollars go to 
        beneficiaries in the form of lower cost-sharing, lower 
        premiums, and additional benefits, with an average value for MA 
        enrollees of $86 a month.
          This is because as the Congress set up the payment method for 
        MA plans, 75% of any difference between plan bids and statutory 
        benchmark amounts is required to be returned to the enrollees 
        as extra benefits, such as lower cost sharing and premiums, in 
        other words, benefits they don't get from traditional Medicare. 
        So regardless of what the number might be, under the law the 
        vast majority of these funds are used to provide extra benefits 
        to Medicare beneficiaries.
          Regarding the Commonwealth study, I know we had a number of 
        methodological issues with the analysis, one concern being that 
        the analysis used data from 2005, which is before the 
        competitive bidding method for paying plans went into effect. 
        Under the bidding method, 25% of the difference between bids 
        and benchmarks stays with the government. Further, their study 
        would need to be updated to take into consideration the phase 
        out of the budget neutrality adjustment, which is being phased 
        out beginning this year.

    I, from my recollection in terms of looking at it, we had 
some differences in opinion as to how you should calculate a 
number of the different payment streams and the amounts.
    Mr. DOGGETT. We would welcome that.
    What is your own best estimate today of how much more you 
pay on the average per beneficiary to Medicare Advantage plans 
than is the cost of traditional Medicare per beneficiary?
    Ms. NORWALK. I don't have the dollar amount of benefits 
that go back to Medicare beneficiaries, that 75 percent, but 
we'll be happy to get that to you.
    [The information follows:]

          Last summer MedPAC estimated a 12% difference between 
        traditional Medicare and MA costs for 2006. As I indicated 
        earlier, we believe it is more appropriate to compare the MA 
        and fee-for-service costs of delivering Medicare benefits. When 
        looked at this way, the difference is about 3 percent. And, 
        again, most of the rest of the dollars go to provide 
        beneficiaries with extra benefits and lower out-of-pocket 
        costs.
          We also have some concerns with MedPAC's methodology. For 
        example, they looked only at 2006, when the full budget 
        neutrality adjustment was still being paid to plans. This 
        adjustment is being phased out beginning this year, as required 
        by the DRA of 2005.

    Mr. DOGGETT. Thank you.
    Chairman STARK. Mr. Johnson?
    Mr. JOHNSON. Thank you, Mr. Stark.
    Leslie, you're doing great.
    Ms. NORWALK. Thanks.
    Mr. JOHNSON. I'm concerned about the provisions in the 
Deficit Reduction Act (DRA) (P.L. 109-171) that cut the payment 
for imaging services. In some ways, maybe we're being penny-
wise and pound-foolish.
    For example, Medicare covers ultrasound guided breast 
biopsies in the physician's office as opposed to open surgical 
biopsy in the hospital.
    The less invasive procedure saves money, decreases the risk 
of infection, and allows for faster diagnosis.
    However, Medicare doesn't look at the data across services, 
so if the clinical practice is moving from hospital outpatient 
to doctor's office and saving money, our data doesn't show 
that. It only shows an increase in doctor utilization of 
ultrasound.
    At a time when we're looking at ways to rethink provider 
payment, do you think, and don't you think it's important to 
have data that's aggregated across settings of care and what 
steps is CMS taking to get us there?
    Ms. NORWALK. Yes, I generally agree with that premise, that 
it would be very helpful if we can look across different 
payment lines.
    As I'm sure you're aware, because of varying budget rules, 
we don't offset part A, part B, C, or D. They don't offset each 
other if you have savings in one area or another.
    We have seen, and MedPAC has recognized that imaging 
generally has gone through some explosive growth in the last 
few years, and we've been very concerned about that. I think 
that was one of the things that the DRA was intended to 
address.
    Generally, as to your issue of less invasive procedures, 
absolutely it makes sense for us to be looking at procedures 
that are better, provide better quality for patients and 
provide better information for physicians, and I think that's 
something that we're more than happy to work with your office 
to take a look at that and see whether or not there are ways 
that we can look at this data across the different parts of the 
program to make sure----
    Mr. JOHNSON. What has to happen for you to be able to do 
that?
    Ms. NORWALK. Actually, let me go back and talk to staff, 
and then get back to you in terms of the specifics that we 
would need.
    [The information follows:]

          Physicians make recommendations about what types of 
        treatments are appropriate for different conditions and 
        different patients. Physicians also usually hold primary 
        responsibility for determining the settings in which the 
        services are furnished. We agree that it is appropriate to 
        examine the different kinds of treatments ordered by physicians 
        and settings in which services are furnished. We are exploring 
        comparison of the relative resource use of individual 
        physicians, including not just the services furnished by a 
        physician but also the services they order for entire episodes 
        of care across given periods of time. Under such a measurement 
        approach, physicians who order less expensive forms of 
        diagnoses or treatments, and order diagnostic tests or 
        treatments in less expensive settings would compare favorably 
        to their peers. For example, a physician who ordered an 
        ultrasound guided breast biopsy in the office setting would 
        compare favorably to a physician who ordered an open surgical 
        biopsy in an inpatient or outpatient setting. We look forward 
        to applying the lessons we learn from this effort to further 
        the process of transforming from a passive payer to an active 
        purchaser of health care services.

    In terms of budget scoring and whether or not you could, 
from a budget perspective actually count thing in one area or 
another, I suspect that there would need to be some pretty 
significant changes, not only within the Administration but 
also with Congress, in terms of how the Medicare Program looks 
at its overall payment costs, not just part A, but also part B.
    Mr. JOHNSON. The budget also details savings you expect to 
derive from a demonstration program on competitive bidding for 
lab services.
    I'm wondering what protections are going to be included in 
your outline that will ensure patients maintain access to 
critical technologies and services under a competitive bidding 
program.
    Generally speaking, the lowest bidder happens to have the 
worst technology and quality of service.
    Ms. NORWALK. I think we have shown in other parts of 
competitive bidding in the Medicare Program how important it is 
on the one hand to ensure that you're getting quality services 
and to put into place varying requirements to ensure the 
quality of services.
    Certainly, most clinical lab services are really much more 
like a commodity as opposed to--a commodity rather than an 
individual visit with a physician, for example, and we think 
that because of that, there is some pretty significant 
opportunities for savings in the program.
    I totally appreciate and agree with your general premise 
that we do need to ensure quality first and then look at making 
sure that we can get savings after that.
    Mr. JOHNSON. Thank you.
    Could you make a comment on Advantage plans? Are we saving 
any money with that?
    Ms. NORWALK. I think Medicare Advantage plans provide some 
significant value for beneficiaries who are in them.
    Before, when I was talking to, or answering Chairman 
Stark's question, the $86 that they get in additional benefits, 
I'd really like to highlight how those who are minorities and 
those who are low-income are those who typically are receiving 
the most benefits.
    For the Medicare Advantage plan, the number, the percent of 
beneficiaries who are in them that are minority are 27 percent 
of Medicare Advantage, while only 20 percent were in the fee-
for-service program.
    In terms of those who are low-income, 57 percent of those 
low-income are in Medicare Advantage and 46 percent are in fee-
for-service, so there's a disproportion there, and I think as 
we take a look at the Medicare Advantage payments, because 
they're already going to take some reductions because of the 
fee-for-service changes, we have over $15 million in 5 years, 
we need to also consider how this impacts the beneficiary who 
is receiving these services today and making sure that they can 
continue to have the benefits that they need as we move 
forward.
    Mr. JOHNSON. Thank you so much.
    Ms. NORWALK. Thank you.
    Mr. JOHNSON. I yield back.
    Chairman STARK. Thank you, Sam.
    Mr. Kind. Excuse me. Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman.
    Let me just express publicly my great sense of pleasure at 
sitting on this side of the dais with you on a health 
Subcommittee.
    There was a time in an earlier life when I was an insurance 
commissioner. I sat where Administrator Norwalk now sits, as a 
State insurance commissioner, not as a substantial Federal 
official, but I like this view better.
    Ms. NORWALK. Want to switch?
    Mr. POMEROY. No, no. I've been on the receiving end of the 
Chairman's questions before.
    What I've got to talk to you about involves what I think 
are very significant threats to rural health care delivery in 
light of the budget numbers undergirding Medicare.
    We're seeing, for example, 69 percent of home health 
agencies in North Dakota at zero percent Medicare profit margin 
or less.
    Some of the savings in Medicare in the budget anticipate a 
market basket reduction of .65 percent.
    If you've got 69 percent at zero and you're about to reduce 
the market basket, it looks to me like you're going to put a 
lot of them under water and potentially out of business.
    Delivering home health care in rural areas is tough, but 
the alternative of institutionalizing them is expensive and 
disagreeable on many other factors.
    I'd like you to respond to that.
    Ms. NORWALK. Well, watching out for rural providers and 
ensuring that beneficiaries in rural areas have access to 
health care is critically important, particularly because of, 
often, the difficulty in getting from one location to another.
    In looking at how we update all providers across all 
sectors, I think MedPAC has a really important table in their 
March report to Congress that looks at whether or not current 
payments are adequate and what cost changes are expected to 
come in the coming year.
    In terms of indicators, they suggest looking at beneficiary 
access, capacity and supply, access to capital, payments in 
cost, volume, and quality, and changes in economy-wide 
productivity and input prices, and that that should--those 
factors should judge what we should do in upcoming, typically, 
in the upcoming year for MedPAC but for the Medicare program 
and the budget----
    Mr. POMEROY. Let me just review. I'm not going to have time 
during my brief question period, I guess, to hear the whole 
balance of it, but just the points you've ticked off--access to 
health care. Well, that certainly is more challenged in a rural 
circumstance.
    Supply, volume. Volume is really tough, because you have in 
these small rural areas, people aging in place----
    Ms. NORWALK. Right.
    Mr. POMEROY [continuing]. Very old communities compared to 
what would normally be a demographic of a normal small town.
    Access to capital, forget about it. These are small, non-
profit operations, again, operating at or below the water line 
with a bleaker outlook to come.
    Second point. One of the things that has sustained rural 
health care delivery has been efforts funded through HHS to 
coordinate care delivery, to help promote centrally new ideas 
and improving efficiencies in rural health care and then 
getting it out to rural hospitals, providing almost a kind of a 
central research and development that they can't do out in the 
individual small institutions.
    Well, those have been viciously cut in the general budget 
with a note that, well, enhanced reimbursements under the MMA 
are sure going to help that.
    Can you tell us about components of Medicare reimbursements 
that somehow go to these centralized resource capacities 
serving rural hospitals?
    Ms. NORWALK. Well, I think if you take a look at the MedPAC 
recommendations, separate and apart from just how they've done 
this--so if I go back just 2 seconds, if I may, for the home 
health piece.
    Home health has had the highest--has had incredibly high 
margins generally, across the board. Now, I totally appreciate 
that often, in the rural sector, things can be different.
    In terms of----
    Mr. POMEROY. I told you 69 percent of them are at zero, so 
I don't care to hear--I'm interested, I suppose, in a casual 
way about the urban successes in terms of health care margins, 
but mine are about--mine are at zero, about to go south.
    The last point I need to make. Physician reimbursements.
    Do you believe that the sustainable growth rate issue 
resolving on a long-term basis is a priority for Medicare?
    Ms. NORWALK. Absolutely.
    Mr. POMEROY. Do you think that it's unfortunate that the 
Administration--let me put it this way. Do you believe a multi-
year fix is preferable to a 1-year patch?
    Ms. NORWALK. I think there is a lot involved in it, and I 
suspect that multi-year would be better than single-year, 
because in all of our payment systems, it is preferable for 
providers to have some certainty in payment streams from 1 year 
to the next, so generally, yes.
    Mr. POMEROY. I agree with you. My time is up.
    One of the great disappointments so far in the Committee on 
Ways and Means is, we are ready and willing to tackle these 
questions cooperatively with the President, is that the 
President has not offered a dime on multi-year fix to 
sustainable growth rate in his budget, and especially coming in 
the face of the other Medicare cuts, it's going to make it 
extraordinarily difficult to work together.
    Now, the Secretary said he looks forward to working with us 
on this problem. Well, that's just more talk. Let's get down to 
it.
    The President really passed on leadership here by putting a 
goose egg in his budget relative to multi-year fix other than a 
single-year patch.
    Ms. NORWALK. I do think it's one of the more difficult 
problems that the Medicare Program has, and we look forward to 
working with you and with MedPAC, who will be back here in a 
few weeks to talk more specifically about their 
recommendations.
    It's important of course that we continue to follow the 
House rules on PAYGO and making sure that beneficiary premiums 
don't skyrocket as a result of this fix.
    So, there are a lot of different and very difficult pieces 
to discuss, and I----
    Mr. POMEROY. How many rural representatives are on MedPAC?
    Ms. NORWALK. I don't know. I'll have to get back to you on 
that. I'll have to ask.
    Mr. POMEROY. Zero.
    I think that with 25 percent of Medicare recipients living 
in rural areas, the under-representation of rural health care 
providers on MedPAC, and rural health care experts on MedPAC, 
is a very serious problem.
    Now, the nominations I understand are selected by the 
comptroller general, but this is one I would direct your 
attention to.
    Small wonder you've got the kind of MedPAC data you've got 
on urban health care margins and you didn't know that North 
Dakota, 69 percent of them are at zero.
    You got to get some rural representation there.
    Thank you, Mr. Chairman. I yield back.
    Chairman STARK. We might impose on Ms. Norwalk to stay a 
few extra minutes, but I'm sorry, Earl, that I didn't indicate 
the time.
    For the Federal employees, the Government closed at 2 
o'clock because of the weather, and I don't want to keep 
anybody here who's got a bad commute, so I'd like to move along 
as quickly as we can, but we can go another round if Members 
would like.
    Mr. English.
    Mr. ENGLISH. Thank you, Mr. Chairman.
    Ms. Norwalk, with any budget, the devil is in the details, 
and there are a number of details in this budget that I've been 
trying to get my arms around, and perhaps you can help me.
    I noticed, and was concerned that in this budget proposal, 
there are cuts for Skilled Nursing Facilities (SNFs) that I 
think potentially could impact on quality.
    For example, the SNF market basket fees alone, which the 
budget claims will reduce Medicare expenditures by over $1 
billion, represents 23 percent of proposed Medicare savings in 
fiscal year 2008.
    Well, the budget also notes that payments to SNFs account 
for only 4.8 percent of Medicare payments.
    On the face of it, that would seem rather disproportionate.
    In another area, I see the President's budget calls for 
Medicare beneficiaries to assume ownership of home oxygen 
equipment after 13 months as opposed to the current 36-month 
cap; and of course, I don't think we really know how many older 
citizens are going to actually manage home oxygen equipment 
once this is exclusively their responsibility, since this is a 
life-saving service for many of them.
    I wonder if you would agree that it might make sense to 
hold off on a requirement that beneficiaries own this equipment 
until we see if there is a workable system that can be 
predicated on patient ownership.
    I would also, if you would, like you to comment on the 
September 2006 Office of the Inspector General study entitled 
``Medicare Home Oxygen Cost and Servicing,''and does this 
provide adequate evidence to go forward?
    I guess the final question, grouping them together, I've 
gotten feedback locally in Erie, Pennsylvania from an ambulance 
provider.
    I've noticed that over the years they've faced significant 
decreases in reimbursement rates. They have been struggling for 
some time. Yet the Administration's budget proposes to decrease 
payments to ambulances by .65 percent again in fiscal year 
2008.
    Could you speak to the logic of that decision, and perhaps 
those two other policies?
    Ms. NORWALK. Sure.
    [The information follows:]

          The President's fiscal year (FY) 2008 Budget proposes a 
        number of provider payment reforms to help extend the life of 
        the Medicare Trust Funds and preserve Medicare coverage for 
        future generations. For example, in the case of home oxygen, 
        once the beneficiary owns the equipment after 13 months (36 
        months for newer technology such as oxygen generating portable 
        equipment), the Centers for Medicare & Medicaid Services (CMS) 
        will make separate payments to support a beneficiary's use of 
        oxygen equipment, as is the case under the current policy 
        (i.e., after 36 months). CMS will make separate payments for 
        general maintenance and servicing visits every 6 months, 
        delivery and refilling of stationary and portable oxygen 
        contents, reasonable and necessary repairs, and replacement 
        supplies and accessories. Beneficiaries have the option of 
        having their original or another supplier provide maintenance 
        and servicing and repairs of their oxygen equipment.
          As you reference in your question, the Department of Health 
        and Human Services Office of Inspector General (HHS OIG) issued 
        a report in September 2006 that provided important information 
        on cost, servicing, and maintenance issues. The HHS OIG report 
        recommended that CMS work with Congress to further reduce the 
        rental period for oxygen. We agreed with their recommendation 
        and, as you know, proposed to reduce the rental period for 
        oxygen from 36 to 13 months.
          More specifically, the HHS OIG report provided vital 
        information on the suppliers' purchase price, reuse, and 
        maintenance and servicing of oxygen concentrators. The OIG 
        report found that concentrators cost about $587, on average, to 
        purchase. The report also found that suppliers rented used 
        concentrators to about 73 percent of the sampled beneficiaries. 
        The used concentrators were 2.5 years old, on average, but 
        there were cases of concentrators that were over 10 years old.
          In addition, the report provided details on the maintenance 
        and servicing that is actually done during a supplier's visit. 
        The report found that minimal servicing and maintenance is 
        necessary for concentrators and portable equipment. This is an 
        important finding because the report was based not only on 
        reports from suppliers, but also on actual on-site observation 
        accompanying suppliers on their visits to beneficiaries' homes. 
        In addition, the report found that these servicing tasks take 
        minimal time to perform. More specifically, the report stated 
        that ``when we accompanied suppliers on their visits to 
        beneficiaries' homes, we observed that routine maintenance for 
        a concentrator consists of checking the filter to make sure it 
        is clean and checking the oxygen concentration and flow rate 
        with handheld instruments, tasks that can be performed in less 
        than 5 minutes.''
        We found this information to be valuable in better 
        understanding the cost of equipment, and the maintenance and 
        servicing of oxygen concentrators. Accordingly, the information 
        was an important consideration in developing the FY 2008 Budget 
        proposal.

    We took from the MedPAC recommendations on skilled nursing 
facilities to freeze payments. They looked at all the other 
things that I mentioned to Congressman Pomeroy in terms of 
indicators as to whether or not there should be payment 
changes, including access to capital, beneficiary access 
payments and costs, volume, quality, and the like.
    So, that's in terms of where we are on the skilled nursing 
facility update. That's really where those proposals stem from.
    In terms of oxygen equipment, there are a number of 
different pieces that I would like to address on that.
    The first is new technology. We didn't actually propose to 
change the new technology payments until we know more about the 
new technology that's being provided, particularly with oxygen-
generating portable equipment. We think it's too early for 
that, to make those recommendations.
    Even though a beneficiary would own the equipment after 13 
months, we would still have separate payments that we would 
make to suppliers for general maintenance and servicing every 
six months, delivery and refilling of both stationary and 
portable oxygen contents, reasonable and necessary repairs at 
any point in time in which they're needed, and replacement 
supplies and accessories.
    So, even though a beneficiary would own the oxygen 
equipment, we would continue to pay for the servicing of that 
equipment.
    Moreover, once the beneficiary passes away, the equipment 
would revert back to the supplier so the supplier has an 
additional incentive to ensure that that equipment is kept up 
to date.
    The one thing that struck me in looking at this, and I 
haven't looked at the Office of the Inspector General report 
recently, so I can't address it recently, although I'm more 
than happy to get back to you and discuss it more specifically, 
the one thing that I recall is the percentage of beneficiary 
payments as a proportion of the stationary equipment that we 
provide, and if stationary equipment, whether it's a tank or a 
concentrator, costs between $600 and $800, what we have been 
seeing is that beneficiary co-payments often far exceeded that 
amount, and we didn't think that really made sense.
    So, rather than just buy the equipment for that 
beneficiary, and then continue to provide services, 
maintenance, repairs, and the like, without regard to who owns 
the equipment over time, we thought was a more intelligent 
approach.
    Then you talked about ambulance providers.
    Ambulance providers we propose in 2008 get a 1.05 percent 
payment increase, and that's the consumer price index, which is 
how their update is normally done under current law, minus the 
productivity of .65, which is half the productivity that the 
Bureau of Labor Statistics has come out with, at 1.3.
    We're encouraging all providers to be more efficient by 
taking a half of the productivity off what their normal payment 
update would be, whether it's market basket or Cost Performance 
Index (CPI), and that's consistent with ambulance as it is 
with, say, hospitals and other payments that we are proposing.
    Mr. ENGLISH. Thank you. I do have an additional question, 
but I think I'll do that in letter form, in recognition of the 
Chairman's request for brevity and the fact that I've already 
exhausted my time.
    I thank you, Mr. Chairman.
    Ms. NORWALK. Thank you.
    Chairman STARK. Thank you, Mr. English.
    We have allowed--if anybody has a chart they wanted to put 
up, we've let our IT people go home, so you're going to have to 
talk with your hands.
    Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman.
    I want to thank Ms. Norwalk for your availability and 
testimony here today, and your patience, in light of the 
weather outside, but being from Wisconsin, we're not overly 
concerned about a little drizzle or freezing rain or what have 
you.
    Let's get back to efficiency, just to follow up with Mr. 
English in that.
    One of the concerns I had in the budget proposal by the 
Administration deals with the demonstration and evaluation 
projects that are out there, with the significant reduction in 
funding by over $28 million for the next fiscal year alone, and 
if we're really interested in trying to find the best practices 
and enhancing efficiency in the system, does that make sense, 
to be calling for huge cuts in these demonstration projects?
    Ms. NORWALK. There are a number of different ways that we 
can fund a demonstration project, and typically, what happens 
with a demonstration is that most of it comes out of trust fund 
dollars.
    It's the actual research and the writing of the report to 
ensure that the demonstration has been evaluated appropriately 
that comes out of our administrative budget.
    These are certainly hard times for all of us in the 
Administration, and I think in looking at our overall budget, 
some of the priorities that we have include not just that, but 
also ensuring that we pay appropriately and that claims to all 
our providers are made on time, and so forth.
    So, looking at the totality of our administrative budget, 
we thought that amount was appropriate, particularly given that 
we can work with others on the outside often to watch what they 
do in these----
    Mr. KIND. Let me ask you this. I know a lot of my providers 
in western Wisconsin are moving forward and implementing 
efficient programs, like Six Sigma and Lean, things of that 
nature.
    Should we be looking at ways to incentivize that type of 
behavior with our providers to encourage more providers to be 
looking at various programs like that----
    Ms. NORWALK. Absolutely.
    Mr. KIND [continuing]. To run a tighter ship?
    Ms. NORWALK. Absolutely.
    Mr. KIND. What recommendation would you have as far as 
proper incentives to get more providers to participate?
    Ms. NORWALK. The way that Medicare runs generally is, SGR 
aside, if you look at our other payment programs, for example, 
if you look at the hospital payment system, because we based 
payments on DRGs, within a diagnostic-related group, there are 
a number of different types of procedures, and if you perform 
those procedures more efficiently, then you will be able to 
have a better return on your investment, and that's part of the 
issue when we're looking at margins across the board.
    Those who are more efficient find that they have 
significantly higher margins than their counterparts who are 
inefficient.
    Part of the productivity updates that the Bureau of Labor 
Statistics comes out with on an annual basis, and this year is 
projected to be 1.3 percent, MedPAC specifically said let's 
look at incentivizing efficiency by taking off half of that so 
that providers will be more efficient with their payment 
updates.
    So that's why you see so much of the minus point market 
basket or CPI minis .65 in our program, and simply from a 
payment perspective.
    One of the other places we've seen efficiency is in the 
premier demonstration for hospitals, and that's something that 
we're going to be expanding, at least allowing, or we hope to 
allow other hospitals outside of the premier chain to 
participate on a voluntary basis, and if they're more efficient 
and they provide both better quality care and have fewer 
readmissions, for example, then they get to keep----
    Mr. KIND. Well, in another big area, and we're going to get 
there eventually, the question is how fast, and what the proper 
way is, is with health information technology.
    Governor Doyle in Wisconsin just announced a major State 
initiative to try to get there quicker. Obviously, there are 
competitive advantages for doing so, too.
    There again, in the area of incentivizing that behavior, 
are we going to have to eventually look at mandating the 
conversion to health IT (information technology), or do you 
think they're going to be able to do it on their own?
    Ms. NORWALK. Well, I think we are not quite there yet. I 
think the first thing we need to be concerned about is 
interoperability and make sure that the systems can talk to 
each other----
    Mr. KIND. Right.
    Ms. NORWALK [continuing]. And if you mandate things too 
soon, I suspect that you end up spending more money than is 
productive.
    What Medicare does is really focus on paying, we like to 
focus on paying for better outcomes.
    In order to have better outcomes, I think providers are 
incentivized to purchase health IT systems. I don't think it 
makes sense for Medicare to pay for that. That program is 
really focusing on paying for health care services, but we 
should be looking at rewarding better efficiency and better 
outcomes, and that's a lot of what our proposals do, and what 
we've been doing over time in terms of pay for performance.
    Health IT is, without a doubt, a critical component of 
that, and that's why it's one of the Secretary's top 
initiatives.
    Mr. KIND. Finally, I just want to echo the sentiments that 
Mr. Pomeroy just relayed in regards to rural representation and 
the concerns of rural providers and our patients there, too.
    We have been operating under very a antiquated, unfair 
reimbursement system for some time. Many of us are obviously 
watching these Medicare Advantage plans very closely being set 
up in rural areas, that we don't fall into the same trap.
    I'd like to follow up at some point with you about some of 
the concerns that I'm hearing developing out there in rural 
parts of the country, including my own and Wisconsin.
    Ms. NORWALK. I look forward to talking to you about this.
    Mr. KIND. Well, thank you again for your testimony.
    Thank you, Mr. Chairman. Yield back.
    Chairman STARK. Thank you, Mr. Kind.
    Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Mr. Chairman.
    Director Norwalk, as I'm sure you know, by any objective 
analysis, any national study, Minnesota has a history of 
delivering very efficient and very high-quality care.
    Unfortunately, Minnesota's Medicare Advantage plans, 
however, are penalized for this quality care through 
inequitable payments.
    According to the plans in my State, and this is 
corroborated by the Minnesota Senior Federation, what was 
reported by the Washington Post in late 2005 holds true today.
    That is, despite higher quality care, over the average 
lifetime of a Medicare patient, CMS will pay about $50,000 more 
per Medicare beneficiary in Miami than in Minnesota--$50,000 
more per patient in Miami over the lifetime of that patient 
than in Minnesota.
    This means that there's about a $630 difference per month 
between the highest reimbursement and the lowest.
    Please tell me, why hasn't CMS addressed this unfair, 
unconscionable, and unreasonable difference?
    Ms. NORWALK. I think that one of the things that we have 
been focusing on is, in fact, paying for higher quality, and 
you can tell from reading any number of studies that more care 
does not mean necessarily better quality, and as we move to 
paying for performance and better--with our payment system, and 
becoming a smarter payer, I think that the Medicare Program 
will reward physicians and other providers in States like 
Minnesota where you see higher quality care, and take a second 
look in areas where that care may be both inefficient and not 
necessarily higher quality.
    Many of our payment reforms over time, not just this year 
in this year's budget, but in past years, really have been 
focusing on paying for performance, and as we move there, and 
which we are doing at least from a pay for reporting 
perspective, we're taking the first baby steps to get there.
    Those are the sorts of reforms I think that will reward the 
appropriate increases in quality that you're seeing in your 
State and that your beneficiaries are so fortunate to receive, 
as opposed to some of the places, some of the quality care, and 
frankly, higher-cost care, we've been seeing in other parts of 
the country.
    I agree with you that we need to be focusing, and being a 
smarter payer and focusing more on quality payments rather than 
just paying for a service because it's been provided.
    [The information follows:]

          Since Medicare began making risk-based payments to private 
        health plans in the mid-eighties, the Medicare law has spelled 
        out the policies for setting the rates and CMS implements those 
        policies. Those rates are now used in calculating benchmark 
        amounts in the bidding system that was implemented starting in 
        2006. While differences still exist, changes in the BBA were 
        specifically designed by Congress to address this concern and 
        the differences are narrower than they were in 1997, when the 
        BBA was enacted. At that time, the highest and lowest rates 
        were $767 and $221, with a difference of about 250 percent. In 
        2007 the highest and lowest rates are $1279 and $692, with a 
        difference of about 85 percent.
          Further, let me point out that if the proposal some are 
        discussing to set MA rates at 100 percent of fee-for-service 
        were to become law, the differences would certainly increase 
        and funds available for extra benefits would be reduced. This 
        would have negative effects on the thousands of MA enrollees in 
        Minnesota and millions nationwide. Their existing benefits 
        would almost certainly decrease and, if the experience several 
        years ago is any indication, some plans would leave the 
        program, resulting in significant disruption for affected 
        beneficiaries.
          As I indicated previously, Congressional policies in the BBA 
        had the intended effect of narrowing the disparities. This took 
        place primarily through the floor rates, which were created in 
        the BBA, and modified in subsequent changes to the Medicare 
        law. In keeping with Congressional intent, the floor rates 
        create MA payment rates in many counties that are higher than 
        fee-for-service based rates, including in many counties in 
        Minnesota. Let me reiterate that if MA rates were set at 100 
        percent of fee-for-service the disparities would increase, and 
        there would be adverse effects on beneficiaries.

    Mr. RAMSTAD. Well, as an advocate for going to a pay for 
performance model, if you will, system, I certainly hope that 
that provides a glimmer of hope and it's moving in the right 
direction.
    Do you think in the meantime, should--why hasn't CMS ever 
advocated scrapping the unfair, unconscionable AAPCC formula 
and opting for a regional payment system, for example?
    Ms. NORWALK. Well, we have done that in certain 
circumstances under the Medicare Advantage program, with 
regional PPOs, for example.
    A lot of the payment changes to Medicare Advantage changed 
pretty significantly with the MMA, and now the payments really 
focus on the plan bids.
    Now, I appreciate that the statutory amount of the 
benchmark is derived from fee-for-service payments, and I think 
as we change those fee-for-service payments, likewise in the 
Medicare Advantage program, you will see changes that will 
adjust as we pay more for quality and less simply for service.
    Mr. RAMSTAD. Have you already seen a decrease in 
disparities between Medicare Advantage reimbursement rates?
    Ms. NORWALK. I'll have to go back and check. I suspect 
there is still some disparity there.
    The exact amounts, I haven't looked at recently. So, I'll 
have to go back and we can get back to you with an answer on 
how those changes are impacted across the country.
    Mr. RAMSTAD. I appreciate that and I appreciate the fact 
you're mindful of this situation.
    It's really hard to explain to Minnesota seniors how, 
really, they're cheated in the reimbursement system, if you 
will, vis-a-vis their counterparts in Florida, and so I just 
hope we can bring some reasonableness to the system and hasten 
it's arrival, because it couldn't come too soon for so many 
seniors back home.
    Thank you.
    Ms. NORWALK. We agree they pay for performance and paying 
better for quality is something that we need to do as soon as 
possible.
    Mr. RAMSTAD. Thank you.
    Chairman STARK. Would the gentleman yield for my 
suggestion?
    Mr. RAMSTAD. Certainly.
    Chairman STARK. If we could take that 600 a month that 
we're overpaying in Florida and buy round-trip tickets on 
Northwest Airlines for the people so they could fly to 
Minneapolis, we'd make you a hero. We'd bail out Northwest 
Airlines and----
    Mr. RAMSTAD. I'll cosponsor the legislation, Mr. Chairman. 
Thank you.
    Mr. EMANUEL. Mr. Chairman, you'll have to bring your shovel 
with you.
    Chairman STARK. Mr. Emanuel.
    Mr. EMANUEL. Ms. Norwalk, if I can turn to the SCHIP 
program, if that's okay.
    Ms. NORWALK. Sure.
    Mr. EMANUEL. By some estimates, there's about seven to 
eight million children--I would say it's a guesstimate--that 
are eligible for SCHIP and Medicare, but SCHIP principally, 
that are not enrolled.
    Yet, in the President's budget, he proposes $5 billion over 
5 years for SCHIP, in fact it has a, from present numbers, it 
has about a $223 million cut.
    As having helped negotiate this when I was in the prior 
Administration, and this may be the son of a pediatrician 
speaking here, I'm a little--given that everybody knows that 
the problem here is that we have more kids that are eligible 
than are enrolled, and yet by estimates that we are going to 
need $15 billion, not the $5 billion requested, we're short 
already meeting our objective of what this program can do to 
cover children whose parents work full-time but don't have 
health care, and yet the President's budget rolls back the 
waivers that they have provided to States like Illinois to go 
above the 200 percent of poverty, doesn't provide the funding 
at the levels that are by any estimates, CRS being one of them, 
that says that you need 15, so it's way short, and third, has 
no real administrative programs to help enroll those kids who 
are eligible.
    I think on every piece of the waterfront, the President's 
health care proposal as relates to children falls short.
    Now, he says he wants to extend coverage to more and more 
Americans, but in the one program you have to be able to do it 
for children, which is the cheapest element of our health care 
system, kids, it doesn't meet any of the objectives, and by 
some estimates, this is in fact going to lead to a cut in kids 
receiving health care under SCHIP.
    Can you explain to me what went on, having worked on 
budgets myself, in the mindset, given all the other choices you 
make in a $2.9 trillion budget, you could not find the 
resources to meet the basic objectives of a very successful 
program?
    Ms. NORWALK. Well, we do think the SCHIP program has been 
very successful. It's very important to us, and we believe that 
covering kids is critical. So, that's----
    Mr. EMANUEL. That part we agree on?
    Ms. NORWALK. Absolutely.
    Now, we certainly disagree with the premise.
    First of all, $34 billion over 5 years we think is 
sufficient to cover all children who need health care 
insurance, and I can talk a little bit about the numbers and 
how we get to that number. In the----
    Mr. EMANUEL. Are you saying--I don't mean to interrupt--are 
you saying that CRS and the others are wrong that your budget 
falls short in meeting the basic objectives of the SCHIP 
program?
    Ms. NORWALK. We disagree on the numbers, and I can explain 
how we get to the numbers where we are.
    First of all, in the past three years, enrollment in SCHIP 
has leveled off. We have 6.6 million children who were enrolled 
at some point in time in 2006 in SCHIP. We have over 29 million 
who were enrolled in Medicaid.
    So, right there, you've got what, 36--we've got about 35 
million people enrolled in either SCHIP or Medicaid last year.
    Now, the total number, that's 45 percent of children across 
the country that are already enrolled in these programs.
    So, I do not--we disagree and are more likely to look at, 
say, the Urban Institute study. We thought about 1.8 million 
children are left.
    The way that our budget is set up is we have--we would--we 
think the $15 billion that the others are looking at include 
adults, and we have a different proposal for adults in the 
budget. As I'm sure you know, the affordable choices proposal, 
which I'm more than happy to discuss----
    Mr. EMANUEL. Let me, since I'm only allowed 5 minutes, let 
me--could you take one more minute, though, on your 
presumptions going in, because there's something there that I 
don't quite either understand or I disagree with violently.
    Ms. NORWALK. The total----
    Mr. EMANUEL. You can have your choice, which one you'd 
like. Go ahead.
    Ms. NORWALK. Thanks.
    The total number of children in the country is 77.2 [sic] 
children, according to the Census Bureau.
    Mr. EMANUEL. Million.
    Ms. NORWALK. Those with private health insurance, not SCHIP 
or Medicaid, is nearly 51 million.
    So, there are, what is that, 26 million or so that are left 
without private health insurance, at any income level, 
according to the Census Bureau.
    If you look at the number who are in SCHIP at 66 million 
last year, or at 29.5 million in Medicaid, that's 35 million as 
opposed to 26 million.
    Now, clearly, there's something different in terms of how 
those numbers are counted, but we----
    Mr. EMANUEL. May I ask you this, then?
    Ms. NORWALK. Sure.
    Mr. EMANUEL. Are you saying that all the reports out there, 
regardless of non-political, that is, professional reports, 
that the notion that there are children eligible for SCHIP that 
are not enrolled, are wrong? That's number one presumption.
    Two, that the resources that they say needed for the 
children, not for the adults, is woefully inadequate, you're 
saying that only 1 million children will go uncovered?
    Ms. NORWALK. Well, currently, the number of children we see 
that meet the requirements--this is according to the Urban 
Institute--of the 13.3 million children, according to the Urban 
Institute, who appear eligible for SCHIP, nearly 4 million have 
SCHIP coverage--of course our numbers are a little bit 
different--6.6 million have employer-sponsored coverage, and 
nearly 2 million are uninsured.
    I think that the Congressional Research, the CRS, 
Congressional Research Service, focuses on the program with no 
changes at all, and given that the program has a number of 
adults that are currently covered, and we have a separate 
proposal to cover those who are uninsured adults, frankly, at 
different income levels, or not at any income level, those who 
would need help because they have high health care costs 
without regard to their income level.
    Our focus is really on the initial focus of the program, 
low-income children under 200 percent of the poverty level.
    Mr. EMANUEL. Well, if I can, Mr. Chairman, just for one 
more minute?
    Chairman STARK. Please.
    Mr. EMANUEL. In short order, we'll be introducing 
legislation to accomplish things.
    One, administrative efficiencies, whether it's presumptive 
eligibility, automatic enrollment, using other programs like 
food stamps and schools and school lunches, to enroll kids who 
are eligible, that all do it from an administrative standpoint, 
so I think there's a much larger number of children going 
without health care than you do from your presumption.
    Second, a refundable tax credit for those above the 200 
percent of poverty, to get there, and get up to a point like 
that. We'll be introducing legislation.
    I think there is bipartisan agreement we need to make 
progress on health care in children. I think the President's 
budget is woefully inadequate in meeting the goals of covering 
all children, and we can get there given all the numbers that 
you said there and do it both through administrative 
efficiencies and a refundable tax credit.
    Thank you, Mr. Chairman.
    Chairman STARK. Mr. Hulshof.
    Mr. HULSHOF. Thank you, Mr. Chairman.
    Let me return to an issue first addressed by my friend from 
Michigan, Mr. Camp, and that is the SGR.
    Now, again, we speak in acronyms and probably most folks 
here in the room understand these acronyms, and for those at 
home who aren't proud graduates of the George Mason University 
School of Law, we're talking simply about the way that doctors 
who see Medicare patients are paid, and it's the sustainable 
growth rate, and it's, I would say to my friend from North 
Dakota, Mr. Pomeroy, who amplified this point, this 
Subcommittee attempted in the last session of Congress to 
repeal this, in my view, flawed formula, and similar to what 
the Administration is discussing, moving to a performance type 
or quality initiative type of incentive, where we would not 
necessarily, Congress would not write the rules, for instance, 
for fields of specialty, but allowing the specialists 
themselves to choose the quality initiatives.
    Having said that, though, the average physician payment for 
this calendar year of 2007 is roughly the same as it was in 
2001, and yet physician practice costs have continued to 
increase.
    Would you agree with me at least on that point, about 
physician practice costs going up, Ms. Norwalk?
    Ms. NORWALK. I would--I suspect that's accurate.
    Mr. HULSHOF. If--and again, amplifying the point made on 
health IT, health information technology, if physicians are not 
provided with annual updates to at least keep them current with 
their annual increase in costs, how can we expect them to 
invest in expensive health information technology systems?
    So, my question, as I appreciate the desire of the 
Administration to work with us, we have suggested in the past 
removing physician administered drugs, and let me take your 
point as you've given it, that retroactively legally cannot be 
done.
    You left open, or I didn't jot down your words quite well 
enough as far as prospectively.
    So, here's the first question.
    Is there a legal obstacle within the Administration 
removing physician administered drugs on a prospective basis?
    Ms. NORWALK. Let me go back and ask my general counsel and 
get back to you before, since even though I went to law school, 
I'm not allowed to be a lawyer, I can only play one on TV, but 
I can't practice law in this position.
    So, let me go back and ask them----
    Mr. HULSHOF. Okay.
    Ms. NORWALK [continuing]. And get back to you on that, 
because clearly that's an important point.
    [The information follows:]

          Removing drugs from the SGR under existing authorities 
        presents some tricky issues. The statute defines physicians' 
        services for purposes of the SGR to include those other items 
        and services specified by the Secretary that are commonly 
        performed or furnished by a physician or in a physician's 
        office. Prospective removal of drugs from the SGR would require 
        a determination that the incident to drugs included in the SGR 
        do not meet this criteria while other items such as clinical 
        laboratory tests do.
          Prospective removal of drugs from the SGR is estimated to 
        have no impact for the first 8 years of the 10 year period 
        2008-2017. In other words, removing drugs from the SGR on a 
        prospective basis would not have any impact on the physician 
        update until 2015. Removing drugs from the SGR on a prospective 
        basis would, however, have the effect of increasing costs for 
        taxpayers beginning in 2015 and the part B premium paid by 
        beneficiaries beginning in 2015.

    Mr. HULSHOF. Is there a policy rationale for not allowing--
for removing, or refusing to remove physician administered 
drugs from the formula?
    Ms. NORWALK. Well, the concern that--in fact, the statement 
that I made earlier about this topic was that even if we were 
to remove it prospectively, it barely dents the problem that we 
have on the SGR, and in fact, you really don't see any impact 
because of how the sustainable growth rate is calculated, you 
don't even see it have an impact for I think it's four or 5 
years out.
    It is something that when we sit down and work with MedPAC 
and the societies and with you and your colleagues, I think 
that it's something that we can discuss.
    Mr. HULSHOF. Okay. Let me, in the remaining time, then, 
move to the 75 percent rule.
    As we've talked about the physician formula, the SGR, there 
is the administrative side of it and then we can obviously 
legislate if we feel that administrative action is not taken 
sufficiently, and I will tell you that Mr. Tanner and I, my 
colleague from Tennessee and I, have introduced a bill, 
legislation on the 75 percent rule.
    There--and you know this, Ms. Norwalk--there have been 
unbelievable advances in medical science that allow previously 
untreatable patients to receive rehabilitation services and 
have what we would term in a layman's term to be a full 
recovery.
    Why hasn't the Administration made any serious attempt to 
modernize the 75 percent rule by at least expanding the 
diagnostic conditions that really haven't been defined for 
many, many, many years?
    Ms. NORWALK. I'm trying to remember when it was. Maybe last 
year, the year before last, forgive me for not remembering the 
specific time, the 75 percent rule, you're correct, initially 
had not been changed for decades, and needed to be updated. It 
had 10 conditions that were incredibly outdated.
    We did in fact go in and work with not only our own 
physicians within the CMS, but also within the entire 
Department, working with the National Institutes of Health and 
the like, to update those lists of conditions.
    The 75 percent rule, of course, focuses on the most high 
acuity need patients in terms of their rehabilitation needs, 
and one of the things that we had been seeing over time is that 
these facilities were focusing more on simple knee and joint 
replacements that were less complicated, rather than focusing 
on the sort of care that you've just described, that might be 
available with newer technology, that can really help when 
there are co-morbidities and patients really need that higher 
acuity care.
    So, we in fact did significantly change the different types 
of services that should be provided or that account for that 75 
percent portion.
    It's not that an Emergency Relief Fund can't provide care 
to other patients, only that we limit the payment, and we 
really want to focus those facilities for those higher-acuity 
needs.
    Now, every year, we update and take a look at the 
conditions that would be covered within that 75 percent, and 
work with the medical societies to get the best information 
possible, so on an annual basis, we'll be taking a look at 
those lists of conditions. As we have better information we 
would update that list.
    Mr. HULSHOF. Thank you.
    Thank you, Mr. Chairman.
    Chairman STARK. Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Ms. Norwalk, I'd like to talk a little bit, or I'd like to 
hear from you a little bit on the issue of reimbursement rates 
and how they've been cut in this budget, and how that's going 
to impact problems that already exist, given provider shortages 
probably in any underserved area. My focus, given my district, 
is in rural areas.
    Last week, Mr. Portman was here, and he said something 
along the lines of, well, with increased productivity, a lot of 
these problems can be solved.
    I don't think I'm any different than anybody else in this 
Committee. I don't think any of us would want to go home and 
tell our doctors or our nurses that they just need to step up 
their productivity.
    Being married to a nurse, I can tell you that if she were 
here, she wouldn't have been as calm as I was.
    I represent some rural areas, one of which, Del Nort 
County, lost two surgeons and 10 primary care doctors in 2005 
alone. They have one obstetrician. They have no psychiatrists 
and no cardiologists. I don't think that this cut in 
reimbursement rates is going to help them at all.
    I'd like to get your take on how you see this particular 
portion of the budget impacting these rural communities.
    Ms. NORWALK. You mention a number of different and very 
important topics.
    The first, and you've talked about surgeons and 
obstetricians and so forth that you see leaving the area.
    Of the things that we've been talking about today is the 
need to take a much closer look at the sustainable growth rate 
and how physicians are paid.
    This is something that we will, I'm sure, have a lot more 
information----
    Mr. THOMPSON. I'm less interested in what we should look 
at. I'm worried now, if your budget were to be enacted into law 
today, I'd have areas that wouldn't have any doctors, and the 
ones that were there certainly wouldn't be taking any Medicare 
patients.
    Ms. NORWALK. Both MedPAC and our own research office has 
been focusing on the access to physicians across the country, 
and we do provide changes in payments for all different types 
of providers, whether they be physicians, and given where they 
live, and their wage index, for example, or whether it's other 
providers, and rural increases that we have seen historically 
to institutional type providers.
    When we talk about productivity changes, and I'm sure I did 
not have the benefit of seeing Dr. Portman's testimony, but the 
productivity changes that we've been discussing earlier really 
focused more on the institutional provider types as opposed to 
the physicians, per se, in our budget.
    I think that all providers need to be encouraged to provide 
the most efficient sort of care, particularly in an 
institutional setting, but would agree with you that we need to 
take a closer look at the physician piece.
    Mr. THOMPSON. I've got some other issues I want to cover, 
so maybe if you could just let me know, and you could do it in 
a letter, what in your budget, what specifically in your budget 
demonstrates the Administration's commitment to addressing the 
provider shortages in rural areas.
    I think you know how I feel on this. It's hard to increase 
productivity in any area of health care if you don't have any 
doctors.
    Before my time gets away from me, I want to also align 
myself with Mr. Ramstad. You don't have to go to Michigan or 
Florida to see disparity in Medicare Advantage payments. You 
can just come to California and look at northern California 
versus southern California, and there's a stark difference.
    This is something that needs to be fixed, and I would 
associate with anybody, line up with anybody to help do that.
    Your budget, in brief, includes a legislative proposal to 
clarify rehabilitative services, and your revenue tables show 
that the proposal would cut approximately $2.3 billion from 
Medicaid over the next 5 years.
    The details that I saw are somewhat vague, and so I'm 
interested in knowing what specific changes you're looking at. 
and I am particularly interested in adult day health care 
services, and I'd like to know if these proposals will impact 
California and the seven other States that provide these 
services as an optional benefit under their Medicaid State 
plans.
    Ms. NORWALK. The general concern we have about 
rehabilitative services in the Medicaid program is that it 
hasn't been particularly well defined, and so States are using 
a number of different pieces that would--that may not be the 
most appropriate for Medicaid reimbursement.
    In terms of adult day care services, I'll have to go back 
and ask my staff more specifically, but the general premise is 
to ensure that we are providing what's appropriate, we're 
paying for services that are appropriately paid for under the 
Medicaid program, that aren't paid for already under other 
programs, and merely they're asking the Federal Government to 
supplant other payments. So, we----
    [The information follows:]

          The President's FY 2008 Budget includes a regulatory proposal 
        to ensure the fiscal integrity of claimed Medicaid expenditures 
        by clarifying the service definition and providing that 
        Medicaid rehabilitative services must be coordinated with but 
        do not include services furnished by other programs that are 
        focused on social or educational development goals and 
        available as part of other services or programs. These services 
        and programs include, but are not limited to, foster care, 
        child welfare, education, child care, prevocational and 
        vocational services, housing, parole and probation, juvenile 
        justice, public guardianship, and any other non-Medicaid 
        services from Federal, State, or local programs. The proposed 
        regulation would provide guidance to ensure that services 
        claimed under the optional Medicaid rehabilitative services 
        benefit are in fact rehabilitative outpatient services, are 
        furnished by qualified providers, are provided to Medicaid 
        eligible individuals according to a goal-oriented 
        rehabilitation plan, and are not for services that are included 
        in programs with a focus other than that of Medicaid.
          States have provided coverage for adult day health care 
        (ADHC) services through one of two ways: waivers for home and 
        community-based services (HCBS) or under the authority of the 
        Omnibus Budget Reconciliation Act of 1989 (OBRA 89, P.L. 101-
        239). section 6411 of OBRA 89 permitted California and seven 
        other States providing ADHC services as a Medicaid State plan 
        option to continue this coverage until the issuance of final 
        regulations on rehabilitative services that clarified the 
        elements of ADHC services that could be offered under the 
        Medicaid rehabilitative services benefit. Beginning January 1, 
        2007, ADHC became coverable as a service in the new HCBS State 
        plan option under section 1915(i) of the Social Security Act, 
        as amended by section 6086 of the Deficit Reduction Act of 
        2005. As we develop the proposed rule, we will consider whether 
        to continue coverage of ADHC services under the optional 
        rehabilitative services benefit in light of the new State plan 
        option available under section 1915(i).

    Mr. THOMPSON. Well, can I find out how it's going to impact 
these States that do this?
    I know in California, I don't know if it meets your 
definition, but I know that it's working, it's keeping people 
out of skilled nursing facilities, it's saving money, it's 
keeping people at home, it's keeping communities together.
    Ms. NORWALK. We do think that home and community-based 
services are critically important for the points that you just 
mentioned, and that keeping people out of the nursing home is a 
goal that certainly we all share, and I would anticipate that 
those sorts of services would be able to continue.
    Now, the regulation is something that we're currently 
developing, so----
    Mr. THOMPSON. If your regulation takes away this 
flexibility that these folks have--you're going to be hurting 
the very people that you claim that you're helping.
    Ms. NORWALK. Well, we certainly agree with you on the 
premise that providing services in the home and in the 
community is something that is critically important, rather 
than----
    Mr. THOMPSON. Well, I'd rather your budget tracked with 
that, rather than you agreeing with me.
    Ms. NORWALK. Well, we'll work with you as the regulation 
is--once the regulation is published.
    Chairman STARK. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Ms. Norwalk, thanks for your patience, and hopefully, we'll 
get you out before the weather turns completely ugly.
    Ms. NORWALK. That's all right, I can walk home.
    Mr. BECERRA. I'll join you.
    A couple questions, and I know I'm going to run out of 
time, so I'll just try to go at them pretty quickly.
    In your budget, you have a cut in moneys for research 
demonstration programs, which to me seems like a wrong way to 
go.
    You go from about 62 million in last year's budget to about 
28 million that you've allotted--I'm sorry--34 million that 
you've allotted in this year's budget for research 
demonstration and evaluation projects, which in many cases 
provide us with the innovation and those new ideas that 
sometimes we need to try to do things smarter and in a less 
expensive way.
    Give me a sense of why we should support something like 
that cut.
    Ms. NORWALK. I think it's very difficult times for all of 
us. We are all looking under enhanced budget pressures.
    From a budget perspective, there are a lot of priorities 
that CMS needs to meet within our administrative budget, first 
and foremost of those, ensuring that we pay providers correctly 
and appropriately, and so forth.
    In taking a look at the overall budget and making sure that 
we can make the most of what we do have, we think that $34 
million is sufficient to continue the research projects that we 
have ongoing, particularly the most critical ones, as well as 
looking and working with outside partners as we have over time 
to make sure that if there are things that we aren't doing that 
those projects, or something that they are looking at somewhere 
across the country, whether they be partners, educational 
institutions, and so forth.
    We also have partners within HHS that do a fair amount of 
research that we can use, whether it's our assistant secretary 
for planning and evaluation, and the like.
    So, it's an area where we thought that we might be able to 
have economies elsewhere.
    Mr. BECERRA. I think I'd like to explore that with you a 
bit more----
    Ms. NORWALK. Sure.
    Mr. BECERRA [continuing]. Because while you can probably 
find some savings to cut virtually half of the budget, I think 
probably, either we had a lot of fat in the budget to begin 
with, and a lot of bad research was being done, or a lot of 
good research is going to pay the price of these cuts.
    You mentioned provider cuts and how we have to focus on 
priorities.
    Provider cuts, it seems to me that there's no resolution in 
the President's budget when it comes to how we deal with 
providers who are seeing some pretty significant cuts in their 
reimbursement rates, and many of these providers--doctors, 
hospitals--are very concerned that, at the rate that we're 
going, that they may have to drop out of the Medicare system 
altogether because they can't afford the reduced reimbursement 
rates that they're receiving.
    This is something that we've obviously tried to resolve on 
a longer term basis, and I know you've talked a bit about this, 
so I won't way more than to ask if you can please make sure 
that, as we move forward, that we have the help of the 
Administration to come up with a solution that's not just 
bipartisan, but has the support of the executive branch, as 
well, because I think it's a terrible way to budget when every 
year we talk about a piecemeal approach to this issue.
    Every year, providers are coming, wondering, not knowing. 
There's no predictability. There's no stability in how they can 
try to budget for themselves, long-term, about the patient 
loads they can take, what type of expansion they can afford to 
undertake.
    I think we have to give the health care system and our 
providers more stability and predictability in how we're going 
to go about making sure Medicare is their for folks in for 
those who provide it.
    Ms. NORWALK. I agree.
    Mr. BECERRA. One other area: In California, with the waiver 
that we have, we are having some real issues and I know there 
are some concerns. There is a proposal that actually we spoke 
about over the phone--some issues that we spoke over the phone 
about not too long ago, CMS Rule 2258-P, it would change the 
way you categorize some of the entities that are eligible for 
reimbursement, public entities. You would also narrow this set 
of costs that can be reimbursed. Those are all things that 
while they seem to be providing on paper a savings of $3.5 to 
$4 billion over 5 years would probably take the hide out of 
many of our public hospitals and many of our private hospitals 
that are safety net hospitals.
    I know they are in panic mode trying to figure out how, 
especially in California where we have such a large population 
of uninsured, that they are going to manage with these cuts 
that are going to principally fall on public institutions or 
private hospitals that are safety net facilities. So, I am 
wondering if you can give us--I know that you mentioned or CMS 
has mentioned on many occasions verbally that the State will 
not be effected by this rule and these cuts, and I am wondering 
if you can tell us now for the record that indeed this rule and 
the changes it would impose would not affect the State of 
California in harmful cuts?
    Ms. NORWALK. Well, we have been very concerned in looking 
at the Certified Public Expenditures rule that you mentioned. 
What we propose is that we pay--that we only pay governmental 
unit providers, providers that are actually units of 
Government, 100 percent of costs. Let me say that again, so we 
are paying them 100 percent of costs.
    Mr. BECERRA. So, with the University of California 
hospitals, they qualify as one of those public institutions?
    Ms. NORWALK. As a part of our rule, we have actually gone 
to the State and asked them to fill out a form so that they can 
get back to us information as to who is the governmental unit 
provider and who is not. So, I do not know from a specific 
basis whether or not they qualify under that.
    Mr. BECERRA. You have proven my point, that is the dilemma 
they face, they are not sure if they are going to get cut, and 
the UC system has some of the best hospitals around, public 
facilities, that stand to lose because they have no certainty 
as to whether or not they are going to face the cut or not. It 
is extremely exasperating.
    Ms. NORWALK. One of the things that we have found actually 
is that providers, rather than getting to keep these payments, 
this is really about an intergovernmental transfer issue, what 
we have been seeing with States across the country, and that we 
have been cleaning up over time as State plan amendments come 
into us, States have been saying, ``Okay, here we will pay this 
Government provider 110 percent of cost.'' Then what happens is 
they take back 30 percent of that after the Federal Government 
has matched it and that money goes into recycling. What we 
would rather see is we would rather see the governmental 
provider get 100 percent of cost. The other thing our rule does 
is say you cannot submit that money back to the State for a 
recycling purpose. So, what this is really intended to do is 
two things: One, make sure that governmental providers get to 
keep the payments; and, second, make sure that there is not a 
recycling scheme that runs afoul with provider tax and donation 
requirements. So, that is really the element of what is here. 
Now, we will work with you when we get more back from the 
States as to who qualifies as what providers.
    Mr. BECERRA. My time has expired so I want to end here but 
say I thank you for your response. I know you are trying to 
work this through, and I hope that you will stay in touch with 
us because I think it is clear from my question and your answer 
that this is very complex and confusing and the worst thing we 
can do is end up with providers and beneficiaries and patients 
who ultimately suffer as a result of the confusion that we 
caused with these rules and so forth. So, I thank you for your 
response. Mr. Chairman, I yield back my time.
    Ms. NORWALK. Thank you.
    Chairman STARK. We are happy to welcome Mr. Crowley to the 
Committee and without objection, he will be recognized to 
inquire.
    Mr. CROWLEY. Thank you, Mr. Chairman, thank you for your 
accommodations, both yourself and the Ranking Member for 
allowing me the opportunity to ask a question of the 
administrator. Ms. Norwalk, thank you for being here today. The 
Fiscal Year 2008 budget includes severe cuts to Medicare and 
Medicaid, one such cut is the in-patient hospital market basket 
update, which many hospitals require to keep up with the cost 
of inflation. MedPAC recommended to Congress that they give the 
full market basket update to in-patient hospitals. However, 
this Administration chose to cut it by .65 percent this year 
and every year thereafter for I believe the next 5 years. How 
are hospitals supposed to continue to provide high-quality care 
when they are not able to keep up with the cost of inflation?
    Ms. NORWALK. There are a number of different points that I 
would make, first of all that the update that we are proposing 
in our budget for hospitals is a 3.25-percent increase in 
payments. Historically, the Medicare Program over the past 10 
years has paid about 63 percent of the market basket. This 
particular increase would be 83 percent of the market basket. 
So, if you look at the historical nature of hospital payments 
over time for the Medicare Program, we are actually 
considerably on the higher side over the past in fact even 20 
years. I have been spending a fair amount of time recently 
poring over the MedPAC testimony and the MedPAC 
recommendations, and I think there are a number of things that 
are important. What their initial recommendation was in March 
of this past year was in fact market basket minus half the 
productivity rate, and they were still debating this in fact 
last month, a few weeks ago, in the discussion. When they talk 
about having just a market basket increase, they did it in 
context with some other proposals that we also did not get a 
chance to pick up in this particular budget, things that relate 
more to pay for performance, but they did not entirely dismiss 
the idea of the importance of productivity and having some 
productivity adjustments in payment systems in order to make 
this program more sustainable over the long term. MedPAC is 
critically important, they do fantastic work. We pay very close 
attention to their own research, but we do research on our own, 
both through the capital markets folks that we have who work at 
CMS as well as through our Office of the Actuary and looking at 
varying other market projects. What we have seen is that many 
hospitals are in fact very efficient and could absorb this and 
those who are in very competitive markets, who have had 
difficulty or haven't had private payment pressures, are the 
ones who are perhaps less efficient and those who would be most 
disadvantaged by this particular proposal, but we would like to 
reward efficient behavior, particularly of our hospital 
providers. I can assure you we do pay very close attention to 
what MedPAC puts out and their recommendations, and I think 
their January testimony is very instructive on this point.
    Mr. CROWLEY. Well, coupled with the fact the President has 
a scheme that he is proposing to Congress to help the uninsured 
by providing to an estimated three to five million individuals 
in this country opportunities for insurance within the private 
market, three to five million people out of a total of roughly 
47 million uninsured in this country, my concern is--of which 
2.7 million are in New York State--my concern here is that in 
cutting these hospitals, which is the safety net for the 
uninsured in this country, and particularly in city like mine 
of New York City where those that we know that are uninsured as 
well as those who are not documented in this country use 
emergency room for their care, that cuts to those hospitals 
will have a severe impact in their ability to deliver for the 
uninsured. So, it is really a great example of robbing Peter to 
pay Paul, giving opportunity maybe if it were to go through to 
three to five million people, yet leaving 42 to 45 million 
people with even less resources to deal with their own health 
issues. I just want to relay that to you that that is why I am 
concerned about these cuts or what you may argue as an increase 
but not enough as far as I am concerned and therefore is a cut 
as far as I am concerned in my hospitals.
    Ms. NORWALK. The Affordable Choices proposal focuses two 
different components, the tax component, which is a $3 to $5 
million increase, but the HHS component of Affordable Choices 
we anticipate that there will be actually significantly more 
individuals covered. For example, there is a State that has 
come into us with a proposal that pretty much meets the 
President's proposal around Affordable Choices, and they 
anticipate covering $1.1 million in that particular State 
alone. One of the things that the Secretary has been doing the 
past number of weeks, and will continue to do, is meet with 
Governors across the country to get a better sense of what it 
is that they would like to do to help cover the uninsured in 
their State. I have no doubt that a visit--in fact, I think he 
was in New York--is going to New York in the next couple of 
days so I have no doubt that that is going to be a topic on the 
agenda, to make sure that we can take into account the plans 
that Governor Spitzer has for New York.
    Our focus is rather than paying indirectly for care, or 
frankly the care that is provided in hospital emergency 
departments, any emergency department physician will tell you 
is an unfunded mandate. It is not something that Medicare and 
Medicaid directly pays for. Instead of doing that, we thought 
it made a lot more sense to help subsidize health insurance, 
not just from a tax proposal perspective where you would make 
the tax proposal fairer for those who don't have access to 
employer-sponsored insurance but provide through the HHS 
proposal subsidies much like you see for example in the SCHIP 
program that we talked about earlier today, subsidies for 
employer-sponsored insurance if it is available and if it is 
not, subsidies to buy insurance in a more robust non-group 
market. So, these two things together we anticipate will cover 
significantly more than $3 to $5 million that people have been 
focusing on from a tax perspective and that we will have better 
information as we learn more from Governors and State 
legislatures about what they are looking to do in their State 
on the HHS side of the Affordable Choices proposal, but I 
totally appreciate that at some point, the hospitals will 
continue to see these patients who do not have insurance. So, 
clearly, there needs to be some safety net that remains in 
place no matter what happens, and we will come back and look 
forward to working Congress more specifically when we have 
learned more from the States as the Secretary goes out and 
talks to governors and State legislatures.
    Mr. CROWLEY. Thank you. I know my time has expired but to 
be a poor person and relying upon Government to make sure the 
safety net is there, I do not think there is a full faith and 
confidence in the poor that it will be there, but I thank you 
for your time. Thank you, Mr. Chairman.
    Chairman STARK. It is good to have you. Would any Members 
like to add one additional brief question that they may not 
have had a chance to ask previously?
    Mr. THOMPSON. Thank you, Mr. Chairman. Ms. Norwalk, I would 
like to talk to you about an issue that I am concerned about, 
the MMA, Index to part B Premiums to Income. Basically, those 
who make higher than $80,000 pay a higher premium. In your 
budget proposal you expand the premium indexing to Part D. 
However, you eliminate the current requirement to annually 
index the income thresholds to inflation. I am a little 
concerned about that because it sounds to me like we have got 
an alternative minimum tax (AMT) problem down the road, and I 
am wondering if that is something that you guys have talked 
about? Do you have any idea how eliminating the inflation index 
will impact beneficiaries over time if it does come to 
fruition?
    Ms. NORWALK. We did take a look at the 10 year projections 
as to how many beneficiaries would be impacted under Medicare 
part B. Under current law, it would be 6.3 percent of 
beneficiaries, which equates to nearly 3.3 million, would pay 
an additional or higher premium. Under the proposed law, it is 
9.6 percent and that equates to five million.
    Mr. THOMPSON. To it is 3 percent more when?
    Ms. NORWALK. 2017, 10 years from now. So, it is an 
additional $1.7 million in 2017.
    Mr. THOMPSON. It goes up from there?
    Ms. NORWALK. I would presume that there would be additional 
beneficiaries who are impacted every year, yes.
    Mr. THOMPSON. So, you are going to double the number of 
folks who are having to pay so does that mean it creeps down?
    Ms. NORWALK. I am not sure I understand the question but 
you would move from 3.2 million under current law to five 
million under proposed law, so an additional 1.7 million 10 
years from now would pay an additional part B premium.
    Mr. THOMPSON. Thank you.
    Chairman STARK. Mr. Camp?
    Mr. CAMP. Mr. Chairman, I just wanted to ask if we had some 
discussion about SCHIP and the funding for SCHIP, whether it 
was adequate. I just want to clarify that I do believe the 
President's budget calls for a $5 billion increase in SCHIP 
funding over 5 years, does it not?
    Ms. NORWALK. Correct, so it is $5 billion per year that is 
currently in the budget. It is almost $4.8 billion additional 
money and then $4 billion that would be reallocated, that is 
how you get to the $34 billion.
    Mr. CAMP. All right. Thank you very much.
    Ms. NORWALK. Thank you.
    Chairman STARK. I just wanted to close with a couple of 
comments. I am concerned, and perhaps you could just drop us a 
note on this, that the elimination of the bad debt provision is 
going to impact very disproportionately on low income. It hits 
rural clinics, it hits inner city clinics. There is already, it 
seems to me, enough inclination by providers to duck the 
indigent where they can. To pick up the copays, as I believe 
the bad debts have in the past, as I say, I am concerned with 
it mostly hitingt people who can least afford it. Now, it may 
be abused. It may be just a way to duck the copays in advance, 
and to the extent that it is abused, I would not object, but to 
the extent that it is just fishing around for some savings, it 
is something that I would want you to re-think.
    Now, the other thing that I would want you to re-think, it 
is only because I want to see all those people sitting behind 
you smile, is I am not real happy with your administrative 
budget. It is a little known fact that at least in the period 
when I used to chair this Committee, we religiously went to the 
appropriations Committee to ask for more funding for HHS and 
their administrative budget. It is the largest bureaucracy in 
our Government and to me one of the most important. I know that 
you are doing your best to try and save money, but maybe we 
would start to get information more quickly if in fact the 
administrative budget were increased. If you do not object 
strenuously,----
    Ms. NORWALK. We have our friends from the Office of 
Management and Budget watching.
    Chairman STARK [continuing]. I think that it is something 
that I might ask the Ranking Member to look at with me and see 
whether we might not whisper in the appropriations Committee's 
ear that we think that we would all be better served if at 
least we kept up with inflation. Those are just comments, and I 
want to thank you very much. I hope you get home before we are 
all snowed in. I thank your staff very much for staying and 
bearing with us in this. We will look forward to working with 
you in the months ahead.
    Ms. NORWALK. Indeed, thank you.
    [Whereupon, at 3:45 p.m., the hearing was adjourned.]
    [Questions submitted by the Members to the witness follow:]
          Question Submitted by Chairman Stark to Ms. Norwalk
    Question: I'm concerned that the elimination of the bad debt 
provision is going to impact very disproportionately on low-income. It 
hits rural clinics, it hits inner city clinics. There is already enough 
inclination by providers to duck the indigent where they can. And to 
pick up the copays, as I believe the bad debts have in the past, I'm 
concerned with mostly hit people who can least afford it. I also know 
it may be abused. It may be just a way to duck the copays in advance, 
and to the extent that it is abused, I would not object. But, to the 
extent that it is just fishing around for some savings, it is something 
that I would want us to re-think.

    Answer: The bad debt policy, adopted in 1966, allowed Medicare to 
cover the unpaid deductible and coinsurance amounts that arose in 
connection with the provision of covered services to Medicare 
beneficiaries. The policy was meant to avoid the cross-subsidization 
that might occur if hospitals or other entities tried to recoup 
Medicare bad debt from other payers. Currently, Medicare is the only 
payer that reimburses bad debt for services paid on a reasonable cost 
basis or under a prospective payment system.
    Bad debts are obligations between providers and beneficiaries. Now 
that providers are reimbursed through prospective payment systems or 
fee schedules, we do not believe it is Medicare's responsibility to 
cover out-of-pocket costs that beneficiaries do not pay. The 
President's fiscal year (FY) 2008 Budget proposes to eliminate bad debt 
reimbursement for all providers over a 4-year period.
    As the stewards of the Medicare Trust Funds, it is important that 
we encourage providers to be proactive in pursuing the bad debts owed 
to them. This proposal will create greater incentives for providers to 
recoup their debts, leading to greater program efficiency and 
strengthening the long-term financial security of the Medicare Program.
    We do not believe that this provision will cause providers to 
suffer financially because bad debt is only a small fraction of 
Medicare revenues for providers. For example, the reduction in Medicare 
bad debt payments accounts for less than 1.0 percent of revenues for 
hospitals, only 0.5 percent of Medicare revenues for skilled nursing 
facilities, and 0.1 percent for dialysis facilities.

                                 
           Question Submitted by Mr. Thompson to Ms. Norwalk
    Question: Can you explain to me what specifically in the budget 
demonstrates our commitment to addressing the provider shortages in 
rural areas?

    Answer: The Centers for Medicare & Medicaid Services (CMS) is 
committed to the needs of all people with Medicare, especially those 
residing in rural communities. In addition to taking steps to secure 
the long-term sustainability of the Medicare and Medicaid programs, the 
President's fiscal year (FY) 2008 Budget demonstrates the 
Administration's commitment to preserving and expanding health 
insurance coverage for all Americans. While there are no provisions 
specifically addressing provider shortages in rural areas in the 
budget, CMS does have programs in place that aid access and improve 
quality in designated rural health areas.
    CMS has taken a number of administrative steps over the past few 
years to better address the concerns of rural providers. CMS conducts 
regularly scheduled conference calls known as the ``Rural Health Open 
Door Forum'' to provide a venue for rural providers to inquire about 
policies, upcoming changes, and share payment concerns. The Department 
also established a Department-wide Rural Health Task Force to increase 
responsiveness to rural concerns.
    In addition, CMS has made several important regulatory reforms that 
assist rural providers. For example,

      In the FY 2007 hospital inpatient prospective payment 
system IPPS final rule, CMS adopted cost weights over a 3-year 
transition period. Cost weights generally increase payments to rural 
hospitals because of the redistribution between medical and surgical 
diagnosis-related groups (DRGs) that occurs due to the cost-based 
weights. Rural hospitals tend to have heavy concentrations of medical 
DRGs and therefore are expected to experience increases in payments.
      In the long-term care hospital (LTCH) final rule for rate 
year (RY) 2008, CMS extended the ``25 percent rule.'' In general, one 
way the 25 percent rule was expanded was to provide a payment 
adjustment to an LTCH that has more than a certain percentage of its 
Medicare discharges admitted from any individual referring hospital 
that is not co-located with the LTCH. Even under the expanded policy, 
patients who achieved high cost outlier status at the referring 
hospital before being discharged to the LTCH are not counted toward the 
applicable threshold for that referring hospital. Therefore, the 
payment adjustment would be applied for those Medicare discharges in 
excess of the applicable threshold that had not reached high cost 
outlier status at the referring hospital before being discharged to the 
LTCH. Generally, CMS provides a higher threshold for rural hospitals in 
recognition of the unique needs of these hospitals.
      In the physician fee schedule proposed rule for 2008, CMS 
is proposing to add neurobehavioral status exams to the list of 
Medicare telehealth services. The neurobehavioral status exam is 
furnished by a physician or psychologist and includes an initial 
assessment and evaluation of mental status for a psychiatric patient.
      CMS has made $195 million in grants available to Gulf 
Coast States impacted by Hurricane Katrina. These grants will serve to 
strengthen access to health care services in the Gulf Coast region and 
to relieve economic pressure suffered by health care providers in the 
region.

    As you know, recent legislation signed into law by the President 
has included several provisions to enhance beneficiary access to 
quality health care services and improve provider payment in rural 
areas. For example, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) included a number of provisions to 
improve rural health care. These provisions include the creation of a 
new Physician Scarcity Area bonus payment program along with an updated 
Health Professional Shortage Area bonus payment program, which reward 
both primary and specialist care physicians for furnishing services in 
the areas that have the fewest physicians available to serve 
beneficiaries; the development of a graduated adjustment/add-on payment 
for low-volume hospitals; the redistribution of unused resident 
positions, with hospitals located in rural areas receiving top priority 
for such positions; and significant improvements to the Critical Access 
Hospital program, including increased payments to 101 percent of 
reasonable costs and flexibility to use up to 25 beds for acute care.
    CMS has also been directed to conduct a number of demonstrations 
focused on the delivery of care in rural areas. For example, section 
409 of the MMA established a demonstration to test the delivery of 
hospice care in rural areas; section 410A of the MMA established a 5-
year demonstration for up to 15 hospitals test the feasibility of 
establishing Rural Community Hospitals; and section 434 of the MMA 
authorized a new demonstration project under which Frontier Extended 
Stay Clinics in isolated rural areas are treated as providers of items 
and services under the Medicare Program.
    Finally, the Tax Relief and Health Care Act of 2006 (TRHCA) 
included a number of provisions that foster rural health programs in 
many ways. In particular, TRHCA extended the floor on Medicare work 
geographic adjustments by 1 year (now set to expire January 1, 2008 
instead of January 1, 2007); extended reasonable cost payments for 
certain diagnostic laboratory tests furnished to hospital patients in 
certain rural areas by 1 year; and extended the hospital wage index 
reclassifications authorized under section 508 of the MMA through the 
end of FY 2007. CMS has worked expeditiously to implement all of these 
provisions, recognizing their importance to rural communities.

                                 
             Questions Submitted by Mr. Camp to Ms. Norwalk
    Question: As you know, with the passage of the Omnibus Budget 
Reconciliation Act in 1990, pharmaceutical manufacturers were required 
to pay rebates to the States to help reduce the price of prescription 
drugs. These rebates are related to the costs in State Medicaid 
programs and some specific State-mandated programs. From my 
understanding the total amount of rebates paid each year varies, but is 
between $4 and $8 billion.
    Each fiscal quarter, pharmaceutical manufacturers receive invoices 
which list the amount of rebate to be paid. However, I'm told that CMS 
does not require that the information provided by States to the 
manufacturers be done in any standard form and without data to back up 
the request. Is this true? Does CMS have the authority to require 
States to supply consistent and accessible rebate data? If not, what 
authority would you need to establish such a system wide standard?

    Answer: Section 1927(b)(2)(A) of the Social Security Act (the Act) 
requires States to provide information to manufacturers ``in a form 
consistent with a standard reporting format established by the 
Secretary.'' The standard format established by CMS is the OMB-approved 
form, CMS-R-144. States may implement this requirement in various 
formats, so long as the thirteen data fields included on the CMS-R-144 
are present for each drug. The CMS-R-144, also referred to as the State 
Rebate Invoice (invoice), is used for the current rebate quarter, as 
well as for adjustments to previous quarters. Further, the national 
rebate agreement provides manufacturers with an avenue to dispute the 
data provided on the invoice, and request additional documentation from 
states.

    Question: I have been working with Members of this Committee and 
the Department to address the difficulties surrounding intravenous 
immune globulin therapy (IVIG) treatments. As you know, due to past 
reimbursement difficulties, patients with immune deficiencies were 
forced to visit the hospital to get their treatment, instead of at 
their physician's office.
    I am pleased that CMS has preliminarily addressed this issue by 
providing add-on payments to physicians for the administration of IVIG. 
I also understand that the Assistant Secretary of Planning and 
Evaluation (ASPE) and the Office of Inspector General (OIG) are 
conducting studies on patient access to IVIG and the IVIG marketplace, 
respectively. Would you please provide the Committee with an expected 
release date of these studies?

    Answer: We expect the study funded by the Assistant Secretary of 
Planning and Evaluation in the Department of Health and Human Services 
(HHS) to be released shortly. We expect the study conducted by the HHS 
Office of Inspector General to be available in the next few months.

    Question: Included in the President's 2008 Budget is a $1 billion 
savings for 2008 and $10.235 billion over the 5 year period for 
``Improved Medicare Efficiency, Productivity, and Program Integrity.'' 
I agree that increasing Program Integrity is often a good investment. 
Would you please explain how you CMS calculates these savings? Does 
some portion of the remaining dollars reflect additional reductions in 
payments to providers? More specifically, how do you expect to you 
measure Medicare ``efficiency'' and Medicare ``productivity''?

    Answer: The President's fiscal year (FY) 2008 Budget indicates that 
administrative actions will be taken to encourage program efficiency 
and strengthen the long-term financial security of the Medicare 
Program. The President's Budget estimates cost savings of $1 billion in 
2008 and $10 billion over 5 years. The $10 billion in Medicare 
administrative savings can be achieved through a series of 
administrative actions that weed out inappropriate payments and 
maximize efficiencies in our provider payment systems. Areas where 
payment policies can be improved include: enhancing program integrity 
efforts and examining provider payments, including payments for acute 
care hospitals, home health agencies, inpatient psychiatric facilities, 
long-term care hospitals, and hospices. Specific policies will be 
proposed via the normal rulemaking cycles.

    Question: As you know, current law permits coverage of oncology 
drugs used off-label if they are supported by statutorily recognized 
compendia. Of the three recognized compendia, two are no longer 
functioning, leaving Medicare carriers with limited access to 
sanctioned information in determining coverage decisions for anti-
cancer therapies.
    In March of 2006, nearly a year ago, the Medicare Coverage and 
Advisory Committee met and recommended a revised compendia list. In 
December, Chairman Bill Thomas asked HHS to act as soon as possible to 
update the list of three compendia and to report by to Congress by the 
end of January on this matter. Can you report to us that you have been 
able to review this and are prepared to update the list?

    Answer: We believe that it is appropriate to create a process, 
incorporating public notice and comment, to receive and make 
determinations regarding requests for changes to the list of compendia 
used to determine medically-accepted indications for drugs and 
biologicals used in anti-cancer treatment as described in section 
1861(t)(2)(B)(ii)(I) of the Act. The FY 2008 proposed rule to update 
the Physician Fee Schedule proposes such a process.

                                 

    [Submissions for the Record follow:]
             Statement of American Association for Homecare
    Mr. Chairman, on behalf of the American Association for Homecare's 
more than 3,000 member locations serving Medicare beneficiaries in 
every state in the nation, we sincerely appreciate the opportunity to 
submit testimony before the Committee on Ways and Means Subcommittee on 
Health reviewing the President's Fiscal Year 2008 Budget with Acting 
CMS Administrator Norwalk.
    The American Association for Homecare (AAHomecare) represents all 
lines of service and therapy in the homecare community, including home 
medical equipment providers, respiratory therapy, infusion therapy, 
telemedicine, and rehab and assistive technology.
    AAHomecare is deeply concerned about and strongly opposes several 
provisions of the Administration's proposed 2008 budget that would 
weaken access to homecare for millions of older and disabled Americans.
    The Administration's proposal would heap new cuts on the nation's 
homecare sector by requiring reductions to payments for homecare 
equipment, therapies, and visits from home health agencies. The 
proposed budget includes particularly severe cuts to home oxygen 
therapy. These homecare reductions come on top of numerous other cuts 
and annual payment update freezes implemented in recent years.
    Homecare provides a clear path to more cost-effective care in 
Medicare and Medicaid. Homecare delivers value for every healthcare 
dollar, is clinically effective and preferred by patients and families. 
These proposed cuts serve only to hobble the health care infrastructure 
that our nation desperately needs.
Cuts to Home Oxygen Therapy
    AAHomecare opposes the proposal in the Administration's budget that 
would force Medicare patients to assume the burden of owning and 
managing medical oxygen equipment in their homes after only 13 months 
of rental.
    On February 5, the Association issued a statement objecting to the 
13-month provision along with the National Home Oxygen Patients 
Association and the National Association for Medical Direction of 
Respiratory Care, a physicians' group. The statement said, ``We believe 
the proposed change in payment methodology places an unfair, unsafe, 
and unrealistic burden on the beneficiary.'' The organizations are 
concerned that Medicare policy is increasingly at odds with the 
clinical needs of home oxygen therapy patients, as well as physicians' 
and home oxygen providers' ability to deliver optimal home respiratory 
care. (See full statement at www.aahomecare.org and attached.)
    The typical Medicare home oxygen beneficiary is a woman in her 
seventies who suffers from late-stage Chronic Obstructive Pulmonary 
Disease (COPD) with associated severe low levels of oxygen in her blood 
(hypoxemia). Approximately 15 million Americans have been diagnosed 
with COPD, and an estimated 12 to 15 million more remain undiagnosed. 
Medical oxygen is a highly regulated prescription drug. Because of 
services required for providing oxygen therapy, it is best suited to a 
continuing, uninterrupted relationship with a qualified home oxygen 
provider. Prior to the Deficit Reduction Act of 2005 (DRA), the home 
oxygen benefit in Medicare provided for rental as long as the 
prescribed oxygen therapy was medically required by the patient. Home 
oxygen has been the target of budget cuts for many years: Medicare 
reimbursement for oxygen therapy has been cut by nearly 50 percent over 
the past decade.
Access to Power Mobility for Disabled Americans
    The Association also opposes a provision in the Administration's 
budget that would ``establish a 13 month rental period for power 
wheelchairs.'' The Association believes that this change would reduce 
beneficiary access and increase costs to the Medicare program. 
Currently, Medicare permits a beneficiary to choose to purchase a power 
wheelchair when it is prescribed by a physician. When the beneficiary 
chooses to purchase a power mobility device, Medicare payment is made 
on a lump sum-basis.
    In October 2005, the Senate debated a provision to eliminate the 
first-month purchase option for power wheelchairs and decided to reject 
this policy change from the budget reconciliation package. The 
amendment was defeated based on the following reasons:

      Beneficiaries in need of power mobility devices suffer 
from long-term debilitating conditions that are not short-term in 
nature.
      Many power wheelchairs are custom-configured and 
individualized for the patient. These are not commodity items.
      Eliminating the first-month purchase option would 
severely curtail beneficiary access as the supplier will be unable to 
cover the significant up-front service costs that go into the provision 
of the most appropriate power mobility device to accommodate the 
beneficiary's needs.
      More than 95 percent of all power wheelchairs are 
purchased in the first month because beneficiaries who meet the 
coverage criteria have long-term life needs.
Payment Freeze Hurts Home Health Agencies
    The Association opposes the proposed five-year freeze (from 2008 to 
2012) to the Medicare market basket payment update for home health 
agencies and the proposed market basket reduction of .65 percent for 
each year thereafter. While healthcare inflation has increased annually 
at more than 6 percent, home health agencies have sustained a number of 
reimbursement cuts in recent years that have hurt their ability to 
integrate new technologies, hire and retain staff, and initiate 
advanced clinical protocols.
    Medicare home health providers are currently participating in a 
one-year collaboration with the Centers for Medicare and Medicaid 
Services to reduce the rate of hospitalization for Medicare patients. A 
reimbursement cut will reduce resources required to invest in 
telehealth and other health information technology to achieve 
transformational change in the quality of care and avoid unnecessary 
institutional costs for the Medicare program. In addition, the dramatic 
rise in fuel costs over the last two years has had a particularly 
negative impact on home health providers, whose nurses, therapists, and 
aides often have to drive great distances to provide health care 
services to patients in their homes.
    Secretary Michael Leavitt has called for greater use of home- and 
community-based care in Medicaid because ``it's not only where people 
want to be served, but it's radically more efficient.''
    The Association believes that the same principle should be applied 
to Medicare as well. Homecare, the most cost-effective, clinically-
effective, and consumer-preferred modality of care, constitutes only 
about 5 percent of the Medicare budget (1.8 percent for durable medical 
equipment and 3.6 percent for home health agencies), yet constitutes 
nearly 20 percent of the Administration's recommended cuts.
    AAHomecare appreciates the opportunity to present these comments 
for the record and for your consideration of the critical issues that 
confront the homecare community and the patients we serve.

Supporting Quality Health Care Services at Home
                              News Release

Contacts:
          Michael Reinemer, 703-535-1881 or 703-535-1881 (cell);
              [email protected]

          Walt Gorski, 703-535-1894 or 703-407-4865 (cell);
              [email protected]
Patients, Physicians, and Providers Oppose Cuts to Medicare Home Oxygen 
        Therapy in President's Proposed 2008 Budget

    ALEXANDRIA, VA, February 5, 2007--Today, a group of organizations 
representing home oxygen therapy patients, physicians, home oxygen 
providers, and oxygen system manufacturers issued a statement opposing 
provisions in the President's proposed 2008 budget that would threaten 
the home oxygen therapy benefit in Medicare.
    The group, which includes the American Association for Homecare, 
the National Association for Medical Direction of Respiratory Care, and 
National Home Oxygen Patients Association, strongly objects to a 
proposal in the 2008 budget that would force Medicare patients to 
assume the burden of owning and managing medical oxygen equipment in 
their homes after only 13 months of use.
    The statement says, ``We believe the proposed change in payment 
methodology places an unfair, unsafe, and unrealistic burden on the 
beneficiary.'' The entire statement can be viewed at 
www.aahomecare.org.
    The organizations are focused on chronic obstructive pulmonary 
disease (COPD) patients and their safe and effective respiratory 
management in the home. The group is deeply concerned that Medicare 
policy is increasingly at odds with the clinical needs of home oxygen 
therapy patients, as well as physicians' and home oxygen providers' 
ability to deliver optimal home respiratory care.
    The typical Medicare home oxygen beneficiary is a woman in her 
seventies who suffers from late-stage COPD with associated severe low 
levels of oxygen in her blood (hypoxemia). COPD is the leading cause of 
morbidity and mortality worldwide and is the only leading cause of 
death for which both prevalence and mortality are rising. COPD is a 
chronic, debilitating disease characterized by severe airflow 
limitation resulting from chronic inflammation of the airways, decrease 
in functional lung tissue, and the dysfunction of pulmonary blood 
vessels.
    ``The President's proposed budget significantly impacts citizens 
least able to manage ownership of respiratory medical equipment,'' said 
Jon Tiger, president of the National Home Oxygen Patients Association. 
``It leaves them without a network to ensure proper functioning of the 
equipment and to whom concerns can be raised. The proposal also removes 
the incentive for manufacturers to continually improve their equipment 
and will result in used prescription equipment ending up in the 
secondary market.''
    Tyler Wilson, president and CEO of the American Association for 
Homecare, stated, ``The proposed change to home oxygen therapy policy 
will hamper patients' access to the therapy and discourage investment 
in new oxygen technology. We oppose forcing ownership on the patient, 
which saddles the beneficiary with unnecessary burdens. Moreover, home 
oxygen has been the target of budget cuts for many years. Congress has 
reduced Medicare reimbursement for oxygen therapy by nearly 50 percent 
over the past 10 years.''
    Approximately 15 million Americans have been diagnosed with COPD, 
and an estimated 12 to 15 million more remain undiagnosed. COPD costs 
the U.S. economy more than $18 billion per year in direct medical costs 
and an estimated $11 billion in indirect costs.
    Medical oxygen is a highly regulated prescription drug. Both 
medical oxygen and the systems that deliver oxygen require a 
prescription from a physician. Because of services required for 
providing oxygen therapy, it is best suited to a continuing, 
uninterrupted relationship with a qualified home oxygen provider. Prior 
to the Deficit Reduction Act of 2005 (DRA), the home oxygen benefit in 
Medicare provided for rental as long as the prescribed oxygen therapy 
was medically required by the patient.
    The patient, physician, and provider organizations endorse the new 
national COPD public education campaign launched by the National Heart, 
Lung, and Blood Institute, which is designed to encourage better 
diagnosis, treatment, and awareness about COPD in order to spare 
patients the suffering and costs of this disease. (Visit the campaign 
website at www.LearnAboutCOPD.org.)
    The American Association for Homecare (AAHomecare) represents all 
lines of service and therapy in the homecare community, including home 
medical equipment providers, respiratory therapy, infusion therapy, 
telemedicine, and rehab and assistive technology. AAHomecare represents 
more than 3,000 member locations in all 50 states.

                                 
                   Statement of Heart Rhythm Society
    The Heart Rhythm Society (HRS) thanks you and the Ways and Means, 
Subcommittee on Health for your continued hard work and leadership in 
recognizing the importance of establishing a sustainable Medicare 
physician reimbursement system, so that the current flawed SGR payment 
formula will not hinder health care providers from providing high-
quality care to the nation's Medicare beneficiaries. We appreciate the 
opportunity to submit testimony regarding the President's Fiscal Year 
2008 budget proposal.
    HRS is the international leader in science, education and advocacy 
for cardiac arrhythmia professionals and patients, and the primary 
information resource on heart rhythm disorders. We are the preeminent 
professional group, representing more than 4200 specialists in cardiac 
pacing and electrophysiology. HRS serves as an advocate for millions of 
American citizens from all 50 states, since arrhythmias are the leading 
cause of heart-disease related deaths. Other, less lethal forms of 
arrhythmias are even more prevalent and account for 14% of all 
hospitalizations of Medicare beneficiaries.\1\
    The Heart Rhythm Society wishes to express deep disappointment with 
the President's FY 2008 Budget, since it does not address the broken 
Medicare physician payment system, which will cut physician payments by 
10 percent next year and does not provide payments in line with rising 
practice costs. The numbers speak for themselves. Over the next eight 
years, Medicare payments to physicians will be slashed nearly 40 
percent.\2\ Practice costs will increase about 20 percent over that 
same period.\3\ Without adequate funding, physicians cannot make needed 
investments in health information technology and quality improvement 
efforts to ensure patient access to high quality health care. Decreased 
funding for Medicare payments to physicians would detrimentally affect 
Americans' ability to receive critical cardiac treatment.
    Only physicians are subjected to the flawed Sustainable Growth Rate 
(SGR) formula, not other health care providers, such as hospitals or 
skilled nursing facilities. The SGR formula creates negative updates 
tied to the fluctuations of the Gross Domestic Product (GDP). These 
fluctuations, however, have very little correlation to the actual cost 
of providing patient care. Additionally, the SGR does not take into 
account the increased number of Medicare beneficiaries, as well as 
expanded coverage of services and evolving medical technology that 
improves the quality of care. Physicians should receive positive 
updates that reflect practice cost increases, like the 2006 rates 
increases for home health providers (+2.5%), hospitals (+3.7%), 
Medicare Advantage plans (+4.8%) or nursing homes (+3.1%) \4\
    In order to preserve Medicare patients' access to quality heart 
rhythm care, HRS strongly urges Congress to include provisions in the 
FY 2008 budget to permanently replace the SGR with a system of payment 
updates, reflecting increased practice costs. If you have any questions 
or would like additional information, please contact Amy Melnick, Vice 
President, Health Policy. Thank you again for the opportunity to submit 
testimony.

                                  
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