[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




          BUSH ADMINISTRATION'S HEALTH AND WELFARE PRIORITIES

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 14, 2001

                               __________

                           Serial No. 107-11

                               __________

         Printed for the use of the Committee on Ways and Means

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
74-212                     WASHINGTON : 2001



                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel



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


                            C O N T E N T S

                               __________
                                                                   Page
Advisory of March 7, 2001, announcing the hearing................     2

                                WITNESS

U.S. Department of Health and Human Services, Hon. Tommy G. 
  Thompson, Secretary............................................     9

                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement...............    47
Alliance to Improve Medicare, statement..........................    49

 
          BUSH ADMINISTRATION'S HEALTH AND WELFARE PRIORITIES

                              ----------                              


                       WEDNESDAY, MARCH 14, 2001

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m., in 
room 1100 Longworth House Office Building, Hon. Bill Thomas 
[Chairman of the Committee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
March 7, 2001
FC-3

                   Thomas Announces Hearing Featuring

                       HHS Secretary Thompson on

                       the Bush Administration's

                     Health and Welfare Priorities

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the Bush Administration's health and welfare priorities. The hearing 
will take place on Wednesday, March 14, 2001, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 10:00 
a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from Secretary Thompson only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Bush Administration has put forward a bold agenda on 
modernizing Medicare, enacting a patient bill of rights, and continuing 
welfare reform. This hearing begins the dialogue between the 
Administration and Congress about its agenda and priorities in these 
areas.
      
    In announcing the hearing, Chairman Thomas stated: ``As Governor of 
Wisconsin, Secretary Thompson's record on health and welfare policy 
implementation is an innovative model for other states. I look forward 
to working with him as he brings his ideas and enthusiasm to bear on 
the range of important challenges facing us this year, beginning with 
the need to strengthen and improve the Medicare program.''
      

FOCUS OF THE HEARING:

      
    Secretary Thompson will present the Administration's health and 
human services priorities to the Committee.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Wednesday, 
March 28, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Committee office, room 1102 Longworth House Office 
Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://www.house.gov/ways__means/''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                


    Chairman Thomas. It is now my pleasure to welcome to the 
Ways and Means Committee the Health and Human Services 
Secretary, former Governor Tommy Thompson. Secretary Thompson 
has had a long and distinguished career in both health and 
welfare, as he presided over a record-setting 14 years as 
Governor of Wisconsin. This hearing marks the beginning of a 
dialog between the Bush administration and Congress, and the 
administration's priorities and Congress' desires in both the 
health and the welfare areas.
    I was pleased to see the Bush administration issue a set of 
principles, focusing on Patients' Bill of Rights. These 
principles send Congress the right message, that we have to 
have a real patient protection legislation that covers all 
Americans and ensures that individuals get the care that they 
need. It is our anticipation, based upon an announcement by the 
President last week, that this Committee will also receive 
principles on Medicare modernization, including prescription 
drugs. We look forward to that guidance and working in a 
bipartisan manner in this Committee to take those principles, 
translate them into legislation, and move them hopefully to the 
President's desk this year.
    That challenge is pretty formidable. Under current law, as 
we have seen in terms of the new numbers from the Congressional 
Budget Office, Medicare spending will more than double over the 
next 10 years. At the same time, notwithstanding that doubling 
of costs, the services provided by Medicare are simply not 
contemporary today with what any individual would expect to 
receive from a comprehensive health care program.
    Secretary Thompson, we want to work with you over the next 
several weeks to identify the kinds of improvements that we 
would like to see in the Medicare program. Some of the 
improvements, I am quite sure that as you put your structure 
together at Health and Human Services, you will be able to 
implement administratively. We do want to know where there need 
to be changes legislatively, but in short we want to work with 
you. We want to help move this program forward. It is important 
to all of us and our seniors are depending on us.
    With that, I would recognize----
    [The opening statement of Chairman Thomas follows:]

   Opening Statement of the Hon. Bill Thomas, M.C., California, and 
                 Chairman, Committee on Ways and Means

    It is my pleasure to welcome Health and Human Services Secretary 
Tommy Thompson to the Ways and Means Committee. Secretary Thompson has 
a long and distinguished record in both health and welfare reform in 
his 14 year tenure as governor of Wisconsin.
    For example, while Governor, welfare caseloads in Wisconsin 
declined more than 80 percent. Overall, the number of families 
receiving cash welfare fell from about 95,000 to fewer than 17,000 
through June 2000 as you created a new program focused on work. We 
understand it has fallen even more since then. In some Wisconsin 
counties, cash welfare has simply ceased to exist. That required a 
complete revolution in how government helps needy families, and you 
truly were a pioneer in this effort. As we take the next steps in 
reforming welfare nationwide, we are excited to have your vision and 
expertise to assist us.
    In the health care area, Governor Thompson initiated the ``Badger 
Care'' waiver, which used Medicaid managed care to dramatically 
increase health insurance coverage in Wisconsin. In addition, you 
pushed the States' Children Health Insurance Program (S-CHIP) to cover 
parents of poor kids.
    This hearing begins a dialogue between the Bush Administration and 
Congress about the Administration's priorities in the health and 
welfare areas.
    I was pleased to see the Bush Administration issue a set of 
principles on the patient bill of rights. Those principles send 
Congress the right message--we must have ``real'' patient protection 
legislation that covers all Americans and ensures that individuals get 
the care they need. The principles also make clear that, while we want 
to give patients their day in court, we are not interested in writing 
blank checks to trial lawyers, and increasing the cost of health care.
    What I find most heartening is this Administration's respect for 
Congress's role in the legislative process. Rather than sending us 
1,400 pages of detailed legislative language and expecting us to rubber 
stamp it, the Administration has the confidence that, once provided a 
framework, Congress should be trusted to make specific policy 
decisions.
    Last week, President Bush announced his intention to issue 
principles on Medicare modernization and prescription drugs. We look 
forward to that guidance, and to working in a bipartisan manner in this 
Committee to translate those principles into legislation that will be 
enacted into law this year.
    Our challenges are formidable. Under current law, Medicare spending 
will more than double over the next 10 years. At the same time, 
Medicare has not kept up with changes in health care, most notably 
incorporating out-patient prescription drugs.
    Secretary Thompson, we want to work with you over the next several 
weeks to identify the types of improvements that have to be made to the 
Medicare program. Some of those improvements you can accomplish on your 
own, administratively. Other changes have to be done legislatively. 
But, in short, we want to work with you to make these changes this 
year. Our seniors are depending on us.
    Secretary Thompson, we look forward to your testimony.

                                


    Mr. Kleczka. Mr. Chairman.
    Chairman Thomas. The gentleman from Wisconsin.
    Mr. Kleczka. Will the Chairman yield?
    Chairman Thomas. I would tell the gentlemen that following 
the ranking member's remarks, it is the chair's intention to 
recognize both the gentlemen from Wisconsin for an opportunity 
to welcome the former Governor.
    Mr. Kleczka. Thank you, Mr. Chairman. Very perceptive. In 
fact, my remarks are longer than your explanation.
    Chairman Thomas. With that, I would call on the gentlemen 
from New York.
    Mr. Rangel. Thank you, Mr. Chairman.
    Secretary Thompson, welcome to our Committee. I think our 
Nation is fortunate to have someone of your caliber and 
experience to be willing to serve in this very sensitive 
position. There are some sharp differences philosophically that 
we have in the Congress, but I do not think those differences 
mean that we do not want Americans to get the best possible 
health care that we can.
    Some people believe that health care is not a Federal 
government responsibility, that it should be left up to private 
organizations and individuals; others believe you should keep 
the Federal government out of it as much as possible and let 
the decisions be made by States and those closer to their 
constituents. Nevertheless, as this battle goes on and we have 
to deal with the budget problems, there are some serious 
questions as to whether the Medicare surplus, as we call it, is 
adequately protected and whether it is in a lock box, whether 
it is a slush fund, whether it is an emergency fund, whether it 
can be used for a variety of other purposes.
    Some feel more strongly than others. Throughout these 
hearings, we hope that we will be able to get your assurances 
that no matter what legislative decisions we make, we do know 
that in the next decade we expect the number of beneficiaries 
to double. We do not want to create a crisis, a fiscal crisis, 
for those people who will come looking for their benefits, and 
I know you do not. But sometimes bookkeepers and economists 
have different ways of explaining our fiscal situation, and 
since you are right in the middle of it, we hope that you will 
be able to clarify just what the President and the budget 
people mean when they say we do not have anything to worry 
about with the Medicare surpluses.
    We look forward to working with you, and I hope that our 
differences will not always have to be resolved at these type 
of hearings. I encourage the chairman to try to get the ability 
to work out these things without the glare of the television 
lights, and to do whatever else is necessary to resolve these 
issues for the benefit of the beneficiaries of this. Welcome to 
the Committee. I look forward to working with you.
    Chairman Thomas. Thank the gentleman, and I will call then 
for a brief introduction from the gentlemen from Wisconsin, Mr. 
Ryan.
    Mr. Ryan. Thank you, Mr. Chairman. It is very much a great 
pleasure to be here to help introduce Secretary Thompson. As 
many of you know, Tommy was the former Governor of my State, 
the State of Wisconsin. I think it is important to reveal a few 
important points about the kind of accomplishments that Tommy 
Thompson has had. He served four consecutive terms as our 
Governor. He was picked by President Bush because of his unique 
abilities. Time and again as Governor, he threw out the 
traditional approaches to government and experimented with 
innovative ideas. This kind of openness to innovative ideas is 
going to make him a successful HHS Secretary.
    His innovative W-2 program served as a model for the 
Nation. He drastically reduced the welfare rolls in Wisconsin. 
His ideas to extend health care to working poor families in 
what we call Badger Care, and to bring the disabled population 
into the work force through the Pathways to Independence 
Program, built on the success of welfare reform. These kinds of 
can-do ideas is what we now have at the Department of Health 
and Human Services, and it is just a distinct honor to be here, 
to introduce the most qualified person in the country for this 
job. Thank you. I yield.
    [The opening statement of Mr. Ryan follows:]

        Opening Statement of the Hon. Paul Ryan, M.C., Wisconsin

    Thank You, Chairman Thomas. I am pleased to be here today to 
introduce the Secretary of the Department of Health and Human Services, 
and the former Governor of my state, the State of Wisconsin, Tommy 
Thompson.
    Secretary Thompson was the first Governor in the history of 
Wisconsin to be elected to serve four consecutive terms as Governor. I 
am pleased that President Bush recognized his ability to make change 
and I am confident he will use this ability to get things done for the 
people of this nation.
    Time and again as Governor, Secretary Thompson was willing to throw 
out the traditional approaches to government and experiment with 
innovative ideas. I believe this openness to innovative ideas will make 
him a successful HHS Secretary.
    His innovative W-2 Program, which served as a model for the nation, 
has drastically reduced the welfare rolls in Wisconsin. His ideas to 
extend health care to working poor families in Badgercare and bring the 
disabled population into the workforce through Pathways to Independence 
further built on the success of welfare reform in Wisconsin.
    The Secretary's contributions in health and welfare in Wisconsin 
will serve the nation well. He is a mentor and a good friend and I ask 
you all to join me in welcoming Secretary Tommy Thompson.

                                


    Chairman Thomas. The other gentleman from Wisconsin.
    Mr. Kleczka. Thank you, Mr. Chairman. My colleague from 
Wisconsin, Mr. Ryan, took the words right out of my mouth. They 
were not as glowing, though. I want to join with the chairman 
and the Ranking Member and my colleague from Wisconsin in 
welcoming you, Governor, to the Ways and Means Committee. 
Wisconsin's loss is the Federal government's gain. I am unsure 
whether or not we should still call you Tommy. Jay Leno had a 
couple of things to say about that the other night and he 
thought it was not the most respectful, so maybe we can try out 
Secretary Thomas Thompson. How does that grab you? Back in 
Wisconsin, no one would know who we are talking about, though.
    But Governor, it is a real pleasure to welcome you. Paul 
indicated many of the innovations that you pushed through for 
the State of Wisconsin, that included a lot of waivers, some of 
which you got; some of which you did not get. I enjoyed working 
with you to ensure the waivers that we did finally get out of 
the department, and now, under your tenure, I am sure the 
waivers will be much easier to come by.
    Mr. Stark. Would the gentleman yield?
    Mr. Kleczka. I will yield to a former Wisconsinite, Pete 
Stark.
    Chairman Thomas. The chair is constrained to ask how many 
others claim roots in Wisconsin, prior to the Secretary----
    Mr. Kleczka. We have Marcy Kaptur and others coming in. She 
went to the University of Wisconsin, so it will be a long 
intro.
    Mr. Stark. Mr. Chairman, as a fourth-generation 
Wisconsinite, I, too, would like to welcome the Secretary and 
point out that I, too, when I was a youngster, as the Secretary 
is, was a Republican in Wisconsin, and I hope as he gets older, 
as I have, that he will see the error of his ways and join with 
us. Thank you, Mr. Chairman.
    Mr. Kleczka. In closing, Mr. Chairman, let me welcome 
Governor Thompson to the Committee, and I surely hope that with 
some of the issues facing us, issues that come out of your 
department, that we will work in a bipartisan way. There has 
been a lot of talk about bipartisanship from this new 
administration. I have yet to see any of it. Hopefully working 
together we will see some of it coming out of your agency.
    So thank you very much, Mr. Chairman.
    Chairman Thomas. Mr. Secretary, I stand in awe. Your 
reputation precedes you. Without uttering a word, you have 
created one of the biggest bipartisan love-ins this Committee 
has ever seen. Clearly you are a miracle worker. We welcome you 
to the Committee. Any written statement that you may have will 
be made a part of the record and you may address us in any way 
you see fit. I do want to caution the members of the Committee, 
the Secretary will return next Tuesday with the Secretary of 
the Treasury, as we look at the Social Security trust reports. 
So if you are not able to get a question in to the Secretary 
today, he is anxious to be with us again on Tuesday. With that, 
Mr. Secretary, welcome to the Committee.
    [The opening statements of Messrs. Matsui, McDermott, and 
Ramstad follow:]

    Opening Statement of the Hon. Robert T. Matsui, M.C., California

    Mr. Chairman, thank you for calling Chairman Thomas, thank you for 
providing the Ways and Means Committee with the opportunity to talk 
with the new Secretary of Health and Human Services, Tommy Thompson. 
Over the next two years, the Ways and Means Committee will reauthorize 
many important health and welfare programs that Secretary Thompson now 
administers. Secretary Thompson is also responsible for the nation's 
two largest health insurance programs, Medicare and Medicaid. I look 
forward to working with Secretary Thompson and my fellow members of 
this Committee as we work to improve these programs, which touch the 
lives of almost every American.
    Welcome, Secretary Thompson. As Governor of Wisconsin, you have 
been a pioneer in bringing health insurance to low-income children and 
families through the expansion of your Medicaid program, Badgercare. My 
home state of California has just announced plans to expand its CHIP 
program, Healthy Families, to cover parents of low-income children. I 
hope that more states follow the lead of Wisconsin and California and 
take this approach to providing health insurance to people without it.
    Wisconsin's welfare program has invested in the supports that 
people need to make the transition from welfare to work successful, 
including child care, health care, transportation, food stamps, 
education, and training. You have also led efforts to encourage people 
with disabilities to return to work through the Pathways to 
Independence Program. Wisconsin's Program of Assertive Community 
Treatment has opened up new possibilities for the treatment of people 
with severe mental illnesses
    With the help of programs such as these, Wisconsin has one of the 
lowest child poverty rates in the nation and one of the lowest 
percentages of children without health insurance. I hope that we can 
learn from your accomplishments at the state level and decrease child 
poverty and uninsured rates across the nation.
    The largest program you now oversee as Secretary of Health and 
Human Services is Medicare. I have some serious concerns with the way 
that the President's budget uses the Medicare surplus. As you know, the 
Medicare Hospital Insurance Trust Fund is used to pay Part A benefits. 
Currently, the Trust Fund is running a surplus. The Office of 
Management and Budget projects that this surplus will total $526 
billion over the next 10 years. But this surplus is only temporary. In 
a few years, we will need to draw on this surplus to finance Part A 
benefits for a growing number of seniors.
    The most prudent use of the Medicare surplus would be to help pay 
down the national debt. However, the President's budget uses this 
surplus to finance a ``contingency fund,'' which the President suggests 
could be spent on national defense, aid for farmers, or a Medicare drug 
benefit. While these initiatives may well require additional funds, we 
shouldn't use the Medicare surplus to pay for them. When the time comes 
for us to draw down that Medicare surplus to pay Part A benefits, and 
if we've already used to surplus to finance something else, we're going 
to have to cut Medicare benefits, cut spending in other areas, or put 
our country back into debt.
    The President's budget makes a serious error that could have 
repercussions not only for Medicare but all government spending. It 
goes against promises made by both parties to put the Medicare surplus 
in a lock box and prepare our country for the retirement of the baby 
boom generation. I hope that the Administration reconsiders the 
budget's use of the Medicare surplus, because this move not only hurts 
our nation's seniors and baby boomers but our children and 
grandchildren as well.

                                

      Opening Statement of the Hon. Jim McDermott, M.C., Minnesota

    As a former member of the National Bipartisan Commission on the 
Future of Medicare, as a member of this subcommittee and as a 
physician, I have been intimately involved with the debate over 
Medicare reform.
    I do not believe that the traditional Medicare program is 
fundamentally broken. I do believe that we must take steps to ensure 
the program's solvency. Any Medicare reform proposal must ensure that 
beneficiaries in tomorrow's world have access to the same basic 
benefits that already exist in today's program. We must improve the 
status quo by including an affordable prescription drug benefit and 
establishing a cap on out-of-pocket costs.
    I have great reservations about the approach the Administration 
takes with respect to the Medicare program. It misleads the public by 
putting the Part A Hospital Insurance trust fund surplus into its 
contingency fund, making it available for other spending needs. 
Further, the Administration combines Parts A and B, and portrays a 
crisis with the program facing a $645 billion deficit over the next ten 
years.
    In reality, there is no deficit. The financing structure of the 
program dictates that 25% of Part B is paid by beneficiary premiums and 
75% from general revenues. Withdrawing from general revenues is 
intended--it is not a crisis!
    The 2000 Hospital Insurance Trustee's Report places the Part A 
insolvency date at 2025. Combining Parts A and B as the Administration 
proposes would speed up the date of insolvency by 20 years, to 2004.
    The President's proposal to set aside $156 billion for Medicare 
reform and a prescription drug benefit. This is woefully inadequate.
    I want to protect the traditional Medicare program. Additional 
revenues are needed to meet the future financial obligations. I hope we 
can work together on Medicare reform so we can mend the program and 
improve benefits for all beneficiaries.

                                

       Opening Statement of the Hon. Jim Ramstad, M.C., Minnesota

    Mr. Chairman, thank you for calling this important hearing today to 
learn about the Bush Administration's agenda for health care and human 
services.
    I want to start by commending President Bush and Secretary Thompson 
for accepting the challenge of modernizing Medicare, enacting a 
patients' bill of rights and continuing to reform welfare.
    I strongly believe that Medicare needs to be comprehensively 
reformed and modernized. We cannot focus on simply tinkering around the 
edges, and we must not take the easy road of simply adding a 
prescription drug benefit to an already overburdened program. I am 
pleased the Administration is working with Congress to develop a plan 
to provide seniors with prescription drug coverage, and I am also 
pleased that the President has pushed for comprehensive reform this 
year.
    As a representative from a state hurt by the unfair and unjust 
inequity in the Medicare managed care reimbursement formula, I know 
firsthand the difficulties faced by seniors when irrational decisions 
at the federal level deny them the choices they deserve. This is also 
true in the medical device industry. Small businesses, their employees 
and seniors all suffer when the federal system irrationally delays or 
denies coverage of their innovative products. Only through 
comprehensive reform and modernization of the Medicare program can 
these endemic problems be fixed.
    I'm also supportive of the Administration's efforts to forge 
consensus on a patients' bill of rights. Last year, we had an 
opportunity to find common ground and were thwarted by the previous 
Administration. This year, with the President's obvious commitment to 
this issue, I am hopeful we can work together for all Americans.
    I also strongly support continuing the progress we've made in 
recent years on welfare reform. We cannot let the success of welfare 
reform make us complacent for the future.
    I want to thank Secretary Thompson and President Bush for their 
leadership. I look forward to today's testimony and thank you Mr. 
Chairman for calling this important hearing.

   STATEMENT OF THE HON. TOMMY G. THOMPSON, SECRETARY, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Secretary Thompson. Good morning, Chairman, and thank you 
so very much for your kind words in introduction.
    Congressman Rangel, thank you for your kind words; and, 
Congressman Stark, it is great to have somebody with four 
generations living in Wisconsin. I probably will not become a 
Democrat, but I thank you for your solicitation.
    Congressman Ryan, thank you for your kind words; and 
Congressman Kleczka, a friend for a long time, I appreciate 
that and we will be bipartisan; I thank you very much for your 
kind words and working with you as a legislator and also as a 
Governor, and now, hopefully, as Secretary. I appreciate that.
    All of the Members of the Committee, I am here today and 
honored very much and humbled to appear before you to discuss 
the framework of the President's fiscal year 2002 budget for 
the Department of Health and Human Services.
    Mr. Chairman, the written testimony I submitted was broader 
than the jurisdiction of this Committee. Since the hearing 
today is on President Bush's budget framework, I felt it was 
important to give you an overview of the priorities for the 
entire department. Today, however, I will focus my remarks on 
items in the budget that will be coming in front of your 
Committee. I will also say that we have begun to talk about 
Medicare reform, Mr. Chairman and members.
    I know all of you have been involved in this issue far 
longer than I have. We in the administration look forward to 
working with you and the Members of this Committee to bring 
about a true modernization of this vital program. The 
department's goal is to build a healthier America by improving 
the quality of health care and the quality of life for all 
American families.
    President Bush has outlined a very ambitious agenda for the 
Nation, and especially for the Department of Health and Human 
Services; and we will play a major role. There are great 
challenges before us, but I am very confident that we will be 
able to work together in a bipartisan fashion to successfully 
meet them. If we are to succeed, we must be willing to re-
examine the way we do things on the national level. We must no 
longer be content with the status quo simply because that is 
how we have always done it.
    The HHS budget proposes new and innovative solutions for 
meeting the challenges that face the Nation. Through this 
budget, we will modernize Medicare, including providing access 
to prescription drugs. We will improve access to quality health 
care, increase support for America's families, and strengthen 
the way the department operations are truly managed. This 
blueprint reflects the President's commitment to protecting 
Social Security, Medicare and other priority programs, while 
continuing to pay down the national debt and providing tax 
relief for all Americans.
    The budget request for HHS for fiscal year 2002 is $471 
billion, an eight percent increase for all programs, and $55.5 
billion for discretionary programs, or a 5.1-percent increase. 
Let me now highlight some of our major proposals that will be 
coming before your Committee. Of all the issues confronting 
this department, none has a more direct effect on the well-
being of our citizens than the quality of health care. We want 
to modernize Medicare to make sure that it is the best program 
possible for our senior citizens, protecting the quality 
benefits our seniors currently receive, while making sure the 
program is able to provide quality benefits to future 
generations, as well.
    I know this is very important, especially to you, Mr. 
Chairman, and to other members on the Ways and Means Committee. 
Part of modernizing Medicare is adding a prescription drug 
benefit because drugs are such a major component of health care 
today; from prevention to treatment of illness. When Medicare 
was created in 1965, prescription drugs were not the integral 
part of health care that they are today. Drug coverage was not 
included as part of the Medicare benefit package. But what was 
acceptable 35 years ago is simply unacceptable today. It just 
does not make common sense for a 21st century health care 
program to exclude a prescription drug benefit.
    Many of America's seniors do not have access to 
prescription drugs today, and a new study released earlier this 
week shows a growing gap in the number of prescriptions filled 
for seniors with access to coverage than those without access. 
That clearly is not because seniors without drug coverage have 
less of a need for prescriptions. That is why the President has 
put forward the Immediate Helping Hand prescription drug 
proposal. This proposal gives immediate financial support to 
States so that they can provide prescription drug coverage to 
our neediest citizens.
    The President believes comprehensive Medicare reform needs 
to be enacted at the same time as the prescription drug 
benefit. The President wants to devote $153 billion over the 
next 10 years on Medicare modernizations that will help improve 
the financial help of the program and add a prescription 
benefit for all Medicare beneficiaries. We will protect 
Medicare. These improvements and modernizations will strengthen 
Medicare and will not be done at the expense of other aspects 
of the program.
    As the President said in his budget address, every penny of 
the Medicare trust fund will be used for Medicare. Let me 
repeat that. Every penny of the Medicare trust fund will be 
used for Medicare, period. As we modernize and strengthen 
Medicare, we must also reform the way its principal agency, 
HCFA, works. The demands of the Health Care Financing 
Administration have grown dramatically, and we must ensure that 
it has the necessary resources to run the all-important 
Medicare, Medicaid and SCHIP, the State Children's Health 
Insurance Programs. At the same time, we recognize that 
patients, providers and States have legitimate complaints about 
the scope and the complexity of the regulations and the 
paperwork that govern these programs. As I have said many 
times, HCFA needs to undergo a thorough examination of its 
missions, its competing demands, and, yes, its resources.
    We are currently in the process of undertaking just that 
kind of comprehensive, aggressive review. For example, HCFA has 
a budget of $375 billion, yet it still does not have a double-
entry bookkeeping system. The single-entry bookkeeping system 
went out in the early 1900s. So it is no understatement to say 
that the largest health insurance company in the world needs to 
be modernized. Along those lines, we also need to upgrade the 
computer system so that everyone will be able to say that we 
are doing and operating HCFA in the most efficient way 
possible. A lot of our computer systems were installed in 1970.
    We also need to create a concrete schedule on rule changes. 
Instead of just blind siding participants with new rules that 
they know little or nothing about, we should be able to time 
the rules so everyone is aware of the changes. We should be 
able to alert everyone, whether it be on a quarterly, semi-
annual or annual basis, to smooth out the transition. This 
administration also is committed to strengthening long-term 
care in this country. In Wisconsin, we created a program called 
Family Care that allowed the elderly and the disabled to 
receive the best and greatest number of choices possible for 
long-term care.
    I look forward to working with each of you and the States 
to continue to develop innovative solutions on long-term care. 
We also recognize that we have some decisions to make in the 
coming years about the future of welfare reform and how we go 
to the next step. The President has offered significant 
proposals this year, including a $200 million increase to 
expand the Safe and Stable Families program, and $67 million in 
new grants for mentoring children of prisoners, to help our 
youth through the time that their parents are in prison.
    The President also has proposed a $400 million after-school 
care program that will allow families to have access to quality 
child care, which is so vital to parents being able to remain 
in the work-force. Again, I look forward to working with every 
member of this Committee as we begin to explore the future of 
welfare reform.
    Mr. Chairman, the budget I bring before you today contains 
a number of different proposals, but one common thread binds 
them all together, that is the desire to improve the lives of 
all American citizens. All of our proposals are put forward 
with the one simple goal in mind, and I know that is a goal 
that all of us share on a bipartisan basis. I look forward to 
working with each of you to ensure that we develop a budget for 
this department that effectively serves the national interest 
and all of our citizens.
    Thank you, and now I would be extremely happy to answer any 
questions that you may have.
    [The prepared statement of Secretary Thompson follows:]

Statement of the Hon. Tommy G. Thompson, Secretary, U.S. Department of 
                       Health and Human Services

    Good Morning, Chairman Thomas, Congressman Rangel, and Members of 
the Committee. I am honored to appear before you today to discuss the 
framework of the President's FY 2002 budget for the Department of 
Health and Human Services.
    As I have noted on other occasions, I accepted the position of 
Secretary of this Department because I believe that there is no other 
job in America where you have a greater opportunity to help people--to 
actually make a difference in people's lives and improve the quality of 
life they lead. President Bush has outlined an ambitious agenda for the 
nation, and I take great pride in the fact that this Department will 
play a major role in carrying out his plans. I would be less than 
candid if I did not acknowledge the vast scope of the challenges that 
lie ahead of us, but I am confident that we will be able to work 
together in a bipartisan fashion to successfully meet them.
    If we are to succeed in improving the lives of the people of this 
great nation, we must be willing to take another look at the way we do 
things on the national level. We must no longer be content to do things 
a certain way because ``that's how we've always done it''; but must 
instead be willing to reform our business practices and seek innovative 
ways to manage our programs. And while we know that the federal 
government has an important role to play, we must also recognize that 
we must look to others--to State and local governments, to community 
faith-based organizations, to academic and religious institutions--for 
new and creative approaches to solving public problems. The President 
and I share this view, and I am proud to say that it is reflected in 
the budget framework he has put forward.
    The framework I present to you today keeps the promises the 
President has made and proposes new and innovative solutions for 
meeting the challenges that face the nation. It seeks to enhance the 
groundbreaking research being conducted at the National Institutes of 
Health; modernize Medicare and expand access to quality healthcare; 
increase support for America's families; and reform the way the 
Department's operations are managed. Our proposals also reflect the 
President's commitment to a balanced fiscal framework that puts 
discretionary spending on a more reasonable and sustainable growth 
path, protects Social Security and other priority programs, continues 
to pay down the national debt, and provides tax relief for all 
Americans.
    Mr. Chairman, the total HHS request for FY 2002 is $ 471 billion 
(budget authority) and $468 billion (budget outlays). The discretionary 
component totals $ 55.5 billion (budget authority). Let me now 
highlight some of our major proposals.

ENHANCING RESEARCH AT THE NATIONAL INSTITUTES OF HEALTH
    The National Institutes of Health (NIH) is the largest and most 
distinguished biomedical research organization in the world. The 
research that is conducted and supported by the NIH, from the most 
basic research on biological systems to the effort to map the human 
genome, offers the promise of breakthroughs in preventing and treating 
any number of diseases. A top priority for this Department is ensuring 
that the NIH continues to have the resources necessary to help turn 
these promises into a reality.
    To this end, the framework I present to you today includes a 
Presidential Initiative to double NIH's FY 1998 funding level by FY 
2003. For FY 2002, we are proposing an increase of +$2.75 billion, 
which will be the largest increase ever for NIH. This funding level 
will enable NIH to support the highest level of total research grants 
in the agency's history.
    With any large increase in resources, there also comes the 
increased challenge of making sure that those resources are managed 
properly. I take this responsibility very seriously, and NIH will be 
working to develop strategies to ensure that we are managing taxpayer 
dollars in the most efficient and effective way.

MODERNIZING MEDICARE AND EXPANDING ACCESS TO QUALITY HEALTHCARE
    Of all the issues confronting this Department, nothing has a more 
direct effect on the well-being of our citizens than the quality of 
health care. Our budget framework proposes to improve the health of the 
American people by beginning the process of modernizing Medicare, 
including the addition of a prescription drug benefit; and by expanding 
access to quality health care.

Immediate Helping Hand
    For thirty-five years the Medicare program has been at the center 
of our society's commitment to ensuring that all of our seniors enjoy a 
healthy and secure retirement. But the Medicare program is more than 
just a social contract between the government and the elderly, it is a 
commitment that our society has made to our seniors, as well as to the 
disabled. Honoring this commitment means not only making sure that the 
program is financially prepared for the wave of new beneficiaries that 
the aging of the baby-boom generation will bring, but ensuring that 
current beneficiaries have access to the highest quality care.
    When Medicare was created in 1965, prescription drugs were not the 
integral part of health care that they are today and coverage for them 
was not included as part of the Medicare benefit package. But what was 
acceptable thirty-five years ago is simply unacceptable today. As a 
first step toward remedying this situation, the President has put 
forward an Immediate Helping Hand (IHH) prescription drug proposal. 
This proposal gives immediate financial support to States so that they 
can provide prescription drug coverage to beneficiaries with limited 
incomes or high drug expenses.
    The IHH proposal would complement and build on plans that are 
currently available in almost half the states, and under consideration 
in most others. The IHH would be fully funded by the Federal government 
and would provide States with the flexibility to choose how to 
establish coverage or enhance existing plans. Individuals with incomes 
up to $11,600 and married couples with incomes up to $15,700 who are 
not eligible for Medicaid or a comprehensive private retiree benefit 
would pay no premium and no more than a nominal charge for 
prescriptions. Individuals with incomes up to $15,000 and married 
couples with incomes of up to $20,300 would receive subsidies for at 
least half the cost of the premium for high-quality drug coverage. The 
IHH plan also includes a catastrophic component that would cover any 
Medicare beneficiaries with very high out-of-pocket drug costs. The 
President's proposal would provide immediate coverage for up to 9.5 
million beneficiaries while we work to enact broader Medicare reform.
    The Immediate Helping Hand is a temporary plan to help our Nation's 
seniors who are most in need of assistance with their prescription drug 
costs. The benefit will sunset in four years or as soon as a 
comprehensive Medicare reform and prescription drug benefit is 
implemented. However, this plan is critical because it provides 
assistance to millions of Americans this year. The President is 
committed to providing a prescription drug benefit to all Medicare 
beneficiaries and wants to work with Congress in a bipartisan fashion 
to see this happen.
    The President believes comprehensive Medicare reform needs to be 
enacted at the same time as a prescription drug benefit. As I have 
already mentioned, the Medicare program has not kept pace with modern 
medicine. Today, Medicare covers only 53 percent of the average 
senior's annual medical expenses and the program's benefits package is 
lacking. In addition, Medicare is facing a looming fiscal crisis. A 
full assessment of the health of both the Part A and Part B Trust Funds 
reveals that spending exceeds the total of tax receipts and premiums 
dedicated to Medicare and that gap is expected to widen dramatically. 
Even without the financing problem, Medicare modernization would be 
necessary to ensure beneficiaries get high quality health care. 
President Bush wants to devote $153 billion over the next ten years on 
urgently needed Medicare modernizations that will help improve the 
financial health of the program and the addition of a prescription drug 
benefit for all Medicare beneficiaries.

Expanding Community Health Centers
    While modernizing Medicare is the cornerstone of our healthcare 
agenda, we are also proposing steps to strengthen the health care 
safety net for those most in need. Community Health Centers provide 
high quality, community based care to approximately 11 million 
patients, 4.4 million of whom are uninsured, through a network of over 
3,000 centers in rural and urban areas. The President has proposed to 
increase the number of health center sites by +1,200 by FY 2006. As a 
first installment of this multi-year initiative, we propose to increase 
funding for Community Health Centers by +$124 million. We will also be 
looking at ways to reform the National Health Service Corps so as to 
better target placement of providers in areas experiencing the greatest 
shortages.

Increasing Access to Drug Treatment
    The problems caused by substance abuse affect not only the physical 
and mental condition of the individual, but the well-being of society 
as a whole. Nationwide, approximately 2.9 million people with serious 
substance abuse problems are not receiving the treatment they 
desperately need. To help close this treatment gap, we propose to 
increase funding for substance abuse treatment by +$100 million. These 
funds will be used to increase the Substance Abuse Block Grant, the 
primary vehicle for funding State substance abuse efforts, and to 
increase the number of Targeted Capacity Expansion grants, which seek 
to address the treatment gap by supporting strategic and rapid 
responses to emerging areas of need; including grants to organizations 
that provide residential treatment to teenagers.

INCREASING SUPPORT FOR AMERICA'S FAMILIES

    William Bennett once said that ``the family is the original 
Department of Health, Education, and Welfare,'' and while the name of 
this Department may have changed, the truth of this statement has not. 
America's families are its strength, and this Department is committed 
to doing everything in its power to help better the lives of America's 
families and children. We are proposing a number of new initiatives to 
help improve the quality of life of our nations' families; as well as 
to increase support for the charitable organizations that can make such 
a difference in people's lives.

After School Certificates
    One of the lessons I learned during my years as Governor of 
Wisconsin was that for people to move from dependency to success in the 
workforce, you had to be willing to invest in programs that support 
working families. One of the most important things that we as a 
government can do to help working families is to assist them in 
obtaining high-quality child care. Last year the Congress voted to 
provide a substantial increase in child care funding, and this year we 
are asking you to take another step to help working parents, and their 
children, be successful. The President has proposed to specifically 
dedicate $400 million for After School Certificates within the Child 
Care and Development Block Grant. This would help low income working 
parents to pay for the costs of after school care for their children. 
We expect these after school activities to also have a strong 
educational component, helping children to achieve success in school.

Promoting Safe and Stable Families
    Our budget framework takes a number of steps to help protect our 
most vulnerable and at-risk children and to help them live safe and 
productive lives. First, we propose a +$200 million increase for the 
Promoting Safe and Stable Families program, which supports State and 
Tribal child welfare agencies in carrying out family preservation and 
support services. These additional funds will be used to help keep 
children with their biological families, or if it is not possible for 
them to safely remain with them, to place them with adoptive families. 
We will also provide an additional $2 million to expand collaborative 
Federal/State child welfare monitoring efforts. Second, we propose to 
create a new $67 million initiative within the Promoting Safe and 
Stable Families program to assist children of prisoners. This 
initiative will provide grants through States to assist faith and 
community-based groups in providing a range of activities to mentor 
children of prisoners and probationers, including family-rebuilding 
programs, that serve low-income children of prisoners and probationers. 
Finally, we propose an additional +$60 million for the Independent 
Living program. These funds would be used to provide vouchers, worth up 
to $5,000, to youths who are aging out of foster care so that they can 
obtain the education and training they need to lead productive lives. 
Funds could be used to pay for either college tuition or vocational 
training.

Maternity Group Homes
    One of the toughest problems we face in trying to end the cycle of 
dependency is children having children. These teenage mothers have 
often suffered abuse or neglect themselves and may not have a safe and 
supportive family environment in which to raise their babies. To begin 
removing the obstacles to success that these mothers and their children 
face, we are proposing $33 million for a new Maternity Group Homes 
program. This program will support State efforts to work with 
organizations that operate community-based, adult-supervised group 
homes for teenage mothers and their children as well as to provide 
certificates to young mothers to obtain supportive services. These 
homes will provide a safe and nurturing environment for young mothers 
while offering the support necessary to help them and their children to 
improve their lives.

Promoting Responsible Fatherhood
    Helping young mothers is an important part of our program to assist 
America's families, but it is also important that we recognize the 
critical role that fathers play in the lives of their families.
    Our budget framework includes $64 million to begin an initiative to 
promote responsible fatherhood by providing competitive grants to 
faith-based and community-based organizations that work to strengthen 
the role that fathers play in their families' lives. These funds will 
be used to support programs that help low-income and unemployed fathers 
and their families to avoid dependence on welfare, and to fund programs 
that promote successful parenting and marriage. Of these funds, $4 
million will be used for special projects of national significance.

Compassion and Charitable Giving
    The President has been a leader in recognizing the important role 
that charitable organizations play in delivering services to the 
public, and we are proposing a number of steps to increase federal 
support for these groups. First, we are requesting $67 million to 
establish a Compassion Capital Fund. Through public and private 
partnerships, these resources will be used to provide start-up capital 
and operating funds to qualified charitable organizations so that they 
can expand or emulate model social services programs. To complement 
this Compassion Capital Fund, we also propose to create a $22 million 
fund to support research on ``best practices'' among charitable 
organizations. Our budget framework also includes $3 million to 
establish a Center for Faith-Based and Community Initiatives in the 
Department in accordance with the President's recent Executive Order. 
Finally, we have included a proposal to encourage states to provide tax 
credits for contributions to designated charities that work to address 
poverty. Under this proposal, States would be allowed to use federal 
funds provided through the Temporary Assistance for Needy Families 
program to partially offset revenue losses that resulted from the tax 
credits.

REFORMING THE MANAGEMENT OF THE DEPARTMENT'S OPERATIONS

    For any organization to succeed, it must be willing to change. We 
must never stop asking ourselves how can we be doing things better. But 
we must also recognize that we do a disservice to all that rely on this 
Department if we do not provide the resources necessary to effectively 
administer our programs. In preparing our budget framework, we began 
the process of evaluating the programs and business practices of this 
Department and identifying the areas where we can do a better job of 
managing taxpayer resources, as well as those areas where new 
investments are required if we are to successfully administer our 
operations.

Health Care Financing Administration Reform
    One of the top priorities of this Administration is improving the 
management of the Health Care Financing Administration (HCFA). The 
demands on this organization have grown dramatically in the last few 
years, and we must make sure that they have the necessary resources to 
successfully administer the Medicare, Medicaid, and State Children's 
Health Insurance programs on which so many people depend. At the same 
time, we must recognize that patients, providers, and States have 
legitimate complaints about the scope and complexity of the regulations 
and paperwork that govern these programs. During my confirmation 
hearings, I said that HCFA needed to undergo a thorough examination of 
its missions, its competing demands, and its resources. We are 
currently in the process of undertaking just this kind of comprehensive 
review, and we will consider any and all options for improving the 
agency and making it a more responsive and effective organization.
Investing in Departmental Infrastructure
    The only way that this Department can effectively serve its many 
clients is if we commit to making the necessary investments in our 
management and infrastructure. One of the challenges in a large, 
decentralized Department such as HHS is finding ways to bring together 
diverse activities and to develop coordinated systems for managing our 
programs. Our budget framework provides the resources necessary to 
continue modernizing our facilities, and proposes steps to begin the 
process of streamlining our financial management and information 
technology systems so that we can enhance coordination across the 
Department and eliminate unnecessary and duplicate systems.
    It is critical that we invest in the modernization of the 
laboratories and office facilities in which many of our most important 
activities occur. With this goal in mind, we are requesting $150 
million to continue a major revitalization of labs and scientific 
facilities at the Centers for Disease Control and Prevention. We have 
also included funding for the Food and Drug Administration to finish 
construction of the Los Angeles laboratory and to continue development 
of the new headquarters facility in White Oak, Maryland.
    For financial management, we propose to invest an additional $50 
million to move toward a unified financial accounting system. The 
Office of Inspector General has cited major problems with the 
Department's current system structure, which involves five separate 
accounting systems operated by multiple agencies. We plan to replace 
these antiquated systems with one or two unified financial management 
systems that will increase standardization, reduce security risks, 
allow HHS to produce timely and reliable financial information needed 
for management decision-making, and provide accountability to our 
external customers.
    In the information technology arena, we are proposing $ 30 million 
for a new Information Technology Security and Innovation fund. 
Currently, the Department's information technology systems are highly 
decentralized, heterogeneous, and vulnerable to exploitation. Funds 
would be used to implement an Enterprise Infrastructure Management 
approach across the Department that would minimize our vulnerabilities 
and maximize our cost savings and ability to share information. With 
this approach, we will be able to reduce duplication of equipment and 
services and be better able to secure our systems against viruses and 
network intrusion.
    As the largest grant-making agency in the Federal Government, this 
Department will also continue to play a lead role in the government-
wide effort to streamline, simplify, and provide electronic options for 
the grants management processes. As part of the Federal Grant 
Streamlining Program, we will work with our colleagues across the 
government to identify unnecessary redundancies and duplication in the 
more than 600 Federal grant programs, and to implement electronic 
options for all grant recipients who would prefer to apply for, 
receive, monitor, and close out their Federal grant electronically.

Redirecting Resources
    Being a wise steward of taxpayer resources means not only 
recognizing where you need to invest, but also where resources can be 
redeployed to more effective uses. In preparing our budget framework, 
we carefully reviewed each agency, identified areas where funding could 
be redirected, and made targeted reductions in selected programs. Funds 
for one-time projects and unrequested activities were also eliminated, 
and the monies redirected to higher priority programs. These decisions, 
which were made in accordance with the President's overall fiscal 
goals, will help to moderate the growth of the Department's budget and 
put it on a more sustainable path.
    Last year, Congress took an important step to protect the integrity 
of the Medicaid program by passing legislation to address the ``upper 
payment limit'' loophole, which allowed states to draw down billions of 
dollars in federal matching payments for hospitals and nursing homes 
without any assurance that these payments were used for their intended 
purposes. But this legislation only partially addressed the problem, 
because it created a higher upper payment limit for non-State 
government operated hospitals. Our budget proposes to go even further 
in closing the loophole, by prohibiting new hospital loophole plans 
that were deemed approved after December 31, 2000 from receiving the 
higher upper payment limit proposed in the Department's final rule 
implementing the upper payment limit legislation.
    In addition to taking steps to further address the Medicaid ``upper 
payment limit'' loophole, the Administration plans to work with States 
to develop ideas that will improve States' ability to provide quality 
health care through their Medicaid and State Child Health Insurance 
Programs. Within this framework of increased State flexibility, the 
Administration also plans to work with States to stem the growth of 
Medicaid costs and ensure the fiscally prudent management of the 
Medicaid and SCHIP programs.

WORKING TOGETHER TO BUILD A BETTER NATION

    Mr. Chairman, the budget I bring before you today contains a number 
of different proposals, but one common thread binds them all togther--a 
desire to improve the lives of the American people. All of our 
proposals, from enhancing scientific research to modernizing Medicare, 
from expanding access to care to increasing support for the nation's 
families, are put forward with this one simple goal in mind, and I know 
this is a goal we all share.
    As you begin to consider our proposals, let me leave you with one 
final thought. Senator Everett Dirksen said of the legislative process: 
``You start from the broad premise that all of us have a common duty to 
the country to perform. Legislation is always the art of the possible. 
You could, of course, follow a course of solid opposition, of 
stalemate, but that is not of the interest of the country.'' Starting 
from this premise, I am prepared to work with each of you to ensure 
that we develop a budget for this Department that effectively serves 
the national interest. I would be happy to address any questions you 
may have.

                                


    Chairman Thomas. Thank the Secretary very much. The chair 
knows we are going to be engaged in a number of long working 
sessions, and so rather than engage in any questioning at this 
time, it is my pleasure to turn the chairman's question time 
over to the chairman of the Health Subcommittee, the 
gentlewoman from Connecticut, Mrs. Johnson.
    Mrs. Johnson OF CONNECTICUT. I thank the chairman, and 
welcome, Secretary Thompson. It is a pleasure to have someone 
at the helm of this important agency that has the breadth of 
experience that you have had, and has shown throughout their 
career, a real sensitivity and responsibility to the impact of 
public policy on people's lives. I am very glad to hear the 
words that you are saying today about the very comprehensive 
and aggressive review of the structure of HCFA that you are 
undertaking. Indeed, as recently as 3 weeks ago, I sat with a 
group of home health providers in my district who were 
absolutely panicked at a directive from HCFA that would, in 
fact, close them up in 10 days. Now, luckily, the people in 
Washington--and we have lots of good people in our employ--did 
listen, did respond. We talked about it and we avoided actual 
closures, but we do have a ways to go down the track of trying 
to figure out how the sheer complexity of these regulations can 
be implemented in such difficult circumstances as those home 
health agencies that serve intercity neighborhoods.
    So we must review this and we are going to have to really 
work hard at the issue of simplification of the regulations or 
America will not have the small provider sector on which, right 
now, most of our seniors depend. We will not have the little 
nursing homes. We will have only chains. Then may be good or 
bad, but I think it is not adequate. We will not have the small 
practices in the rural areas. We will not have the home health 
agencies in the rural areas and in the small towns that have 
done such a wonderful job over many years. So this issue of 
reviewing the regulatory structure that we have put in place 
and making it simpler and less burdensome is an urgent issue, 
not as sexy as many, but I am glad that you understand its 
importance and will take it on with us.
    I also want to commend you on your clear commitment to 
including prescription drugs in Medicare. As you say, they are 
essential to prevention. They are essential to treatment. We 
absolutely must do it. We made some pretty good progress last 
year, but I would like to ask you if your department has begun 
to think about how to structure premium and cost sharing levels 
to encourage participation in the drug benefit program while, 
at the same time, keeping some kind of overall program spending 
in check. As we have worked on this issue in the past, we have 
really struggled with how to structure the program so that 
group that has no coverage now, whose incomes are just above 
the poverty level, can actually afford to participate in the 
benefit and yet we can afford to control the overall cost. So 
is this particular issue of cost availability and therefore 
real access to low-income seniors something that you are 
focusing on as you begin your work on prescription drugs?
    Secretary Thompson. Thank you very much for the question, 
but first could I just quickly respond to HCFA? We have some 
wonderful people at HCFA and they want to do the right thing. 
The problem has been there has been a lot of new programs, new 
additional responsibilities placed upon HCFA and they really 
have not had the added resources to do the job. I am not here 
to complain. I am here just to state a fact. We have a computer 
system that is lacking as far as power and efficiencies to run 
that program. Most of it was operational in 1970. It has been 
added to but we need a new system to replace; a bookkeeping 
system that is outdated and has not been kept up-to-date. We 
are making lots of mistakes.
    We pass rules and regulations willy nilly, and they are 
very complex. I am trying to get them to understand it is 
simpler just to put the rules out either on a quarterly or 
semi-annual basis so people will actually be able to respond 
and understand them instead of anytime throughout the year. We 
are expecting to do that. We are also trying to change the 
attitude at HCFA. Instead of trying to find a way to say no, we 
are trying to convince them it is just as easy to say yes and 
be flexible and be very, very much involved.
    We are going to be coming back to this Committee and to 
other Committees in Congress with the results of our 
examination, and I am sure that you will be supportive of those 
changes. In regards to Medicare, we are just getting started in 
making those changes. What you have asked is a question that we 
have not been able to resolve. I am looking for, hopefully with 
suggestions from you, Congresswoman Johnson, who I know has 
studied this probably much more than I have--and I am looking 
for suggestions. But we are trying to put together a statement 
of principles on what Medicare reform should have in it, and we 
are talking and working with the White House at the present 
time, and I will be discussing that with you in the future.
    Mrs. Johnson OF CONNECTICUT. Thank you, also let me say 
that our Subcommittee will be holding hearings on the issue of 
long-term care legislation and also how we help, through the 
Tax Code, people who have access to affordable health 
insurance. I was pleased with the President's comments on that 
during the campaign, his obvious interest in helping 
individuals and families that are uninsured get insurance, and 
we look forward to working with you on adopting those changes 
that are under this Committee's jurisdiction to help this 
Nation reduce the number of uninsured dramatically, and to 
shift the financing of long-term care into the insured 
structure, rather than the pay-as-you-go structure that 
currently exists under Medicaid.
    Truly, with 40 cents of every Federal dollar now going to 
people over 65, there is simply no way that we can guarantee 
Social Security benefits, Medicare benefits, and a pay-as-you-
go long-term care system when the number of retirees doubles 
with the retirement of the baby boom generation. So those are 
issues we also will be looking forward to working with you on, 
Secretary Thompson, and thanks so much for being with us today.
    Secretary Thompson. Thank you, Congresswoman Johnson. Let 
me just quickly respond to the uninsured. I think the best 
opportunity for us is to look at ways to allow the SCHIP 
program to be more flexible. There is a lot of innovation at 
the State level that is helping to expand and to give more 
people coverage, the uninsured, and I would love to work with 
you on it.
    Chairman Thomas. Does the gentleman from New York, the 
Ranking Member, wish to inquire?
    Mr. Rangel. Thank you, Mr. Chairman, and thank you again, 
Mr. Secretary. Thank you for your emphasis that every penny of 
Medicare money will be spent for Medicare. To get clarification 
of that, it is my understanding that you estimate a Medicare 
surplus of $526 billion. Does that agree with your figures?
    Secretary Thompson. That is correct, although as I 
understand it, CBO has got a scoring of $388 billion for the 
surplus.
    Mr. Rangel. When we talk about the Medicare surplus, we are 
talking about the surplus in the trust fund supported by the 
payroll tax for part A; right?
    Secretary Thompson. The payroll tax in part A, yes, that is 
the one that has the surplus. Part B is a 75-25 split, as you 
know full well.
    Mr. Rangel. So when you talk about every cent being spent 
for Medicare, your talking about the part A part of Medicare, 
for which the payroll tax is being paid.
    Secretary Thompson. That is correct.
    Mr. Rangel. So when we hear that people from the 
administration refer to this $526 billion Medicare surplus as 
part of the contingency reserve fund which can be spent for, 
quote, ``additional needs contingency purposes and further debt 
reduction,'' that is not your opinion? That is not your 
thinking, or, in your opinion, the administration's thinking 
with respect to every penny of Medicare being used for 
Medicare?
    Secretary Thompson. The $526 billion; the law is quite 
clear and I do not know anybody that is asking to change the 
law. The law says that the money that goes into the trust fund 
is a credit to the trust fund, plus interest, and it is going 
to be used for Medicare, and this administration believes in 
that. This administration also believes further that the $842 
billion contingency fund, if Medicare needs more money, that 
the $842 billion should be used for prescription drugs and for 
Medicare reform, if we can get to that point.
    Mr. Rangel. But this Medicare part A surplus, whether it is 
estimated by the CBO or OMB, is going to be used for hospitals 
and other part A benefits, right?
    Secretary Thompson. The $526 billion is a credit to the 
Medicare trust fund and will be used for Medicare completely.
    Mr. Rangel. part A only. Well, we have got to keep saying 
it until we make certain that we are reading from the same 
page. Now, as far as the Helping Hand prescription drug 
program, it is my understanding that very few people will be 
eligible for assistance, and that even a widow with $16,000 
annual income will not be eligible. Could you give me any idea 
as to what level of income would cut off a person from 
receiving benefits under the administration's proposed 
prescription drug program?
    Secretary Thompson. No, I cannot because we want to leave 
that flexibility up to the States. There are 26 States that 
have already passed prescription drug proposals in America. We 
are asking for the Helping Hand proposal, of $12 billion a 
year, $48 billion over 4 years, which would be able to be added 
to what the States are already doing. It would also mean that 
two-thirds of the American seniors already have prescription 
drug coverage--we want to make sure we can immediately get to 
the rest of the seniors in America and provide some help for 
prescription drugs.
    Then we hope we are going to be able to come back and get 
Medicare reform with prescription drugs for all seniors, 
Congressman.
    Mr. Rangel. You mean that we will have different income 
eligibilities in different States for different senior 
citizens?
    Secretary Thompson. I did not hear that, Congressman.
    Mr. Rangel. You mean that will have different income 
eligibilities in different States?
    Secretary Thompson. The eligibility will be 170 percent of 
poverty for the Helping Hand.
    Mr. Rangel. I am trying to find out at what income--you say 
that is left up to the States. I want to find out----
    Secretary Thompson. It is left up to the States up to 170 
percent of poverty. But this is for Helping Hand. This is to 
cover those most in need right now for prescription drug 
coverage, while we are working on Medicare reform including a 
prescription drug benefit and Medicare reform that will help 
all seniors.
    Mr. Rangel. Will there be a national income cutoff, 
forgetting the States, that will make you ineligible for this 
relief in the proposal that you are working on to present to 
the Congress? Whether it is 175 percent of poverty or whether 
it is left up to the States, is it possible, as a national 
Secretary, to tell us, notwithstanding you want input from the 
States, at what income level would senior citizens and other 
Medicare beneficiaries not be entitled to Helping Hand relief 
for prescription drugs?
    Secretary Thompson. Well, the Helping Hand right now is 
proposed for seniors most in need.
    Mr. Rangel. I understand that. You are talking about poor 
people. I understand that. It is means tested and limits 
benefits for poor people, but I am trying to find out what 
level you call poor?
    Secretary Thompson. 170 percent of poverty.
    Mr. Rangel. How does that work out in dollars and cents?
    Secretary Thompson. I am not exactly sure.
    Mr. Rangel. Can you give us just a guesstimate? I cannot go 
to my district and tell them that if you have 175 percent of 
poverty, that you will be able to get relief. I want to know 
whether it is $14,000, $24,000--what do you consider to be 175 
percent of poverty? Maybe a staffer can help you out on this.
    Secretary Thompson. I am sure they can, but I am not 
exactly sure of the dollar amounts.
    Mr. Rangel. Just a guesstimate. I want to find out if you 
make $24,000, can your staffers say we can go home and say 
forget about it, they are not talking about you? If you make 
$15,000, can we say, well, maybe you are in the range?
    Secretary Thompson. It is $20,300, up to 175 percent of 
poverty.
    Mr. Rangel. So if you make up to $20,000, you should be 
eligible for some type of relief?
    Secretary Thompson. Yes, but that is only temporary.
    Mr. Rangel. I know.
    Secretary Thompson. We are hoping that we are going to come 
back with Medicare and cover everybody.
    Mr. Rangel. And then that will be total inclusion under the 
Medicare program?
    Secretary Thompson. That is correct.
    Mr. Rangel. My time has expired, but I understand that 
$20,000 is for a couple. Someone may want to ask what would the 
income cutoff would be for a single person.
    Chairman Thomas. Thank the gentleman. The chair wants to 
make sure, because I can pick up the drift of the questions, a 
number of them may be more appropriate when we deal with the 
Medicare Trustees' Report on Tuesday, but I want all of us to 
remember that Medicare is funded not only from the part A trust 
fund, which is a payroll tax called the HI trust fund, but it 
is also funded from the general fund, with a premium paid 75 
cents on the dollar by the taxpayer, 25 cents on the dollar by 
the recipient. The argument that the Part A trust fund should 
be reserved only for one particular segment of Medicare is to 
belie the recent history of the Congress and the past 
administration.
    In 1997, Medicare was funded 66 percent out of Part A and 
33 percent out of Part B. The Clinton administration was 
successful in transferring one of the fastest-growing programs 
in cost, of Medicare, the home health care program, from Part A 
to Part B, funded out of the general fund. Now, this year, the 
split between Part A and Part B is about 60 percent Part A and 
about 40 percent Part B. By the end of the decade, it is going 
to be basically a 50-50 split if the current trends continue.
    The argument that Part A should be reserved for some 
historical argument as to what Part A was reserved for, and not 
available to benefit and improve all of Medicare, is to simply 
ignore the recent history of the recent administration's 
willingness to transfer. In fact, that transfer was one of the 
primary reasons the so-called solvency of Part A was extended a 
number of years when, in fact, the costs were simply 
transferred from the payroll fund to the general fund. This 
transfer of cost from the payroll fund to the general fund 
probably is a falsity that we ought to forget about, and this 
is an editorial comment by the chair, and we really ought to 
talk about combining A and B so we can get an honest evaluation 
of the total cost of the program, since from its inception it 
has been shared both from the payroll tax and from the general 
fund.
    Mr. Rangel. Mr. Chairman, just on that issue, I appreciate 
your philosophical view about what we should do in the future, 
but nothing that you said should be interpreted as not 
segregating the payroll tax to be protected as being for Part 
A; is that correct?
    Chairman Thomas. Quite the contrary. What occurred in the 
Clinton administration was that they took a program that was 
funded out of Part A and shifted it over to Part B, so that if 
the argument is we need to keep Part A sacrosanct in some way, 
then we will simply shift another program funded by Part A over 
to the general fund, then we can keep the myth alive that the 
Part A trust fund is for one purpose and the general fund is 
for another. It seems to me that what occurred in the last 
administration is something that should not be repeated in this 
administration, but that we should look at the Medicare funding 
program more holistically, rather than some artificial 
separation which is split and broken anytime someone feels that 
they want to conveniently say the Part A trust fund has more 
solvency in it.
    Shifting a program from A to B does not reduce the taxpayer 
obligation to funding those programs. It is, in fact, a 
budgetary sleight of hand.
    Mr. Rangel. Mr. Chairman, you have joined the issue as to 
whether or not the administration is talking about protecting 
and not spending one cent out of the Medicare surplus. We 
believe that the Medicare surplus belongs to Part A and 
obviously you believe it could be merged into general revenue 
funds, and so at least the Secretary should know that is going 
to be a major political discussion.
    Chairman Thomas. I would tell the gentlemen to underscore 
that, if, in fact, there is a surplus in one fund and the rest 
of it is general fund entitlement, and therefore you do not 
worry about whether or not there is adequate funds, if there is 
money available to assist us in building a better prescription 
drug program for our beneficiaries, the argument as to whether 
those funds to build that better program comes out of Part A or 
Part B is not as worthy a subject of discussion, in the 
chairman's opinion, as it is how good is the prescription drug 
program that we are going to be putting together for our 
seniors.
    With that, I would recognize the gentlemen from Illinois.
    Mr. Crane. I thank the gentleman for yielding.
    Mr. Secretary, given the uncertainty about and the recent 
surge in drug prices, how confident can we be about future 
projections relating to the cost of a Medicare prescription 
drug benefit?
    Secretary Thompson. You know, Congressman, as well as 
anybody does, that I do not know how secure we can be. The cost 
of drugs are escalating at an alarming rate and new drugs are 
coming on the market each and every day. The bill that was 
introduced by Chairman Thomas last year was scored by CBO at 
$160 billion over 10 years. This year, it is being scored at 
$213 billion, or a $60 billion increase.
    We think that where we are going to save some money, 
Congressman Crane, is through the efficiencies hopefully that 
we will be able to put into a Medicare reform proposal with a 
prescription drug component.
    Mr. Crane. Medicare spending is mandatory. Is there any way 
the Bush tax cut can be threatening to the Medicare Program as 
we know it today?
    Secretary Thompson. I do not see how it can be because the 
underlying law, the Medicare law, says that every person that 
reaches age 65 is going to be covered by Medicare. All the 
money that goes into the trust fund is credited to the Medicare 
trust fund, and any money that goes out of the trust fund has 
to be repaid, plus interest, and to be used for Medicare. I do 
not know anybody in Congress, and I know for sure in the 
administration, that is looking at ways to change that law. So 
the law is sacrosanct. The law is there to protect and to make 
sure that every Medicare recipient will be covered, and that 
the money going into the trust fund will be credited to the 
trust fund and will be used only for Medicare dollars.
    Mr. Crane. How much smaller would the surplus have to be 
for Medicare reform to be at risk?
    Secretary Thompson. How much smaller will----
    Mr. Crane. Would the surplus--the projected surplus have to 
be for Medicare reform to be at risk?
    Secretary Thompson. Well, Medicare reform is very important 
to this administration, and we are going to be working 
extremely hard with you and with this Committee to try and get 
a bipartisan Medicare reform proposal passed, which includes a 
prescription drug component for all seniors in America.
    Mr. Crane. My concern on that issue stems from some of the 
uncertainty of the state of the economy right now, and the fact 
that we keep getting re-evaluations of what the projected 
surpluses may be, looking down the road. I mean, they have been 
escalating, but they could be dropping very dramatically within 
a short period of time.
    Secretary Thompson. I understand that the figures are still 
holding, according to OMB's figures. I talked to the director 
just yesterday, and he felt very comfortable with the figures 
put forth in the blueprint, and I asked him if there was any 
change, and he said no.
    Mr. Crane. Can you explain to me how the administration 
arrived at the $153 billion figure for Medicare reform?
    Secretary Thompson. First off, the $153 billion, $48 
billion over 4 years, $12 billion a year, is set aside for 
Helping Hand, and the balance was figures that OMB received 
from the actuarial division of the department--of the operating 
division of HCFA, and it is numbers that they had projected. I 
know that CBO has scored it higher than $153 billion, but we 
feel that there are some savings, especially in the Breaux-
Frist bill, which Congressman Thomas worked on last year.
    If you were able to open it up for purchasing and for 
competition, the out-year figures would have a savings of 1 
percent, and that 1 percent savings would be enough, we think, 
with the $153 billion, with a Medicare reform, to pay for the 
prescription drugs.
    Mr. Crane. With respect to Medicare, what do you believe 
are the biggest challenges to reforming the program?
    Secretary Thompson. Biggest challenges to what?
    Mr. Crane. Biggest challenges to reforming the program.
    Secretary Thompson. The biggest problems are to be able to 
get bipartisan support. I think you know that the Breaux-Frist 
proposal that the Medicare Commission came up with is a good 
starting point, and I think you need choices. I think 
competition is good. I think you need prescription drugs, and 
that is where we are starting out, Congressman Crane, and we 
are going to be soliciting ideas from this Committee on a 
bipartisan basis to try and incorporate a bipartisan proposal 
that we can introduce and hopefully get passed this year.
    Mr. Crane. We thank you and we look forward to working with 
you toward that goal, and with that, I yield back the balance 
of my time.
    Chairman Thomas. Thank the gentleman. The gentleman's time 
has expired. Does the gentleman from Florida wish to inquire?
    Mr. Shaw. Yes, Mr. Chairman, and Mr. Secretary, I would 
like just for a moment to reflect on welfare reform, of which 
your tracks are all through the works of this Committee. I 
recall, back when we were in the infant stage of drawing the 
welfare reform bill and meeting with you and some of the other 
Governors, in order to try to formulate a welfare reform plan 
that really reflected the teamwork that was going to be 
necessary between the Federal Government and the State 
government, recognizing the Governors of this country as 
partners, not as just servants of the Federal government, to 
distribute the monies in the ways that we might direct.
    I remember a comment that you made at one of the meetings 
in which you said how refreshing it was to come to Washington 
and not to have to kiss the rings of Congress, and I replied 
that was probably not all you were kissing in coming to the 
Congress. But I think it shows the tremendous success that we 
can obtain when we do recognize the wisdom and the experience 
of this Nation's Governors in formulating the legislation. I 
think that same thought would move over toward prescription 
drugs and some of the other things that we have, so that we are 
not trying to micromanage these systems as they go to the 
States. I think, in that regard, that we could not have a 
better Secretary than you, with your background not only as a 
Governor, but also as a Governor that has worked closely with 
the Congress in formulating legislation.
    One thing that I would like to just express by way of 
concern; I am very concerned that we not only reflect on the 
tremendous problems that seniors have with meeting their bills, 
but I would hope through all of this that we do recognize that 
the next generation and the generation to follow them also has 
to be considered in whatever we do, not necessarily in 
expanding Medicare to apply to them, but also being sure that 
we do not treat them differently as they become seniors.
    It concerns me greatly that many of the plans that we have 
seen for Social Security reform would treat the next generation 
not quite as kindly as we are treating today's seniors, and 
therefore creating another notch. I hope we can avoid that, and 
I hope we can recognize that these people that are paying into 
the system are not taxed twice for their benefits, and then 
their benefits are lessened. That is of great concern to me in 
trying to reform Social Security. I would hope that it would be 
of great concern also to the administration in putting together 
the prescription drug bill, which is so vitally, vitally 
necessary, particularly that first step of the Helping Hand 
that you are referring to, of those in greatest need and those 
who have the greatest burden.
    Secretary Thompson. Thank you so very much, Congressman, 
and thank you for your kind words, and I would also like to 
congratulate you for your leadership on the welfare reform 
proposal, because I know full well how hard you worked and I 
know that we would not have been as successful without your 
leadership, and I applaud you for that. In regards to Medicare, 
we want to be able to be as cost-effective and efficient as we 
possibly can in developing a Medicare reform.
    We think there are some efficiencies to be built in and we 
think choice is one of those that we should look at. A 
Prescription drug benefit is very difficult, especially when 
you are trying to include it in Medicare reform, because it is 
very difficult to gauge the expenses and the overall cost of 
prescription drugs, evidenced by the fact that this past year, 
the bill that was introduced and passed in the House went from 
$160 billion to $213 billion in a short period of time.
    So we have to be cognizant of that and we have to work 
together, hopefully on a bipartisan basis, to accomplish what 
everybody wants to accomplish, Medicare reform with 
prescription drug coverage included.
    Mr. Shaw. Thank you, Mr. Secretary.
    Chairman Thomas. Thank the gentleman. Does the gentlemen, 
the ranking member on the Health Subcommittee, currently but 
not historically from California, wish to inquire?
    Mr. Stark. Yes, Mr. Chairman. Thank you.
    Mr. Secretary, just to review this for a moment, you have 
been asked several times if the $526 billion surplus is 
currently in the part A trust fund, and you have suggested that 
that would only be spent for Medicare, but I just want to go 
through this again. Can you envision any of the part A trust 
fund, $526 billion, being spent for a prescription drug 
benefit?
    Secretary Thompson. We are hoping that the $153 billion 
that we set aside is going to be utilized for that, and we are 
hoping that will be enough. If it is not, we are hoping that 
the extra money in the contingency fund, between the $526 
billion and the $842 billion, would be used for that, 
Congressman Stark.
    Mr. Stark. How about part B benefits? Would you see any of 
part B benefits being paid for as you envision it, out of the 
$526 billion Medicare part A trust fund?
    Secretary Thompson. It is my understanding that there is a 
75-25 percent split, and that the 25 percent is paid on a 
monthly premium of approximately $50 a month, and the 75 
percent is paid out of the general fund. That is the way it has 
been and I do not anticipate that changing. The only way it 
could change is if Congress decided to do so, and I do not 
think Congress is going to do that.
    Mr. Stark. In other words, let me say it again in a 
different way. The $526 billion in the part A trust fund 
appears in the budget figure on page 185 as part of the 
contingency fund. In other words, in the $842 billion, $526 
billion of that is the part A trust fund?
    Secretary Thompson. That is correct.
    Mr. Stark. The budget is outlined so that the contingency 
fund could be spent for defense or roads or a whole host of 
things. As the budget outlines it, not according to current 
law, that contingency fund has been alluded to be spent on 
other programs than Medicare; is that not correct?
    Secretary Thompson. That is correct, Congressman Stark, but 
if I could just expand, but it is also true, is it not, that 
everything that is taken out of the Medicare trust fund has got 
to be repaid with interest and it is a credit to the Medicare 
trust fund, and it is there for anybody to be used, but it will 
only be used for Medicare when it is needed.
    Mr. Stark. OK. But for it to be used to pay for a part B 
benefit or a drug benefit, or commingled, if that is the right 
word, as the chairman has suggested, there would have to be a 
change in law. Is it your intention to ask us for legislation, 
at this point, to commingle the trust funds or to use the 
Medicare part A $526 billion for anything other than basically 
the current hospital and part A benefits?
    Secretary Thompson. It is not my intention to do that at 
all, and I do not know anybody else that is advocating that, 
either, Congressman Stark.
    Mr. Stark. My worry is this, Mr. Secretary, and I am sure 
you would agree with me. If we did use the part A surplus, that 
$526 billion, to offset the aggregate Medicare spending would 
we in effect shorten the trust fund by 20 years, to just 3 
years from now? You understand that using that $526 billion in 
the part A surplus for other benefits or drugs would pretty 
much collapse the security we have now. Now, that is not to say 
we do not have to find money for Part B. There are even some 
Democrats who might say we may have some data, have people pay 
more, either in taxes or premiums, but nonetheless, I just want 
to make sure we are all on the same page, that the Bush budget 
outline treats the Part A trust fund somewhat differently than 
Social Security.
    Social Security, we put up here as a special surplus, but 
here we are using the Medicare trust fund as a contingency. 
While you and I understand it is protected by law, it is buried 
in these figures and, to the extent the budget is an 
illustrative document, it is being used as a potential funding 
source for several other programs, and it would take a change 
in law to do that.
    Secretary Thompson. It would take a change in law and I do 
not anticipate that happening. It is $526 billion, and if, in 
fact, it is a credit to the Medicare trust fund and if any 
money is taken out of there, it has to be repaid plus interest. 
The administration is going to adhere to that, and I cannot 
imagine anybody willing to change the law, Congressman Stark.
    Mr. Stark. Just one final question.
    Chairman Thomas. The gentleman's time has expired.
    Mr. Stark. Why would it be buried here in the contingencies 
and not set up alongside the Social Security surplus to make 
old people like me more comfortable? Why wouldn't you 
illustrate it in the budget and keep the AARP and the senior 
citizens and everybody more comfortable? Why wouldn't you set 
it up there as $526 billion part A trust fund and leave it up 
there alone and not commingle it in those contingencies?
    Secretary Thompson. I do not know why it was done that way. 
I am the Secretary of Health and Human Services, Congressman 
Stark, and all I know is what the law--I read the law and the 
law is very clear. It is there for Medicare and it is going to 
be there for Medicare, and that is the administration's 
position.
    Mr. Stark. Mr. Chairman, could I just thank him for one 
other thing?
    Chairman Thomas. Sure.
    Mr. Stark. Thank you.
    I do notice that you have made a statement that we do need, 
in HCFA and the management of this operation, some more 
resources. I know this Committee does not make that decision, 
but many of us feel we have loaded an awful lot of work on 
them, whether you like the way HCFA is running or not. It has 
been overburdened and needs some resources, and there are a lot 
of people there that you are going to depend on and I wanted to 
thank you for recognizing that we ought to let them have a 
little increase in their overhead to handle the increased 
burden.
    Mr. Chairman, I hope we can work toward that with the 
Secretary.
    Secretary Thompson. Congressman Stark, thank you for your 
comments. You are absolutely correct. We are going to have to 
put some new resources into HCFA and modernize it, if we expect 
them to be able to improve. The computer system is outdated and 
anybody knows a computer system that was installed in 1970 and 
today is very underutilized and not----
    Mr. Stark. It is probably so antique that even I could run 
it.
    Secretary Thompson. Thank you.
    Chairman Thomas. Does the gentlemen from New York wish to 
inquire?
    Mr. Houghton. Yes. Thank you, Mr. Chairman.
    Mr. Secretary, great to have you here. Thank you very much 
for doing this job and sharing your knowledge and your wisdom 
with us all. I would like to shift the focus just a little bit, 
away from health and HCFA and HCFA and Medicare, to the younger 
people.
    Now, there is an awful lot of talk these days about 
education in this country, emphasizing younger people. But when 
I take a look at the budget figures here, despite the 
statements made of strengthening families and younger people, I 
do not know what difference is going to come out of your 
program than happened in the past, always the younger people 
are squeezed out. It is the older people who have the demands, 
and when you take a look at the compounding effect of some of 
the mandatory outlays, I do not know where the money--I do not 
know where the emphasis--what is different with your program?
    Secretary Thompson. What we are hopeful is different--are 
you talking about Medicare reform?
    Mr. Houghton. I am talking about the younger people 
reforms. There are whole series of things about strengthening 
the family. There is a Safe and Stable Families program. There 
are after-school programs.
    Secretary Thompson. What we are trying to do, Congressman, 
is we are trying to be more on the edge of prevention, rather 
than intervention after the problem has already started. We are 
trying to take a fresh look at the families, families after-
school. We are trying to find ways in which children after 
school will be able to use the extra dollars which will be 
block-granted to States, to be able to assist them, some for 
education, some for after-school security, other school 
activities. We are trying to put aside $67 million to counsel 
children who have one or both parents imprisoned, so that the 
children will be taken care of.
    We are trying to put together $64 million to make sure that 
children that are in foster care or adoption are taken care of 
faster, and better than they have been in the past. We are 
putting aside $33 million for maternity group homes, especially 
for single mothers who need help, and to be able to be 
protected. We are putting aside $124 million for community 
health centers across America, so that we can double the number 
of community health centers and double the number of 
individuals, especially minorities, that are going to be able 
to get health care. That is what we are trying to do. We are 
putting a bigger emphasis in the Federal government and in the 
Department of Health and Human Services for prevention, to try 
and develop programs that are going to be more supportive of 
the families, especially the children, so that they can be 
helped before they get into trouble or before they get into an 
unhealthy kind of situation. That is what the emphasis is going 
to be on, Congressman.
    Mr. Houghton. Thanks very much. Thank you, Mr. Chairman.
    Chairman Thomas. Thank the gentleman. Does the gentlemen 
from California, the Chairman of the Human Resources 
Subcommittee, wish to inquire?
    Mr. Herger. Thank you very much, Mr. Chairman. Mr. 
Secretary, even though I am not from Wisconsin and I have my 
roots in California, I join in the enthusiastic welcome to this 
Committee.
    Secretary Thompson. Thank you.
    Mr. Herger. I am looking very much forward to working with 
you on issues that will come before the Human Resources 
Subcommittee, which I have the privilege of chairing, and as 
you know, next year we will be reauthorizing TANF, or the 
Temporary Assistance to Needy Families program, that was 
created under the 1996 welfare reform law, which replaced the 
former troubled AFDC system.
    I would like to extend an invitation that you not only 
testify before this Committee, but also work with us in coming 
up with the very best policies that we can, in order to take 
welfare reform to the next level, and would certainly 
appreciate any comments you might have. Again, this 
reauthorization is not till next year. We will be having 
hearings this year. I know you have a lot on your plate right 
now, but any general comment you might have on that.
    Secretary Thompson. Well, first, thank you very much, 
Congressman, for your chairmanship and your leadership. I 
appreciate it. As you know, TANF is not going to be 
reauthorized until next year, and so we really have not put 
that much emphasis at the department on TANF reauthorization 
yet. We will be looking at that later on this summer and early 
fall, and I would appreciate the opportunity to come in front 
of your Committee and testify and I also appreciate the 
opportunity in working with you and Congressman Shaw, and 
anybody else that wants to work on this issue.
    I think the next step in welfare reform has got to be how 
do we make sure, especially welfare mothers, are able to stay 
in their jobs and be able to use the educational system to be 
promoted, and to be able to use the educational system to get 
ahead and keep the family together. Those are going to be 
issues that I have got many ideas on, that I would like to come 
back in front of you after I have had an opportunity to study 
them a little bit more, flesh them out a little bit better, and 
give you the opportunity to hear them, but also to ask you for 
your advice, as well.
    Mr. Herger. Well, I appreciate that very much. Again, maybe 
later this summer and particularly as we get into next year, I 
will be looking forward to working with you. Thank you. Thank 
you, Mr. Chairman.
    Secretary Thompson. Thank you very much, Congressman.
    Chairman Thomas. Thank the gentleman. Does the gentlemen 
from California, Mr. Matsui, wish to inquire?
    Mr. Matsui. Thank you, Mr. Chairman. Thank you very much, 
Mr. Secretary. We appreciate it and congratulations on your 
appointment.
    Secretary Thompson. Thank you.
    Mr. Matsui. Certainly we look forward to working with you. 
I just want to follow up on a question that Chairman Herger 
asked. I want to talk about Medicare in a moment, but one of 
the other things that was very critical to the success of the 
1996 bill, which I was not particularly in favor of--in fact, I 
opposed it--was the fact that the earned-income tax credit was 
greatly expanded so that many of those women who went into the 
work force, even at minimum wage levels, were obviously able to 
have that supplement through the EITC, and it is my hope that 
you would be very strongly in support of continuing the current 
program and perhaps, in future times, if, in fact, it is 
warranted and after your review, that we can look at it, 
perhaps even to expand it, because I think the extension of the 
health care, Medicaid, and also obviously the EITC has put many 
people in a position now where they can work and actually earn 
a living and say this is much better, in terms of my financial 
needs, than the welfare program was.
    I just make that observation.
    Secretary Thompson. If I could quickly respond, 
Congressman, I agree with you.
    Mr. Matsui. I appreciate that.
    Secretary Thompson. In fact, I agree with you 
enthusiastically, because I was able to get through an increase 
in the earned income tax credit at the State level. So in 
Wisconsin you have got a Federal earned-income tax credit plus 
a very nice upper in the State earned-income tax cut, and it is 
extremely helpful and it is an integral part of welfare reform, 
and I appreciate your support.
    Mr. Matsui. I appreciate your involvement in that, as well, 
because I think you actually were--because of the success of 
your program--had a lot to do with the passage of the 
legislation, and obviously, in the current position you are in 
now, you can undoubtedly help continue that progress, and there 
will be opportunities later to talk about this. But if there 
should be a dip in the economy and unemployment should go up, 
which all of us hope not to happen, certainly we hope that we 
will be able to keep the programs that are attendant to those 
that are on welfare, such as training programs and others, and 
obviously continue the benefits, as well.
    I know that will be a challenge for all of us, given our 
constraints. I just want to follow-up on what Mr. Rangel and 
Mr. Stark talked about in terms of Part A and Part B, and I 
think you were pretty clear, but I want to make sure I 
understand it.
    There will be no attempt, from your perspective, that any 
of the funds in the contingency funds committed to Medicare 
under Part A, through the payroll tax, will be used anything 
but for Part A; is that my understanding? I think you were very 
clear, but I want to make sure that I understand it, as well.
    Secretary Thompson. The Medicare money is going to be used 
strictly for Medicare. Every penny of it is going to used for 
Medicare.
    Mr. Matsui. I understand that, but Part B of Medicare is 
Medicare, as well, and that is why--and you may not have 
intended to create this confusion in my mind, but if you would 
say your intent is to keep it for Part A, I would feel much 
more comfortable. When you say Medicare, Medicare Part A and 
Part B, and I just want to make sure----
    Secretary Thompson. I intend to keep it for Part A, 
Congressman Matsui. The only people that can change it, to the 
best of my knowledge, are people that are up there.
    Mr. Matsui. I understand that, but your recommendation.
    Secretary Thompson. My recommendation is to keep it.
    Mr. Matsui. So it would not have any diminution, in terms 
of the life of the Medicare program. Now, in terms of the 
prescription drug part of it, and maybe I misunderstood, is it 
your understanding that there might be an effort, through the 
contingency fund, if the balance of whatever it was----
    Secretary Thompson. $842 billion is the contingency fund, 
less $526 billion for Medicare.
    Mr. Matsui. Right, so you have 316 for prescription drugs 
or whatever other contingencies there are. If, in fact, 
prescription drugs should cost more than that over a period of 
time, is it your intent then to perhaps go into the Part A fund 
for that?
    Secretary Thompson. No.
    Mr. Matsui. In other words, you would look for other 
sources of funding, either----
    Secretary Thompson. It is my understanding, Congressman, 
that is what we would do.
    Mr. Matsui. You know what? If I may make a recommendation--
I know my time is running out and it may not even be in your 
position to do this--but perhaps OMB should re-examine the 
budgetary lines that they speak of this. I think a lot of 
folks, including the seniors, as Mr. Stark said, would feel 
much more comfortable if that $526 billion was in the category 
with Social Security, because contingency fund, it could lead 
to a situation where we could make observations that this could 
be used for the missile defense system or something of that 
nature, and I think even for the administration, it would make 
more sense to put it in a category that really, really defines 
it as for Part A and for Part A only, because obviously that is 
where you, as a Secretary, is coming from. So I really think it 
makes a lot of sense.
    Secretary Thompson. That is where I am coming from, but I 
am coming as the Secretary of Health and Human Services and I 
am telling you my position.
    Mr. Matsui. I appreciate that. I really do. Thank you, Mr. 
Chairman.
    Chairman Thomas. Thank you. Does the gentlemen from 
Louisiana wish to inquire?
    Mr. McCrery. Yes. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. Just on this Part A, Part B stuff, 
you know, there might be some people out in the United States 
watching on C-SPAN, and they do not really understand Part B 
and Part A, and I do not think it really matters to them. What 
matters to them is that we deliver to them a quality health-
care program that provides them some help and financial 
security in their old age.
    So I hope, when we get into Medicare reform, we will not 
get bogged down on all this technical mumbo-jumbo and instead 
try to create a program that works for the elderly in this 
country. Having said that, and I hope we get off of this now, 
Part A and Part B stuff, let's talk about cost for just a 
minute, because I am concerned about the escalating cost of 
health-care. In fact, your own actuaries at HCFA have recently 
written that, as a percentage of our gross domestic product, 
health-care expenditures will rise from approximately 13.1 
percent in 2002 to 15.9 percent in 2010. Drug spending is going 
to increase, they estimate, at about 14 percent a year.
    Those figures, particularly coupled with the looming 
retirement of the baby boomers, are frightening figures, not 
only in terms of the resources that will go toward health-care 
generally in the country, but obviously the budgetary effects 
here at the Federal level. So I hope that as you go through 
these exercises of Medicare reform and maybe even general 
health-care reform, you will keep an eye out for these looming 
cost to the country and to the Federal budget.
    One of the cost drivers, Mr. Secretary, I am convinced, in 
the health-care system is medical malpractice, not only in the 
direct cost of premiums for insurance that doctors and 
hospitals have to purchase, and in the awards that they have to 
pay, but also the indirect cost, the defensive medicine, if you 
will, that has to be practiced, at least in the minds of 
physicians and hospitals, to prevent being sued.
    You are, I know, working right now, trying to perfect a 
Patients' Bill of Rights, and while the goals of that 
legislation are laudable, I feel that the implementation of 
such will increase cost in the health-care system, and they 
will increase cost substantially if we do not put reasonable 
caps on damages in that legislation. I was wondering if the 
administration has developed a position yet on caps on damages 
in the Patients' Bill of Rights, and if they would accept and 
favor attaching to that legislation general medical malpractice 
reform for the entire health-care system?
    Secretary Thompson. There is no question that this 
administration is very concerned, as you are, Congressman 
McCrery, about runaway litigation cost. In the Patients' Bill 
of Rights, the President has spoken very elegantly about the 
need to hold down on litigation and to make sure that every 
person has their rights protected, has a way to defend those 
rights, but at the same time hold down costs. But the 
administration has not taken, at this point in time, a position 
on the limits. They have discussed it, but they have not come 
to a conclusion on that.
    I know there are many different proposals being bandied 
around, but the administration has not chosen any one at this 
point in time. They are working very hard and diligently, 
especially in the White House, to develop a proposal that will 
not allow for litigation runaway cost.
    Mr. McCrery. What about general medical malpractice reform?
    Secretary Thompson. The administration has not taken a 
position as far as putting it in the Patients' Bill of Rights, 
and I think that is what your question was, and I doubt very 
much if a general malpractice reform proposal will be in the 
Patients' Bill of Rights. I have not heard that being 
discussed.
    Mr. McCrery. Is the administration in favor of medical 
malpractice reform?
    Secretary Thompson. The administration is certainly 
concerned about the cost factors, and medical malpractice is 
one of those.
    Mr. McCrery. Well, Mr. Secretary, if you are concerned 
about the cost factors, I would urge the administration to 
quickly adopt a position in favor of medical malpractice 
reform, and if we are able to attach such to the Patients' Bill 
of Rights, I would urge the administration to support that 
effort.
    Secretary Thompson. Thank you very much, Congressman. I 
appreciate that, and I will carry that to the appropriate 
people.
    Chairman Thomas. Does the gentlemen from Pennsylvania wish 
to inquire?
    Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary, and thank you for your testimony. 
Mr. Secretary, a report was recently published by the Institute 
of Medicine and it finds that there is a great need for 
information technology in our health-care system overall, and 
it points out that our health-care system has safety and 
quality problems because it relies on outdated systems of work.
    The University of Pittsburgh Medical Center, which is in 
the district that I represent, is investing more than $500 
million over 5 years on information technology. Those 
initiatives are designed to drastically improve patient care 
and outcomes, as well, while reducing the overall cost of 
health-care in the country. I would like to be able to submit 
some questions for the record to you about the specific 
recommendations in the institute's report, and would appreciate 
it if you could respond to those questions.
    [Questions submitted by Mr. Coyne, and Secretary Thompson's 
response, follow:]

    Question: According to the Institute of Medicine report, the 
meticulous collection of personal health information throughout a 
patient's history can be one of the most important inputs to the 
provision of proper care. Yet, most of the time, this information is 
dispersed in a collection of illegible and poorly organized paper 
record. Often times, they are unable to be found. Growth in clinical 
knowledge and technology has been profound. However, many health care 
settings lack basic information technology systems that would provide 
clinical information or would support clinical decision making. As 
well, the report also states that information technology will play a 
critical role in the automation of clinical, financial, and 
administrative information and the electronic sharing of such 
information among clinicians, patients, and others that are appropriate 
within a secure environment are critical for the health care systems of 
the future. Furthermore, the report says that information technology 
must play a central role in redesigning out health care system if a 
substantial improvement on quality is going to ever be achieved. 
Information technology will enhance consumer confidence and improve 
efficiency. How would you respond to these recommendations? Will the 
government be willing to assist the health care system in implementing 
these new Information technologies?
    Answer: The Department of Health and Human Services and other 
federal agencies including the Department of Defense and Veterans 
Health Administration have been actively engaged in identifying ways 
that information technology can serve as a vehicle to improve health 
care quality. For the past thirty years, our Agency for Healthcare 
Research and Quality (AHRQ) and its predecessors supported the seminal 
research on the use of information technology to improve the care 
provided to patients at the bedside, to support long-term outcomes 
research, and most recently, to address issues of patient safety. This 
year AHRQ will fund $5 million in grants and contracts to identify the 
key elements of information technologies that provide the greatest 
benefit in improving patient safety. The agency is also working closely 
with the Institute of Medicine on the development of standardized 
vocabulary and coding of data that will assist states to develop 
effective computerized systems to assess patient safety information.
    As you point out, the investment now being made by the University 
of Pittsburgh is considerable and several bills have been introduced 
that call upon the Department to provide assistance for such efforts. 
In light of the potential costs of such a national commitment, we need 
to assess the roles that private purchasers, as well as public 
purchasers, can and should play. Our Centers for Medicare and Medicaid 
Services (CMS) is currently assessing the potential roles that we can 
play in facilitating, supporting, or providing incentives for the 
expanded use of information systems with proven effectiveness in 
improving health care quality.
    Question: The internet has enormous potential to transform health 
care through information technology applications in areas such as 
consumer health, clinical care, administrative and financial 
transactions, public health, professional education and biomedical and 
health services research. Many of these applications are currently 
within reach, including consultation with a patient from home, 
clinician and consumer access to medical literature and creation of 
communities of patients and clinicians with shared interests. Will the 
government assist in helping bring the internet as a widespread tool to 
be used within the health care industry?
    Answer: The Federal Government currently supports the use of the 
Internet and other information technology applications for advancing 
the accessibility and quality of health care through a variety of 
programs. One of the leaders in this field is the National Library of 
Medicine (NLM) at the National Institutes of Health (NIH). NLM produces 
MEDLINE, the world's most-used medical literature resource containing 
11 million references and abstracts culled from more than 4,000 
journals that cover the worldwide literature going back to the early 
1960s. MEDLINE is accessible for free through an easy-to-use Web-based 
program, known as PubMed. The PubMed system also links to 1800 
participating publishers Web sites so that users can retrieve the full 
text versions of the articles identified. Health professionals, 
scientists, librarians, and the general public are expected to perform 
close to 400 million MEDLINE searches this year.
    To respond to the growing public interest in health information, 
NLM created MEDLINEplus and ClinicalTrials.gov, which are specifically 
designed for consumers and freely available via the Internet. 
MEDLINEplus selects and organizes a variety of consumer health 
information issued by NIH, professional medical societies, and 
voluntary health agencies on more than 475 diseases and health 
conditions. In addition, MEDLINEplus has an extensive medical 
encyclopedia, detailed information about prescription and non-
prescription drugs, directories of health professionals and hospitals, 
health-related articles from the daily news media, patient education 
modules, and links to a variety of organizations that disseminate 
information on various health problems. NLM and the National Institute 
on Aging will be introducing a new Web-based resource this Fall that 
relates to the health of seniors and will be in a format that is easily 
accessible by that segment of our population. MEDLINEplus has become so 
popular that it now logs about 5 million page hits per month.
    The associated Web site ClinicalTrials.gov is a registry of more 
than 5,000 federally and privately funded trials of experimental 
treatments for serious or life-threatening diseases or conditions. The 
database includes a statement of purpose for each clinical research 
study, together with the recruiting status, the criteria for patient 
participation in the trial, the location of the trial, and contact 
information. ClinicalTrials.gov is linked closely with MEDLINEplus, so 
that anyone looking for information about a particular disease or 
condition can easily tell if it is the subject of any clinical trials.
    The U.S. National Network of Libraries of Medicine, created by NLM 
in the sixties, is another aspect of the medical information 
infrastructure supported by the NLM. The NNLM, as it is called, is an 
organization of 4,500 member institutions that provide vital 
information services to American health professionals and, with NLM 
support and encouragement, increasingly to the public. Within this 
network the NLM works to improve information services, including access 
to health resources on the Internet, in areas that disproportionately 
affect minority groups, such as HIV/AIDS and toxicology and 
environmental health.
    The most rapidly growing segment of the NLM is the National Center 
for Biotechnology Information, which plays a pivotal role in 
integrating, and disseminating the growing body of data now being 
generated by the sequencing and mapping initiatives of the Human Genome 
Project. These efforts are complemented by the inclusion of genomic 
sequences from over 75,000 organisms, submitted by scientists 
worldwide, as well as data generated through collaborative projects 
aimed at sequencing the genomes of other model organisms. The Center 
has also designed a novel system for linking its genomic resources to 
the biomedical literature. Thus, these readily accessible genomic and 
literature databases represent a true ``international information 
infrastructure'' designed to propel the biomedical research advances 
that will ultimately lead to better health for the American public.
    Because the NLM depends to a great extent on the Internet for 
disseminating its many health information services, it is a supporter 
of the infrastructure initiative known as the Next Generation Internet. 
This is a cooperative effort among industry, academia, and government 
agencies that seeks to provide affordable, secure information delivery 
at rates thousands of times faster than today. Resolving issues of 
reliability, availability, speed and especially privacy will be 
instrumental if the health care industry is to take full advantage of 
rapidly developing information technology.
    Some NLM health applications, for example those involving the 
Visible Humans and telemedicine, require more bandwidth and more 
reliable service than are currently available. The Visible Human male 
and female data sets, consisting of MRI, CT, and photographic 
cryosection images, are huge, totaling some 50 gigabytes. They are 
being used by scientists around the world in a wide range of 
educational, diagnostic, treatment planning, virtual reality, artistic, 
mathematical, and industrial uses. Projects run the gamut from teaching 
anatomy to practicing endoscopic procedures to rehearsing surgery. One 
new project, being carried out by NLM scientists, is AnatLine, a web-
based image delivery system that provides retrieval access to large 
anatomical image files of the Visible Human male thoracic region, 
including 3D images. Another is the collaborative project with other 
NIH Institutes to develop a super-detailed atlas of the head and neck. 
The Visible Human Project is an example of a program that requires both 
advanced computing techniques and the capability of the Next Generation 
Internet if it is to be maximally useful.
    The Library also funds innovative medical projects that demonstrate 
the application and use of the capabilities of the Next Generation 
Internet. These projects span the spectrum of medical disciplines, 
geographic areas, and target audiences. One example is to evaluate the 
potential of telemedicine applications on the health care system in 
rural Alaska as a way of improving the quality of health care while at 
the same time containing costs. Another project, in rural Iowa, is 
measuring the effectiveness of video consultations for patients with 
special needs, including children with disabilities and persons with 
mental illness. In addition to supporting such advanced applications, 
the NLM continues its research on evaluating the performance of today's 
Internet pathways between and among health institutions and users. This 
research gives us a glimpse into what the future holds.
    Finally, research supported by the Agency for Healthcare Research 
and Quality (AHRQ) has begun to demonstrate the potential benefits of 
some uses of internet technology. For example, the Comprehensive Health 
Enhancement Support Systems (CHESS) developed by Dr. David Gustafson at 
the University of Wisconsin, found that women with breast cancer who 
had access to on-line support groups had better patient outcomes. AHRQ 
has just released a program announcement on Patient-Centered Care that 
outlines the agency's interest in supporting research proposals that 
examine the impact of informed and empowered patients (through a 
variety of mechanisms, including the internet) on health care decision-
making and the outcomes. In addition, the agency has been actively 
engaged in Internet applications for patients and providers, including 
the National Guideline Clearinghouse (NGC). The NGC allows providers 
and patients to look up up-to-date clinical guidelines for care for 
given conditions at the point-of-care.
    Question: The Institute of Medicine recommends that ``Congress, the 
executive branch, leaders of health care organizations, public and 
private purchasers, and health information association and vendors 
should make a renewed national commitment to building an information 
infrastructure to support health care delivery, consumer health, 
quality measurement and improvement, public accountability, clinical 
and health services research and clinical education. This commitment 
should lead to the elimination of most handwritten clinical data by the 
end of the decade. How would you respond to this recommendation?
    Answer: The Department is approaching the need for such 
developments simultaneously from several directions. Strategic planning 
and information dissemination within HHS in this area is handled by the 
HHS Data Council which meets monthly to deal with all health data 
related issues.
    Our federal advisory committee on such issues is the National 
Committee on Vital and Health Statistics (NCVHS). They have been 
working for several years on the concepts necessary to support such a 
National Health Information Infrastructure (NHII). In their recent 
report  the NCVHS describes the 
NHII as the set of technologies, standards, applications, systems, 
values, and laws that support all facets of individual health, health 
care, and public health. The Chair of the NCVHS meets with the HHS Data 
Council monthly and has presented this report. The broad goal of the 
NHII is to deliver information to individuals--consumers, patients, and 
professionals--when and where they need it, so they can use this 
information to make informed decisions about health and health care.
    The NHII can also deliver other benefits, including enhanced access 
to consumer health information, peer and support services; greater 
choice of care; tracking of health histories over a lifetime; and 
increased accountability for quality and costs. New tools, such as 
automated reminders and decision-support systems will encourage patient 
adherence to treatment and health maintenance plans and improve the 
quality of care. The NHII will also improve community health by taking 
seemingly isolated events, identifying patterns and trends, and 
suggesting public health actions to safeguard populations.
    The National Library of Medicine (NLM) has been working for many 
years on the Unified Medical Language System (UMLS)  which attempts to bring together all the various systems of 
medical terminology. Researchers find the UMLS products useful in 
investigating knowledge representation and retrieval questions. The 
resulting system is seen as the basis of concept representation that 
can be used to exchange meaningful health information between 
environments that implement different systems.
    The NLM is also conducting cooperative research with other 
institutions to design and implement health oriented projects to 
demonstrate the value of the Next Generation Internet (NGI) , which will enable the massive 
and rapid data transfers required for health applications in the 
future. This effort is described above in more detail.

                                


    Secretary Thompson. Absolutely, Congressman. I would be 
more than happy to, and it is an area that I am more than 
concerned about and very interested in. As you know, the 
Institute of Medicine also suggested that we develop 15 systems 
on how to diagnose and to provide treatment for 15 different 
types of illnesses that would be sort of uniform throughout 
America. I think that is a very good step forward. We should 
explore that and we will.
    I also compliment your hospital for investing in computers 
and new information techniques. That is what we would like to 
do and encourage you to also allow us to do that at the 
Department of Health and Human Services. We have over 200 
different computer systems in the department, most of which 
cannot communicate with one another, and even in the Humphrey 
Building, there are different computers from the fifth floor, 
the sixth floor and the seventh floor, which does not make any 
sense to me if you want to run an efficient operation.
    So I am throwing that out. I agree with you wholeheartedly 
and enthusiastically. I only hope that when I come back and 
suggest that maybe we should upgrade the computer systems at 
HCFA and the department, that you would also be willing to 
support that, as well.
    Mr. Coyne. Well, I would be very happy to be able to 
support it. Thank you.
    Secretary Thompson. Thank you very much, Congressman.
    Chairman Thomas. Thank the gentleman. Does the gentleman 
from Michigan, Mr. Camp, wish to inquire?
    Mr. Camp. I do. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. In 1995 and 1996, I served on the 
Human Resources Subcommittee and worked with you and other 
Governors on legislation that dramatically transformed the 
American welfare system, and since then we have seen welfare 
caseloads decline, poverty is down, child support collection is 
up, teen pregnancy is down, and I think more importantly than 
some of those statistics that go along with those trends, are 
that the focus of the welfare system has literally been 
transformed from one that just determined eligibility and cut 
checks to one that really is delivering a comprehensive package 
of both employment and family support assistance, based on a 
recipient's specific needs.
    I just want to say that as we look forward to the 
reauthorization of the 1996 law, I want to work with you 
particularly on trying to continue the flexibility provided in 
the 1996 legislation, and to ensure that the States continue to 
have the ability and flexibility to continue to create 
innovative programs that will enhance the efforts to assist 
low-income families. There are a couple of other items in the 
budget that I want to support, and one is the adoption tax 
credit, which I want to say the President's plan to increase it 
from $5,000 to $7,500, and make it permanent, there are over 
100,000 children nationwide, and while parents do not need 
financial incentives, adoption can be very expensive and this 
will help a great deal, so I want to work with you on that.
    Last, I also want to mention the Safe and Stable Families 
program, which there will be additional resources provided in 
the President's budget for that very valuable program, which 
really helps keep children with their families if it is safe 
and appropriate, or will help provide for adoption if that is 
the appropriate avenue, as well, and I think the additional 
effort to help the children of families with prisoners is 
really commendable. So I look forward to working with you and 
thank you for coming to the Committee.
    Secretary Thompson. Thank you so very much, Congressman, 
and thank you also for your courtesy when I was coming in front 
of your Committee and your support and help on welfare reform. 
I am passionate about it. We have got some things to do. We can 
improve it considerably and I want to work with you on that. 
With regard to adoptions, the credit, I think, is good, and we 
have a lot of children out there that need to be adopted, and 
this administration is very concerned about them and wants to 
do everything we possibly can. The Safe Families budget has 
gone up from $305 million to $505 million, a $200 million 
increase, which is a tremendous increase, but the President 
wants to go up to $1 billion. He wants to make sure that we go 
in and help families stay together and be able to provide the 
kind of services that they need, and I am looking forward to 
working with you on that.
    The counseling for children with parents in prison is very 
important to me. It is a subject I got very much involved in 
when I was back being Governor of the State of Wisconsin, and I 
will be looking forward to working with you.
    Mr. Camp. Thank you very much. Thank you, Mr. Chairman.
    Chairman Thomas. Does the gentlemen from Michigan wish to 
inquire? Mr. Levin.
    Mr. Levin. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. Mr. Secretary, let me just take a 
minute. We have gone over this a few times, but I think it is 
so important, because I was looking at page 185 of the budget 
presentation. You have said here, I think in clear terms, what 
your position is. Medicare money is only for Medicare, Part A 
only for Part A. The clear result of that is on this table, S1, 
the President's 10-year plan. When you take 526, which is Part 
A, from 842, the figure for contingencies, it reduces this 
contingency fund, or the rainy day fund, as I subtract it, to 
$316 billion. That is why I am suggesting there be complete 
clarity by OMB.
    I think the issue was discussed yesterday in the Senate, 
and there was an effort to essentially move the 316 up to the 
line under the Social Security surplus. So I take it, it is 
clear what your feeling is or your belief is; Medicare money is 
only for Medicare and Part A only for Part A; is that correct? 
You are unequivocal about that?
    Secretary Thompson. That is correct, but it is also true 
that I do not see how you can just segregate Part A from Part 
B. We want to overhaul all of Medicare and make it much more 
efficient and include prescription drugs, and that includes a 
complete overhaul of Medicare Parts A and Part B.
    Mr. Levin. But that does not mean, as I understand your 
previous statement, that you would use Part A moneys for a 
prescription drug benefit?
    Secretary Thompson. Does not.
    Mr. Levin. Let me just ask you quickly to switch to an area 
that you care so much about and you have been instrumental in 
its development, and that is TANF. Transitional Medicaid, you 
know, for so many people, and the data are not clear for all of 
the States--for so many people, they have not accessed 
transitional Medicaid. So you have a large percentage, some 
think as much as 50 percent after a short period of time, when 
they leave TANF or are receiving partial payments from it, who 
have no health care.
    I take it you are vitally concerned about that.
    Secretary Thompson. I am very concerned about it. There are 
four things that really prevent a person from leaving the 
system to go and get a job. Health coverage, daycare, 
transportation and training are the four things. In order to 
really develop a good program, you have to be willing to 
support those four items.
    Mr. Levin. Good. Let me just ask you then about training. 
Have you reached a conclusion whether you favor, in the 
reauthorization process, full-funding for TANF?
    Secretary Thompson. I have, but that does not mean that OMB 
has, Congressman. I have found since I have been out here that 
OMB is much more powerful than a Secretary. So I have learned 
quickly that I am no longer a Governor, sir.
    Mr. Levin. OK, because you know the figures. You have 
worked on this.
    Secretary Thompson. Yes, I do.
    Mr. Levin. For so many people who have moved from welfare 
to work, which was a critical part of welfare reform and one I 
very much favored, there are--and we do not know the 
percentages in most States, but huge numbers have moved from 
welfare to work and remain at the same income levels as when 
they were on AFDC or TANF. So retraining the upgrading part of 
it is critical.
    Secretary Thompson. It is critical.
    Mr. Levin. Quickly, you know the contingency fund does 
expire this year.
    Secretary Thompson. That is correct.
    Mr. Levin. I hope we could have some discussions about it, 
because if there is a recession, we cannot wait till next year, 
in terms of the contingency fund or at least arguably so. So I 
would hope that we could engage in some discussions on the 
Human Resources Subcommittee, under Mr. Herger and Mr. Cardin, 
to look at this issue and not necessarily wait till next year. 
I hope we do not wait till next year on any of the welfare--the 
TANF reauthorization issues, because it is so critical, these 
issues we have talked about, health care, training, upgrading, 
as well as the contingency fund, need a lot of attention before 
next year.
    Secretary Thompson. Congressman, I agree with you. I do not 
know what more I can say except I agree with you. I only wish 
that we could move a little bit faster so I could get my 
assistant secretaries and the deputy in, so that I could spread 
out the work. I am still the only one at the department and it 
would be nice if I had some assistants, so that somebody else 
could take on some of these responsibilities. But in saying 
that, I am not being critical. I am just telling you, yes, I 
agree with you. We are looking at welfare reform, but there are 
a lot of other issues we are also looking at, at the same time, 
sir.
    Mr. Levin. Thank you.
    Chairman Thomas. Does the gentleman from Minnesota, Mr. 
Ramstad, wish to inquire?
    Mr. Ramstad. Thank you, Mr. Chairman. Mr. Secretary, as 
your neighbor from Minnesota, I know what an outstanding 
Governor you were.
    Secretary Thompson. Thank you.
    Mr. Ramstad. I know you will be an equally outstanding 
Secretary. People from Minnesota, like people in Wisconsin, 
appreciate your direct, no-nonsense, bipartisan approach to 
governing, and I am looking forward to working with you. Also, 
Governor Ventura and I want to thank you for your recent 
decision to approve two technical changes in Minnesota's 
Medicaid program. Because of that decision you made, Minnesota 
special-needs children who are eligible for Medicaid will find 
it easier to get both medical and rehabilitative services 
through their schools, and this is a big deal for kids with 
physical and developmental disabilities, to have their special 
needs addressed during the schoolday. So thank you for making 
that happen.
    I hope, Mr. Secretary, you are just as successful in 
helping us right the wrongs that have been done and are 
currently being done to Minnesota seniors and Minnesota 
providers, through the arcane, unfair Medicare reimbursement 
formula. Minnesota seniors are being cheated. Minnesota 
providers are being cheated because we have had a history of 
cost-efficient health care in Minnesota, keeping our cost over 
the last decade at 3 percent below the national average. As a 
result, the reimbursement levels, as you know, are less than in 
less efficient States and counties.
    Just in the couple minutes that we have, how do you believe 
this problem of the Medicare reimbursement formula and 
inequalities, how can they be rectified within the context of 
comprehensive Medicare reform?
    Secretary Thompson. First off, I want to thank you for your 
leadership of Minnesota and thank you also for pushing hard on 
those waivers. We are going to change the way waivers are 
handled in the department. They are going to be much more 
streamlined, and I have got a lot of ideas on how to do that, 
and I also know that your Governor was in to see me already on 
the waiver that you are talking about, and we are already 
discussing it. So hopefully we can make some good headway in 
regards to that.
    In regards to the reimbursement formulas, you know better 
than I do that formulas in Congress are the most divisive thing 
there is, because it basically depends on how much money you 
can get. I do not think you can solve the inequitable situation 
in one State by taking from another State. You are going to 
have to find additional money in order to make sure that all of 
the State that is getting more is held harmless, so that you 
are going to be able to build up a more equitable distribution 
of dollars in States like Minnesota and also States like 
Wisconsin.
    Mr. Ramstad. Mr. Secretary, do you favor scrapping the 
AAPCC formula and going to a different reimbursement system?
    Secretary Thompson. I am not ready to scrap it until I see 
what the replacement is, but we are looking at that and we are 
looking at ways in which we can make it more efficient and more 
equitable.
    Mr. Ramstad. Those are the needs, to make it more efficient 
and more equitable, and I appreciate your recognition of that, 
of the incredible inequities in the current system. Like the 
chairman, I know you are committed to working in a bipartisan 
way to try to change that. The other question I wanted to ask 
you, I noticed from the President's budget an increase in drug 
and alcohol treatment, by $100 million. I could not help of 
thinking of former President Richard Nixon, when he first 
declared war on drugs back in the seventies, he directed 60 
percent of the Federal dollars in that war on drugs to 
treatment. Today, we are at 16 percent. So any increase is 
helpful and soon I will reintroduce my legislation, which had 
95 bipartisan cosponsors last year, including the former 
chairman of the House Budget Committee, to provide parity for 
substance abuse treatment, people in the health plans who are 
being discriminated against, who cannot get access to 
treatment, even though the policies ostensibly provide such 
treatment. I hope you will be willing to work with me on that 
legislation.
    Secretary Thompson. I want to work with you, Congressman, 
and I appreciate the opportunity and the invitations. So you 
let me know when you are going to have a meeting and I will be 
more than happy to try and make myself available.
    Mr. Ramstad. I appreciate that can-do spirit that governed 
Wisconsin so well for your terms in office, and it is 
refreshing to see you in this important position. I really do 
not believe the President could have chosen anybody more 
qualified to head the department, Governor.
    Secretary Thompson. I do not know about that, but I thank 
you very much.
    Mr. Ramstad. Well, even my Governor agrees with that. So 
that is a pretty good recommendation, from Governor Ventura.
    Secretary Thompson. Jessie and I get along just fine. When 
anybody is that big, I listen to them very intently.
    Mr. Ramstad. Me, too. Thank you, Mr. Secretary.
    Chairman Thomas. Does the gentleman from eastern Maryland, 
Mr. Cardin, wish to inquire?
    Mr. Cardin. Thank you, Mr. Chairman. I am glad you finally 
recognize the importance of Maryland to our country.
    Governor Thompson, first, let me tell you I am very 
encouraged by your statements here and your record on the human 
resource issues. I am the ranking Democrat on the Subcommittee 
that will deal with TANF and human resources, working with Mr. 
Herger, and I must tell you I am one of those now who feels 
maybe you should slow down on getting an assistant secretary, 
because I like what you say. I want you to stay directly 
involved on these issues. We need you, because we want to come 
out with a strong bipartisan product on the next tier or the 
next level of what welfare reform is all about.
    I appreciate the fact that many of these battles will be 
fought next year when we come up with the reauthorization 
legislation for welfare, but there are some important issues 
that we are going to have to deal with this year, and one of 
them may very well be the fight with OMB or with the budget 
people to make sure that the resources are in the budget so 
that we can continue to maintain the Federal partnership in 
dealing with welfare in our states.
    So I think we may need to deal with TANF this year in order 
to make sure we have the resources available. Let me just 
mention one area that is in the President's budget, that 
concerns me, and I would hope you would take a look at this, 
and that is to allow the states to use their TANF money to 
finance the State deductibility for charitable gifts. I am one 
of those who believe that we should give tax preferences to 
charitable gifts at the Federal and State levels, but they 
should not come at the cost of poverty funds that are so 
desperately needed to deal with poverty issues in our country. 
So I would hope that you would take a look at that, and perhaps 
we can find a better way to finance that rather than using TANF 
funds.
    Let me also point out that, as Mr. Levin pointed out, we do 
have the issue of supplemental funds to the states that needs 
to be dealt with in this year, because that expires and affects 
many of our states, not the State of Maryland which I 
represent, but many of the states are directly affected.
    Secretary Thompson. I think 17.
    Mr. Cardin. Seventeen States. So I think we need to take a 
look at that. It is not in the President's budget, and we need 
to see whether we can find the resources to make sure we do, in 
fact, finance those supplemental funds--reauthorize those 
supplemental funds. So I hope we can work together this year in 
order to accomplish that.
    Let me mention two other issues that have been in our 
Subcommittee, that have enjoyed very strong bipartisan support 
in this Congress, and have been passed by the House by lopsided 
votes. One, you are directly familiar with, to give the States 
the ability to pass through child support funds to the 
families. Wisconsin is the model for the Nation. You have the 
opportunity to do that. No other state can do it without losing 
both the state share and the Federal share. I would hope that 
you would help us in seeing that legislation through, so all 
states have the ability to pass through child support to the 
families without having to repay the Federal share.
    Secretary Thompson. I was lucky in getting a waiver for 
that, Congressman, and it was something I felt strongly about, 
so I do not know how I can divorce myself from my prior 
position and now say that it is not a good idea. I think it is 
an excellent idea and should be more widely utilized.
    Mr. Cardin. Thank you, and we will have some legislation in 
this session, in a bipartisan way, and I expect it will enjoy 
some strong support and we just need to get it through and 
enacted into law. As connected to that, Mrs. Johnson and I came 
up with the fatherhood initiative, which is in the President's 
budget, to provide some additional funds for fatherhood 
initiatives. We all know the states can use their TANF money to 
deal with non-custodial parents, but we think it is important 
to highlight that we have not done that with the non-custodial 
parent.
    Secretary Thompson. Congressman, we really have not, and it 
is really a failure in the current provisions, and I compliment 
you and Congresswoman Johnson for your leadership on that, and 
I am very pleased that we took some of your bill and put it in 
this blueprint budget for the future, because I think we have 
not done enough for fatherhood, and we have got to get more of 
the non-custodial parents back into the family unit, and things 
will be much better if we are able to accomplish that.
    Mr. Cardin. I guess my last point is--again, I appreciate 
everything you are saying. I think welfare will be a major 
issue this year, that we cannot wait until next year, as Mr. 
Levin has said. Your suggestion that we look at how, 
particularly, women are succeeding in the workplace, who have 
left welfare and have the educational resources available to 
them so they can move up the employment ladder, is a matter we 
need to really refine this year to see how we can make sure 
that is part of TANF reauthorization.
    Secretary Thompson. It is not only education, it is 
training. Both go hand-in-hand and are very important.
    Mr. Cardin. Thank you.
    Secretary Thompson. Thank you, Congressman.
    Chairman Thomas. Thank the gentleman. Does the gentlewoman 
from western Washington wish to inquire?
    Ms. Dunn. You bet.
    Welcome, Mr. Secretary. We sat opposite each other about 6 
years ago, when you came to testify on welfare reform. It was 
very helpful then, and I am glad that I am now on the top-
level, but I am very happy that you are the Secretary. I just 
want to support Ben Cardin's last point. Many of us have stayed 
in touch with welfare moms and dads through the years since we 
passed that reform bill, and I would be happy to give you some 
of the information. One of the points that Mr. Cardin made on 
education is one I hear over and over again, education and 
training.
    Secretary Thompson. Thank you very much.
    Ms. Dunn. I have a couple of questions on health care. The 
Health Insurance Portability and Accountability Act, the HIPAA 
Act, I know that your folks are doing a review of the 
regulation on that act. There are some of us who are concerned 
and, in fact, all but one of the Members of the delegation from 
Washington State, my State, signed a letter to you, because our 
constituents have some concerns. We like where the 
administration is going on administrative simplification, but 
the implementation of the regulations is concerning us.
    Specifically, we are concerned about the 2-year compliance 
rule for standardization of electronic transactions, and also 
the piecemeal release of different sets of regulations over 
time. I would like to submit some detailed questions to you 
that your folks can answer, but I wonder if you can give us a 
sense of where your review is taking you?
    [Questions submitted by Ms. Dunn, and Secretary Thompson's 
response, follow:]

    Question 1: There are a number of outstanding rules including 
security, enforcement, national provider identifier, and employer 
identifier that must be finalized so that health organizations can 
fully comply. Can you update me on the progress of those pending rules?
    Answer: The Department has an on-going, concentrated effort to 
implement the Administrative Simplification section of the Health 
Insurance Portability and Accountability Act of 1996. Of the nine rules 
that comprise Administrative Simplification, five Notices of Proposed 
Rulemaking have been issued. Two of these (Privacy and Transaction and 
Code Sets) have been issued in Final, with corresponding compliance 
dates. We hope to have the final Security and Employer Identifier rule 
published by this Fall.
    The Notices of Proposed Rulemaking have generated a large number of 
comments by the covered entities, including 17,000 comments on the 
Transaction and Code Sets, and in excess of 50,000 comments on the 
Privacy Notice of Proposed Rulemaking. Significant progress has been 
made on issuing NPRMs, categorizing, reviewing and responding to the 
comments received, and issuing Final rules. We are working as quickly 
as we can to complete work on the remaining rules, including claims 
attachments and enforcement.
    Regarding the regulation and implementation of provider 
identifiers, the Department is reviewing how best to achieve this goal, 
as well as evaluating the budget implications.
    Question 2: Health care providers in my district have expressed 
concerns with the rules governing electronic transaction and code sets 
promulgated as part of the administrative simplification provisions of 
HIPAA. Can you update me on the progress of these pending rules?
    Answer: The Electronic Transactions and Code Sets rule was 
published as a Notice of Proposed Rulemaking on May 7, 1998, issued in 
Final on August 17, 2000, and based on the two-year statutory 
implementation requirement for covered entities, compliance is required 
as of October 16, 2002. (Note: the statute provides an exception for 
small plans, giving them three years to comply rather than two.) 
Changes to the rule, as recommended by the statutorily recognized 
Designated Standards Maintenance Organizations (DSMOs), will go through 
the Department's regulations process. The Department will be published 
an NPRM proposing the DSMOs changes, which have been received.
    Question 3: What actions has the Department taken to educate 
physicians, hospitals and other providers on these regulations?
    Answer: There are on-going efforts to inform and educate all 
covered entities regarding the Administrative Simplification 
regulations. These include:
     Publication of all Notices of Proposed Rulemaking and 
Final Rules in the Federal Register, including any technical 
corrections;
     A comprehensive, up-to-update web site with all 
information relating to Administrative Simplification--available on the 
Web at: http://aspe.hhs.gov/admnsimp;
     Active participation in meetings of standard setting 
organizations such as the Workgroup on Electronic Data Interchange, as 
well as congressionally mandated advisors such as the National 
Committee on Vital and Health Statistics; and
     The issuance of Guidance Documents to help health care 
providers and health plans come into compliance with the regulations. 
The guidance is available on the Web at: http://www.hhs.gov/ocr/hipaa.
    Listed below are specific outreach efforts by program area:
Medicare
    The focus is on reaching providers, both directly and through the 
Medicare contractors. CMS Medicare contractors will be ready to begin 
testing of HIPAA transactions for claims and remittance information 
this fall.
    Articles for contractor bulletins and websites have been prepared. 
The first article went out in the Fall of 2000, and dealt primarily 
with transactions. Additional articles are planned regarding privacy, 
the National Provider Identifier, testing, security, and claims 
attachments.
    We offer web-based training for providers, which includes an 
overview of HIPAA. Self assessment guidance is also being developed. A 
draft of the full course will be completed in August; the course should 
be available by the end of 2001.
    We offer several Web resources, a summary of which will be 
published on the Medlearn page by the end of July. Pointers to 
materials will be provided at Washington Publishing Company, WEDI, and 
other websites.
    A satellite broadcast containing the same content as the web-based 
training and presentation materials is tentatively scheduled for the 
last quarter of the calendar year. These broadcasts typically reach 
several thousand providers at 600 satellite sites, and would be 
rebroadcast 3 or 4 times.
    A HIPAA brochure to be distributed at provider conferences is being 
developed.
Medicaid
    The Department's focus is on the state Medicaid programs and their 
critical intra and inter-state trading partners. This includes, for 
example, the State Departments of Human Services that provide health, 
screening, diagnostic and nutritional services to low income children, 
mothers, the elderly and disabled.
    While we expect each state to conduct their own HIPAA outreach 
efforts with physicians, hospitals, laboratories, pharmacies, nursing 
homes as well as beneficiaries, our role is to support their efforts by 
serving as a national resource on Medicaid HIPAA. To that end, we are 
working with staff at all levels of state government, including 
Department heads, Commissioners of human service agencies, state CIO's, 
legislative staff and the Governor's offices, who can provide executive 
support and resources to state HIPAA implementation efforts.
    We have developed, edited, published and distributed a 10-page bi-
monthly newsletter, HIPAA Plus, covering news from national and 
regional sources.
    The first annual National Medicaid HIPAA conference was held in 
April. Approximately 550 people from all 50 States and Guam attended 
the three-day conference. The second annual conference will be held in 
April 2002.
    We have developed the Medicaid HIPAA Compliant Concept Model 
(MHCCM), an interactive tool states can use to conduct a HIPAA ``gap 
analysis.'' This analysis will highlight areas where action will be 
needed for compliance. We have identified a model custodian in each 
state, and hold monthly conference calls to share information.
    A working lunch will be held at the MMIS conference in New 
Hampshire to review the new Version 2 of the model.
    The model is available on CD and on the web at Washington 
Publishing Company. Also,
    Two brochures on the MHCCM have been distributed, and a new 
brochure is in development now. Ultimately, one brochure will include a 
detailed view of HIPAA, a second will explain the MHCCM, and a third 
will be tailored for audiences requiring basic information on HIPAA.
    A letter to all governors is being considered.
Medicare Managed Care
    Our focus is on the managed care plans themselves, with the 
expectation that they will conduct outreach with their providers and 
trading partners.
    A managed care HIPAA conference is being planned for September in 
Baltimore.
    A self-assessment tool specifically for managed care plans is being 
developed.
    Question 4: Does the department plan to modify the rules or extend 
the two-year compliance period?
    Answer: As mentioned above, the Electronic Transactions and Code 
Sets rule will be modified in response to the DSMOs recommendations 
that have been forwarded to the Centers for Medicare and Medicaid 
Services. Also, while the privacy rule is not expected to be modified 
prior to its effective date of April 14, 2003, the Department has 
issued a Guidance document (also available on the Web at: http://
www.hhs.gov/ocr/hipaa) to help statutorily defined covered entities 
come into compliance.
    The two-year compliance period for each of the Administrative 
Simplification rules is mandated in the HIPAA statute (except for small 
plans, which, as noted above, have three years to comply), thus is not 
subject to departmental modification.

                                


    Secretary Thompson. I can give you an overall sense, but I 
cannot answer your specific questions, I am sorry, 
Congresswoman. I appreciate you submitting the questions. I 
would be more than happy to answer them in a very diligent 
fashion. We are taking a look at all the rules and regulations 
in the department, and we want to try and find a way that we 
can make the rules and regulations of the Department of Health 
and Human Services much more easily understood, and therefore, 
able to be followed. We are trying also to take into 
consideration some of the questions you are having, in trying 
to find better ways.
    I am not being critical of anybody in the past or anything 
in the present. We just want to make sure that our rules and 
regulations are much more responsive and much more easily 
understood.
    Ms. Dunn. That is great, as our folks are doing their best 
to prepare for the new regulations, if they are put out in 
piecemeal fashion, they might spend a lot of money preparing 
for one set that would be later influenced by another set. So 
that is what we find we are running into.
    Secretary Thompson. One of the things that really irritated 
me as a Governor is that they put out rules and regulations, 
and you never knew. All of a sudden, you would be operating and 
a rule comes out, and if you did not see it right away or did 
not adhere to it right away, you could be penalized. We are 
trying to put them out on a very uniform basis so that States 
and providers are going to be able to see these rules, maybe on 
a quarterly basis, maybe on a semi-annual basis, so that they 
have more lead time to be able to get ready for them and to be 
able to put their systems in place, so they are going to be 
able to comply with them.
    Ms. Dunn. That would be great. Well, we welcome the results 
of your review. On Children's Hospital graduate medical 
education programs, a couple of years ago, Congresswoman 
Johnson and I sent an authorization--sent a letter supporting 
the authorization of funds for this. Last year, the Congress 
provided $235 million for the program. I am a supporter of 
increasing those dollars, but we are hearing some rumors that 
OMB is coming out with a cut in support, and I wonder if you 
know about that or what your thoughts are on it.
    Secretary Thompson. Well, I know about it. At this point in 
time, we are still working on that budget and it will be coming 
out in April, and I am not at liberty to discuss it right now, 
because we are still negotiating on that item and a couple of 
other items with OMB.
    Ms. Dunn. Great. Well, I hope that you will put in a pitch 
for them to increase that program, because we really do need to 
be training those physicians who deal directly with children.
    Secretary Thompson. Thank you.
    Ms. Dunn. I wanted also to ask you a question about HCFA. 
Our concern is the coding that HCFA has--is using and the 
payment process. The Institute of Medicine recently issued a 
report regarding the lack of transparency, simplicity and 
efficiency, and also access by users of that coding system to 
do some improving in it. I am interested in updating this 
process, and we want to make sure that the appropriate and 
payments are assigned to the proper test. We are hopeful that 
you will work with us on this issue, so that the Institute of 
Medicine's concerns are adequately addressed and so that we can 
make sure that Medicare beneficiaries do have access to the 
very best clinical laboratory services.
    Secretary Thompson. You know I will. I cannot tell you how 
eager I am to reform, and allow HCFA to be better able to 
perform their services. We have some great people at HCFA, that 
really want to be able to do the job that Congress has asked 
them to do. They are pretty much handcuffed with a lot of the 
procedures put in place, with arcane and archaic equipment, and 
we need all the help we can get. If you have got any 
suggestions, we will be more than happy to work with you and to 
take into consideration your suggestions.
    Ms. Dunn. Great. Thank you, Mr. Secretary, and we look 
forward to the announcement of the new head of HCFA. Thank you, 
Mr. Chairman.
    Chairman Thomas. Does the gentleman from Washington, Mr. 
McDermott, wish to inquire?
    Mr. McDermott. Thank you, Mr. Chairman.
    Governor, we talked in the Budget Committee about the whole 
issue of Medicare. I have been thinking about it since then; 
I've gone over the numbers, and I would like to, maybe in a 
simpleminded way, ask a question, because I feel like I am at 
the county fair and I do not know where the money is. On page 
14 of the budget, it says there is a $645 billion deficit in 
Medicare in the next 10 years.
    I understand that earlier in this Committee hearing, you 
said that there will be a $526 billion surplus, I think in part 
A. You said that is going to be spent on Medicare, not being 
specific about whether it is going to be spent on part A or 
part B. So if you take that $536 that is in this deficit, and 
put it there, you have partially filled the glass--which 
represents the $645 billion deficit. Then I see in the budget 
that there is $153 billion more to be used for modernization 
and whatever.
    Secretary Thompson. And prescription drugs.
    Mr. McDermott. So if I put that in and you add that, you 
get a full glass of water. You have got the 645, give or take a 
few billion, which is close enough for government work, 
perhaps. But the question I have then is how do you come up 
with whatever you intended to spend on a prescription drug 
benefit? Was that included in this that is already there, or is 
that new money coming from somewhere else because I have looked 
through the book and I cannot make out in my own mind whether 
this 526 plus 153 includes the drug benefit money or is it 
coming from somewhere else. I would really like to hear your 
explanation.
    Secretary Thompson. Well, let me try and explain where I am 
at, and hopefully that is where the administration is at.
    Mr. McDermott. I hope they are with you, too. Your job will 
be easier.
    Secretary Thompson. This chart that you are looking at on 
page 14 includes both Parts A and Parts B.
    Mr. McDermott. Yes, I understand that.
    Secretary Thompson. There was a very elegant dissertation 
by Chairman Thomas early on in the hearing, and he is right on. 
It says that part B has got a deficit of $1.2 trillion, and 
part A has a surplus of $526 billion. Combining those two, you 
have a deficit of $645 billion. But as you aptly pointed out 
last week in the Budget Committee, and educated me very 
intently on, part B is a subsidy, and 75 percent from the 
Federal government, 25 percent from the policyholder, and that 
continues. So part A has got the surplus. part B has got a 
deficit. If you call it a deficit--you call it a subsidy, a 75-
25. That is a different nomenclature, but pretty much the same 
thing.
    Mr. McDermott. Still money.
    Secretary Thompson. Still money. The $153 billion is 
separate. That is money that the President put in his budget 
for reforming Medicare, making it more competitive, more 
efficient, and also a prescription drug component. Now, if 
there is need of extra money, and it is my understanding that 
the extra money for the prescription drugs would be the 
difference between the $842 billion and the $526 billion, which 
is the surplus, the contingency fund, part of that contingency, 
around $300 billion dollars, less than that, would come to 
subsidize and help fund the prescription drugs, Congressman 
McDermott.
    Mr. McDermott. So what you are saying is that the 645 is a 
combined figure of a much larger deficit in part B, and a 
surplus in part A, and that gives you the 645; that is correct; 
right?
    Secretary Thompson. That is my understanding.
    Mr. McDermott. That you still owe. Now, the 526, is that 
money counted from the surplus in part A?
    Secretary Thompson. Yes.
    Mr. McDermott. That is. But haven't you already counted it 
over here when you subtracted it from the total deficit, to 
give 645? It seems to me you have subtracted it twice.
    Secretary Thompson. No, it is not my understanding you 
subtract it at all. They are saying $526 billion is in Chapter 
(sic) A, and there is a deficit of $1.2 trillion in Chapter B--
Title B.
    Mr. McDermott. But when you combine them----
    Chairman Thomas. Go ahead. You have got one more shot. Your 
time has expired.
    Mr. McDermott. I am sorry?
    Chairman Thomas. Your time has expired, but if you want to 
have one more conversation----
    Mr. McDermott. We will talk about this when we get down the 
road a little bit.
    Chairman Thomas. He is coming back next Tuesday. It is the 
chair's intention to conclude this hearing. We reached Mr. 
Collins and Mr. Kleczka, and it is the chair's intention that 
when we reconvene next Tuesday with the Secretary of the 
Treasury and the Secretary of Health and Human Services once 
again, that we will begin the questioning at that point. We 
have two votes on the floor.
    Mr. Secretary, it is a pleasure having you with us and we 
look forward to seeing you, along with the Secretary of the 
Treasury, next Tuesday.
    The Committee stands adjourned.
    [Whereupon, at 11:54 a.m. the hearing was adjourned.]
    [A question submitted by Mr. Collins, and Secretary 
Thompson's response, follow:]

    Question: The Bush Administration has reopened the comment period 
on the proposed patient confidentiality regulations. These regulations 
have been criticized as being unworkable and overly expensive to 
implement.
    A major concern is that the regulations--as required by the Health 
Insurance Portability and Accountability Act--does not preempt state 
laws. This means that we will continue to see onerous state laws, such 
as those passed by Minnesota, which are unworkable and overly expensive 
to implement.
    In light of these concerns, what is the status of the work that 
both has been done and is being undertaken right now on these privacy 
regulations? What expectations do you have for future enforcement and 
implementation of these privacy regulations?
    Answer: During the March 2001, 30-day public comment period, the 
Department received thousands of letters and comments on the Privacy 
Rule. Many of these comments revealed confusion over what the 
regulation does or does not do. Other comments identified certain 
provisions as unworkable.
    The Department is using the written comments received, as well as 
issues identified through other communications with stakeholders, to 
direct our technical assistance and modification efforts. Specifically, 
on July 6, 2001, we issued our first set of guidance on the Rule, which 
attempts to clear up many of the misconceptions about the Rule and 
eliminate some of the uncertainties surrounding implementation of the 
Rule's provisions. This guidance is only the first in a series of 
ongoing technical assistance materials that the Department will provide 
to help covered entities comply with the Rule.
    The Department also is working to propose any necessary changes to 
the Rule as quickly as possible so as to ensure that quality of care 
does not suffer inadvertently. For example, as we acknowledge in the 
guidance, an unanticipated problem arises with the consent provisions 
in the final rule when an individual's first contact with a provider is 
not in person and the provider needs to use the individual's 
information to perform a service, e.g., a pharmacist needs to use the 
information to fill a phoned-in prescription. We will propose 
modifications to the Rule to fix this problem and ensure that such 
activities may continue.
    We are aware of concerns regarding preemption of state laws. 
Generally, HIPAA provides that the Privacy Rule preempt contrary 
provisions of state law. However, under HIPAA, state laws that are more 
protective of privacy are not preempted. In order to provide for 
preemption of all state privacy laws, Congress would have to enact new 
legislation.
    As to compliance and enforcement, our enforcement approach is to 
first and foremost seek voluntary compliance by covered entities. 
Accordingly, the Department is working with the health care industry 
and others to ensure effective implementation of the Privacy Rule 
through guidance and other technical assistance. In addition, we 
anticipate proposing an enforcement rule that would apply to the 
Privacy Rule and the other administrative simplification rules, which 
will address how the Department will handle complaints and implement 
the enforcement provisions in HIPAA.

                                

    [Submissions for the record follow:]

          Statement of Advanced Medical Technology Association

    AdvaMed is the largest medical technology trade association in the 
world, representing more than 800 medical device, diagnostic products, 
and health information systems manufacturers of all sizes. AdvaMed 
member firms provide nearly 90 percent of the $68 billion of health 
care technology products purchased annually in the U.S. and nearly 50 
percent of the $159 billion purchased annually around the world.
    AdvaMed strongly supports the President's commitment to the 
Medicare program, the National Institutes of Health (NIH) and medical 
research, improving access to technologies for people with disabilities 
and expanding access to health care coverage for the uninsured. We look 
forward to working with the Administration to ensure that the medical 
research developed by the government and in the private sector not only 
improves the quality of the care delivered to patients in all settings 
and programs, but also the productivity of the health care system 
itself.
    With great interest, we note that President Bush's budget blueprint 
states that ``Medicare is not adapted to 21st Century 
medicine. Medicare is often too slow to incorporate technologies and 
methods of delivering care. * * * As in virtually all fields, 
technological and entrepreneurial innovation are among the keys to 
creating more value for the dollar in health care.'' In addition, the 
budget recognizes that ``assistive and universally designed 
technologies can dramatically improve the lives of individuals with 
disabilities, and make it possible for them to engage in productive 
work and more fully participate in society.''
    We strongly agree that Medicare should be encouraged to capitalize 
on advanced technologies, which have revolutionized the U.S. economy 
and driven productivity to new heights and new possibilities in many 
other sectors. Significant advances in health care technologies--from 
health information systems that monitor patient treatment data to 
innovative diagnostics tests that detect diseases early and lifesaving 
implantable devices--improve the productivity level of the health care 
delivery system itself and vastly improve the quality of the health 
care delivered. New technologies can reduce medical errors, make the 
system more efficient and effective by catching diseases earlier--when 
they are easier and less expensive to treat, allowing procedures to be 
done in less expensive settings, and reducing hospital lengths of stays 
and rehabilitation times.
Medicare Beneficiary Access to Technology
    AdvaMed applauds Congress for the steps it took in the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Benefits Improvement and 
Protection Act (BIPA) of 2000 to begin to make the Medicare coverage, 
coding and payment systems more effective and efficient. In addition, 
the Health Care Financing Administration (HCFA) has recently made some 
changes to modernize its coverage and payment systems.
    Despite these efforts, however, current policies still fail to keep 
up with the pace of new medical technology. Serious delays continue to 
plague the amount of time it takes Medicare to make new medical 
technologies and procedures available to beneficiaries in all treatment 
settings.
    As Cliff Goodman from the Lewin Group testified at a March 
1st hearing in the Committee on Energy and Commerce, 
Medicare delays can total from 15 months to five years or more because 
of the program's complex, bureaucratic procedures for adopting new 
technologies. Keep in mind that all this is after the two to six years 
it takes to develop a product and the year or more it takes to go 
through the Food and Drug Administration (FDA) review. In addition, 
these delays are even more pronounced when you consider that the 
average life span of a new technology can be 18 months.
    The impact on patients has been dramatic. As physician witnesses 
testified on March 1st, cancer patients have had to fight 
for years to get Medicare to cover positron emission tomography, a 
potentially lifesaving scanning technology that has been broadly 
available to people under private health insurance for a decade. In 
addition, tens of thousands of seniors and people with disabilities 
have not been able to receive advanced technologies like coronary 
stents (which reopen blocked arteries), cochlear implants (which 
restore hearing) and heart assist devices (which keep patients alive 
while waiting for a heat transplant).
    These delays stem from the fact that for a new technology to become 
fully available to Medicare patients, it must go through three separate 
review processes to obtain coverage, receive a billing code and have a 
payment level set. Serious delays in all three of these areas create 
significant barriers to patient access.
Making Medicare's Coverage Process More Transparent and Timely
    While HCFA has improved the transparency for making national 
coverage decisions and attempted to instill timeframes within the 
process, timeliness is still a major problem. Under the current 
national coverage process framework, HCFA has 90 days to determine 
whether it will make a coverage decision or refer the request to either 
the Medicare Coverage Advisory Committee (MCAC) or an outside health 
technology assessment (HTA) group--or sometimes even to both. These 
outside assessments take between 3 and 12 months each. HCFA then has 60 
days to review the recommendations of the MCAC or HTA, and should a 
positive coverage determination be made, it takes 180 days from the 
first day of the next calendar quarter to issue a code and set a 
payment level.
    The coverage process should be streamlined and made more 
accountable, timely and transparent. Steps should be taken to reduce 
redundancies in the MCAC panel and HTA reviews. In addition, the focus 
of the MCAC panels should be directed toward gaining practical clinical 
advice from the medical experts on its panels.
Reforming the Coding and Payment Processes
    After coverage is approved, there are three separate coding 
processes that determine how a device or procedure is identified and to 
which payment bundle it is assigned. Each of these coding systems have 
significant time-lags in assigning and updating codes. Under the new 
hospital outpatient perspective payment system (PPS), HCFA now assigns 
and updates codes on a quarterly basis. To reduce coding delays of 15-
27 months, HCFA should use the outpatient PPS system as a model for 
applying similar systems to other settings, such as the inpatient 
hospital setting and doctors' offices.
    Coverage and codes mean very little, however, if the associated 
payment level is inadequate. HCFA's procedures for updating relative 
payment weights and reassigning technologies and procedures are 
informal and infrequent. For example, it took HCFA 5 years to 
ultimately decide that the applicable diagnosis related group (DRG) 
should be split into two DRGs for angioplasty with and without stent. 
During those 5 years, hospitals took significant losses on each stent 
procedure and the diffusion of this cost-saving technology was 
hampered.
    As required by BIPA, HCFA should develop formalized procedures for 
expeditiously assigning codes, updating relative weights and 
reassigning technologies to recognize the value of new and 
substantially improved technologies. HCFA should also fully implement 
the BIPA requirement to provide a transitional payment mechanism for 
new technologies where the DRG payment is inadequate.
Conclusion
    Again, AdvaMed applauds Congress and the President for recognizing 
the value of medical research and innovation for improving the quality 
of care Americans receive. Innovative technologies can modernize and 
advance the efficiency of the Medicare program, and all other health 
care options, with early detection, better health care information 
technologies, less invasive procedures and devices. We look forward to 
working with Congress, the President and Secretary Thompson on ways to 
modernize Medicare, incorporating the benefits technology can bear, and 
furthering advances in medical research.

                                


               Statement of Alliance to Improve Medicare
    The Alliance to Improve Medicare (AIM) is the only organization 
focused solely on fundamental, non-partisan modernization of the 
Medicare program to ensure more coverage choices, better benefits 
(including prescription drug benefits), and access to the latest in 
innovative medical practices, treatments and technologies through the 
Medicare system. AIM coalition members include organizations 
representing seniors, hospitals, small and large employers, insurance 
plans and providers, doctors, medical researchers and innovators, and 
others.
    The structure of the traditional Medicare program has changed 
little in more than three decades and, consequently, has not kept pace 
with many of the dramatic improvements in health care delivery. AIM is 
dedicated to achieving comprehensive modernization of the traditional 
Medicare program through policy research and educational programs for 
Members of Congress and their staff, the media, and the American 
public.
Key Principles for Medicare Modernization
    AIM has identified seven key principles to guide Medicare 
modernization efforts. These principles seek to improve both the 
administration of the Medicare program and the benefits provided to 
program beneficiaries.
    First, AIM supports improvement of health care coverage through 
better coordination of care including health promotion and disease 
prevention efforts. The traditional Medicare program has not kept pace 
with private sector benefits and plans offering preventive health care 
and screening measures such as annual physicals, hearing and vision 
tests, and dental care. Medicare beneficiaries, more so than other 
population age groups, can benefit from these preventive measures which 
can help reduce long-term costs and ensure appropriate, early treatment 
of health problems. Private sector Medicare providers should have the 
flexibility to incorporate these measures as part of basic health care 
services. Unfortunately, an act of Congress has previously been 
required to provide routine screening tests under the Medicare fee-for-
service program. For example, health management programs are offered by 
a variety of health plans (including HMOs) and pharmaceutical benefit 
managers (PBMs), companies who supply and manage prescription drug 
benefits for health care companies. Health management programs reduce 
overall health costs and improve the quality of life by helping 
beneficiaries better understand and manage conditions such as asthma 
and diabetes.
    Second, AIM supports improvement of health care coverage through 
increased consumer choice. Medicare beneficiaries should have the 
option to choose from a range of coverage options similar to those 
available to Members of Congress, federal employees and retirees, and 
millions of working Americans under 65 years of age who are covered by 
private plans. The Medicare managed care program, Medicare+Choice, 
seeks to provide these types of coverage options to seniors nationwide. 
Unfortunately, inadequate payments and excessive regulation of private 
sector providers participating in Medicare+Choice have seriously 
constrained the ability to expand coverage areas and have caused 
numerous plans to withdraw from coverage areas where reimbursement was 
inadequate to cover even the costs of basic care. Between 1998 and 
January 2001, these withdraws affected over 1.5 million beneficiaries. 
One Medicare+Choice program participant, Oschner Health Plan (OHP) of 
Louisiana, cited inadequate payments in July 2000 when announcing 
withdrawal from nearly 6,000 OHP Medicare+Choice beneficiaries or16% of 
OHP's Medicare+Choice beneficiaries in Louisiana. OHP projected 2001 
losses of nearly $6.8 million as a result of inadequate payment rates 
for basic coverage for these beneficiaries.
    Third, AIM supports improving coverage through increased 
competition among all plans and providers in the Medicare program. 
Medicare's managed care option, the Medicare+Choice program, is an 
alternative to and competitor with traditional fee-for-service 
Medicare. The federal government, through the Health Care Financing 
Administration (HCFA,), currently regulates Medicare+Choice plans while 
also acting as a participant itself through the traditional fee-for-
service program. AIM believes this dual role is anti-competitive. 
Medicare reform and modernization efforts must be evaluated based on 
success in increasing market competition and availability of basic, 
affordable coverage to Medicare beneficiaries, not on increasing HCFA's 
regulatory powers and oversight activities. The U.S. General Accounting 
Office (GAO) and former HCFA Administrators have identified several 
areas of conflict between HCFA's broad responsibilities and management 
structure including the dichotomy of the traditional fee-for-service 
program with the Medicare+Choice program. These conflicts include the 
lack of separate management offices and directors for each program.
    Fourth, AIM believes prescription drug coverage should be provided 
to all Medicare beneficiaries as part of comprehensive, market based 
Medicare modernization. The opportunity for reform and modernization is 
presented by the recognized need to cover prescription drug benefits 
for Medicare recipients. Congress should take this opportunity and not 
simply layer a new, stand-alone drug program onto the traditional 
Medicare program without addressing the program's outdated and 
inadequate financial and structural systems. The program in its current 
form cannot meet the coming challenges presented by the retirement of 
the baby boom generation which will more than double the number of 
Medicare beneficiaries. Any Medicare reform proposal must address the 
real structural and financial problems of the Medicare program. For 
example, Medicare currently does not cover simple screening tests to 
detect high cholesterol among beneficiaries. Without modernization, 
Medicare will pay for only the drugs to treat high cholesterol but will 
continue to deny payment for detection of high cholesterol problems in 
seniors. Under a drug benefit as part of modernization, Medicare would 
ensure early detection and treatment, including drug therapy, as part 
of a comprehensive disease management approach.
    Fifth, AIM urges Congress to continue to review and address the 
financial crisis facing health plans and providers. Adequate financing 
is necessary to establish a solid foundation upon which to build a 
better Medicare and ensure the long-term financial integrity and 
solvency of the Medicare program. Payment cuts in the Balanced Budget 
Act of 1997 (BBA '97) directly undermined patient care and progress 
toward a modernized program. These cuts were originally estimated to be 
$103 billion over five years but recent Treasury Department and 
Congressional Budget Office (CBO) reports project cuts of almost $300 
billion-nearly triple what was intended. Health plans, hospitals and 
doctors have been hit hard and patient care has been and will continue 
to be affected. Congress recognized the damage caused by BBA '97 and 
has provided over $30 billion in restorations over the next five years. 
These small repayments represent a good start at addressing the 
financial crisis caused by the cuts. AIM encourages Members to ensure 
appropriate and timely payments for these providers and plans to ensure 
appropriate care for Medicare beneficiaries.
    Sixth, AIM believes that the current rigid and outdated Medicare 
benefit structure and bureaucracy must be replaced. Program 
administrators must be provided with the flexibility to make new health 
care innovations and technologies more readily accessible to Medicare 
beneficiaries. Currently, Medicare beneficiaries wait a minimum of 15 
months after patients in private health plans, including 
Medicare+Choice plans, to gain access to new medical devices and 
technologies, and sometimes the wait is as long as five years. HCFA's 
approval, coding and reimbursement procedures are largely responsible 
for this delay. Quality health care for Medicare beneficiaries requires 
these new technologies to be available for all patients. For example, 
more than half the patients who could use cochlear implants, which 
restore hearing to the profoundly deaf, are Medicare age. 
Unfortunately, few Medicare patients have received the device because 
HCFA hasn't updated its inadequate payment rate in 14 years. Current 
payment rates for cochlear implants cover less than half of actual 
costs.
    Finally, AIM believes Medicare administrators must reduce excessive 
program complexity and bureaucracy caused by the more than 110,000 
pages of federal rules, regulations, guidelines and mandates. While AIM 
supports the elimination of real fraud and abuse in Medicare, our 
members believe this can be achieved without relying on unnecessarily 
complex and heavy-handed regulation. Providers and plans must not be 
forced to divert resources from patient care in order to respond to 
ever-changing regulations. For example, Medicare+Choice plans 
announcing withdrawals in July 2000 frequently cited the large volumes 
of Operational Policy Letters (OPLs) as one reason for withdrawal. 
These plans reported increasing needs to devote additional employees to 
regulatory issues instead of health care delivery and management, 
increasing costs to plans at the same time as health care costs 
increased but payment rates from HCFA remained stagnant.
Conclusion
    AIM urges the Committee to consider sensible, long-term solutions 
to the problems confronted by the Medicare program and by Medicare 
beneficiaries and we urge Members to work together on a bipartisan 
basis to achieve comprehensive Medicare reform. AIM appreciates the 
opportunity to submit this statement for the hearing record and we look 
forward to working with the Committee as they examine options for 
Medicare.