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40–540—PDF 2007

S. HRG. 110–324

PRESIDENT’S FISCAL YEAR 2008 BUDGET

(MEDICAID AND MEDICARE PROPOSALS)

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

FEBRUARY 7, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

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

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

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 4

ADMINISTRATION WITNESS

Leavitt, Hon. Michael O., Secretary, U.S. Department of Health and Human

Services, Washington, DC ................................................................................... 7

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Bingaman, Hon. Jeff:

Prepared statement .......................................................................................... 37

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 4

Prepared statement .......................................................................................... 39

Leavitt, Hon. Michael O.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 43

Responses to questions from committee members ......................................... 49

Roberts, Hon. Pat:

Prepared statement .......................................................................................... 81

Salazar, Hon. Ken:

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

Smith, Hon. Gordon:

Prepared statement .......................................................................................... 84

Thomas, Hon. Craig:

Prepared statement .......................................................................................... 86

(III)

(1)

PRESIDENT’S FISCAL YEAR 2008 BUDGET

(MEDICAID AND MEDICARE PROPOSALS)

WEDNESDAY, FEBRUARY 7, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:03 a.m., in

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

(chairman of the committee) presiding.

Present: Senators Rockefeller, Bingaman, Kerry, Wyden, Schumer, Stabenow, Cantwell, Salazar, Grassley, Hatch, Snowe, Kyl,

Smith, and Roberts.

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

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The committee will come to order.

The prophet Ezekiel admonished his nation’s leaders: ‘‘Woe to the

shepherds of Israel. The weak you have not strengthened, nor have

you healed those who were sick, nor bound up the broken.’’

Mr. Secretary, you at the Department of Health and Human

Services and we at the Committee on Finance have a similar duty.

We have a duty to be good shepherds. We have a duty to strengthen the weak, to heal the sick, and to bind up those who are broken.

The budget is where we do that. The budget answers the questions: will we strengthen the Nation’s poor, will we heal children,

and will we care for the Nation’s elderly?

This year, Congress has a once-in-a-decade opportunity to

strengthen the health of our Nation’s children, improving and expanding the State Children’s Health Insurance Program, or CHIP,

the committee’s top health care priority this year.

Here are my five priorities for CHIP. First, we must give CHIP

enough money to maintain coverage for those whom it already

serves. Second, we must work to reach the 6 million uninsured

children now left behind, those who are eligible for CHIP or Medicaid, but not enrolled. Third, we must support State efforts to use

CHIP to cover more children. Fourth, we must improve the quality

of health care under CHIP. Fifth, we must not increase the number

of Americans without health insurance.

The administration’s budget would not achieve these goals. The

budget for CHIP is not that of a good shepherd. The budget provides for $5 billion in new funding for CHIP, and that is only about

a third of what we will likely need just to maintain current services.

2

Equally troubling are the budget’s policy changes. Many States

are employing CHIP to expand access to all children, but the administration’s policies would undermine these efforts. The budget

would do so by lowering funding rates for children and families

with incomes more than twice the poverty level.

Today, a family of three with an income of twice the poverty level makes a little more than $34,000 a year, but an average family

health care plan costs about $12,000. The budget would put health

coverage out of reach for low-income working families. In effect, the

budget would tell them that they should spend more than a third

of their income on health insurance.

The budget’s proposals threaten the remarkable success of the

CHIP program. If Congress were to enact these proposals, more

than one million children and 600,000 of their parents, caretakers,

and other low-income adults could lose health coverage.

In my own State of Montana there are more than 37,000 uninsured children, and across the Nation, nearly 9 million, but the administration’s proposals would do little to help States respond to

this growing crisis. It says to States like Montana that are trying

to do the right thing and expand coverage: we are not with you.

And by short-changing CHIP on funds and lowering the Federal

share for children above 200 percent of poverty, this budget could

actually contribute to even more children becoming uninsured.

The administration’s budget would also make it harder to heal

the Nation’s poor. I have deep concerns about the budget’s more

than $26 billion in Medicaid cuts.

The budget calls for $14 billion in legislative changes to Med- icaid. That is twice the size of the $7 billion of Medicaid cuts that

Congress narrowly approved in the last Congress, after a bitter

fight, in the Deficit Reduction Act. Cutting Medicaid again so

much, so soon, is too big a hit for this critical safety net program.

And the administration’s budget would make it harder to care for

the Nation’s elderly. The budget offers drastic across-the-board cuts

in Medicare payments to providers, but those cuts fall only on feefor-service programs.

The budget would cut payment updates for hospitals, nursing

homes, home health care agencies, you name it, by 1 percent indefinitely. This would undermine access to care in a traditional program, especially in States like Montana.

Rural areas would be most hurt by sustained cuts to hospitals.

Why? Ninety-five percent of Medicare beneficiaries, at least in my

State, choose fee-for-service—they do not have the option of other

plans—and I will not turn my back on these seniors.

In addition, the budget exempts the Medicare Advantage program from cuts. The budget shaves 1 percent off of traditional

Medicare forever, but the budget does not touch Medicare Advantage plans.

This policy lends credence to those who believe that the administration is attempting to privatize entitlements. The American public has soundly rejected that ideology, witness Social Security privatization.

I share the present concern about rapidly rising health care

spending. Health care costs are consuming more of the Federal

budget each year, and they undermine our Nation’s economic leadVerDate 11-MAY-2000 14:26 Mar 25, 2008 Jkt 095484 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 40540.000 SFIN1 PsN: SFIN1
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ership. For the sake of our Nation’s elderly and disabled, we need

to secure the long-term sustainability of Medicare. I am disturbed

by the administration’s approach.

Instead, we should roll up our sleeves and enact targeted

changes where Medicare is overpaying for products and services. I

have been working to identify those areas. Working together with

my colleagues on both sides of the aisle, we can make a stronger,

more efficient, and more sustainable Medicare.

And the administration has not been a good shepherd for Medicare’s prescription drug program. The only change the budget proposes is to raise premiums for high-income beneficiaries. I helped

to write that law, that is, to create the Medicare drug benefit, and

I still support it. But the law is not perfect, and neither was its

implementation.

I believe this committee should work together to make modest

improvements to the drug benefit. The program should be more

simple, more accessible for all Medicare beneficiaries, and we must

do a better job enrolling beneficiaries where eligible for the lowincome subsidy.

So, Mr. Secretary, you at the Department and we here at the

committee have much work ahead of us. Let us work together to

strengthen the Nation’s children. Let us work together to heal the

Nation’s poor. Let us, together, work to care for the Nation’s elderly. Together, we have the opportunity to be the good shepherds

that our duty and Nation require.

One more final point here. I will tell you what is so disturbing

about all of this. This budget cuts. It cuts drastically. I guess the

rationale is, well, we have entitlement growth in Medicare and

Medicaid, so therefore Medicare and Medicaid should be cut. That

is the rationale. It is attacking the symptoms, not the problems.

Why are Medicare and Medicaid going up so much? Why? There

are a lot of reasons. One is a big increase in health care costs for

everybody, those on Medicaid, those on Medicare, private pay, everybody.

We, therefore, should focus on the underlying causes, not so

much the symptoms. I know it is difficult, but I think the administration will be doing this country a much greater service working

with this committee and other committees in the Congress to find

ways to lower the underlying causes of the increases in Medicare

and Medicaid rather than the symptoms, just lopping and cutting

off. Lopping and cutting off is going to transfer. It is going to transfer costs someplace else and push up the balloon someplace else,

private pay, you name it. If you drop Medicaid, you go to the emergency room. People are getting cared for. It is uncompensated care.

It is just not solving the problem here. It is just pushing it off to

somebody else.

It looks like the administration is trying to promote an ideology

that is to privatize. Rather than attempting to address the underlying causes, you are addressing the symptoms, and you are doing

it in a way that privatizes. That is what it looks like, and that is

what I find disturbing.

Rather, let us address the underlying causes together in a nonideological way so that we can care for people who need to be cared

4

for and do even greater service by cutting the underlying costs for

health care.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. Thank you very much for holding this

hearing, and, taking up where the Chairman left off, I would simply say that I think the administration is trying to do some things

in this area with health IT, with the efforts through health savings

accounts, with the efforts in the most recent budget of the health

insurance program, the taxing of it and using the money that

comes from that to help people who do not have health insurance.

There are a lot of other things that need to be done, but I think

you are going down that direction. Yet, we still have a very major

problem in Medicare and Medicaid. As encouraging as the shortterm fiscal outlook may appear, we cannot ignore the discouraging

long-term fiscal outlook for these programs.

Earlier this year we had the Federal Reserve head, the Government Accountability Office, the Congressional Budget Office, that

have all testified before another committee, the Senate Budget

Committee, on the impact of entitlement spending. People like

General Walker are going all over the country with another group

of people to bring up the siren call of the problems of entitlement

spending.

So, I think that Senator Baucus is right about the underlying

causes. We can deal with the underlying causes, but we still have

terrible entitlement problems, although solving those underlying

problems will help solve the Medicare and Medicaid problems.

So we have had all these people raising these alarms about Medicare and Medicaid. In reality, these proposals only slow the growth

of Medicare by 2012 by less that one percentage point.

If Congress enacted all of the Medicaid proposals, it would

change the annual growth of Medicaid merely from 7.2-percent

growth to 7.1-percent growth, one-tenth of one percent.

Now, there is an outcry, and I know how difficult is to deal with

this, because we dealt with it just 12 months ago, to finalize a proposal to save, what, X number of dollars, $39 billion, maybe, over

5 years, which is kind of a spit in the ocean, and it was difficult.

So it is very difficult to do.

But if the average Iowan were hearing us debate about whether

we ought to grow Medicaid by 7.2 percent or 7.1 percent and that

we were fussing over one-tenth of one percent, they would say,

‘‘You guys do not live in the real world. What planet did you come

from?’’

Yet, when they would say that, they would wonder whether we

were really taking seriously the budget problems, and they probably would not understand how difficult it is, at least politically difficult.

But it still is a spit in the ocean compared to what we are talking

about. It is clear, as baby boomers become eligible, that the situation is going to get much greater all the time and that Medicaid,

Medicare, and Social Security are already 40 percent of the Federal

expenditures and 8 percent of GDP. Many of us here will recall,

5

last year there were efforts to modernize Social Security to help its

long-term viability, and we did not get very far in doing that because it is so politically sensitive.

So here we are a year later. I certainly hope that we can work

in a bipartisan way to address how entitlements such as Medicare

are taking up more and more of the Federal budget. Over the

years, efforts have been made to slow the rate of growth of entitlements.

Last year, the trustees of Medicare made an official determination of ‘‘excess general revenue Medicare funding,’’ as Congress required in the Medicare Modernization Act, as we call it. If the

trustees make a similar determination this year, the Medicare

Modernization Act requires the President to propose legislation to

address entitlement spending in next year’s budget.

During last year’s committee hearing on the fiscal year 2007

budget, I do not think that I shocked anyone by saying that any

more reductions of a significant scope could be difficult to achieve

that year, especially after we had just passed the Deficit Reduction

Act.

I do not think I will shock anyone today by saying that any more

reductions of significant scope will be very difficult. I think, as you

hear the Chairman, you know just how difficult that is going to be.

One area we will probably need to address this year is physicians’ payments. That SGR is unsustainable over a long period of

time and is a flawed formula.

A key priority of the Senate Finance Committee this year is

going to be the reauthorization of the SCHIP program. I want to

associate myself with the remarks of the Chairman that he made

during the SCHIP hearing last week that puts SCHIP authorization at the top of the agenda in the health area of this committee.

I am interested in learning more about what the President’s plan

is to reauthorize SCHIP and look forward to working in a bipartisan manner, and with the White House, to accomplish that.

The President’s budget achieves a substantial portion of its savings from Medicare provider payment reductions. Many of these

recommendations go further than what MedPAC suggested.

In addition to looking at payment updates, I continue to strongly

support linking provider payments to quality care as a way to

make sure that Medicare is a better purchaser of health care services. Today, Medicare rewards poor quality care. This is just plain

wrong, and we need to address that.

I also appreciate President Bush’s leadership in putting forward

a plan to help more Americans get health insurance. I have addressed that as part of something very important to help the underlying problem that the Chairman has spoken about, because

there are 47 million Americans who do not have health insurance.

There is no one-size-fits-all solution to the uninsured problem,

because people are uninsured for a lot of different reasons. So, we

need new strategies to solve that persistent problem. The President’s proposal is a good step in that direction, but even the President would say it does not take care of the needs of all of the uninsured.

6

We need to make sure that those benefits are being directed

wisely, getting the most bang for the taxpayers’ buck, as well as

the private dollars that are spent on health care.

A plan like the President’s could help level the playing field by

extending the tax incentives for purchasing health coverage to selfemployed and those who purchase health coverage on their own.

It also would make health insurance portable, which is something that is very necessary in this modernized, fast-moving economy that we have, not only in the United States but all over the

world.

Before I conclude my opening remarks, there is one more issue

that I would bring to the attention of the Secretary. As Chairman

of the committee in the 109th Congress, I made many requests of

HHS and its related agencies for information and access to people

and numerous documents.

Many of the responses to those requests remain long overdue.

For example, I discussed with you our longstanding request for a

privileged log of the Ketek matter, and I still have not received

one. At this point in time it is my understanding that your staff

has been instructed to ignore my outstanding committee request,

since I am no longer Chairman of the committee.

Consequently, I formally sent a letter to your office outlining my

concerns in hopes that some light can be shed on the so-called longstanding policy—and I question whether or not it is longstanding

policy regarding responses to outstanding Congressional requests

that were made prior to a change in leadership, and what does the

change in leadership have to do with things that are made like

that?

In fact, just last week I was advised that there was certain information that I would not be provided. I had my staff request a letter

articulating the so-called policy in anticipation of this hearing, but

yet again I did not receive what I requested.

I think it is important for members of both parties to understand

why the administration believes it can simply ignore legitimate requests from Congress as we attempt to conduct oversight.

We cannot, as members of Congress, successfully carry out our

constitutional responsibilities to conduct oversight when Congressional requests for access to the executive branch are disregarded.

Mr. Chairman, I am done.

The CHAIRMAN. Yes. Thank you, Senator.

Secretary Leavitt, obviously the last statement by the Senator

from Iowa is one I know you will pay attention to. Senator Grassley—in many respects, we are co-chairmen. Senator Grassley, as

Chairman, made that request. Many times he has mentioned it to

me. He is getting no response.

I think it is an outrage, frankly. I cannot conceive of a situation

where the administration, the Department, would not answer the

Chairman’s request. I am asking you to honor his request and to

provide the information to him, and I expect a very timely response.

All right. Mr. Secretary, proceed.

7

STATEMENT OF HON. MICHAEL O. LEAVITT, SECRETARY, U.S.

DEPARTMENT OF HEALTH AND HUMAN SERVICES, WASHINGTON, DC

Secretary LEAVITT. Thank you.

Mr. Chairman and Mr. Grassley, members of the committee, may

I tell you that I am, this morning, moved by your expression from

Ezekiel. This is a compassionate Nation.

I believe there is a view, both in the minds and hearts of our people, that we should care for the sick and the downtrodden, and I

would like to begin this hearing by telling you the deep privilege

I find it to administer the efforts of this Nation in that respect. It

is also clear to me that we share the desire to do that, and our purpose today is to talk about how best to accomplish it.

Mr. Chairman, I submitted an opening statement. With your permission, I would like to just submit that and move to perhaps a

little different approach that I think might be helpful in terms of

our discussion, and get to your questions more quickly. Would that

be permissible?

The CHAIRMAN. Yes. Your statement will be included.

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

Secretary LEAVITT. This is a large and a complex budget. It took

hundreds of people the better part of the year to assemble. There

are tens of thousands of different decisions that go into it; $700 billion is a lot of money.

I thought it might be helpful for you to know a little bit about

the guidance that I provided to those who were working on it, in

terms of the principles that should be followed, and I would like

to be able to address many of your questions today in the construct

of those principles. I think it will give you some insight into the

philosophy that we attempted.

Obviously the President gave us guidance. He made clear he

wanted our responsibility to heal the sick and care for the downtrodden to be undertaken. He also recognized the need for this Nation to be a prosperous Nation and for our economy to be strong

in order for us to meet those needs and to step in where hands

droop down.

He wants, obviously, for our taxes to be low and the taxpayer

money to be used as well as it can be used. He has laid out an objective and a priority to balance our budget by the year 2012.

So what you will see here today is a budget that moves towards

a balanced budget by 2012, and it has required me, as the Department head, to make some very difficult decisions, to balance priorities, to come with competing noble causes and to make decisions

that at times were leaving things that, in otherwise different circumstances, I may have desired to include.

There are new matters that are considered in this budget. I gave

my colleagues four principles to look for in anything new that went

into this budget. Here they are.

The first is, I wanted to make sure that we had high-demand,

highly efficient programs taken care of. You will see, for example,

the Indian Health Service and Head Start were protected from any

major reductions. You will see CHIP. We agree, Mr. Chairman,

that CHIP needs to be reauthorized. I want to make clear to you

8

that we have no intention in our policy that would remove existing

children or existing adults from SCHIP. We intend that they continue. We do intend to focus our interests on CHIP with children,

and I am sure we will get into that more later, but I want to assure

you that that is part of this budget.

The second principle was presidential initiatives. The President

made some commitments that we need to keep. One is for community health centers, for example. The President committed that

1,200 new community health centers would be built. This budget

would complete that. Another important initiative was his commitment on HIV-AIDS and on pandemic. All of those are included in

this budget.

The third principle is, there are pressing new problems that are

not dealt with in existing budgets. I am deeply concerned, as I suspect members of this committee are, about FDA and the need for

us to improve drug safety and to speed the approval of generics.

We have included provisions that were new to this budget. Then

there are some proposals that I think get at the heart of what you

were referring to in our need to reduce health care costs overall.

One is health information technology. We believe we have not funded that adequately. It is right at the center of all that we want to

achieve in cost reduction.

Fraud and abuse. I have been Secretary now for 2 years, and it

has become clear to me we can do better there. As we go through,

I can see my time is up.

The CHAIRMAN. You can speak a little longer.

Secretary LEAVITT. Well, I would also like to tell you some of the

principles that I gave my colleagues as guidance on how we would

deal with competing priorities. You will see places in this budget

where one-time funds have not been repeated.

One example of that is the Centers for Disease Control. We have

had a quite ambitious construction initiative there. Much of it is

completed, so we have not repeated it. That will look as though we

are reducing funds, but we are simply taking one-time funds off the

table that were spent and completed.

The second area would be an emphasis that I have asked them

to place on direct services rather than infrastructure. You will see

places where—I will give an example. Health professions. In some

of our advanced health professions you will see some reductions

there, but you will also see increases in community health centers.

That is an example of, I want to fund the services, not just infrastructure when I am having to choose between the two.

A third principle will be looking for grant activities that have

been completed. An example of that. At the National Cancer Institute, it is the largest investment in all of our centers at NIH, but

there is a slight reduction. But what it does not show is that we

are moving those monies to have an increase in the number of new

grants because we are eliminating non-competing grants.

A fourth principle is eliminating programs whose purposes are

addressed by multiple agencies. With the size of HHS and the size

of this government, it is not unusual to find problems that are

dealt with in many different operating divisions, so I have attempted to consolidate those.

9

A good example that I think we talked a little bit about last year

was the Urban Indian Services clinics. I have again proposed that

we consolidate those with the community health centers. They are

serving similar populations, and in many cases we have two clinics

in the same community that could be served by one.

A fifth principle is looking for under-performing programs. We

have looked closely to determine if they are measurable, what the

metrics are, and so in some cases you will see a program that has

been reduced because of our inability to measure it or our suspicion

that it is under-performing.

The sixth principle is that we look for reductions in entitlement

growth. You made reference to this. I would just like to say that

I am here as Secretary of Health and Human Services, but one of

the duties that comes to me as a member of the Cabinet is serving

as a trustee of Social Security. The areas that you see reduced

here, there is no amputation, this is simply losing weight.

The CHAIRMAN. You do not mean Social Security.

Secretary LEAVITT. I am sorry. And Medicare. That is what I

meant to imply. Medicare. The entitlements. We have gone through

each of the areas of the entitlement, and to do exactly what you

suggested we should do.

Are there places we could reduce the growth where we would not

have an impact on the beneficiaries directly? I think we found

many of those. And if you add them all up, you can say there is

a lot of money there. And there is. In fact, if you project forward

5 years, there is a lot of money.

The sooner we do these things, the more impact we will have to

keep it sustainable. If we were able to do all the things that this

budget has proposed, we would increase its sustainability from

2018 to 2022, so it is 4 years.

But I think as we go through these—I hope we can go through

them one at a time and not just look at them in aggregate and assume that there is some sort of cut. This is a very deliberate effort

to try to find places where we could slow the growth.

Mr. Chairman, I know that there are many questions, and I am

anxious to have a direct dialogue with you about this.

The CHAIRMAN. Sure. I appreciate that. Thank you, Mr. Secretary.

I am just concerned about the number of children who might lose

coverage under the administration’s plans. For example, the administration has only prescribed about $5 billion. Most analysts

think it is going to take $15 billion just to maintain current coverage—$13, $14, $15 billion—that is, about three times what the

administration is suggesting.

Second, the administration is shortening the time period in

which States have to spend their funds from currently 3 down to

1 year, and also lowering the match for those States covering above

200 percent of poverty. There are other areas here, too.

With all of that, it is more likely there is going to be less coverage for kids—kids will be dropped off—rather than more. Less

money, lower match, less time. That sounds to me like there will

be fewer kids covered, not more.

Secretary LEAVITT. Let me put this into the construct. There is

a widely held aspiration—I am sure you share it, the President

10

shares it—of having every American have access to an affordable

basic insurance policy.

CHIP is a very important part of that. We believe that it will take $15.4 billion. Let me reconcile those numbers. There is $5 billion currently in the budget. We would increase that by 4.8 billion

new dollars, and then there is an additional $4 billion that remains

on the previous allocations. Our policy would be to not have any

children who are covered lost from coverage, nor would we have

any adults who are currently covered lost from coverage, but on a

going-forward basis we do not believe that CHIP should be the vehicle to cover adults. We think that ought to be a children’s

program——

The CHAIRMAN. I appreciate that.

Secretary LEAVITT [continuing]. And we ought to continue to

build new opportunities.

The CHAIRMAN. Right.

Secretary LEAVITT. And we have proposals that I think will——

The CHAIRMAN. Yes. That may be your policy, but it looks like

it is not going to be the effect. Your policy is not to have any more

uninsured kids, but the effect is going to be more uninsured kids

for the reasons I just indicated. And I am not talking about parents

at this point, I am just talking about kids.

Secretary LEAVITT. We are committed to make certain, Senator,

that no child who is currently insured——

The CHAIRMAN. And how are you going to do that? What are you

going to do for those States that currently cover above 200 percent?

Secretary LEAVITT. We are committed to assure that no child

who is currently insured under CHIP loses coverage under the

budget.

The CHAIRMAN. But you are shifting the cost onto the States if

they want to, and some States are strapped. Very strapped.

Secretary LEAVITT. We do not believe that should, or would, happen. We also believe that there is a need to work with every State

to assure that not only children are insured, but we would pursue

policies that would allow us to give access to a basic affordable insurance policy to every American, including children and their parents.

The CHAIRMAN. I will not belabor the point here, but it looks to

me, just looking at the numbers, that the effect is going to be fewer

kids, not more.

The second question. You have all these cuts in Medicare. Why

not Medicare Advantage? Many analysts say that is where the

money is. That is where the fat is, not fee-for-service, but Medicare

Advantage. It just seems to me, at the very least, it ought to be

an across-the-board cut. But, rather, the administration is covering

fee-for-service but not Medicare Advantage. That seems a little odd.

Why?

Secretary LEAVITT. Senator, you referenced your concern that

Medicare Advantage was about privatizing the entitlements. May

I suggest that Medicare Advantage is about integrating care, it is

about finding more efficient care.

What we know is, if we have a person have all of their care in

an integrated way, that ultimately the cost savings are substantial.

We believe there are good policy reasons for us to be moving toVerDate 11-MAY-2000 14:26 Mar 25, 2008 Jkt 095484 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 40540.000 SFIN1 PsN: SFIN1
11

ward integrated care, and that is what Medicare Advantage provides.

The CHAIRMAN. Which is a private plan.

Secretary LEAVITT. Well, it is integrated care. Our goal is to find

a way to integrate care. That saves money, and it means that we

are able to provide better care for more people. It has been a big

success. We have 7 million people who are now enrolled, and we

hope it will grow.

The CHAIRMAN. I understand. But there are many who think

that they are reimbursed at a rate that they do not need. I do not

know if it is MedPAC or others who have so said, but I have seen

many, many analysts say that they are, in effect, getting more than

they need.

I have not seen any analyst who says they are not getting more

than they need. If you are going to cut somebody who is certainly

not getting more than they need, that is, fee-for-service and hospitals, why in the world are you not also cutting Medicare Advantage?

Secretary LEAVITT. We have clearly adopted a policy of enhancing the amount of integrated care that occurs, and we put into

place a means by which we could expand that. In the law already

are ways in which, over time, those incentives that we created to

build that program will be eliminated. But for the time being, it

is important that is available everywhere, even in rural areas, even

in Montana.

The CHAIRMAN. Medicare Advantage?

Secretary LEAVITT. Yes.

The CHAIRMAN. There is not much.

Secretary LEAVITT. Well, we want to make——

The CHAIRMAN. I do not know of any.

Secretary LEAVITT. We want there to be more. Important to that

is the advantage that you have referenced.

The CHAIRMAN. All right.

Secretary LEAVITT. The second thing that we want to make sure

of is that we have the ability to sustain it and that it grows, and

we think it will and that it will be good for the overall system.

The CHAIRMAN. Thank you, Mr. Secretary.

Senator Grassley?

Senator GRASSLEY. Yes. Thank you, Mr. Chairman.

Since the transcript of this record or the transcript of this hearing does not show nods of heads, I want to make clear that when

the Chairman admonished you to answer my letters you nodded

‘‘yes.’’

Secretary LEAVITT. Mr. Chairman, I would like to respond directly to the challenge and important statement that you made,

and make certain that my assent is understood. There are historic

disagreements between the branches of government. I find myself,

as a Cabinet Secretary in the executive branch, dealing with policies that were established long before I was there and on disputes

that were long before.

Senator GRASSLEY. You do not have to put that on the record. It

is on the record elsewhere. That is not the issue. The issue is, those

things aside, whether or not I get answers to my questions, that

I do not get answered because I am a Ranking Member as opposed

12

to being Chairman. That is the issue. You nodded ‘‘yes’’ to the

Chairman that you were not going to discriminate whether Chuck

Grassley is Ranking Member or Chairman. That is what the Chairman asked you to do.

Now, all these other issues, we can argue about those. We were

arguing about those when I was Chairman, so we are not going to

argue about those when I am Ranking Member. There is just another excuse given by your people in e-mails, that I am not Chairman any more so my questions do not have to be responded to.

Secretary LEAVITT. I know nothing about those e-mails, nor do I

know about a policy that would differentiate between you as Ranking Member and——

Senator GRASSLEY. Well, then you do not know what is going on

in your Department, and I would like to inform you. But the Chairman knows, and the Chairman says that, if that is what we are

receiving from your Department, he is saying that I ought to get

an answer to the same inquiry whether I am Chairman or whether

I am Ranking Member. I think that is what the Chairman has

said.

The CHAIRMAN. Let me just add in here, Mr. Secretary, many

times Senator Grassley, over the last year, discussed this, his frustration at not getting responses as Chairman of the Finance Committee to letters that he has sent to the Department. I was stunned

that he was not getting responses. For me, I do not care whether

he is a Ranking Member, a new member of the committee, or who

he is. I expect him to get those answers.

Secretary LEAVITT. I do not believe our longstanding disagreement on what is appropriate for the executive branch to advance

to the legislative branch has anything to do with who the Chairman is or the party. These are disputes that I am following as best

I can, the policies of the executive branch, and I will continue to

do. I want you to know, both of you—all of you—that I view oversight as an important and legitimate part of government, and that

we will do all we can to respond within the context of the policies

that deal with the ongoing struggles that go back to 1787 between

the executive branch and the legislative branch.

Senator GRASSLEY. I hate to spend my 5 minutes educating you

on what is going on in the Department.

The CHAIRMAN. You get another 5.

Senator GRASSLEY. But I can tell you this. Since I am Ranking

Member, from the FDA we got a statement that we had to have

a letter from the Chairman. The Chairman signed a letter for the

request.

Then we later were told, well, if we are going to interview the

people we want to interview, that the Chairman would have to

have somebody there present while the questions were being asked

by my staff. Now, there is no point of putting his staff to that trouble. They have enough work to do on their own.

Those are impediments that are unexplainable. They do not meet

the common sense test. They do not meet the test of transparency

in government. We are a democratic government, and we ought to

function like this. The checks and balances ought to function the

way the Constitution intended they function. You can have all the

13

legal arguments you want, but this additional one is nothing but

harassment that ought to end.

Secretary LEAVITT. Senator Grassley, we support democracy, we

support transparency.

The CHAIRMAN. Do you support answering the letter? That is the

question.

Secretary LEAVITT. We will not discriminate between any member of the parties.

The CHAIRMAN. That is not the issue. This committee expects a

timely answer to the Senator from Iowa.

Secretary LEAVITT. Thank you. I acknowledge that. You need to

know that the answer will not come from me, it will come other

places in the executive branch, because this is not a policy I set.

The CHAIRMAN. Now, could you translate that, please? I do not

know what that means.

Secretary LEAVITT. What that means is, there are longstanding

executive branch policies on what goes forward to a legislative request, and I am in a position of following those guidelines. I will

do the best I can to give you that.

Senator GRASSLEY. We have requested those in writing, and we

cannot get those policies in writing.

Secretary LEAVITT. I will do my best to——

The CHAIRMAN. This is pretty serious, Mr. Secretary.

Secretary LEAVITT. I understand. I understand.

The CHAIRMAN. Quite serious.

Secretary LEAVITT. If I were in a position to provide an answer

to this, I would.

The CHAIRMAN. And I expect an answer from you to Senator

Grassley.

Secretary LEAVITT. I will do my best.

The CHAIRMAN. A response.

Secretary LEAVITT. I will do my best.

The CHAIRMAN. Thank you.

Senator ROCKEFELLER. Can I just take this off my time?

Senator GRASSLEY. Sure.

Senator ROCKEFELLER. Mr. Chairman, if the Secretary says that

there are longstanding policies and that he cannot change those,

and therefore there is no use to write Senator Grassley a letter, I

think anybody who does not answer Chuck Grassley’s mail is in for

a very, very hard life.

Secretary LEAVITT. I have experienced part of that.

Senator ROCKEFELLER. Yes. Chuck Grassley, when he is unhappy, is——

The CHAIRMAN. Well, it is not just Chuck Grassley.

Senator ROCKEFELLER. I know that. But your idea of saying since

others have set the policy, that therefore you cannot do anything

about it, it feeds into a question that I am going to start off with,

what I am going to start off with now, which is, what is your role

up there?

The CHAIRMAN. Who are you?

Senator ROCKEFELLER. Do you not fight for the right to be courteous to a co-chairman of the Finance Committee?

Secretary LEAVITT. The issues that we are dealing with today

deal with matters related to criminal investigations which involve

14

the Justice Department. Therefore, I do not handle criminal investigations.

Senator ROCKEFELLER. But then, why could you not write him

and say that?

Secretary LEAVITT. I have advocated, and will continue, and I

will do my best to respond.

Senator ROCKEFELLER. You mean you cannot, as Secretary of the

largest—is it not the largest, except for the Department of Defense,

or larger than the Department of Defense—budget, yours, the largest in the Nation, that you cannot answer in a letter? Who is stopping you?

Secretary LEAVITT. Matters that deal in the areas that I have described are coordinated with the Justice Department. Senator

Grassley and I have had conversations about this, and he has dealt

with the Attorney General directly about it, and I am confident we

will continue to do.

Senator GRASSLEY. First of all, the inference is that we are trying to get into a criminal investigation, and that is not true. We

are not trying to. So let us go on here.

I am trying to ask some questions here in the 5 minutes that the

Chairman gives me——

The CHAIRMAN. Go ahead. You have 5. It starts now.

Senator GRASSLEY [continuing]. That try to be friendly to the administration.

The CHAIRMAN. You can start now.

Senator GRASSLEY. All right. But it makes it very difficult under

these circumstances to do anything that is friendly with anybody

in this administration if I cannot just get very basic information.

But let us go, and I will try to be friendly. [Laughter.]

Secretary LEAVITT. And I will try to be responsive, sir.

Senator GRASSLEY. In regard to the budget and entitlement programs, we have had a lot of people, including yourself, who have

said that we have to take these entitlement problems more seriously than what Congress has.

Ben Bernanke said this: ‘‘If early and meaningful action is not

taken, the U.S. economy could be seriously weakened, with future

generations bearing much of the cost.’’

Do you agree with Mr. Bernanke’s assessment? What steps do we

need to take to avoid the very negative long-term impact on the

budget in the economy?

Secretary LEAVITT. Yes. I think we can just start with health

care. When I was born in 1951, health care generally was 4 percent

of the economy. When my son was born, it was 8 percent of the

economy. When my first grandbaby was born, it doubled again, 16

percent.

We are now measuring Medicare alone, as a percentage of the

Gross Domestic Product. It will double, and double again in short

order. They are not sustainable in their current form. I am a trustee of the Medicare trust fund. Every report, we make that clear.

The reductions in the growth rate that we have proposed would

simply keep the system solvent for 4 years. We have to deal with

this, Senator, and I think that would be universally felt and understood by everyone on the dais.

Senator GRASSLEY. All right.

15

Now, the next question: I am going to ask you to fill in something that is not very clear in the budget we received in regard to

administrative savings. The quote is, ‘‘New efforts to strengthen

program integrity in the Medicare payment system, correct for inappropriate provider payments, and adjust payments to encourage

efficiency and productivity.’’

We need more detail. Administrative savings are supposed to

bring in $10 billion of the $77 billion in Medicare savings over 5

years. That is about 10 percent of what you save. So what is it?

Can you give us more detail on these administrative savings?

Secretary LEAVITT. One important one would be the need for us

to have more capacity to investigate fraud, for example, in the durable medical equipment area. Not long ago I went to Miami. I

spent the afternoon with a group of investigators, walking from

spot to spot, looking at businesses that were essentially shams.

There was no one there, there was no sign of an ongoing business,

and yet they were billing millions of dollars to the Medicare system.

We do not have enough investigators to be able to deal with that.

I believe we could save hundreds of millions of taxpayer dollars,

and this budget asks for money to be put into our discretionary

budget in order to do that.

Senator GRASSLEY. We can give you money for that, I believe, but

I am not sure. Do we get savings? We do not get any savings estimated by the Congressional Budget Office if we do that, so it is

kind of hard. We have done that in the past and may do it in the

future, but just remember, that is a problem for us.

You want us to save money, and we put that in to save money,

you score it as saving money and hopefully it will save money, but

CBO does not give us any benefit for that.

In my last minute, let me quickly ask this question in regard to,

to be eligible for Medicaid a person has to be a citizen or a qualified-aged alien. The DRA included a provision that requires States

to more thoroughly document that citizenship.

This provision was developed in response to the Inspector General’s report that showed States were not doing a very good job of

documenting. In the Tax Relief and Health Care Act we passed last

December, we included provisions to improve upon that of what we

passed in the DRA.

Specifically, the change gives States flexibility so that a person

who had established citizenship for one Federal program would not

have to do so again for Medicaid. Do you think documentation enforcement in Medicaid is working properly, and are there areas

that could be further improved?

Secretary LEAVITT. It is operating under a new law, which we

have attempted, frankly, to interpret to provide the maximum level

of flexibility for States. We did not want anyone to be denied coverage simply because they were unable to come up with a birth certificate that was existent, or that there were documentation problems that would create that. We are now implementing it. I think

we are doing it successfully. Can it be improved? Yes. Will we get

better at it? I am sure we will.

The CHAIRMAN. Thank you, Senator.

16

Next on the list is Senator Hatch. He has very, very graciously

agreed to defer to the Senator from New York, who has a difficult

scheduling problem. We all do have difficult scheduling problems,

but I want to thank the Senator from Utah very much for his kindness in deferring to him.

Senator SCHUMER. And I want to thank you, Mr. Chairman, the

Ranking Member, and my friend from Utah for their courtesy as

well.

I have two questions on different areas, so I will ask them both

and then ask for the response. The first relates to New York City

and New York State and our health care. Your budget is a one-two

punch aimed at New York. It would just decimate health care. Basically, in New York it would decimate it. You eliminate two programs that are vital to us where a large percentage of the money

goes to New York.

The first is graduate medical education. For years, New York has

trained 1 out of every 7, actually, doctors in this country. They get

top-notch training. They leave and give great coverage elsewhere.

Part of what they do is treat Medicaid patients, so obviously this

is a benefit to Medicaid. No administration has opposed eliminating this program. Yours has.

How can you defend that? And what will happen if we eliminate

it? We will not have the number or quality of physicians that we

have. Medicaid and health care will suffer.

At the same time, while you were doing that, this came on top

of the new regulations in terms of the New York City public hospital system, that would lose $350 million under the Medicaid cuts.

That is 20 percent of its revenues, yet CMS has been unable or unwilling to provide information on the impact this rule will have on

individual States. I am told that the specific regulation on public

hospitals would cost us about 40 percent. Forty percent of it would

come from New York.

So how can a budget be drawn up with its different parts without

looking at the total effect on health care, which would just send

health care in New York reeling, just reeling? It is a one-two

punch.

Then on generics, and I will let you answer both and cede my

time. Two questions on generics. The proposal for the FDA to impose user fees on drug companies is supposed to speed the approval

of generic drugs.

But given that generic drug approval is stalled not so much by

the FDA, but by the tactics of the pharmaceutical industry in

terms of citizen petitions, authorized generics, it is not money that

is the answer.

So in order to speed up new drugs, if your goal is new drugs in

the market, it is not to impose user fees, it is really to work with

us to put an end to the tactics meant to undermine the 180-day exclusivity rule, which actually my colleague from Utah helped design, I guess it was more than 20 years ago now, and has worked

with great success.

In addition, another regulation relating to generics, GAO has determined that payment changes to pharmacies would greatly

disincentivize the use of generics. In other words, the way you have

17

done the payment system, the reimbursement rate would be 36

percent less dispensing generics than prescription drugs.

Pharmacies are going to push the brand drug and cost our taxpayers a ton of money. It seems to me penny wise, pound foolish.

How can you justify that? You will make a little money back on

this increased fee, and then you will lose $5, $10 for every one you

save as the pharmacist tries to prescribe the brand-name drug because the pharmacist gets more of a cost reimbursement on that.

Those are my two sets of questions: first, on New York City graduate medical education and the specific cut to public hospitals. My

guess is, if these were for-profits in Florida you would not be making the same decision, even though the city hospitals probably do

a better job. Second, the two issues on generics, the user fee and

the cost to the pharmacists. Thank you.

Secretary LEAVITT. Senator, the regulation you are referring to,

your second part on the Medicaid, what was that?

Senator SCHUMER. The regulation is that you are increasing the

cost basically. You are decreasing the reimbursement rate to pharmacists. Pharmacists, when they dispense a drug, are given a certain amount. You are going to favor the pharmacist by cutting the

generic reimbursements, so you are going to push the pharmacist

to prescribe the brand-name drug, which is much more expensive

and costs Medicare and Medicaid a lot more money.

Secretary LEAVITT. Let me deal, first of all, with graduate medical education. Obviously there is a need for graduate medical education.

The CHAIRMAN. And I might say, Mr. Secretary, if you could, be

somewhat brief because Senator Schumer’s time expired. So if you

can answer the question briefly, please.

Secretary LEAVITT. We believe Medicaid is to care for low-income

people, not just to do graduate medical education. We believe that

the graduate medical education system ought to be funded in a

means that spreads the burden over all payors of health care, not

just Medicaid.

Senator SCHUMER. Medicaid does not just fund that.

Secretary LEAVITT. It is Medicaid and Medicare. In the interest

of being brief——

The CHAIRMAN. You can answer it, but briefly.

Senator SCHUMER. To fund a resident or an intern it is not just

GME, it is just that Medicaid is paying a certain percentage because Medicaid benefits. It is not solely funded by Medicaid. Of

course not.

Secretary LEAVITT. But other payors of health care do not participate, and we think they should.

The CHAIRMAN. Thank you, Senator, very much.

Senator Hatch?

Senator SCHUMER. Mr. Chairman, in all fairness, I asked a few

other questions.

The CHAIRMAN. Well, you will have to come back, Senator.

Secretary LEAVITT. I wrote them down.

The CHAIRMAN. In deference to——

Secretary LEAVITT. The next round, I will—or would you like me

to respond in writing? I would be happy to do so.

Senator SCHUMER. Thank you.

18

The CHAIRMAN. In deference to other Senators, you are a minute

and a half over your time. Sorry.

Senator Hatch?

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

First of all, I do not know that I have ever seen a Secretary of

HHS who has been more forthcoming than this one. I have been

around here for, now, 31 years. There are times when even you, as

high as this position is, have to live in accordance with Justice Department rules and regulations, whether they are criminal or civil.

Now, I think we should take this up with the Justice Department

if they are being overly restrictive in answering the Chairman’s,

the Ranking Member’s, or any member of this committee’s questions.

But my experience with Secretary Leavitt, and it is a long, long

experience, is that we have never had anybody in this position any

brighter or any more capable of doing a great job, and I think he

is doing a terrific job. And that is not just because he comes from

my home State of Utah. I have seen him in action for most of my

Senate life.

I am sure you will answer any question you are able to, and you

should. But let me ask you a couple of questions that I have had

on my mind for quite a while. And I am going to ask a whole bunch

of them in order, and you might want to make notes.

I would like you to update the committee members on Medicare

Part D implementation. I have heard all the rigmarole and all the

moaning and groaning by those who are critical of Part D implementation. How many Medicare beneficiaries are now enrolled in

Medicare Part D? I would like to know that.

What percentage of Medicare Part D beneficiaries ended up in

the donut hole last year? Because that is important to all of us up

here. Was it more than expected or less than expected? That is a

question that I think is an important one.

Has CMS seen significant cost savings in Medicare Part D compared to what was expected when the Medicare Modernization Act

was passed by Congress in 2003? Is the Medicare prescription drug

program not less expensive than originally thought? At least, that

has been the impression that I have had, and from everything I

have read it is less expensive than what we originally thought, as

we said in those long, interminable meetings coming up with Medicare Part D and the whole Medicare Modernization program.

That is a lot of questions, but hopefully you can answer those for

us.

Secretary LEAVITT. Senator, the Part D program has been a robust success. We have 38 million subscribers now.

Senator HATCH. What percentage would that be of those who are

eligible?

Secretary LEAVITT. It would be over 90 percent of those who are

eligible.

Senator HATCH. Ninety percent? All right.

Secretary LEAVITT. I will add, though you did not ask this, that

80 percent of those that are asked say they are happy with their

plan.

Senator HATCH. Right.

19

Secretary LEAVITT. They are happy with their plan because they

have a choice, they were able to get a plan that meets their needs,

we do not have just a one-size-fits-all program attempting to

stretch over 38 million people.

The cost savings have been profound, both for beneficiaries and

for taxpayers. We started off thinking, actuarial estimates, that it

would be $37 a month. Because of competition, it is $22 a month.

That has reflected, for taxpayers, over $113 billion of savings over

what was originally estimated.

Senator HATCH. That is a significant savings. All right.

Let me ask another question on a related issue. Well, how about

the donut hole?

Secretary LEAVITT. The good news is that there is a plan now

available in every State where people can have coverage in the socalled ‘‘donut hole’’ if they choose to, and we found that more and

more people want the lowest cost, more and more people want to

have lower co-pays.

Senator HATCH. But most people do not even reach the donut

hole.

Secretary LEAVITT. That is right, most do not.

Senator HATCH. Do you know what percentage do not?

Secretary LEAVITT. I do not think I have that information.

Senator HATCH. It is a pretty high percentage, though.

Secretary LEAVITT. It is. It is a high percentage. But the good

news is, if a person is in the donut hole and does not want to be,

they can get a plan that——

Senator HATCH. Well, we designed it so that it would be about

half of what it takes to get to the donut hole. I think it has pretty

well lived up to that.

On a related issue, what would be the impact of requiring the

HHS Secretary to negotiate Medicare prescription drug prices?

Secretary LEAVITT. Well, it would essentially be a decision to

have the government run it. If we had a one-size-fits-all plan you

would have, first of all, fewer choices. Beneficiaries, I think, would

have less satisfaction with the plan, and I think ultimately you

would have costs that would be no lower.

Senator HATCH. All right. I might add, there would be over 4,400

drugs that you would have to negotiate prices for.

Secretary LEAVITT. People would have fewer choices. When you

negotiate drug prices there is really only one way to do it: you say,

‘‘I am going to take your pill off my plan.’’ If the government starts

doing that, suddenly you have the government making choices

about who can get what drug as opposed to consumers doing that.

Currently, there are over 4,400 drugs available on plans. People

can choose a plan that meets their needs, and I think that is exactly why we have 80 percent who are happy. Those who are not,

the good news is, we can help find a plan that serves them better.

If we had one plan, one formulary, we would have a lot more unhappy people.

Senator HATCH. Well, thank you, Mr. Secretary.

Thank you, Mr. Chairman. I have some other questions. I will

submit them in writing.

[The questions appear in the appendix.]

The CHAIRMAN. Thank you very much, Senator.

20

Next, is Senator Smith.

Senator SMITH. Thank you, Mr. Chairman.

Mr. Secretary, good to see you.

Secretary LEAVITT. Thank you.

Senator SMITH. Thank you for being here.

Mr. Secretary, in the last 4 years we have lost 3,000 soldiers in

Iraq. Now, that is not your area, but I simply cite that number to

emphasize a point I want to make. Every year in America, roughly

30,000 Americans commit suicide, 3,000 of those are children.

Every year, 3,000, the totality of Iraq, is occurring throughout the

neighborhoods and cities of the United States.

I, for one, believe that is an epidemic. One of the best things I

have done in Congress is to pass a Youth Suicide Prevention Act,

with the help of all of my colleagues here. That program was authorized by the 108th Congress. It was to phase in over 3 years at

$40 million. We are making very good progress towards that.

Two years ago, the 109th Congress funded it at $27 million,

roughly. In the last budget we did in the 109th Congress, the Appropriations Committee fully funded it, $39.6 million, roughly. I

was very proud of that.

Now I am told that the 110th Congress is going to disregard

what the Senate did and take the House CR, which flat-funds it

at $26.6 million.

Now, I am not speaking for Oregon because Oregon is already

in—I am very proud of them for that—and it is making a real difference. But your budget has essentially an agreement with the

House flat funding, which apparently the Senate will accede to

without any right to amendment, which will be the basis for my

very loud and enthusiastic ‘‘no’’ when it is brought to the floor,

among other reasons.

I guess what I am asking is, will the administration oppose an

effort to increase it to full funding? Do you have any resources in

your Department? I mean, the truth is, $40 million is a lot to you

and me individually. It is a rounding error in the budgets of HHS.

Is there something you can do administratively to fill the gap

that the 110th Congress will leave for 2 years running?

Secretary LEAVITT. Senator, the problems you speak of are agonizingly difficult, and I know very few families, in one way or another, that have not been affected. I am fully conscious of the personal loss that you have experienced. We are a supporter of the

program.

Senator SMITH. Yes, you are. Thank you for that.

Secretary LEAVITT. We will continue to be supportive. The administration would not object. What influence we have in the negotiations between the House and Senate will be consistent with that.

Senator SMITH. And so you would be for $40 million?

Secretary LEAVITT. Well, what you asked me is, would we object?

The answer is, no, we would not object.

Senator SMITH. I hope we do it. I wish we could do it on an

amendment basis on the CR. I mean, it is a life-and-death issue.

The problem is not going away, it is growing. I think our Nation

needs to put the mental health issue on a parity that it deserves,

and it will truly save lives.

21

So what you have is a silent tragedy in our country that is equal

in numbers to Iraq over 4 years, and we ought to be better than

that.

Now, the next question I ask is, I do want to ask it in a friendly

fashion, and I mean it as your friend. But I am concerned. When

we debated the Deficit Reduction Act, a number of items, such as

intergovernmental transfers, were debated and roundly rejected by

the Congress.

I understand that the Department, the administration, is trying

to implement banning intergovernmental transfers through administrative means, even though, at least in my view, there is no Congressional authority to do that.

The CHAIRMAN. Senator, do you expect a response? Because your

time is——

Senator SMITH. Yes. If I can get a response, that would be great.

The CHAIRMAN. Yes. Again, briefly, Mr. Secretary.

Secretary LEAVITT. We have pursued a simple policy. The Federal Government pays 57-plus percent of Medicaid. We are partners with the States. What we are looking for is a straightforward

partnership where both partners put up real money.

And a lot of States, over time, have found ways to basically use

Federal money, and then recycled it and sent it back as the match

for our money. There is nothing inherently wrong with an intergovernmental transfer, so long as it is not done specifically with the

purpose of matching Federal money for Federal money.

Senator SMITH. It is truly State money.

Secretary LEAVITT. It is truly State money. There is nothing inherently wrong with an intergovernmental transfer.

Senator SMITH. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator.

Senator Rockefeller?

Senator ROCKEFELLER. Thank you, Mr. Chairman.

Mr. Secretary, actually I have just kind of been thinking inwardly. You are a Cabinet officer, and that is a great achievement

in life, one which you deserve. You are a very good man. And yet

you come before us, really, without any power.

In other words, the testimony which you would have given and

which you did submit for the record is not your testimony unless

it has been cleared by the Office of Management and Budget. As

a Cabinet officer, you do not have the ability to come before us and

to give us the benefit of your real thinking.

Now, there are amazing things that happen to the CHIP program and to children losing coverage, States not being able to do

what they want to do. So my second point: if you are a Cabinet officer, the judicial model of the Cabinet officer is one who sits around

in the Cabinet room and discusses policy, their needs, their views

with the President.

Different members of this committee will have different views on

this subject. But as we were spending, I do not know, close to a

trillion—before it is over it will probably be close to $2 trillion—

on a war which we should not be involved in and not spending

enough on a war we should be involved in, which is the war on al

Qaeda, Afghanistan, it just grabbed the attention of the Nation.

22

The President’s circle of advisors became very small, maybe three

or four people whom he listened to, maybe less, and you watch your

programs get decimated because of something called the budget

consequences.

Now, people in this room on the dais may have very different

views, but I was stunned by the tax cuts. It has nothing to do with

the first President in history to cut taxes during a war, although

that is pretty relevant, but just the magnitude of them, the freelance nature of them: we won, we reward our friends. You sit there

at Cabinet meetings and you watch your budget shrink.

You came to do good work and you are a good man, and you have

done good work within your capacity. But people who think that a

Cabinet officer has the ability to change the life of the service over

which he or she presides are misguided. You are constrained today

by the OMB. You cannot answer Chuck Grassley’s question. I am

no expert on that, so I will not get into that too much.

You do not really have any money to spend. But you have to answer enthusiastically, the President’s principles are such and such,

that every child will be covered, all people will be covered.

That is not the President’s policy. That is not the President’s policy. Neither is what he articulated the other night in his State of

the Union, and it never has been. To be quite honest, it was not

his father’s policy. That just was not of interest to them. Many

things were, but that was not something which was of interest to

them.

Do you ever speak out on these things to the President?

Secretary LEAVITT. Senator, first of all, my testimony was not

cleared by anybody but me.

Senator ROCKEFELLER. I will beg to differ on that, but that is not

a discussion which we will have.

Secretary LEAVITT. All right. Secondly, the budget that I am here to discuss today is $700 billion. So to say I do not have any money to spend, there is 25 percent of the entire Federal budget in this budget, and it has grown

by, I believe, about 4 percent this year.

Next, may I say that I have been granted the trust of substantial

authority in the area of Health and Human Services. I do my best

to do that in a way that is worthy of that stewardship. I do not

spend my time enunciating policy on defense. I do not spend my

time enunciating policy on justice. I do my best to coordinate with

them in ways that serve the President in the best possible way.

Senator ROCKEFELLER. But if you see——

Secretary LEAVITT. I do give the President advice on all of those

areas when I have the opportunity. I do it privately, and I do it

directly.

Senator ROCKEFELLER. All right.

The CHAIRMAN. Thank you, Senator.

Senator Kyl?

Senator KYL. Thank you, Mr. Chairman.

I just cannot resist, on that last point, when Senator Rockefeller

said with regard to the Bush tax cuts, ‘‘we won, we reward our

friends.’’

It is pretty interesting that every segment of American society

has benefitted as a result of the tax cuts of 2001 and 2003. The

23

tax code is now more progressive than it was before those tax cuts.

We would not have a 10-percent bracket today. We would not have

the child tax cut relief, the marriage penalty reform, and a lot of

other things that have benefitted all Americans. So, let the record

reflect that, if it is true that Republicans and President Bush rewarded their friends after election, their friends are the American

people.

Second, let me compliment you, Mr. Secretary, on your availability and the clarity with which you have briefed members of

Congress on matters within your jurisdiction, specifically, most recently the proposals of the President enunciated in the State of the

Union speech.

I appreciate, again, not just your availability, but the clarity with

which you have described those proposals and interacted with

members of the Senate, and I appreciate that.

I have two primary questions for you, one of which was essentially asked by Senator Hatch, which established the proposition

that the Medicare Part D costs have declined dramatically, even far

more than was predicted, as a result of the way that the Medicare

Part D negotiation for drugs was written into the law.

I guess the follow-up question with respect to what you said

about the savings that Americans are achieving there, is whether

you believe that this market-based competition and the success of

that in the Medicare Part D program provides lessons with respect

to continuing to help reduce costs, while expanding access to care

in the broadest sense with respect to some of the proposals that

have been made for health care reform.

Secretary LEAVITT. Senator, I think history and economic experience teach us that, when people have access to choices and information about the cost and the quality, they make decisions that

drive quality up and costs down. We have seen that no better and

with no more clarity than we see it in Part D. The original estimate, as I indicated, was $37 a month; this year it will be just over $22. When you ask the actuaries why, they are

very clear. The majority of it, the big share of it, was because there

was competition. Given choices, given information, people make decisions that drive quality up and costs down.

Senator KYL. Well, given the fact that there are two basic approaches to reform in health care, one more governmental involvement, the other trying to rely upon the competitive marketplace, it

seems to me this is an important lesson to learn with respect to

how we develop those new proposals.

The second question I have relates to Medicare Part B premium

changes. I was going to ask you to describe in a little bit more detail the premium structure that you envision, and I would like to

ask you to do that in writing for the committee since I do not want

to take the time here.

The proposal seems to me to be very interesting, but it could

stand a little bit more fleshing out, it seems to me.

But it also seems to me that it begs another question, and that

is that, since a big part of the Medicare Part B premium goes to

physician services and the reimbursement for those services is such

a critical part of the overall program, would it not be a good idea

for the Congress, working with the administration, to try to reform

24

the reimbursement of physicians and do that in a way that does

not require Congress, every year, to have to come back in and find

the funding for what is called a zero update?

Secretary LEAVITT. Senator, it would be, I think, a relief to everyone if we did that. It is clear to me also that some part of that

needs to reflect the sentiment you raised earlier. Some part of it

needs to be not just on the basis of the quantity of services provided by physicians, but it needs to be focused somewhat on the

quality.

Senator KYL. And if I could, just while I have a couple of seconds

left, it should also take into account the fact that the most devastating thing we could do to the Medicare program generally

would be to inadequately reimburse these providers on whom we

all rely—all of us over 65; I will be there some day—for care.

We want to provide the best-quality care for our seniors. The

worst thing that we can do, it seems to me, is to rely on a system

that will inadequately reimburse that key segment of health care

providers.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Salazar?

Senator SALAZAR. Thank you very much, Chairman Baucus, and

welcome to the committee, Secretary Leavitt. It is good to see you

here.

I have three questions. One, relating to the Visiting Nurse program, second, the rural health programs, and third, the reimbursement to pharmacies, especially rural pharmacies.

Let me first start with CHIP. I have been a strong supporter of

the Nurse Family Partnership program in Colorado. It now operates in 22 States and has some remarkable results in terms of

what happens to children who are born who are part of that program.

I am very encouraged by the fact that you have included that in

the President’s budget, and for that I congratulate you. I ask you

to just spend a quick minute in responding to what you think about

the Nurse Family Partnership program and whether this committee should endorse that part of the program.

But let me ask all my questions, then you can go through all

three of them at the same time.

Secondly, I wanted to just ask you about the rural health programs. Perhaps because I come from the fourth poorest county in

the United States of America, I have always seen the two Americas

in some ways exemplified by what happens in terms of the disparity of care in rural America versus the big cities.

I know you, coming from Utah, know that reality, that when you

are 5 hours outside of Salt Lake City, it is a very different kind

of health care that you are going to get out in some county 200

miles away than you are if you are in Salt Lake.

So I am troubled by the fact that there have been significant

funds eliminated from programs that are important to rural America, including the Area Health Education Centers.

There are five of those in my State, including one in my native

San Luis Valley, the rural outreach programs, the rural hospital

flexibility programs, the rural and community AED programs. So,

25

I would just like you to respond to how it is that you justify those

cuts in the delivery of rural health care services.

Then, third, with respect to the pharmacy requirements and reimbursements, a simple question is, has the administration considered the impacts on the proposal on the pharmacy reimbursements

based on the AMP formulas and the impacts of those changes to

pharmacies in rural areas?

So if you will take those three questions and take about 3 minutes to respond to them, I would appreciate it.

Secretary LEAVITT. Yes. First of all, on the nurse home visitation

initiative, we agree with you, that is a very important initiative

and will, we think, create or foster State-wide collaborations that

will support high-quality, evidence-based home visitation programs

across the country and that it will pay dividends at many different

levels.

With respect to the second point in rural health care, you are

right. I come from a State where this is very important. I mentioned earlier that there were places in the budget I was looking

for that were served by multiple parts of the budget.

The Medicare Modernization Act increased the amount of funding available to rural health care by $25 billion over 10 years, and

so we have viewed some of those programs as being redundant, and

that is the basis on which those decisions were made.

With respect to the average manufacturer price, frankly, Medicaid pharmacy is still the highest reimbursement that any pharmacy receives. I have spent a lot of time behind a pharmacy

counter in the last year with Part B, and I understand why they

are concerned that those prices are coming down, but they are still

substantially higher than they are being paid for by many other

payors. So we, frankly, just believe that as a matter of making

Medicaid more efficient, we need to undertake that proposition.

We cannot allow rural pharmacies, community pharmacies who

people depend on, particularly in some of those same rural areas

you have spoken of, to not have business viability. That is something that I am watching very closely.

Senator SALAZAR. Let me push you just on that last comment.

The GAO report that was recently released on the AMP issues

spoke about the reimbursement to these pharmacies, and it basically said that the current AMP at the higher level that it currently is before the reduction that has been proposed, that it does

not cover the actual acquisition costs for the drugs.

So if you already have many of these rural pharmacies that are

hanging on by a shoestring, will the reduction by essentially 100

percent of AMP—I think it is from 250 percent to 150 percent—

what impact will that reduction then have on those pharmacies?

Secretary LEAVITT. There is a long, detailed answer here. But in

the absence of a lot of time, let me just say we do not agree with

the GAO report. We just disagree with it. I would be happy to give

you a more detailed answer if you would like that when the time

allows.

Senator SALAZAR. All right. We will ask for that on the record.

My time is up, but the Chairman is not around, so maybe I can

keep going.

26

Senator WYDEN. I am supposed to sort of crack the whip. But if

I do not get too much grief, go ahead and ask one more.

Senator SALAZAR. No. I will save my questions or I will submit

them for the record. Secretary Leavitt, thank you for being here.

Secretary LEAVITT. Thank you, Senator.

Senator SALAZAR. Thank you, Senator Wyden.

[The questions appear in the appendix.]

Senator WYDEN. I thank my colleague.

Mr. Secretary, in the name of reconciliation, let me note that, on

your Oregon visit, the topic you chose pleased both Democrats and

Republicans. Clearly, we can do more in the technology area, and

we appreciated your coming out.

I have not gotten to hear every Senator this morning, but I am

not surprised at the message that you are getting. What has happened is, despite all the wonderful health care providers and facilities we have in this country, the American health care system is

broken.

What we have is, when you try to proceed piecemeal, an awful

lot of people get hurt. All those youngsters, for example, whom we

need to get covered through the Children’s Health Insurance Program and other kinds of services. You have the other people who

are hurt by these piecemeal changes come to their Senator, and

their Senator tells you, and that is what you are seeing, I think,

here today.

What is especially troubling is we are spending enough money in

this country on health care. We are not spending it in the right

places. For the amount of money we are spending, we could go out

and hire a skilled physician for every seven families in the country

who would do nothing except care for those seven families. Often

when I tell physicians this they say, ‘‘Ron, where do I go to get my

seven families?’’ because they would like to practice medicine.

So I think there is an opportunity for bipartisan reform here, and

I was glad that the President talked about health care in the State

of the Union. We have differences of opinion about what was said,

but what are the possibilities of working now in a bipartisan way

where Republicans say, we will go further to expand coverage because we know to fix this we have to get people covered, because

otherwise the uninsured people send their bills to the insured. And

if Republicans move to expand coverage, Democrats like myself say,

look, there is a very valid point on the tax code. You can debate

how to do it, but the tax code promotes inefficiency and it benefits

disproportionately the most affluent.

So wouldn’t this be an opportunity to get beyond some of the

fighting and the sparring that is inevitable in this broken system

and try to get Democrats and Republicans together around something that approaches the vision I have described?

Secretary LEAVITT. Senator, that would be something I personally, and I believe the administration, would welcome. I believe

there are at least five primary constructs that we ought to focus

on on which I believe there is broad agreement.

The first is that there is a need for every American to have access to an affordable basic insurance policy. The second is that consumers deserve to have an independent assessment of the quality

of the care they receive. I think the third is that people deserve to

27

know and need to know the cost of their care in advance. I think

the fourth is that there are things that a person deserves to know,

that every decision is being made with high quality and low cost

in mind. Lastly, people deserve to have access in a way that is convenient to them, access to their medical records.

I think that within those five constructs is the making of a system that would serve the American people well and on which I

would look forward to working with you and others in both parties

to achieve.

Senator WYDEN. I thank you, Mr. Secretary. Everybody says it

cannot be done. Everybody says the Congress is too polarized, we

have to wait for another presidential campaign, it just cannot be

done. I am not going to accept that. I think there is a real opportunity here. We have seen the States go forward and innovate.

There are good ideas out there. Governor Schwarzenegger and Governor Romney deserve credit. But the States cannot really fix this.

They cannot do anything about the tax code. Of course, the Federal

Government is the big spender here.

So, I think we can look for ways to encourage State innovation,

but I want your take-away message to be that, if you can champion

the cause of getting the administration to move to expand coverage,

and of course that is real coverage, good-quality, affordable private

coverage, not just access but people getting the product, I am going

to do everything I can to work in a bipartisan way with the administration, with Democrats and Republicans here to see if we can

defy the odds, not just say, wait for another presidential campaign

to fix health care, and see if we can get it done now.

Secretary LEAVITT. There is a great opportunity right now, because the States are chomping at the bit to run with this. There

are proposals being developed in at least a dozen States that I

know of and, frankly, some others that have not yet been announced.

The formula for them is very simple: they need to develop an affordable basic insurance policy or a basic insurance policy, and

then between the Federal Government and resources that are

available, we need to help, maybe give them tools, to make it affordable.

There is one problem that the States cannot solve that must be

solved in order to achieve this, and that is the indefensible tax

treatment that those who acquire insurance outside of employment

are provided.

It is indefensible that Americans who buy through the employersponsored insurance system get a tax deduction and those who

have to buy it on their own cannot. We cannot defend that. We

have to fix it.

Senator WYDEN. My time has expired, Mr. Chairman.

I thank you, Mr. Secretary.

The CHAIRMAN. Thank you very much, Senator.

Senator Roberts?

Senator ROBERTS. Thank you, Mr. Chairman. I had hoped that

Senator Wyden would continue in your absence in terms of the limited time that I have. As the former chairman of the Intelligence

Committee, I checked in regards to extra time given to Senator

Wyden by myself: it is 2 weeks, 1 day, and 34 minutes. [Laughter.]

28

In which case I thought I would get a little more time. Perhaps

you, sir, who took a great deal of time on our trip to Cuba when

we visited with Castro that went 14 hours, could grant me a little

bit of leeway.

The CHAIRMAN. That is probably fair, because he did all the talking.

Senator ROBERTS. Right.

The CHAIRMAN. This time you can talk a little.

Senator ROBERTS. It was the world according to Castro. But this

is the world according to Roberts.

Secretary Leavitt, thank you for coming. We all share responsibility to get a handle on the growth of Medicare and Medicaid so

that these programs are viable and sustainable. I know that, and

we are going to cover some ground that my colleagues have already

covered. I apologize for not being here.

I do not want to be in the business of tying the hands of our

health care providers, especially those in our rural areas. I used to

be the head of the posse over in the House on the Rural Health

Care Coalition.

We banded together, getting a little tired of beating our knuckles

a little bloody on the door of HEW at that particular time—I date

back to those days—on harming our seniors and low-income populations by restricting their access to care. I am also on the HELP

Committee, so there is a combination there where we can work together, and I look forward to working with you.

We are a rural State. Eighty-eight of our 105 counties are considered rural or frontier. Over 75 percent of our community hospitals

are located in rural areas. Eighty-four percent have fewer than 100

beds. Eighty-four percent. We have 82 professional shortage areas

all throughout the State.

Two programs, Rural Outreach Grants and Rural Hospital Flexibility Grants, are proposed for elimination, yet they have been absolutely vital to the success of our rural health care delivery system

in Kansas. I am not very happy with that, to say the least, and neither are our State people who run the programs.

In addition, the budget proposed that you reduce funding for the

National Health Care Service Corps, and nearly eliminate the title

VII Health Professions Program. In Kansas, we rely on both of

these programs to get doctors and other health professionals to

serve in our rural areas. I remember when Joe Califano of HEW

said that three doctors had to approve every patient admission in

order to be eligible for Medicare.

I was serving in the Congress at that time, and I supported that

effort. Of course, it was impossible, because we did not have the

doctors. But I thought, if it was a mandate that three doctors go

over every patient admission, they might furnish the doctors, so I

supported the program. I am being just a little sarcastic here.

I have serious concerns with the lack of proposed funding for the

State High-Risk Pools Program. Last year, we worked with my colleagues on the HELP Committee to renew this program. I like to

think of it as a bill that I really supported and co-sponsored, and

the President signed the measure into law.

With a very small Federal investment, high-risk pools provide

health insurance coverage for individuals who would otherwise be

29

uninsured because of preexisting medical conditions or the inability

to afford care.

I do not understand how this budget can justify not extending

funding for a program that has been so successful at insuring individuals who would otherwise be unable to gain access to care at

this time.

I would like for you to shed a little light on why this budget does

not provide funding for the High-Risk Pool Program. I only have

a minute to go. I think basically what we ought to do is to have

you come up to the office, or I can go down to yours, or whatever,

and then we will talk about these concerns that I have raised, because I know we just cannot do it with the time that the Chairman—oh. Nobody. Oh. Sorry, Madam Chairman. We are running

out of time.

Pandemic flu. Senator Clinton and I introduced efforts for pandemic flu and bioterrorism planning. You know what is happening

around the world, where we have had avian flu spreading in poultry in Japan, South Korea, Vietnam, the Middle East.

There was an outbreak over the weekend in turkeys in England,

and two more confirmed human cases in Indonesia just yesterday.

I want to know how the budget request does support these efforts

in terms of vaccine. We have worked with you in regards to a plan,

but we need to know where that is.

Hospital payments. Why on earth, when MedPAC recommended

a full update for hospitals in 2008, and we have basically Medicare

margins projected to be minus 5.4 percent? This happens every

year. Every year we have the Sheep and Cattle Board. Every year

the budgeteers pull out the file and say, can’t we do better to control Medicare costs?

We go all the way through the year, and hospital administrators

and all the people come in from hospitals and say, we cannot do

this. Quite frankly, what is happening is we have specialty hospitals now who do not accept Medicare patients but work in the

public hospitals. If it does not work in the specialty hospital, they

go to the public hospital.

So we have a two-tier system now that is working in regards to

public and private with people who say, I cannot do this, I cannot

be reimbursed in regards to the Medicare payment with what I am

doing. So what we are doing is having triage out there and rationing our health care, and that is not an answer.

Home oxygen. The budget proposes to reduce the rental period

for most home oxygen equipment from 36 to 13 months. Senator

Reed spoke to this. I will tell you that, in many of my communities,

the Home Health Care Agency is the only outfit that sends anybody out there to a home in an outlying area to treat the patient

in regards to home health care.

In terms of oxygen, it seems to me we have a rental policy to

beneficiary ownership. It does save money, but I believe these savings come at the expense of the senior’s safety. Requiring our beneficiary to assume responsibility and ownership of home oxygen

equipment is an unreasonable burden.

I know seniors who are very ill, on oxygen. If they do not get that

person to come out there and make sure that that equipment is run

right—some of them even smoke with the oxygen tank. I mean,

30

hello! So, consequently we are going to have a lot of people turn

blue and then gray if we do not get that back and changed in regards to that support.

Senator Kyl mentioned the physician payment, 10-percent reduction in Medicare physician payments slated in the payment formula. We are just going to exacerbate what I told you about, and

I know you know this, that you are going to have a two-tier system

here, with people who will take Medicare patients and people who

will not. We do not need that. The public hospitals basically now

are overwhelmed in terms of the emergency care with the immigration problem, especially in Kansas where we have a large influx of

that.

Now, I have gone on a laundry list, if not a rant, in front of you.

I look forward to your answers. I am out of time. You do not even

have time to respond. But I am looking forward to a personal visit

with you. We can go over these things. I do want to work with you

in the spirit that Senator Wyden said, in a bipartisan matter.

That is all, Mr. Chairman.

The CHAIRMAN. Thank you, Senator. Fidel would be proud.

[Laughter.] Thank you.

Senator Cantwell?

Senator CANTWELL. Thank you, Mr. Chairman.

I would like to follow up, I think, on a question that you asked

Secretary Leavitt. Good to see you, Secretary Leavitt.

Secretary LEAVITT. Thank you.

Senator CANTWELL. Did you say that you do not think there will

be an impact on current SCHIP enrollees?

Secretary LEAVITT. Our policy would be to——

Senator CANTWELL. Could you speak a little louder?

Secretary LEAVITT. Our policy would be to sustain coverage for

any child currently on the program, or any adult currently. We

would pursue, however, in the future to have a reduced match rate

or to not have the enhanced match rate on children over 200 percent in the future.

Senator CANTWELL. So you are saying for the next fiscal year or

you are saying for——

Secretary LEAVITT. That would be a principle for the reauthorization of the program.

Senator CANTWELL. I do not understand how, if CRS thinks we

need $15 billion, you have provided $5 billion. So are you saying

you are admitting that there is a $10 billion shortfall and in the

future you would take that gap between 200 and 250 percent of the

poverty level and——

Secretary LEAVITT. There is roughly $4.4 billion left in the allotments from previous years and there is $5 billion in the base. So

you take $5 billion, plus $5 billion, plus $4.4 billion, and that gets

you to the funding level.

Senator CANTWELL. And then you want to move forward on a discussion on those, changing the dynamic for that population that is

between 200 and 250 percent?

Secretary LEAVITT. That is correct. This is all in the context,

however, Senator, of desiring to assure that there is an affordable

basic insurance policy available to every American, SCHIP being

one of the tools we use to get there. But it requires that we aggresVerDate 11-MAY-2000 14:26 Mar 25, 2008 Jkt 095484 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 40540.000 SFIN1 PsN: SFIN1
31

sively work with the States to solve the problems they have in

being able to reach that objective.

Senator CANTWELL. I think I could go a lot of different ways on

that answer, given what I think you know well in our State we had

to do in plugging the hole after the Medicare/Medicaid dual eligibility issue and what our Governor worked out with your Agency

to cover people who basically already had services, and then were

having those services curtailed. So, moving money around from

Peter to Paul does not, in my mind, usually provide for continued

comprehensive care.

One of the things I wanted to ask is, Washington State was the

first in the Nation to cover children up to 200 percent of the poverty level, and did that in 1994, I believe, before this Federal program came into place. Because of that, we were penalized. I am not

exactly sure why we were penalized, because several other States

who currently were servicing that population were not penalized.

But there were several States that were left out of that mix.

Do you support fixing that so that Washington State can use its

current backlog of allocated funds to cover those children?

Secretary LEAVITT. I am not sure I know what you are asking,

but let me answer two or three things and then we will see if we

have covered it.

There are funds that are available to be reallocated right now for

the current year. We support that. Going forward, however, we believe reallocation should occur only every year.

We do intend to support having this package continue to cover

any child who is currently covered, or any adult who is currently

covered, which would include the 200 percent that you currently

cover, I believe, in the State of Washington.

Senator CANTWELL. The complication arose in the Act being

passed, saying that the Federal Government would not cover any

child that was currently covered. So Washington State was already

covering 200 percent of the poverty level, so those children were

not eligible.

Now, the Chairman has done a great job of trying to help us

solve this problem going forward, but it makes no sense to cut

those children off of the program for a year, only to say that in the

following year that they are now eligible, only because the State of

Washington had the foresight to implement a program prior to the

rest of the Nation.

As I said, there is inequity between several States. I think there

were several States that did get covered that had preexisting programs. So we certainly hope that you would support a level playing

field among States on what is being covered.

Secretary LEAVITT. I had the benefit of being here in 1997–1998,

not in Congress but as a Governor, and leading and participating

in the discussion. The development of formulas is always imperfect,

and this one is. To the extent that it can be improved in the reauthorization, I believe everyone would be happy with that.

Senator CANTWELL. You are saying you think all States should

be treated the same?

Secretary LEAVITT. Well, we certainly need to have an equitable

formula, there is no question. The one we have—formulas always

have imperfections, and this one is no exception.

32

Senator CANTWELL. I see my time is up, Mr. Chairman. Thank

you.

The CHAIRMAN. Thank you very much. Thank you, Senator.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

Welcome, Mr. Secretary. It is good to see you again. I have many

questions and time is limited, so I will move quickly.

First, to health IT. You and I have talked about this on a number of occasions. I understand your commitment. The President

spoke about it in the State of the Union. I know that interoperability standards are important.

I also believe that it is critically important that we provide resources so that systems will move ahead, as we have talked before,

that people will begin to get the hardware and software and so on. In the 2008 budget request, there is only $118 million for a

health information technology initiative. What concerns me is that

we know that most of the savings on health IT will accrue to us,

the Federal Government, Medicare, Medicaid, and so on, and yet

we have to have providers, nonprofit and for-profit providers, that

are willing to go out, invest the money on hardware, software, and

so on to be able to get online so we can accrue those savings.

So we have nothing really in here to provide incentives, and yet

at the same time a proposed physician cut of 10 percent for next

year, which is not likely to give a physician the incentive to go out

and do what they need to do so that we can be successful in saving

very large amounts of money and lives. And you have seen the numbers: $80 billion to $100 billion a

year, depending on whose numbers you look at. Senator Snowe and

I have introduced a health IT bill to focus on incentives.

I wonder if you would just speak to the whole question of why

we are not investing more in something that clearly has a huge return to the Federal budget, as well as to quality of health care.

Secretary LEAVITT. We have focused Federal efforts to achieve

standards of interoperability that would allow for systems, as they

are developed, to act as a system. The point you are making is a

valid one, that the benefit is not always proportionate. The doctors

are having to make investment and sometimes the benefits go to

those who are either served as patients or insurers or payors. That

needs to be reconciled, and it will be reconciled in time.

Now we have started, for example, with the way we are using

the SGR for doctors’ reimbursement in Medicare. A portion of that

is paid for information gathering. The same is true with hospitals.

We are starting to see the macro-economic model shift to the point

that we are reimbursing, in part, to cover that overhead.

There is no question about the fact that the economics will have

to change, and I believe they are.

Senator STABENOW. Well, I look forward to working with you, because I believe that they are not moving as quickly and boldly as

they should for us to obtain the savings that are necessary.

Switching to Medicare prescription drugs and the hearing that

we had on negotiation, we heard, I think, at least a general consensus that in some cases—there was not a general consensus in

all cases, but in some cases—regarding, for instance, single-source

drugs and so on that the Secretary negotiating can make a real difVerDate 11-MAY-2000 14:26 Mar 25, 2008 Jkt 095484 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 40540.000 SFIN1 PsN: SFIN1
33

ference, particularly where there is no competition, or dual eligibles

where there were concerns raised about the level of prices and so

on.

Do you believe that there are any circumstances under which a

U.S. Secretary could do a better job of negotiating a drug price

than what is currently happening?

Secretary LEAVITT. Obviously this is not about me or any individual Secretary, it is about the question: is it possible for a person

individually, or a government, to do a better job than an efficient

market?

Senator STABENOW. Absolutely.

Secretary LEAVITT. It is my belief that an efficient market is the

most effective way to negotiate prices, and we have seen it work.

As you know, we have seen Medicare Part D prices drop dramatically, and they have dropped because that competition is taking

place and because people are happy with, I believe, plans they like

and that meet their needs.

Senator STABENOW. I would suggest there are huge differences in

numbers, certainly, when we look at one end, which is the VA,

versus the lowest end on the prescription drug prices, huge differences in some cases.

But I am wondering. Secretary Tommy Thompson, as you know,

negotiated a better price for Cipro. Many of us had to go on Cipro

after what happened with anthrax. Do you think that was appropriate for him to use authority to negotiate in that case to get a

better price?

Secretary LEAVITT. In that case he was buying it for the government. In the case of Part D, people are buying drugs for their own

use. It is a far different role.

Senator STABENOW. So for the government it is all right to negotiate.

Secretary LEAVITT. Well, this is a far different role. We put those

into stockpiles and they stay there, and we will dispense them in

a time of emergency. That is the government making decisions for

government, not government making decisions for consumers.

Senator STABENOW. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Bingaman?

Senator BINGAMAN. Thank you very much.

Mr. Secretary, thank you for being here. I apologize for not being

here for your earlier statement. But I wanted to ask about two

issues. One is the administration’s proposal to limit Medicaid financing mechanisms for public providers.

Since Medicaid was first started, these kinds of mechanisms

have always been an important part of allowing State and local

government to finance the non-Federal portion of the Medicaid program. The administration proposed these changes last year and

sent legislation to the Congress in 2005 to enact these measures.

Congress rejected that.

Last year in the budget, the administration indicated its intent

to adopt these proposals administratively. I think there were letters sent—300 members of the House, 55 members of the Senate

signed those letters—opposing those cuts.

34

But despite this pretty clear bipartisan opposition to the proposal, the administration nevertheless went ahead with a proposed

regulation making fairly sweeping changes in Medicaid along these

lines. Why does the administration insist on going forward with its

rulemaking on this issue in light of the strong, clear opposition

here in Congress?

Secretary LEAVITT. The principle behind our actions stems from

the fact that we are partners with the States on these programs.

We have already put up 57 percent-plus, depending on the State

and the circumstance. We are looking to have a partnership where

both parties put up real dollars.

What happens in many cases is that States take Federal dollars,

they circulate them in a way that they can then return Federal dollars for the purpose of getting more Federal dollars. We are looking

for a partnership where Federal dollars are put up and State dollars are put up, and that we are not creating the kind of creative

financing that we have seen in the past.

I want to acknowledge, we have made substantial progress with

the cooperation of the States. It is a theme that we will continue

to sound because we think it is not only important to the integrity

of the program, but we think it is in the best interests of the viability of the program long-term.

Senator BINGAMAN. Has the administration prepared an analysis

of the impact on each State of this proposed rule, what you would

project to be the impact? I think quite a few States—mine included—have had some concern about how this would impact.

There are some ambiguities in the proposed regulation, as I understand it. If you have any State-by-State impact data, that would be

very useful for us.

Secretary LEAVITT. One moment. [Pause.] What information I

have, I will make available to you. It is partial. It is not complete,

but we will make what we have available to you.

Senator BINGAMAN. We would appreciate that. I think that would

be very useful. Maybe that will clear up some of the ambiguity. I

hope it does.

Let me ask, on one other issue, the President spoke in his State

of the Union, I believe, about providing Federal support to Statebased efforts to expand health coverage, and I certainly support

that. In fact, Senator Voinovich and I both have introduced a bill

to try to accomplish that, S. 325.

I am concerned, though, that some of the information that was

provided to us accompanying the State of the Union speech indicated that the President’s proposal was to pay for this, pay for

these initiatives by the States, by cutting funding for the Federal

Medicaid Disproportionate Share Hospitals. It seemed to me that

this was wrong-headed.

Obviously, the Disproportionate Share Hospitals in my State feel

very strongly that the funds that they receive through that provision of the law are extremely important for these safety net hospitals.

Could you clarify what your thinking is there as to whether we

should be taking money from safety net hospitals in order to support initiatives, or is there another way we could get this paid for?

35

Secretary LEAVITT. There are many places in the Federal budget

that support the efforts of hospitals in primarily three categories.

The first is to pay for uncompensated care, those patients who

come to the hospital who need to be cared for who do not have insurance.

The second category would be in supporting public hospitals with

capital, equipment, and other measures. Let me just settle with

those two. Our view is that, rather than perpetually pay the health

care bills of people who are uninsured, at least some part of that

could be used to help people get insurance.

Now, there will be always be people who are uninsured because

of different circumstances, but if we could dramatically reduce that

in a coordinated effort with the State, then perhaps some of that

money could be used in a better and more efficient way.

We currently have discussions going with more than a dozen

States. In each case, we are working with the hospitals and the

Governor to say, if you could dramatically reduce the number of

uninsured, does it make sense to have the exact same amount of

money going into perpetually paying the bills of the uninsured?

Well, it does not. It would likely make sense to make some of

that available to the Governor for the purpose of being able to have

an affordable basic health plan available to their citizens.

Senator BINGAMAN. But the way you are describing it, this would

be a choice that the State would make.

Secretary LEAVITT. Absolutely.

Senator BINGAMAN. So the State would be able to keep its DSH

funding as it currently has it and just not access Federal support

for other initiatives if it wanted to.

Secretary LEAVITT. That is right. That is the way we contemplated. I am meeting with a lot of States right now. I have

made a commitment to meet with nearly all of the States in the

100 days following the State of the Union, and I have been to about

10 now, and I will be in a dozen in the next couple of weeks.

In most of those cases, the State is already formulating an effort

to create a basic plan. We know that there are still going to be people in those States who cannot even afford a basic plan, and so we

want to work with the States to develop a plan of affordability.

Part of that plan of affordability could be to work with the hospital to say, if we reduced by half or more, if we could cover every

person who is uninsured with a basic insurance policy, we do not

need to perpetually pay the bills of people because they will be insured.

So does that free up at least a portion of this money that could

be used to help people buy insurance? We are working in a coordinated way with the Governors.

Senator BINGAMAN. Thank you very much. Appreciate it.

The CHAIRMAN. Thank you, Senator.

Thank you, Mr. Secretary. There were many Senators who said

they wanted to come back and ask more questions; obviously they

were unable to do so. I suspect that they will have questions for

you in writing, and I would just ask you to promptly respond.

Secretary LEAVITT. We will do our best, yes.

The CHAIRMAN. Even including the letter to Senator Grassley.

Secretary LEAVITT. To both parties, Senator.

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The CHAIRMAN. All right. Thank you.

Secretary LEAVITT. Thank you.

The CHAIRMAN. The hearing is adjourned.

[Whereupon, at 12 p.m., the hearing was concluded.]

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