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



 
    DEPARTMENT OF HEALTH AND HUMAN SERVICES FISCAL YEAR 2003 BUDGET 
                               PRIORITIES
=======================================================================


                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 28, 2002

                               __________

                           Serial No. 107-25
                               __________

           Printed for the use of the Committee on the Budget










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                        COMMITTEE ON THE BUDGET

                       JIM NUSSLE, Iowa, Chairman
JOHN E. SUNUNU, New Hampshire        JOHN M. SPRATT, Jr., South 
  Vice Chairman                          Carolina,
PETER HOEKSTRA, Michigan               Ranking Minority Member
  Vice Chairman                      JIM McDERMOTT, Washington
CHARLES F. BASS, New Hampshire       BENNIE G. THOMPSON, Mississippi
GIL GUTKNECHT, Minnesota             KEN BENTSEN, Texas
VAN HILLEARY, Tennessee              JIM DAVIS, Florida
MAC THORNBERRY, Texas                EVA M. CLAYTON, North Carolina
JIM RYUN, Kansas                     DAVID E. PRICE, North Carolina
MAC COLLINS, Georgia                 GERALD D. KLECZKA, Wisconsin
ERNIE FLETCHER, Kentucky             BOB CLEMENT, Tennessee
GARY G. MILLER, California           JAMES P. MORAN, Virginia
PAT TOOMEY, Pennsylvania             DARLENE HOOLEY, Oregon
WES WATKINS, Oklahoma                TAMMY BALDWIN, Wisconsin
DOC HASTINGS, Washington             CAROLYN McCARTHY, New York
JOHN T. DOOLITTLE, California        DENNIS MOORE, Kansas
ROB PORTMAN, Ohio                    MICHAEL E. CAPUANO, Massachusetts
RAY LaHOOD, Illinois                 MICHAEL M. HONDA, California
KAY GRANGER, Texas                   JOSEPH M. HOEFFEL III, 
EDWARD SCHROCK, Virginia                 Pennsylvania
JOHN CULBERSON, Texas                RUSH D. HOLT, New Jersey
HENRY E. BROWN, Jr., South Carolina  JIM MATHESON, Utah
ANDER CRENSHAW, Florida
ADAM PUTNAM, Florida
MARK KIRK, Illinois

                           Professional Staff

                       Rich Meade, Chief of Staff
       Thomas S. Kahn, Minority Staff Director and Chief Counsel













                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, February 28, 2002................     1
Statement of:
    Hon. Tommy G. Thompson, Secretary, Department of Health and 
      Human Services.............................................     5
    Tara O'Toole, M.D., M.P.H., Director, Johns Hopkins Center 
      for Civilian Biodefense Strategies.........................    45
    Gail Wilensky, Ph.D., John M. Olin Senior Fellow, Project 
      HOPE.......................................................    52
    Steven M. Lieberman, Executive Associate Director, 
      Congressional Budget Office................................    58
Prepared statement of:
    Hon. Adam H. Putnam, a Representative in Congress from the 
      State of Florida...........................................     4
    Secretary Thompson...........................................     9
    Dr. O'Toole..................................................    47
    Dr. Wilensky.................................................    54
    Dan L. Crippen, Director, Congressional Budget Office........    61


 DEPARTMENT OF HEALTH AND HUMAN SERVICES BUDGET PRIORITIES FOR FISCAL 
                               YEAR 2003

                              ----------                              


                      THURSDAY, FEBRUARY 28, 2002

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:01 a.m. in room 
210, Cannon House Office Building, Hon. Jim Nussle (chairman of 
the committee) presiding.
    Members present: Representatives Nussle, Hoekstra, Bass, 
Gutknecht, Ryun, Collins, Fletcher, Watkins, Hastings, Granger, 
Schrock, Culberson, Brown, Crenshaw, Putnam, Kirk, Spratt, 
McDermott, Bentsen, Davis, Moran, Baldwin, McCarthy, Moore, 
Honda, and Holt.
    Chairman Nussle. Call this hearing to order.
    This is the full committee hearing of the Budget Committee 
of the House of Representatives, Department of Health and Human 
Services budget priorities for fiscal year 2003. We have two 
panels today. Our first panel is the Honorable Secretary of 
Health and Human Services, Tommy Thompson. On panel two, we 
have Dr. Gail Wilensky, Dr. Tara O'Toole and Dan Crippen from 
the Congressional Budget Office.
    We were just kibitzing a little before the hearing that 
Health and Human Services and our first witness, the Secretary, 
had quite a portfolio of activity when he took over last year. 
Up to September 10, he probably thought that was a big job in 
and of itself. Certainly, as we all know, a number of agencies 
of our government, especially Health and Human Services on 
September 12 picked up a number of new and growing 
responsibilities. As we talk about the budget and meet today, 
we meet within that context.
    The purpose of this hearing is certainly as the lead agency 
for addressing bioterrorism, the Department of Health and Human 
Services plays a crucial role in enhancing homeland security. 
How the President's budget addresses this issue obviously will 
be a major focus of this hearing.
    In addition, members of this committee I know will want to 
use this opportunity to examine a number of issues, everything 
from research to welfare reform. There is probably nobody in 
the government at any level that has a more stellar track 
record of success than Secretary Thompson when it comes to 
welfare reform. Certainly we meet in the context of the 
President's new initiative in that regard.
    Also at issue is access to health care at all levels, as 
well as Medicare reform which I will report to my colleagues is 
one of the disappointments I have both within the budget and 
the foreseeable future. I think it is one of the biggest 
challenges facing my State of Iowa, now ranked last in 
reimbursements under Medicare, but not too far behind Wisconsin 
when it comes to reimbursements. As we discussed last year, 
this is a challenge that I hoped and still have hope Secretary 
Thompson and others in the administration will tackle in the 
very near and hopefully very foreseeable future.
    There is no doubt that the world changed on September 11 
and that the budget needs to reflect these new priorities. We 
are pleased you are here today to discuss these new, growing 
and expanding priorities within the President's budget request 
and we look forward to your testimony.
    With that, I will turn to Mr. Spratt for any comments he 
wishes to make before we hear from our witnesses.
    Mr. Spratt. Thank you, Mr. Chairman.
    Mr. Secretary, as I said earlier, I was reminded last night 
in looking over the briefing book for this hearing how big your 
portfolio is. I am sure when you were vetted for this job, you 
didn't even talk about bioterrorism and homeland security. It 
is a whole new category of responsibility, but you bring an 
experienced hand to the helm and we are glad to have you there.
    You have a tough budget this year. It looks like you get 
more money, but in truth, certain things get more and some 
things get less. We have some new video equipment here and I 
have a simple bar graph which illustrates what I am talking 
about because we would like to focus on this today, who are the 
winners and losers in your budget.
    As you can see, you get an increase of $2.4 billion, but 
when you look at it in further detail, I think the other 
increases in individual programs are $5 billion, one big one 
for NIH again. As a consequence, about $1.3 billion has to be 
cut out of other programs in order to accommodate the 
bioterrorism and NIH in your budget. From the get-go, you have 
problems. You do not have enough to go around and everything 
you supervise obviously deserves more support than it is 
getting.
    There is also a matter of concern to us concerning 
Medicare, a big part of your portfolio. There is a serious 
discrepancy between what you estimate the baseline cost of 
Medicare to be, before any new policy has been applied. You are 
assuming that the cost growth in Medicare will be about 5.7 
percent annual average over the next 10 years. CBO is about 7.5 
or 7.6 percent. That is a big difference compared to CBO, but 
your numbers are optimistic compared to the last 10 years where 
we have had growth much closer to what CBO is assuming. If you 
are wrong, there is a difference here of 200 to $300 billion, 
$304 billion in this bar graph. I understand you closed the gap 
somewhat between you and CBO, but there is still a big 
difference.
    We are looking at a budget where the surplus has gone from 
$5.6 trillion down to $1.6 trillion and if the Bush budget is 
fully implemented, it is $.6 trillion. That $600 billion 
remaining unified surplus would be cut in half if CBO is right 
and you are wrong. That is why we had to be concerned about it. 
There is not much forgiveness left in the budget.
    There is also no provision in your budget for providing 
payment adjustments even though MedPAC has recommended a series 
of them. Mr. Thomas wrote you a letter about 3 weeks ago. I 
would like to repeat the last paragraph because we would like 
your responses to the extent you are ready to provide them.
    Mr. Thomas concludes his letter about the administration's 
Medicare budget and about the provisions it does not make for 
provider payment adjustments as recommended by the MedPAC 
Commission and he ends with these questions which he put to you 
in the letter dated February 8. ``Does the administration 
believe Congress should address any of the problems identified 
by the MedPAC list, and he attaches the list, that comes to 
$174 billion over 10 years, with respect to hospitals, home 
health agencies, physicians, skilled nursing facilities and 
dialysis facilities? Please identify which provider problems 
you believe merit congressional action and which do not. Since 
the budget calls for budget mutual payment adjustment, if we 
made any of these allowances or restorations we would have to 
offset them with some equal cut somewhere else. Please provide 
a specific list of Medicare savings recommendations which can 
finance appropriate provider payment charges.'' I would like to 
lay those questions on the table and ask you to answer them to 
the extent you can.
    Finally, one of the biggest bones of contention and one of 
the biggest debates in Congress this year and the coming years 
until it is accomplished will be Medicare prescription drugs. 
The administration is proposing a $190 billion plan, of which 
about $77 billion would be available fairly soon for the low 
income benefit, and then we would see following it the addition 
of some other kind of broader based benefit for which you are 
allocating about $116 billion. There is no detail provided. We 
would like the detail to the extent you can provide it for what 
you have in mind.
    Secondly, usually when the administration makes this 
recommendation with regard to prescription drugs, it does so in 
the context of Medicare reform and always refers to Medicare 
reform. Are the two coupled? Can we have one without the other 
in the administration's view? If not, what is Medicare reform? 
Broadly speaking, what do you have in mind with respect to 
Medicare reform? Is it going to constitute savings that will 
offset some of the gross costs so that the $190 billion is a 
net number, that plus and minuses will add up to $190 billion? 
We are a little puzzled as to what that proposal is and we 
would like your clarification of that.
    Once again, thank you for coming. We look forward to your 
testimony.
    Chairman Nussle. I have one announcement to make just for 
the members' information. A GAO report just came out that this 
committee requested. I believe it came out within the last 
couple of days on Medicare provider communications and the need 
for improvement. It is a document that this committee requested 
based on hearings we have held in the past.
    One of the statements in the report confirmed what we had 
been hearing from physicians for quite some time that it is 
becoming increasingly difficult for physicians and others to 
participate in the Medicare Program because they are getting 
inaccurate, out of date and sometimes difficult to use or just 
plain incomplete information.
    The House passed unanimously a bill that our colleague Mr. 
McDermott, myself, and others worked on for Medicare regulatory 
relief and reform that we passed unanimously in a bipartisan 
way. We hope the Senate will act on that but it is in some 
respect reacting to this report. That may be another thing we 
could address today as well.
    With that, without objection, members will have 7 days to 
submit written statements for the record. Your statement in 
full will be in the record and you may summarize as you see 
fit. Welcome to the committee.
    [Prepared statement of Mr. Putnam follows:]

Prepared Statement of Hon. Adam H. Putnam, a Representative in Congress 
                       From the State of Florida

    Thank you Mr. Chairman for giving me this opportunity and thank you 
Secretary Thompson for appearing here today before the House Budget 
Committee. As we continue to wage a global war on terrorism, it is 
impossible to overlook the role your department has played and will 
continue to play in the creation of a homeland security infrastructure. 
Over the past months it has become apparent that the Department of 
Health and Human Services (HHS) is vital to ensure the safety and well 
being of all Americans.
    State and Local governments bear much of the initial burden and 
responsibility for providing an effective response by medical and 
public health professionals to a terrorist attack on the civilian 
population. If the disease outbreak reaches any significant magnitude, 
however, local resources will be overwhelmed and the Federal Government 
will be required to provide protective and responsive measures for the 
affected populations. I am encouraged to know that HHS is working on a 
number of fronts to assist our partners at the State and local level, 
including local hospitals and medical practitioners, to deal with the 
effects of biological, chemical, and other terrorist attacks.
    In October 2001 Secretary Thompson testified before the House 
Government Reform Subcommittee on National Security, Veterans Affairs 
and International Relations. At that hearing, Civilian Preparedness for 
Biological Warfare and Terrorism: HHS Readiness and Role in Vaccine 
Research and Development, the Secretary described the Office of 
Emergency Preparedness. Through the OEP, HHS has created several 
programs that will work to protect the health of Americans in this time 
of ever-present threats. I am interested to hear what Secretary 
Thompson's goals are for these programs for fiscal year 2003 and how 
the Budget Committee can help him realize these goals in an effort to 
continue the excellent work of HHS.
    At that earlier hearing on Biological Warfare Defense, we raised 
the need for greater communication and coordination between HHS' Food 
and Drug Administration and the U.S. Department of Agriculture's (USDA) 
Food Safety Inspection Service, which hold joint jurisdiction in the 
protection of our food safety. I want to strongly encourage 
collaborative actions between the two agencies, particularly in the 
coordination of inspection responsibilities and the sharing of 
information.
    I understand that efforts have begun to streamline and consolidate 
inspection capabilities between FDA and FSIS. Currently, one agency's 
inspectors may be present at a site and the other agency may lack the 
resources to provide inspection services. Through cross-deputation of 
agency inspectors, we may improve our inspection capabilities and 
optimize staff resources. Similarly, disparities and overlap between 
agency responsibilities to inspect food products should also be 
reviewed. I wish to encourage concerted and continued efforts between 
Federal and State agencies with the goal of providing more 
comprehensive and efficient safeguarding of our Nation's food supply.
    Thank you and I look forward to working with you toward this end.
                               questions
    1. How will fiscal year 2003 funding levels assist you and HHS in 
upgrading the surveillance, risk assessment, and response capacity of 
the public health system?
    2. What are HHS's priorities and what specific investments in 
infrastructure to improve responses to specific priority needs are 
currently being reviewed?
    3. Please elaborate on the goals and funding needs you have for the 
programs designed to assist in prevention and treatment should our 
Nation come under a biological attack. Specifically, explain programs 
such as Metropolitan Medical Response Systems (MMRS), National Disaster 
Medical System (NDMS), pharmaceutical stockpiles, and vaccine 
development.
    4. I represent a somewhat rural district in the heart of Central 
Florida. My question then is what method does HHS utilize to determine 
its resource allocation levels to particular State and local health 
departments and hospitals for better surveillance, prevention, and 
control of microbial resistance? How can I be assured that the local 
health departments and hospitals are receiving appropriate attention 
even though my district is not as populated as surrounding areas?
    5. In HHS's strategic plan you outline various ways to improve the 
safety of food, drugs, medical devices, and biological products. What 
specifically is HHS doing to expand and provide technical assistance to 
the food borne diseases surveillance network (FoodNet). How is it 
increasing its capacity to identify sources of food borne pathogens?
    6. What is HHS doing to streamline and coordinate overlapping 
inspection capabilities with the FDA?
    7. What is the statutory responsibility of HHS to inspect food 
operations overseas? I understand that that there are discrepancies 
between USDA and FDA. Please explain.
    8. Could you please explain and elaborate on the proposed 
establishment of a national partnership with the Department of Defense, 
the Veterans Administration, State health agencies, hospitals, and 
health care organizations, to develop and disseminate information on 
the best ways of preventing medical errors. What specific improvements 
do you see as a result of this program?
    9. In fiscal year 2000 strategic plan for HHS one of the main 
objectives was to encourage the collaboration and coordination with 
other Federal agencies on common issues and challenges, including: 
coordination with the Social Security Administration on the Medicare 
and Medicaid programs. How would you say that effort is progressing 
today? What specific measures have or do you intend to implement?
    10. In fiscal year 2000 there were roughly 900 annual performance 
goals and many more measures and targets under those goals that were 
identified as a means of directing annual efforts and determining the 
progress toward strategic goals. These annual performance goals and 
measures assess the processes, outputs, or outcomes and results of the 
programs. Please comment on the current status of fiscal year 2003 
performance goals.
    11. Since this is only the fifth year of GPRA performance 
reporting, indicators of program success are still evolving and issues 
of availability and reliability of performance data are still being 
addressed by many programs. What real changes have occurred and can you 
identify any specific instances in which GPRA was the precipitating 
factor?

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

    Secretary Thompson. Thank you, Chairman Nussle and good 
morning to all the members.
    Let me first thank you for the leadership of this committee 
and your long-time advocacy of both fiscal responsibility and 
prudent public investments.
    Congressman Spratt, thank you for all you have done to 
ensure the fiscal viability of our Nation's Federal budget.
    I am very honored today to appear before all of you on this 
committee to discuss the President's fiscal year 2003 budget 
for the Department of Health and Human Services. The 
President's budget is responsible, it is creative and it is 
effective. I look forward to outlining it for you and some of 
the key priorities that he has set for America's health care 
agenda.
    As you all know, since the September 11 attack, we have 
dedicated many of our efforts to ensuring that the Nation is 
safe. While we responded quickly to the September 11 attack on 
New York City and the Pentagon, employing medical assistance 
and support within hours of the attack, the task of providing 
health-related assistance reminded us again that there is 
always room for improvement. It is to that end that our budget 
furthers the work of preparing America for bioterrorism by 
calling for $4.3 billion, an increase of 45 percent over the 
current fiscal year. This will support a variety of critical 
activities to prevent, to identify and respond to incidents of 
bioterrorism.
    Of this $4.3 billion, $1.1 billion is going directly to the 
States to help them strengthen their ability to respond to 
bioterrorism and other public health emergencies in creating a 
strong, vibrant, creative public health system. It will enable 
States to begin planning and preparing their public health 
systems to respond even more effectively to terrorist attacks. 
We are building up our national pharmaceutical stockpile, 
increasing assistance to State and local governments, and doing 
more to protect America's food supply.
    Our budget promotes vital scientific research, dramatically 
increases funding for the National Institutes of Health, and 
supports childhood development while delivering a responsible 
approach for managing HHS resources. It is a budget that 
touches the life of every American in a positive way.
    The total HHS request, as indicated by Mr. Spratt, for 
fiscal year 2003 is $489 billion in outlays. This is an 
increase of almost $30 billion or 6.3 percent over the 
comparable fiscal year 2002 budget. The discretionary component 
of the HHS budget totals $64 billion and an increase of $2.4 
billion or 3.9 percent.
    Let me spend a few moments on an issue that has been a 
passion of mine for many years, welfare reform. On Tuesday, I 
was with President Bush when he unveiled our new welfare plan. 
I know we all share the President's vision of helping even more 
Americans regain hope and dignity through employment and 
training. The recent past gives us great reason for realistic 
optimism. Since 1996, welfare reform has exceeded expectations, 
resulting in millions of Americans being moved from dependence 
on AFDC to the independence of work. Nearly 7-million fewer 
Americans are on welfare today than in 1996 and 2.8 million 
fewer children are in poverty because of welfare reform. The 
President's budget boldly takes the new step which requires us 
to work closely with States to help those families that have 
left welfare to climb up the career ladder and become more 
secure in the work force. The foundation of welfare reform 
success remains work, for work is the only way to climb out of 
poverty and become independent.
    The President's budget allocates $16.5 billion for block 
grant funding, provides supplemental grants to address 
historical disparities in welfare spending among States, and 
strengthens work participation requirements. The budget 
provides another $350 million in Medicaid benefits for those in 
the transition from welfare to work to make sure they continue 
with their health coverage. We are calling for a continued 
commitment to child care, including $2.7 billion for 
entitlement child care funding and $2.1 billion for 
discretionary funding.
    We are going to require States, however, to engage everyone 
in the TANF Program and work on work preparation activities. 
States will have to develop and implement self sufficiency 
plans for every family and regularly review the progress each 
family is making. That is not only reasonable, but also 
essential to the continued movement of people from welfare to 
permanent gainful employment. While the $16.5 billion 
represents level funding for TANF, it provides the funds 
necessary that States can spend on helping workers remain in 
the work force. That is where the State flexibility comes in.
    Just as we reach out to those still relying on welfare, we 
also cannot ignore the roughly 40 million Americans who lack 
health insurance. That is simply too many in a nation as 
compassionate and well off as ours.
    During the first year of the Bush administration, we have 
made great strides in extending access to health care to 
Americans. As part of our efforts, we have had extensive 
meetings with the Nation's governors to find out how we can 
best help them address the needs of their States. Working in 
tandem with them and Members in Congress, here is what we are 
doing.
    Since January 2001, we have approved State plan amendments 
and Medicaid and SCHIP waivers that have expanded the 
opportunity for health coverage to 1.8 million Americans and 
have improved the existing benefits for 4.5 million 
individuals. In addition, we are strengthening the Nation's 
community health centers which provide family oriented 
preventive and primary health care to over 11 million patients 
annually, regardless of their ability to pay.
    Currently there are more than 3,300 community health center 
sites nationwide. The 2003 budget seeks $1.5 billion to support 
the President's plan to impact 1,200 communities with new or 
expanded health centers by 2006. This is going to be a $114-
million increase over fiscal year 2002 and will support 170 new 
and expanded health centers. Forty-seven percent of those will 
be in rural areas. Also, the President has proposed providing 
$89 billion in new health credits to low income individuals to 
acquire health insurance.
    Modernizing Medicare is another key component of our 
across-the-board effort to broaden and strengthen our country's 
health care system. Since becoming Secretary, I have begun to 
modernize the very structure of the centers for Medicare and 
Medicaid services. Mr. Chairman, I know you are deeply 
concerned about the effectiveness of CMS and I share a 
commitment to making sure that CMS is responsive to 
beneficiaries.
    We instituted a proposal when I started at HHS. It took 80 
days when I came to get a response to Congress. The first half 
of last year, we got it down to 32 days; the second half down 
to 20 days and it is my goal, and I can assure you next year 
when I come before you, we will be responding to Members of 
Congress within 15 business days.
    In addition, last year, I committed to reducing Medicare's 
regulatory burden and bringing openness and responsiveness to 
that program. We have acted on that and CMS has now initiated 
open door forums so that all providers can discuss their 
concerns and get a direct response. I have also asked 
Administrator Scully to think innovatively about how we can 
improve the way CMS does business and he is working diligently 
to meet this challenge.
    As our work in the area continues, I look forward to 
working with you and other members of this committee to make 
CMS more user friendly for everyone. These reforms are 
essential to continued success of the Medicare Program which is 
why the 2003 budget is such a significant step forward. It 
dedicates $190 billion over 10 years for immediate targeted 
improvements and comprehensive Medicare modernization, 
including a subsidized prescription drug benefit, better 
insurance protection and better private options for all 
beneficiaries.
    I know that some Members of Congress are concerned that 
$190 billion over 10 years is not enough. However, while we may 
not agree on the overall cost, we are committed to working with 
this committee and other Members of Congress to ensure that all 
Medicare recipients have access to a prescription drug benefit 
as part of Medicare. I am confident that as we come together in 
good faith, we will reach a fiscally responsible and effective 
conclusion about where the funding should be.
    This budget proposal also proposes a subsidized drug 
benefit as part of a modernized Medicare but also providing 
better coverage for preventive care and serious illness. We 
also proposed that preventive benefits have zero co-insurance 
and be excluded from the deductible.
    In addition, the budget proposes several new initiatives to 
improve Medicare's benefits and address costs, and offers 
additional Federal assistance for comprehensive drug coverage 
to low income Medicare beneficiaries up to 150 percent of 
poverty, about $17,000 for a family of two. This policy helps 
establish the framework necessary for a Medicare prescription 
drug benefit.
    Finally, Mr. Chairman, a word about how we can help rural 
areas. I am from a rural area as you are. I know too well the 
problems that rural areas and many communities like it face 
when it comes to addressing health care. The health needs of 
rural areas are as great as those in the big cities and suburbs 
and I want to assure you we are working hard to meet them.
    The President's budget proposed increases for community 
health centers, which I noted earlier, is an example of that 
commitment. Forty-seven percent of those centers serve patients 
in rural communities. They reach 6 million patients across the 
country.
    I have also announced an HHS Rural Task Force to examine 
the Department's overall resources and services for rural 
communities. We will be rolling that out within the next two 
weeks. I have asked them to report to me how we can better 
serve rural areas.
    Mr. Chairman, the budget I bring before you today contains 
many different elements of a single proposal, namely to help 
every American of every age and station, in every State and 
territory, and on every reservation so they can receive 
quality, affordable health care. All of our proposals are put 
forward with the simple goal of ensuring a safe and healthy 
America. I know this is a goal that we all share and with your 
support, we are committed to achieving it.
    I thank you again, Mr. Chairman, and I look forward to your 
questions.
    [The prepared statement of Secretary Thompson follows:]

Prepared Statement of Hon. Tommy G. Thompson, Secretary, Department of 
                       Health and Human Services

    Good morning Chairman Nussle, Congressman Spratt and members of the 
committee. I am honored to appear before you today to discuss the 
President's fiscal year 2003 budget for the Department of Health and 
Human Services. I am confident that a review of the full details of our 
budget will demonstrate that we are proposing a balanced and 
responsible approach to ensuring a safe and healthy America.
    The budget I present to you today fulfills the promises the 
President has made and proposes creative and innovative solutions for 
meeting the challenges that now face our Nation. Since the September 11 
attacks, we have dedicated much of our efforts to ensuring that the 
Nation is safe. HHS was one of the first agencies to respond to the 
September 11 attacks on New York City, and began deploying medical 
assistance and support within hours of the attacks. Our swift response 
and the overwhelming task of providing needed health related assistance 
made us even more aware that there is always room for improvement. The 
fiscal year 2003 budget for the Department of Health and Human Services 
builds on President Bush's commitment to ensure the health and safety 
of our Nation.
    The fiscal year 2003 budget places increased emphasis on protecting 
our Nation's citizens and ensuring safe, reliable health care for all 
Americans. The HHS budget also promotes scientific research, builds on 
our success in welfare reform, and provides support for childhood 
development while delivering a responsible approach for managing HHS 
resources. Our budget plan confronts both the challenges of today and 
tomorrow while protecting and supporting the well being of all 
Americans.
    Mr. Chairman, the total HHS request for fiscal year 2003 is $488.8 
billion in outlays. This is an increase of $29.2 billion, or 6.3 
percent over the comparable fiscal year 2002 budget. The discretionary 
component of the HHS budget totals $64.0 billion in budget authority, 
an increase of $2.4 billion, or 3.9 percent. Let me now discuss some of 
the highlights of the HHS budget and how we hope to achieve our goals.
               protecting the nation against bioterrorism
    Mr. Chairman, as you know, the Department of Health and Human 
Services is the lead Federal agency in countering bioterrorism. In 
cooperation with the States, we are responsible for preparing for, and 
responding to, the medical and public health needs of this Nation. The 
fiscal year 2003 budget for HHS bioterrorism efforts is $4.3 billion, 
an increase of $1.3 billion, or 45 percent, above fiscal year 2002. 
This budget supports a variety of activities to prevent, identify, and 
respond to incidents of bioterrorism. These activities are administered 
through the Centers for Disease Control and Prevention (CDC), the 
National Institutes of Health (NIH), the Office of Emergency 
Preparedness (OEP), the Substance Abuse and Mental Health Services 
Administration (SAMHSA), the Health Resources and Services 
Administration (HRSA) and the Food and Drug Administration (FDA). The 
efforts of this agency will be directed by the newly established Office 
of Public Health Preparedness (OPHP).
    In order to create a blanket of preparedness against bioterrorism, 
the fiscal year 2003 budget provides funding to State and local 
organizations to improve laboratory capacity, enhance epidemiological 
expertise in the identification and control of diseases caused by 
bioterrorism, provide for better electronic communication and distance 
learning, and support a newly expanded focus on cooperative training 
between public health agencies and local hospitals.
    Funding for the Laboratory Response Network enhances a system of 
over 80 public health labs specifically developed for identifying 
pathogens that could be used for bioterrorism. Funding will also 
support the Health Alert Network, CDC's electronic communications 
system that will link local public health departments in covering at 
least 90 percent of our Nations' population. Funding will be used to 
support epidemiological response and outbreak control, which includes 
funding for the training of public health and hospital staff. This 
increased focus on local and State preparedness serves to provide 
funding where it best serves the interests of the Nation.
    An important part on the war against terrorism is the need to 
develop vaccines and maintain a National Pharmaceutical Stockpile. The 
National Pharmaceutical Stockpile is purchasing enough antibiotics to 
be able to treat up to 20 million individuals in a year for exposure to 
anthrax and other agents. The Department is purchasing sufficient 
smallpox vaccines for all Americans. The fiscal year 2003 budget 
proposes $650 million for the National Pharmaceutical Stockpile and 
costs related to stockpiling of smallpox vaccines, and next-generation 
anthrax vaccines currently under development.
    Another important aspect of preparedness is the response capacity 
of our Nations hospitals. Our fiscal year 2003 budget provides $518 
million for hospital preparedness and infrastructure to enhance 
biological and chemical preparedness plans focused on hospitals. The 
fiscal year 2003 budget will provide funding to upgrade the capacity of 
hospitals, outpatient facilities, emergency medical services systems 
and poison control centers to care for victims of bioterrorism. In 
addition, CDC will provide support for a series of exercises to train 
public health and hospital workers to work together to treat and 
control bioterrorist outbreaks.
    Today, the United States has one of the world's safest food 
supplies. However, since the September 11 attacks, the American people 
have a heightened awareness about protecting the Nation's food imports 
and food supply at home. The fiscal year 2003 budget supports a 
substantial increase in the number of safety inspections for FDA-
regulated products that are imported into the country. Physical 
examinations of food imports will double in fiscal year 2002 over the 
previous year, and double again in fiscal year 2003. We anticipate 
further progress as new staff become fully productive.
    The fiscal year 2003 budget also includes $184 million to 
construct, repair and secure facilities at the CDC. Priorities include 
the construction of an infectious disease and bioterrorism laboratory 
in Fort Collins, Colorado, and the completion of a second infectious 
disease laboratory, an environmental laboratory, and a communication 
and training facility in Atlanta. This funding will enable the CDC to 
handle the most highly infectious and lethal pathogens, including 
potential agents of bioterrorism. Within the funds requested, $12 
million will be used to equip the Environmental Toxicology Lab, which 
provides core lab space for testing environmental samples for chemical 
terrorism. Funding will also be allocated to the ongoing maintenance of 
existing laboratories and support structures.
                    investing in biomedical research
    Advances in scientific knowledge have provided the foundation for 
improvements in public health and have led to enhanced health and 
quality of life for all Americans. Much of this can be attributed to 
the groundbreaking work carried on by, and funded by, the National 
Institutes of Health (NIH). Our fiscal year 2003 budget enhances 
support for a wide array of scientific research, while emphasizing and 
supporting research needed for the war against bioterrorism.
    NIH is the largest and most distinguished biomedical research 
organization in the world. The research that is conducted and supported 
by the NIH offers the promise of breakthroughs in preventing and 
treating a number of diseases and contributes to fighting the war 
against bioterrorism. The fiscal year 2003 budget includes the final 
installment of $3.7 billion needed to achieve the doubling of the NIH 
budget. The budget includes $1.7 billion for bioterrorism research, 
including genomic sequencing of dangerous pathogens, development of 
zebra chip technology, development and procurement of an improved 
anthrax vaccine, and laboratory and research facilities construction 
and upgrades related to bioterrorism. With the commitment to 
bioterrorism research comes our expectation of substantial positive 
spin-offs for other diseases. Advancing knowledge in the arena of 
diagnostics, therapeutics and vaccines in general should have enormous 
impact on the ability to diagnose, treat, and prevent major killers-
diseases such as malaria, TB, HIV/AIDS, West Nile Fever, and influenza.
    The fiscal year 2003 budget also provides $5.5 billion for research 
on cancer throughout all of NIH. Currently, one of every two men and 
one of every three women in the United States will develop some type of 
cancer over the course of their lives. New research indicates that 
cancer is actually more than 200 diseases, all of which require 
different treatment protocols. Promising cancer research is leading to 
major breakthroughs in treating and curing various forms of cancer. Our 
budget continues to expand support for these research endeavors.
             building upon the successes of welfare reform
    President Bush has said that American families are the bedrock of 
American society and the primary source of strength and health for both 
individuals and communities. Our budget includes a number of new 
initiatives that support this principle by targeting resources to 
strengthen our Nation's families. We look forward to working with 
Congress in considering the next phase of welfare reform and other 
elements of the President's proposals to help America's low-income 
families succeed.
                temporary assistance for needy families
    As a former Governor, I can tell you that the Temporary Assistance 
for Needy Families program [TANF], has been a truly remarkable example 
of a successful Federal-State partnership. States were given tremendous 
flexibility to reform their welfare programs and as a result, millions 
of families have been able to end their dependency on welfare and 
achieve self-sufficiency.
    Since 1996, welfare dependency has plummeted. As of September of 
2001, the number of families receiving assistance--which represents the 
welfare caseload--was 2,103,000 and the number of individuals receiving 
assistance was 5,343,000. This means the welfare caseload and the 
number of individuals receiving cash assistance declined 52 percent and 
56 percent, respectively, since the enactment of TANF. Between January 
and September of last year national caseloads actually declined about 2 
percent, and while the July to September statistics indicate a slight 
increase, the figures are still well below the previous year's caseload 
levels. The general trend suggests the national caseloads are not 
rising but, instead, have stabilized.
    In New York City, where we are understandably most concerned about 
job opportunities, the city has achieved more than 53,000 job 
placements for welfare recipients from September through December 2001. 
While the number of TANF recipients increased briefly directly because 
of the tragedy on September 11, by December there were about 15,000 
fewer TANF recipients on the rolls than there were in August. Indeed, 
in December the city had its lowest number of persons on welfare since 
1965.
    Some other positive outcomes we have seen since the law's passage 
include:
     Employment among single mothers has grown to unprecedented 
levels.
     Child poverty rates are at their lowest level since 1978. 
Overall child poverty rates declined from 20.5 percent in 1996 to 16.2 
percent in 2000. The poverty rate among African American children 
declined from 39.9 percent to 30.9 percent, the lowest level on record. 
The poverty rate among Hispanic children declined from 40.3 percent to 
28.0 percent, the largest 4-year drop on record.
     The rate of births to unwed mothers has not increased.
    But even with this notable progress, much remains to be done, and 
States still face many challenges. Last year, I held eight listening 
sessions throughout the country to discuss the state of their TANF 
systems and understand the new challenges they are facing. The States 
overwhelmingly support this program. While keeping the basic structure 
and purpose of the program, States, administrators, recipients, 
employers, and advocates have provided valuable insight into where we 
could make the program even more responsive to the needs of families.
    Our reauthorization proposal embraces the needs of families by 
maintaining the program's overall funding and basic structure, while 
focusing increased efforts on building stronger families through work 
and job advancement and adding child well-being as an overarching goal 
of TANF.
    Our budget proposes $16.5 billion each year for block grants to 
States and tribes; $319 million a year to restore supplemental grants; 
$2 billion over 5 years for a more accessible Contingency Fund; and a 
$100 million a year initiative for research, demonstration and 
technical assistance primarily to promote child well-being through 
strengthening family formation and healthy marriages. In addition, our 
proposal will call for modification of the bonus for high performance 
to reward significant achievement in promoting employment of program 
participants.
    We maintain State flexibility, but include important changes to 
improve the effectiveness of the program. We will also expect States to 
engage all families they serve and help them make progress toward their 
highest degree of self-sufficiency, even those cases that may appear 
hard to employ. We will eliminate the separate two-parent work 
participation rates and give States more flexibility in designing 
productive self-sufficiency activities while ensuring that the 
participation rate requirements are meaningful. We will also ask States 
to set performance goals for their TANF programs and report on their 
progress toward meeting these goals.
    I look forward to working with Congress on reauthorization of this 
hallmark program. I am confident that together we will witness even 
greater achievements under the TANF program.
                  other programs supporting tanf goals
    The President's budget also includes funding for several other 
programs at the State and community level that work to support the 
goals of TANF. The Job Opportunities for Low-Income Individuals program 
(JOLI) provides grants to non-profit organizations to create new 
employment and business opportunities for TANF recipients and other 
low-income individuals. Our budget provides $5.5 million to continue 
this valuable program. The Individual Development Account (IDA) 
demonstration program similarly seeks to increase the economic self-
sufficiency of low-income families by testing policies that promote 
savings for post-secondary education, home ownership, and micro-
enterprise development. The President's budget calls for $25 million to 
support IDAs. More broadly, the Social Services Block Grant (SSBG) 
provides a flexible source of funding for States to help families 
achieve or maintain self-sufficiency and provide an array of social 
services to vulnerable families. The President's budget request for 
SSBG is $1.7 billion.
    The President's budget extends the Transitional Medical Assistance 
(TMA) program which provides valuable health protection for former 
welfare recipients after they enter the workforce. This important 
program allows families to remain eligible for Medicaid for up to 12 
months after they are no longer eligible for welfare because of 
earnings from their new job. TMA is an important stepping stone in 
helping workers and their families successfully transfer from welfare 
to work without fear of losing vital health coverage.
                               child care
    Child Care has played an important role in the success of welfare 
reform by providing parents the support they need to work. The 
President's budget recognizes this critical link and maintains a high 
level of commitment to childcare. Continuing the substantial increase 
in funding that Congress has provided over the last several years, the 
President's budget includes a total of $4.8 billion in childcare 
funding in conjunction with our request to reauthorize the mandatory 
and discretionary funding provided under the Child Care and Development 
Block Grant and the Child Care Entitlement. States will also continue 
to have significant flexibility under the TANF program and under the 
Social Services Block Grant program to address the needs of their low-
income working families. These additional funding opportunities have 
substantially increased the amount of resources dedicated to child care 
needs. For example, in fiscal year 2000, States transferred $2.3 
billion in TANF funds to the Child Care and Development Block Grant.
                       child support enforcement
    The Child Support Enforcement program offers another vital 
connection to families' ability to achieve self-sufficiency and 
financial stability. The President's budget proposes to increase child 
support collections and direct more of the support collected to 
families transitioning from welfare. Under our proposal, the Federal 
Government would share in the cost of expanded State efforts to pass 
through child support collections to families receiving TANF. Pass 
through payments enhance a family's potential for achieving self-
sufficiency while also creating incentives for non-custodial parents to 
pay support and custodial parents to cooperate in securing support. 
Similarly, States would be given the option to adopt simplified 
distribution rules that ease State administration but, more 
importantly, benefit families that have transitioned from welfare by 
directing support otherwise retained by the State and Federal 
Governments to these families.
    Overall collections would be increased by expanding our successful 
program for denying passports to parents owing $2,500 in past-due 
support, requiring States to update support awards in TANF cases every 
3 years, and authorizing States to offset certain Social Security 
Administration payments when they determine such action would be 
appropriate to collect unpaid support. Our child support legislative 
package would also impose a minimal annual processing fee in any case 
where the State has been successful in collecting support on behalf of 
a family that has never received assistance.
                         strengthening families
    The fiscal year 2003 budget contains funds for four competitive 
grant programs, targeted at community and faith based organizations, to 
assist in delivering innovative services, to strengthen families and 
help change lives. The Compassion Capital Fund, at $100 million, will 
expand the capacity of groups and organizations willing to step up and 
help provide these critical social services. Twenty million dollars is 
included to promote responsible fatherhood by providing competitive 
grants to organizations that work to strengthen the role that fathers 
play in their children's and family's lives. The budget also supports 
$25 million in new authority for the mentoring children of prisoners 
initiative first proposed last year. Finally, young pregnant mothers 
and their children will be provided safe environments through the $10 
million included for Maternity Group Homes.
                   promoting safe and stable families
    The President's budget would increase the funding level for this 
program to $505 million, fully supporting the increased authorization 
included in the new law. These funds will be used to help promote and 
support adoption so that children can become part of a safe and stable 
family, as well as for increased preventive efforts to help families in 
crisis.
    This landmark legislation also authorized a new program to provide 
vouchers to youth who are aging out of foster care so that they can 
obtain the education and training they need to lead productive lives. 
The President's budget includes $60 million for these vouchers, 
bringing the total request for the Foster Care Independence Program to 
$200 million.
                   child welfare/foster care/adoption
    Our budget framework includes resources for a number of additional 
programs targeted to protecting our most vulnerable and at-risk 
children. Foster Care, Adoption Assistance, Adoption Incentives and 
Child Welfare Services are designed to enhance the capacity of families 
to raise children in a nurturing, safe environment. The President's 
budget provides resources to help States provide safe and appropriate 
care for children who need placement outside their homes, and to 
provide funds to States to assist in providing financial and medical 
assistance for adopted children with special needs who cannot be 
reunited with their families, and to reward States for increasing their 
number of adoptions. At the same time, the budget also supports Child 
Welfare Services programs with the goal of keeping families together 
when possible and in the best interest of the child.
    The budget provides nearly $4.9 billion for Foster Care, $1.6 
billion for Adoption Assistance, and $43 million in Adoption Incentive 
funds. In addition, the President's budget seeks almost $300 million in 
funding for child welfare services and training. Together, these funds 
will support improvement in the healthy development, safety, and well 
being of the children and youth in our Nation.
                          abstinence education
    The President's budget proposes to reauthorize $50 million in 
mandatory funding for abstinence education grants to States. These 
resources complement the proposed $73 million in abstinence education 
grants to community-based organizations and Adolescent Family Life's 
CARE grants ($12 million). Both grant programs will continue to support 
the message, through mentoring, counseling and adult supervision, that 
abstinence from sexual activity is the only sure way for teens to avoid 
out-of-wedlock pregnancies and sexually transmitted diseases.
                              repatriation
    Finally, our commitment to supporting America's families does not 
stop at our borders. The President's budget seeks $1 million in funding 
for the Repatriation program to assist U.S. citizens and their 
dependents returning from foreign countries under extreme 
circumstances.
                    increasing access to healthcare
    The issues that have confronted the Nation in the past 6 months 
will have far reaching effects. Of all the issues confronting this 
Department, none has a more direct effect on the well-being of our 
citizens than the quality and accessibility of health care. Our budget 
proposes to improve the health of the American people by taking 
important steps to increase and expand the number of Community Health 
Centers, strengthen Medicaid, and ensure patient safety.
    Community Health Centers provide family oriented preventive and 
primary health care to over 11 million patients through a network of 
over 3,400 health sites. The fiscal year 2003 budget will increase and 
expand the number of health center sites by 170, the second year of the 
President's initiative is to increase and expand sites by 1,200 and 
serve an additional 6.1 million patients by 2006. We propose to 
increase funding for these Community Health Centers by $114 million in 
fiscal year 2003. Our long-term goal is to increase the number of 
people who receive high quality primary healthcare regardless of their 
ability to pay. With these new health centers we hope to achieve this 
goal.
    The Medicaid program and the State Children's Health Insurance 
Program (SCHIP) provide health care benefits to low-income Americans, 
primarily children, pregnant women, the elderly, and those with 
disabilities. The fiscal year 2003 budget we propose strengthens the 
Medicaid and SCHIP programs by implementing essential reforms, such as 
the extension of expiring SCHIP funds.
    As a first step, we propose to develop legislative proposals that 
build on the Health Insurance Flexibility and Accountability (HIFA) 
demonstration initiative, which would give States the flexibility they 
need to design innovative ways of increasing access to health insurance 
coverage for the uninsured. In addition to HIFA, the administration's 
plan would allow those who receive the President's health care tax 
credit to increase their purchasing power by purchasing insurance from 
plans that already participate in their State's Medicaid, Children's 
Health Insurance, or State employees' programs. This could help keep 
costs down and provide a more comprehensive benefit than plans in the 
individual market.
    We also need to make an effort to narrow the drug treatment gap. As 
reflected in the National Drug Control Strategy, Substance Abuse and 
Mental Health Services Administration estimates that 4.7 million people 
are in need of drug abuse treatment services. However, fewer than half 
of those who need treatment actually receive services, leaving a 
treatment gap of 3.9 million individuals. Our budget supports the 
President's Drug Treatment initiative, and to narrow the treatment gap. 
We propose to increase funding for the initiative by $127 million. 
These additional funds will allow States and local communities to 
provide treatment services to approximately 546,000 individuals, an 
increase of 52,000 over fiscal year 2002.
                         strengthening medicare
    The fiscal year 2003 budget dedicates $190 billion over 10 years 
for immediate targeted improvements and comprehensive Medicare 
modernization, including a subsidized prescription drug benefit, better 
insurance protection, and better private options for all beneficiaries. 
Last year, President Bush proposed a framework for modernizing and 
improving the Medicare program that built on many of the ideas that had 
been developed in this committee and by other Members of Congress. That 
framework includes the principles that:
     All seniors should have the option of a subsidized 
prescription drug benefit as part of modernized Medicare.
     Modernized Medicare should provide better coverage for 
preventive care and serious illness.
     Today's beneficiaries and those approaching retirement 
should have the option of keeping the traditional plan with no changes.
     Medicare should make available better health insurance 
options, like those available to all Federal employees.
     Medicare legislation should strengthen the program's long-
term financial security.
     The management of the government Medicare plan should be 
strengthened to improve care for seniors.
     Medicare's regulations and administrative procedures 
should be updated and streamlined, while instances of fraud and abuse 
should be reduced
     Medicare should encourage high-quality health care for all 
seniors.
    The improvements the President and I have proposed include not only 
a subsidized drug benefit as part of modernized Medicare, but also 
better coverage for preventive care and serious illness. Thus, we 
propose that preventive benefits have zero co-insurance and be excluded 
from the Part B deductible. We must make these improvements to more 
effectively address the health needs of seniors today and for the 
future.
    Let me assure you, the President remains committed to the framework 
he introduced last summer, and to bringing the Medicare program up to 
date by providing prescription drug coverage and other improvements. We 
cannot wait; it is time to act. Recognizing that there is no time to 
waste, the President's budget also includes a series of targeted 
immediate improvements to Medicare.
    As you know, last year the President proposed the creation of a new 
Medicare-endorsed prescription drug card program to reduce the cost of 
prescription drugs for seniors. This year, HHS will continue its work 
on a drug card program, which will give beneficiaries immediate savings 
on the cost of their medicines and access to other valuable pharmacy 
services. The President is absolutely committed to providing immediate 
assistance to seniors who currently have to pay full price for 
prescription drugs.
    Assistance, however, will not come only through the prescription 
drug card program. The budget proposes several new initiatives to 
improve Medicare's benefits and address cost. This budget proposes 
additional Federal assistance for comprehensive drug coverage to low-
income Medicare beneficiaries up to 150 percent of poverty, about 
$17,000 for a family of two. This policy would eventually expand drug 
coverage for up to 3 million beneficiaries who currently do not have 
prescription drug assistance, and it will be integrated with the 
Medicare drug benefit that is offered to all seniors once that benefit 
is in place. This policy helps to establish the framework necessary for 
a Medicare prescription drug benefit and is essentially a provision 
that is in all of the major drug benefit proposals to be debated before 
Congress. That is, the policy provides new Federal support for 
comprehensive prescription drug coverage for low-income seniors up to 
150 percent of poverty. And in all the proposals, the Federal 
Government would work with the States to provide this coverage, just as 
we are proposing with this policy.
    Recently, I announced a model drug waiver program, Pharmacy Plus, 
to allow States to reduce drug expenditures and expand drug only 
coverage to seniors and certain individuals with disabilities with 
family incomes up to 200 percent of the Federal poverty level. This 
program is being done administratively. The recently approved Illinois 
initiative illustrates how States can expand coverage to Medicare 
beneficiaries in partnership with the Federal Government. The Illinois 
program will give an estimated 368,000 low-income seniors drug 
coverage. The model application I have announced is easy to understand 
and use, and the Centers for Medicare and Medicaid Services is working 
with numerous States, at least 12, that have already expressed interest 
in this program. Making it easier for States to take similar steps to 
help their citizens who need help the most is the goal I believe we all 
share.
    The President's budget also includes an increase in funding to 
stabilize and increase choice in the Medicare+Choice program by 
aligning payment rates more closely with overall Medicare spending and 
paying incentives for new types of plans to participate. Over 500,000 
seniors lost coverage last year because Medicare+Choice plans left the 
program. Today over 5 million seniors choose to receive quality health 
care through the Medicare+Choice program. Because it provides access to 
drug coverage and other innovative benefits, it is an option many 
seniors like, and an option we must preserve. The President's budget 
also proposes the addition of two new Medigap plans to the existing 10 
plans. These new plans will include prescription drug assistance and 
protect seniors from high out-of-pocket costs.
    Some of these initiatives give immediate and tangible help to 
seniors. But, let me make clear: these are not substitutes for 
comprehensive reform and a universal drug benefit in Medicare. They are 
immediate steps we want to take to improve the program in conjunction 
with comprehensive reform, so that beneficiaries will not have to wait 
to begin to see benefit improvements. I want to pledge today to work 
with each and every member of this committee to fulfill our promise of 
health care security for America's seniors, now and in the future.
    This budget proposes a $1.50 charge for submitting paper or 
duplicate claims as an incentive for providers to submit electronic 
claims one time only. These proposals will help reduce claims 
processing costs and ultimately speed up payment of claims. I recognize 
that a few health care providers in disadvantaged circumstances may 
have to submit a paper claim. This proposal will allow me to waive this 
requirement for providers in rural areas or those providers whose 
special circumstances make it difficult to comply with submission 
requirements. Together, these fees generate $130 million in fiscal year 
2003. The paper claims fee is expected to produce $70 million in fiscal 
year 2003. In future years, we expect the amount of the fee collected 
to decrease as more providers submit electronic claims. The duplicate 
and unprocessable claims fee is expected to produce $60 million in 
fiscal year 2003. The effective date for each proposal is March 1, 2003 
to allow time for CMS to modify systems to incorporate this change. 
Each proposal amount represents 7 months of fee collections.
                     supporting healthy communities
    The fiscal year 2003 budget includes $20 million for a Healthy 
Communities Innovation Initiative; a new interdisciplinary services 
effort that will concentrate Department-wide expertise on the 
prevention of diabetes and asthma, as well as obesity. The purpose of 
the initiative is to reduce the incidence of these diseases and improve 
services in five communities through a tightly coordinated public/
private partnership between medical, social, educational, business, 
civic and religious organizations. These chronic diseases were chosen 
because of their rapidly increasing prevalence within the United 
States. In addition there is $5 million for related activities in CDC.
    More than 16 million Americans currently suffer from a preventable 
form of diabetes. Type II diabetes is increasingly prevalent in our 
children due to the lack of activity. In a recent study conducted by 
NIH, participants that were randomly assigned to intensive lifestyle 
intervention experienced a reduced risk of getting Type II diabetes by 
58 percent. HHS plans to reach out to women and minorities to help make 
this initiative a success.
          improving management and performance of hhs programs
    I am committed to being proactive in preparing the Nation for 
potential threats of bioterrorism and supporting research that will 
enable Americans to live healthier and safer lives. And, I am excited 
about beginning the next phase of Welfare reform and strengthening our 
Medicare and Medicaid programs. Ensuring that HHS resources are managed 
properly and effectively is also a challenge I take very seriously.
    For any organization to succeed, it must never stop asking how it 
can do things better, and I am committed to supporting the President's 
vision for a government that is citizen-centered, results oriented, and 
actively promotes innovation through competition. HHS is committed to 
improving management within the Department and has established its own 
vision of a unified HHS--one Department free of unnecessary layers, 
collectively strong to serve the American people. The fiscal year 2003 
budget supports the President's Management Agenda.
    The Department will improve program performance and service 
delivery to our citizens by more strategically managing its human 
capital and ensuring that resources are directed to national 
priorities. HHS will reduce duplication of effort by consolidating 
administrative management functions and eliminating management layers 
to speed decision-making. The Department plans to reduce the number of 
personnel offices from 40 to 4; centralize the public affairs and 
legislative affairs functions; and consolidate construction funding, 
leasing, and other facilities management activities. These management 
efficiencies will result in an estimated savings of 700 full time 
equivalent positions, allowing the Department to redeploy staff and 
other resources to line programs.
    HHS continues to be at the forefront of the government-wide effort 
to integrate budget and performance. We were one of the first 
Departments to add tables to its GPRA Annual Performance Reports that 
provide summary tables that associate resource dollars and performance 
measures HHS-wide. Although we work in a challenging environment where 
health outcomes may not be apparent for several years, and the Federal 
dollar may be just one input to complex programs, HHS is committed to 
demonstrating to citizens the value they receive for the tax dollars 
they pay.
    By expanding our information technology and by establishing a 
single corporate Information Technology Enterprise system, HHS can 
build a strong foundation to re-engineer the way we do business and can 
provide better government services at reduced costs. By consolidating 
and modernizing existing financial management systems our Unified 
Financial Management System (UFMS) will provide a consistent, 
standardized system for departmental accounting and financial 
management. This ``One Department'' approach to financial management 
and information technology emphasizes the use of resources on an 
enterprise basis with a common infrastructure, thereby reducing errors 
and enhancing accountability. The use of cost accounting will aid in 
the evaluation of HHS program effectiveness, and the impacts of funding 
level changes on our programs.
    HHS is also committed to providing the highest possible standard of 
services and will use competitive sourcing as a management tool to 
study the efficiency and performance of our programs, while minimizing 
costs overall. The program will be linked to performance reviews to 
identify those programs and program components where outsourcing can 
have the greatest impact. Further, the incorporation of performance-
based contracting will improve efficiency and performance at a savings 
to the taxpayer.
                 government performance and results act
    HHS is committed to continual improvement in the performance and 
management of its programs and the administration's efforts to provide 
results-oriented, citizen-centered government. The budget request for 
fiscal year 2003 is accompanied by annual performance plans and reports 
required by the Government Performance and Results Act (GPRA). The 
performance measures cover the wide range of program activities 
essential to carrying out the HHS mission. Some notable fiscal year 
2001 achievements include:
     Reducing Erroneous Medicare Payments: CMS has continued to 
reduce the payment error rate from 14 percent in fiscal year 1996 to 8 
percent in fiscal year 1999, 6.8 percent in fiscal year 2000, and 6.3 
percent in fiscal year 2001. CMS, with the assistance of the Office of 
the Inspector General, is committed to further reducing the error rate 
to 5 percent by fiscal year 2002.
     Moving Families Toward Self-sufficiency: ACF reported that 
42.9 percent of adult recipients of TANF were employed by fiscal year 
1999. This is a primary indicator of success in moving families toward 
self-sufficiency. It improves on the fiscal year 1998 baseline of 38.7 
percent and exceeds the target of 42 percent.
     Families Benefiting from Child Support Enforcement: The 
Child Support Enforcement program broke new records nationwide in 
fiscal year 2001 by collecting $18.9 billion, one billion over fiscal 
year 2000 levels. In one such initiative in fiscal year 2000, the 
government collected a record $1.4 billion in overdue child support 
from Federal income tax refunds, and more than 1.42 million families 
benefited from these collections.
    These are just a few of the dozens of impressive success stories 
found in the 13 performance plans and reports. GPRA has been and will 
continue to be an important part of our effort to improve the 
management and performance of our programs.
         working together to ensure a safe and healthy america
    Mr. Chairman, the budget I bring before you today contains many 
different elements of a single proposal; what binds these fundamental 
elements together is the desire to improve the lives of the American 
people. All of our proposals, from building upon the successes of 
welfare reform, to protecting the Nation against bioterrorism; from 
increasing access to healthcare, to strengthening Medicare, are put 
forward with the simple goal of ensuring a safe and healthy America. I 
know this is a goal we all share, and with your support, we are 
committed to achieving it.

    Chairman Nussle. Thank you, Mr. Secretary.
    First, let me begin with the compliments because clearly 
there are many areas within the budget and many areas within 
your jurisdiction over the last year in which there has been 
much progress. Certainly the response to September 11, as well 
as the continued changes in management within a number of your 
agencies has been well documented and very well appreciated by 
this body.
    We could go on for quite a while just talking about all of 
those areas. Unfortunately, we don't have as much time to talk 
about the compliments as we do the challenges, so I would like 
to cut right to the chase.
    Being from the Midwest, I think you know what it means to 
be direct. I am not sure what your Rural Commission will find, 
but I will give you a hint that I think you already know and 
that is money. Our taxpayers in Iowa and Wisconsin pay the same 
amount as every other taxpayer when it comes to Medicare and we 
don't get a fair shake, in our opinion, when it comes to the 
reimbursements.
    Certainly at the town meetings I held over the last week, 
my seniors are interested in a prescription drug benefit. What 
they don't know, but what we know, is that if our 
reimbursements don't change and if this system does not change, 
our Medicare-dependent areas will continue to fail to meet the 
challenge. We will have a drug benefit but the hospital will 
close and when the hospital closes, the doctors and nurses will 
leave, and the other health care practitioners, the skilled 
nursing homes will have a tough time staying open and may in 
fact not be there.
    Of course the pharmacist on Main Street isn't going to 
stick around because if there is no other health care, there is 
no reason for her or him to be there. So now as a result, any 
emergency procedure, whether you are on Medicare or not, is now 
100 miles away instead of maybe 30 or 50 miles away.
    As a result of not having a hospital and no health care, 
there are no new families who are going to move to town, so 
good luck attracting any new businesses to town and the cycle 
continues to spiral out of control. As you have seen in your 
years in Wisconsin and as we continue to see in a number of 
areas, the challenge becomes even greater for a number of other 
areas within our priorities. The bottom line is Medicare 
modernization, in my opinion, is the key to this. The bumper 
sticker may read prescription drugs but undergirding this 
entire proposal's success or failure will be our ability to 
modernize the entire system.
    It strikes me from the President's budget that putting in 
the exact same amount for a prescription drug benefit as the 
year before fails to address the need in a complete way, 
recognizing of course that there are tradeoffs within Medicare 
and that savings can be found, I would agree with you that the 
costs are still hard to define. Maybe $190 billion is a 
reasonable amount, but without the proposal in front of us to 
see where those tradeoffs will come, without seeing where the 
precise savings will come, it makes it much harder to suggest 
that is real. It causes us to believe in the budget we will 
have to write here in the House, that number of $190 billion 
will have to grow in order to be realistic.
    Having said that, let me ask a couple of questions. One, 
when do you foresee, because I understand you may not be 
prepared today to talk about what Medicare modernization will 
mean for this administration in totality. In part, that is what 
Mr. Spratt is getting to in the letter Chairman Thomas has 
written. When will we see a proposal with regard to Medicare 
modernization, more than just what has been put forth with 
regard to a prescription drug benefit, and how long do you 
anticipate States like Wisconsin, Iowa, Minnesota and others 
will languish in the bottom of the barrel when it comes to 
Medicare reimbursements without a level playing field?
    I know that is a lot to ask, but in my 5 minutes I wanted 
to try and lay that all out on the table. I appreciate 
certainly your sensitivity to it and I don't want to leave 
without appreciating the fact that I know you are moving 
forward on it but time is of the essence. We are interested in 
the timing on this as well as a little bit of a glimpse of what 
we might be able to expect here in the near future.
    Secretary Thompson. You have raised many questions, so I am 
not going to give you lengthy answers. I will go through them 
and be as direct as I possibly can so I can respond as quickly 
as possible.
    We are making a lot of progress in regard to improving the 
responsiveness at CMS and we are going to continue to do so. I 
would appreciate and thank you so very much for sponsoring the 
Regulatory Improvement Act. Hopefully, the Senate will pass the 
bill also.
    We have 49 fiscal intermediaries and carriers. We can get 
by with 20. We could put in the performance kind of agreements 
with them and we could improve that tremendously.
    Second, with regard to rural reimbursements, rural updates, 
you are absolutely correct. This is something I have fought 
when I was a Governor and you were a Congressman. I think it is 
important for us to address it. The situation in rural areas is 
there is less utilization and the wage index works against us. 
These are the two big factors. The wage index affects the rates 
and the formula by about 71 percent. We need to change that if 
we are going to improve. That means there will have to be some 
additional money, some savings within Medicare.
    In regard to Medicare, we just rolled out welfare reform 
authorization this week and the next step is to work on 
Medicare and get that up here as soon as possible. I cannot 
give you an exact date. I can tell you that we are working on 
it and we are working on the principles the President set down 
a year ago on Medicare. We need to improve them, to build upon 
them and hopefully we will have a package in front of you 
sometime relatively soon, hopefully this spring.
    Chairman Nussle. Would you also comment on the differences 
between the OMB and CBO baseline as you perceived them within 
the Medicare Program and why we have the discrepancy that we 
do. I think Mr. Spratt said 304 on that chart--according to 
that chart, $304 billion difference. If you could touch on 
that, I would appreciate that as well.
    Secretary Thompson. I certainly can. There is no question 
that there are reasons for it. Basically, there are several 
reasons. First, CBO I believe will testify later this morning. 
They will be coming closer to the figures we put out. That will 
be announced later on this morning. We think once it has been 
developed, there will be even closer figures coming together 
between CMS and CBO.
    The main difference is the Medicare baseline in our budget 
was produced by our independent Office of the Actuaries, used 
by Democrats and Republicans alike for the last 30 years. They 
usually are very much on target. Our actuaries did a full 
baseline reduction, produced the estimates in the budget. There 
are certain differences, of course. When we put in 
recommendations like prospective payments, we take into our 
formula the savings. CBO does not recognize those formulas 
until they are put in rules, so that is a big difference.
    The outpatient expenditures have not been rising as rapidly 
as estimated by CBO and by CMS in the past. In fact, they were 
almost level last year. They are going to go up but not as 
rapidly as before. That is also a difference. Those are two big 
differences.
    Technical assumptions and economic assumptions are 
different between CBO and CMS and those are things that 
probably reflect the difference. Those are still being worked 
on between CBO and CMS and hopefully we will be able to get 
closer in the future.
    Chairman Nussle. Mr. Spratt.
    Mr. Spratt. Thank you, Mr. Secretary, for your testimony.
    This is Dan Crippen's testimony which he will deliver 
shortly after you. It is dated February 28 and I think it 
reflects the narrowing of the gap you mentioned. The 
administration projects that net mandatory spending for 
Medicare will grow at an average rate of 5.4 percent. I think 
you indicated earlier it should be 5.7 percent through 2012.
    It also projects that growth will tend to be lower than the 
10 year average rate through 2006, only 4 percent and higher 
after 2006, 6.4 percent. That is one reason it is somewhat 
suspect because if you spend any time crunching the numbers in 
this 10 year time frame and trying to put together a budget, 
you find it is a lot easier to get the numbers in the latter 
part of the 10 year time frame than it is in the near term.
    The administration also estimates that net mandatory 
spending for Medicare will total $3 trillion over the period 
2003 through 2012 which is about $225 billion or 7 percent 
lower than CBO's projection for the same period. It seems to 
still be a big discrepancy between the two of you, a 
significant number.
    If they are right and you are wrong and looking backward 10 
years, the number is very close to 67 percent, what they are 
projecting forward, we have a major problem on our hands, a 
real shortfall.
    Secretary Thompson. May I respond?
    Mr. Spratt. Yes, sir, I would like your response.
    Secretary Thompson. There is no question there is a 
difference, no question CBO is moving closer to that. We have 
our actuaries here, Rick Foster who has been the head of the 
actuaries out of CMS, been used by Democrats and Republicans 
alike in both administrations. They have been always relatively 
on target. I have a great deal of confidence in their 
professionalism.
    The second big difference is that we assumed in the current 
laws the 15 percent home health cut that starts in 2003, the 
SNF add-on payments ending, the reduction in the physician 
baseline and the reduction of the outpatient baseline. All 
would impact on the growth rate which would I think argue for a 
closer assumption of the 5.4, the 5.7 to the 6.0, much more so 
than CBO. I don't think CBO recognized them, I don't think CBO 
recognized the prospective payment changes that we did at CMS. 
There are different assumptions and I believe the testimony of 
CBO will indicate there have been some technical changes and 
they are relatively close.
    Mr. Spratt. You mentioned the 15 percent across-the-board 
cut in home health care which has been hanging there like a 
sword over the home health care industry for the last several 
years. We pulled our punches every year because after the 
initial home health care cuts in the Balanced Budget Agreement 
of 1997, a number of home health care agencies went out of 
business, went bankrupt and we saw the consequences of it, each 
of us, in our own districts and we said enough is enough. You 
are still assuming that the 15 percent would be administered?
    Secretary Thompson. We are assuming what the law is and the 
law is that it was going to be phased out.
    Mr. Spratt. But you are not recommending that we give 
another reprieve to home health?
    Secretary Thompson. What I am recommending is that we sit 
down and look at all the provider payments. We are working with 
the Ways and Means Committee; we want to work with the Budget 
Committee. We want to take a look at this because we know the 
pressure you are under, pressure that all the Members of 
Congress are under for physician payments. The 15 percent, if 
you extrapolate it, is closer to 7 percent after you take into 
consideration the inflation factor.
    We are looking at all these things and hopefully we will 
come up with a provision that is going to be budget-neutral 
that you and the chairman can look at, the Ways and Means 
Committee could look at and see whether or not Congress would 
approve it.
    Mr. Spratt. Let me ask you about each one of these major 
items on Chairman Thomas' list. First of all, MedPAC made a 
recommendation that the physician provider payment rates be 
adjusted because the sustainable growth factor they believe is 
flawed. That is the lion's share of the $174 billion in 
provider restorations or corrections Mr. Thomas recommends, 
$128 billion. Where does the administration stand on that 
recommendation?
    Secretary Thompson. We are working with the Ways and Means 
Committee and we are working with any Member of Congress that 
wants to work with us. We are coming up with suggested savings 
that hopefully will make the changes budget-neutral and 
hopefully coming together with a package that could be approved 
by this Congress on a bipartisan basis.
    We spent 3 hours yesterday with OMB on this particular 
subject, we are going to be meeting all day Monday on it and 
will hopefully be making some recommendations to Chairman 
Thomas sometime within the next 10 days.
    Mr. Spratt. Will that package include the offsets to make 
this budget-neutral or will you recommend that some portion of 
what is left of the surplus be assigned to pay for this?
    Secretary Thompson. We are trying to make it budget-
neutral. It is not easy as you can well imagine but we are 
trying to making it budget-neutral as suggested by Members of 
Congress.
    Mr. Spratt. Within Medicare or would you look outside of 
Medicare for offsets?
    Secretary Thompson. We are looking within Medicare to make 
the savings, sir.
    Mr. Spratt. Turning now to the hospitals, a small amount of 
money relative to physicians payments but I believe it would 
affect rural hospitals, the MedPAC recommendations with respect 
to the difference in in-patient national rates between 
hospitals and MSAs less than $1 million and hospitals in all 
other areas. It would at least affect those in small towns and 
smaller areas. That is $15 billion. Is that feasible from your 
standpoint?
    Secretary Thompson. If I want to talk from my heart, 
absolutely, but looking at the budget situation, we are trying 
to take a look at all the provider payments, trying to look at 
the reimbursement formulas but it is going to be difficult to 
include that.
    Mr. Spratt. How about the DSH payment, increasing the cap 
up to 10 percent instead of 5.25 percent?
    Secretary Thompson. I doubt very much that DSH payments are 
going to be included.
    Mr. Spratt. And skilled nursing facilities?
    Secretary Thompson. We are looking at that as part of the 
package.
    Mr. Spratt. Don't you think maybe we should withhold our 
mark of the budget? This is a big item, $127 billion, until we 
see that package and see whether or not it needs to be 
accommodated within the budget?
    Secretary Thompson. That is strictly in your purview. I 
don't want to ever recommend any advice to you as to what you 
should do on the budget.
    Mr. Spratt. Let me ask you about the Medicare prescription 
drug proposal you are formulating. As I understand it, in the 
near term, you are recommending that we enhance the programs we 
have for low income beneficiaries which are mainly now under 
Medicaid rather than Medicare and give the States the 
wherewithal to expand those programs I suppose to maybe 160, 
170, maybe 200 percent of poverty, is that what you have in 
mind?
    Secretary Thompson. There are two provisions. One is $77 
billion which hopefully would only be utilized by the States up 
to 2006 when hopefully we will have a Medicare provision within 
a restructured Medicare. That would require only $7.8 billion 
of the $77 billion. Basically, that would allow your State, the 
Governor and the legislature to be able to design a 
prescription drug benefit however they want to do it. They 
would have to cover individuals up to 100 percent of poverty 
and would get the Federal Medicaid match up to 100 percent. 
Then, for coverage of individuals from 100 percent to 150 
percent, they would get a 90 percent return for a 10 percent 
investment. When I discussed that with the Governors this week 
on a bipartisan basis, they were very enthusiastic.
    The second one is to use the waiver program and allow what 
we call pharmacy plus, allowing States to develop their own 
program as long as it is budget-neutral up to 200 percent of 
poverty. The State of Illinois has just passed it and they have 
allowed it. They have capped it so they will be responsible for 
anything over and above that figure as a State and with their 
funds. They are going to be able to ensure 368,000 low income 
seniors in the State of Illinois will be able to get covered 
prescription drugs.
    Mr. Spratt. You said as long as it is budget-neutral. What 
do you mean by that?
    Secretary Thompson. We have a provision in giving waivers 
that States have to be able to show it is not going to increase 
the outlay of any Federal dollars. That is the budget 
neutrality.
    Mr. Spratt. Budget neutral up to 200 percent?
    Secretary Thompson. That is correct, but also, they are 
allowed to be able to establish budget neutrality over the 5 
years. That is what the State of Illinois is doing.
    Mr. Spratt. Usually in your budget proposal and elsewhere 
when you make this proposal of $190 billion, it is coupled with 
Medicare reform as if the two were linked and reciprocal, we 
won't do one without the other. Is that the administration's 
position, we have to have Medicare reform in order to have drug 
benefits?
    Secretary Thompson. Absolutely, Congressman. We do not 
believe if we just pass prescription drugs that we will ever 
reform Medicare. The administration believes very strongly that 
we have to strengthen, reform and improve Medicare, make some 
savings, allow for catastrophic loss coverage and cover 
prescription drugs. We are hopefully going to have a proposal 
for you sometime this spring.
    Mr. Spratt. Can you give us an idea what reform means, what 
specifically you have in mind for reforming Medicare that would 
save that much money?
    Secretary Thompson. We are looking at a lot of things at 
this point in time.
    Mr. Spratt. Thank you very much.
    Chairman Nussle. Mr. Gutknecht.
    Mr. Gutknecht. I want to thank you, Governor, for coming 
today. Let me say for the record, I happen to agree there are 
significant savings and it really is time we really do look at 
real reform at the Medicare system.
    I also want to congratulate you on a number of things 
because normally being the Secretary of Health and Human 
Services is a very tough job but after September 11 and with 
the anthrax and everything else, it became almost an impossible 
job. I, for one, admire the work you have done.
    I hate to sound like ``Johnny One Note'' but again, going 
back to the anthrax story, you did a brilliant job of 
negotiating with the Germans as it relates to the price of 
Cipro. We ended up with a very good deal. I don't think most 
Americans realize that you did a yeoman's job of making certain 
we got a fair price for Cipro.
    I want to come back to the basic issue of prescription 
drugs because when we talk about a prescription drug benefit, 
it seems to me that we continue to just chase our tails--
frankly, I want pharmaceutical companies to make money. I am a 
capitalist and I understand they need a profit incentive and I 
also understand if they are going to do the kind of research 
that we expect on the next breakthrough drugs, they have to 
have a profit margin but the more I learn about the system, the 
more I think that we as Americans have got to become much, much 
better negotiators and at some point, we have to allow market 
forces to work.
    I look at drugs like Coumadin, for example. My 82-year-old 
father takes Coumadin. I have learned from independent sources 
that the price here in the United States, the average price, is 
about $35 a month. The average price in Europe for exactly the 
same drug, adjusted for currency differences, is about $5. I 
think we should pay our fair share of those research costs, but 
on drug after drug after drug and particularly those drugs 
which seniors take on a repeat basis, what bothers me the most 
is when you look at what is happening between what we pay in 
the United States versus what they pay in Europe, the 
differences are 30 to 300 percent right down the line.
    At some point, together with your office, we have to make 
it clear to our own FDA that they work for us and not the other 
way around. They have been so busy trying to protect us from 
ourselves that we have criminalized a lot of seniors who are 
simply trying to afford the prescription drugs which their 
doctors say they need.
    I would be happy to work with you, to work with Greg or 
anybody from your staff to get the information so that we begin 
to make it clear to these large pharmaceutical companies, which 
I want to make clear to everyone, many of them now are no 
longer American companies. These are companies that are based 
in Germany, Switzerland or other parts of Europe. They have one 
price structure for the European Union and a much, much 
different price structure for the United States of America.
    I don't think we can seriously talk about a prescription 
drug benefit for seniors as long as we have a situation where 
my estimates are that this year seniors and the Federal 
Government will buy somewhere in the area of $100 billion worth 
of prescription drugs. Based on some outside experts we have 
talked to, if we just open the markets, prescription drug 
prices in the United States will come down at least 30 percent. 
That is $30 billion that would go a long ways to help provide a 
benefit to those seniors falling through the cracks.
    We want to work with you but I think with all due respect, 
Mr. Secretary, you have to make it clear to the FDA that they 
work for us and not the other way around.
    Secretary Thompson. Thank you, Congressman. We are 
neighbors and I have known you a long time. You are a friend of 
mine and all you ever have to do is call me and talk to me, 
which you do on occasion. I respond right away as I do with any 
Congressman that calls me.
    We want to work with you. FDA has put a new leader out 
there, a gentleman by the name of Les Crawford, with those 
instructions directly. I think you are going to be very 
impressed by the leadership of Dr. Crawford. He is a wonderful 
individual. I hope you get a chance to meet him soon--I hope 
you get a chance to bring him up and talk to him. There are 
going to be changes made and improvements made. All I can tell 
you is we are changing a lot of things at the Department to 
make it a lot more responsive in many areas, not only to 
Congress but to the public at large.
    Mr. Gutknecht. Thank you.
    Chairman Nussle. Let me announce to the members we have one 
vote evidently on the floor. We will continue this hearing and 
Mr. Collins has gone to vote and will continue to chair the 
hearing as we continue so that members can make a decision how 
they would like to proceed, but we will continue the hearing 
during this vote.
    Mr. Bentsen is next to inquire.
    Mr. Bentsen. Mr. Secretary, good to see you. I have a 
couple of questions for you, but I want to make a comment.
    In part of your budget, I appreciate the increase in the 
community health services funding and in bioterrorism. I am 
disappointed that you have sent us another budget that would 
cut the pediatric GME program. We are going to restore that 
money like we did last year. As is true in your State, these 
pediatric hospitals train about 30 percent of the pediatricians 
across the country and that program has proven to work quite 
well, but I am disappointed you all did that. I figure that was 
probably done at the White House and not in your department.
    I want to talk to you about the Medicare Program, what you 
said in your testimony and what you have here. One question is: 
are you saying in response to Mr. Spratt that you all believe 
that Medicare reform, whatever that may be, net of any 
prescription drug program, would provide net savings to the 
Medicare Program because everything else we have seen from this 
administration, the prior administration, from both parties is 
Medicare reform costs money. I would like you to clarify that.
    I also want to talk to you about your drug program. There 
are about five things I see a problem with. Many have said that 
the $190 billion is insufficient from both sides of the aisle, 
from the CBO and from others. The plan you put forth, at least 
in the outset over the next six years, this is a problem we 
have seen for many years, would only cover about 10 percent of 
senior citizens, 10 percent of Medicare beneficiaries.
    I think a huge flaw is relying on the States. You mentioned 
the State of Illinois and they have done pretty good work on 
this, but we know that when you look at programs like SLMBE and 
QUMBE, that the States have not done a very good job. Maybe 40 
or 50 percent of the eligible participants are actually 
enrolled. When you look at the CHIP Program, and other portions 
of the Medicaid Program in my home State of Texas, the State 
has not done a particularly good job of enrolling children in 
the Medicaid Program. We are one of 14 States that has not 
waded into the Breast and Cervical Cancer Treatment Act because 
the State doesn't want to pull down the money and put their 
share up. We are talking about taking a program, Medicare, a 
whole Federal program, and dividing it with the States in the 
prescription drug component and asking them to pick up the 
slack when the evidence has not been particularly good that 
they will do that.
    As you know, this last week your former colleagues, the 
Governors who were meeting, were complaining they can't fund 
their Medicaid budgets as it is with what Washington tells them 
they would like to do, and here the administration's plan on 
prescription drugs would rest a great deal on the States 
stepping up to the plate.
    You also talk about expanding Medicare choice and the fact 
that Medicare choice provides prescription drugs. In my 
experience in Washington, we have consistently had to raise the 
stipend to manage care companies to stay in the program and 
every indication is not only are people dropping out of the 
program but they are also dropping the benefits. We are 
starting to pay the managed care companies almost the same 
amount the government runs the fee for service portion of 
Medicare itself. From my economics training, once those curves 
cross, that is a very inefficient program.
    Finally, I have to tell you on the discount card, that I 
have talked to more than a number of small pharmacists in my 
district and across my State who tell me that plan will only 
force them to carry the freight on trying to fund the 
administration's prescription drug program. I think that is 
very problematic. These are folks who already are getting a 
minimal, marginal or nominal amount from the insurance 
companies as it is for the prescriptions they fill.
    I think those are some major flaws in your plan and I would 
like to know what your response would be to that. I think the 
biggest flaw, unfortunately, and I don't want to be critical of 
the States, is they have not always followed through and we are 
asking them to take a portion of a Federal program and fix 
that.
    Secretary Thompson. You have addressed lots of subjects, 
Congressman. Let me try and go through them.
    GME, the program started in fiscal year 2000 at $40 billion 
and in fiscal year 2003, we think $200 billion is a very proper 
figure. Based upon that fact, it extrapolates up to $51,300 per 
resident doctor.
    Mr. Bentsen. If I might, quickly. As you know, we funded at 
a higher level last year, so this would effectively be a cut.
    Secretary Thompson. You subsidized it at $71,000 last year 
and we figure $51,000 per resident is adequate.
    Mr. Bentsen. Also, we have never subsidized this before, 
whereas the Medicare Program has subsidized other types of 
positions, pediatricians who are primarily trained in 
hospitals.
    Secretary Thompson. We think $51,000 is a more accurate 
figure considering the budgetary problems right now than 
$71,000, but that is a decision you are going to have to make.
    In regards to Medicare, we believe there are savings to 
have, savings that are hopefully going to be streamlining the 
rules and regulations as well as the law. We are hoping to be 
able to save lots of dollars in that. We are putting in an 
additional $190 billion for that. We know that you do not 
believe that is enough. We think it certainly can get us into 
good bipartisan negotiations for improving Medicare.
    We are very fearful that once again we will talk about it 
as we did last year and not get something done. We are hopeful 
this year we can get a streamlined, strengthened Medicare 
program with prescription drugs and we think $190 billion over 
10 years which starts in fiscal year 2006 is a good way.
    In regard to what the States are doing, we think this 
immediate transitional program, of which we would pay 90-10 for 
those States covering individuals over 100 percent of poverty, 
giving them a Federal match allowing the States to design their 
own prescription drug program is a wonderful way to go. We had 
a lot of enthusiastic support from Governors on both sides of 
the aisle this week when I discussed it with them.
    In regard to breast and cervical examination, I am hopeful 
that Texas will be one of the next States that comes in and 
puts the dollars in there. It is badly needed, it is a very 
good program, as you know, and we think it is the right thing 
to do.
    In regard to other State functions, we think the welfare, 
the TANF Program, the States have measured up and have done an 
excellent job. We think if we allow the $77 million for the 
transitional drug benefit, they can do an excellent job as well 
and design a program that will be very beneficial to your 
seniors in Texas while we are working on the permanent fix 
through Medicare.
    Mr. Bentsen. With the chairman's indulgence, I guess I 
would say it sounds to me like once again we are telling senior 
citizens, the vast majority, 90 percent, of the Medicare 
beneficiaries, that nothing will happen until 2006 because we 
want to redesign the Medicare Program because your plan only 
appears to cover 3 million, according to your budget document, 
senior citizens out of the 32 to 35 million in this country 
under the Medicare Program.
    Secretary Thompson. The transitional one will cover 6 
million right away and we believe the card and the other one 
will add an additional 3 million or 9 million. That is a very 
good start forward. Hopefully Congress will pass that on a 
bipartisan basis. We think a $77 billion transitional program 
that could go into effect as early as next year is a wonderful 
investment.
    Mr. Bentsen. There is no guarantee under your plan like 
there is under Medicare where it is a Federal plan that the 
States will pick up the plan and run with that. The experience 
has been, as in the case in Texas, and I wish it were 
otherwise, that even at a 90-10 match, the States are under no 
obligation to take it. The other problem you have is States 
that run in a biennium like my State of Texas. We pass it this 
year, they are not coming back until next year, so we are 
looking a year or further off.
    I am not trying to be critical but I think that is a 
programmatic flaw in what the administration has proposed.
    Secretary Thompson. I don't want to argue with you because 
I respect you.
    Mr. Bentsen. And I respect you as well.
    Secretary Thompson. But the truth of the matter is that 
what you are arguing with me is, don't do anything. I say $77 
billion for States to try it. I am a former Governor; I was the 
longest serving Governor until I resigned. I can assure you 
when States and Governors see 90 cents for every 10 cents they 
invest, they jump at it. They are going to come up with an 
innovative program. I have much more confidence in my fellow 
Governors that they are going to look at this program. I had 
the opportunity to talk to them this week and they said, ``you 
mean if we put up our Federal match to get to 100 percent, you 
will come in with 90 cents on the dollar so we can structure 
our own prescription program?'' I said, ``yes, that is the 
program.'' They said, ``how do we get Congress to move?'' That 
came from Governor Gray Davis, I believe.
    Mr. Bentsen. But Governor Perry of Texas vetoed the Women's 
Health Initiative plan that had a 90-10 match on it and the 
State of Texas right now has a significant gap in its Medicaid 
budget. The point is, it doesn't always work out that way.
    I appreciate what you are trying to do. I guess the 
alternative would be what we proposed to do in the last 
Congress, put forth a program for prescription drugs under 
Medicare today and not go back and rely on the States for what 
is otherwise a wholly Federal program and not a Federal/State 
program. I think that is the alternative but I appreciate your 
comments.
    Secretary Thompson. I just want to move, get it done.
    Mr. Bentsen. As do I.
    Secretary Thompson. I think while we debate the 
restructuring of Medicare with prescription drugs, let us pass 
this one, let us see if it works.
    Mr. Bentsen. The only concern I have is that in doing so, 
we may never get to a universal program because some who 
proposed the plan you are putting forth say we want to help 
those who need it the most rather than helping those who need 
it as a total. There are a lot of folks in my State and your 
State as well, who aren't wealthy people that make more than 
150 or 200 percent of the poverty level who are having to 
decide how much of the drugs to take their doctor prescribes to 
them, or what else they can buy with their fixed income on a 
monthly basis. Therein lies the problem. Therein is why I think 
we ought to be moving forward. We tried in the last Congress 
and we should be doing it in this Congress on prescription 
drugs.
    Secretary Thompson. I couldn't agree with you more that we 
should move ahead and get something permanently done but I 
don't know if that is going to happen. I hope that it does. I 
am an optimist and believe we can get something done but in the 
meantime if we would have passed this last year, we could have 
had a lot of States designing their own prescription drugs, 
giving help to a lot of low income seniors all over America. 
That is my motive. I want to get as many seniors covered as 
soon as possible. I hope we can get something done this year, 
both on restructuring Medicare and as well, the transitional 
program for the States.
    Mr. Bentsen. Thank you.
    Mr. Collins [presiding]. Thank you, Mr. Secretary. I think 
you just had a good example of the difference here in where you 
are coming from and where a lot of Members of Congress are 
coming from. Many want a universal program,``one size fits 
all,'' rather than a good, sound program that can be paid for. 
We have to bear in mind that the American worker pays for all 
the programs up here.
    I am always pleased to see the Ranking Member, Mr. Spratt, 
as he opens his portion of the hearings because he always has 
good charts, good information. He does his homework, very 
thorough. When you look at the charts he puts up and look at 
the increases and reductions he showed, the difference between 
OMB and CBO, and your explanation of each of his questions, 
which were very good questions. I appreciate his questions and 
I am sincere with that, I appreciated your answers. It reminds 
me of what I was told back in January 2001 prior to the 
inauguration when President-elect Bush was choosing people for 
his Cabinet. You were one of them and that comment was, it is 
great to see the adults back in charge.
    What we have here, what you have evidenced, based on the 
very good questions of Mr. Spratt, you have brought management 
to Health and Human Services, management that was badly needed.
    As we observe the questions about what is coming with 
Medicare reform, I think you handled it very well because 
Medicare reform is very important to be able to meet all the 
programs that are needed under the Medicare system. If you 
don't do them all together, you won't get it done in this town. 
We have seen that in the past.
    I like the provisions you are bringing forth on welfare 
reform. You were very helpful to us in 1995 and 1996 when we 
worked through three welfare reform bills. I was on the Human 
Resources Subcommittee for Ways and Means at that time, had a 
lot of input on the child support enforcement provisions of it 
and I am glad to see you are recommending that the States 
pretty well take full control of that program.
    I have always emphasized that the States should have full 
control of it. The Federal Government does do some financing in 
it but those funds collected should go to those who are due the 
funds and those are the children of the custodial parent.
    A lot has been said about rural hospitals. The community 
health centers I think will help rural hospitals. You are 
keeping those who need health care within those communities. 
Many of them are rural communities, many of them have rural 
hospitals who not only will face problems in the future but 
have faced problems in the past. I was a county commissioner in 
a small county in Georgia with Hill Burton Hospital 25 years 
ago and I know how we struggled with that hospital then. I 
think the community health centers will help in that area.
    The chairman mentioned in his opening comments that it is 
money, money, money. That is usually the answer to all 
solutions inside the beltway of Washington, DC I refer to it as 
cash-flow. Yes, we have had a reduction in the cash flow of the 
Federal Treasury, a reduction based on the economy, the fact 
that we have had a decline in the economy beginning early in 
2001, escalated by the events of September. That is the reason 
we have followed the President's advice and his proposals have 
three times passed a stimulus package in the House of 
Representatives to send over to the Senate.
    I recall in the 1960's, the 1980's and now what happened 
when tax reduction was put forth. Under President John F. 
Kennedy, massive tax relief package in the 1960's brought in 
tons of money to the U.S. Treasury, positive cash flow. What 
did we do with that cash flow, sir? Create a lot of programs 
that you are responsible for today--the Medicare, the Medicaid.
    In the 1980's, under President Reagan, the reduction in the 
tax burden on the American worker, tremendous increases in cash 
flow in the Federal Treasury. What was done with that? What was 
done with those dollars? We built a defense department second 
to none, ended the cold war, dissolved the Soviet Union. A lot 
of good things happened with those dollars.
    We need a strong economy now and that is the reason it is 
so important that the Senate follow through with the stimulus 
packages we put forth because we need the dollars today and the 
cash flow of the Treasury. Those dollars come from the cash 
flow of individuals across this country. They don't come from 
inside Washington. Those dollars are needed to do two things 
this decade that you have a large part to manage, Medicare and 
Social Security. Both have to be addressed as soon as possible 
particularly in this decade. We will need dollars. There is no 
way you will handle both programs with the trust funds and we 
know that. We might as well 'fess up to it. It is going to take 
some general funds to take care of both or you are going to 
have such a tax burden on the next generation behind me that 
you won't be able to pay for it. We need that tax relief.
    To have someone who is of high authority in either body to 
call the measures that we put forth, the tax measures we put 
forth in three different stimulus packages as fool hearted is 
foolish itself. It should never have been said.
    Mr. Secretary, I think you are doing a good job. There is 
one area I want to caution you about. I mentioned this in the 
Ways and Means Committee the other day when we had Treasury 
before us talking about some tax proposals and one is in your 
proposal today. That is the tax credit for health insurance.
    It has an income cap on it, an income cap that cuts off 
those who actually pay the bill. That is above the $60,000 
annual income. We need to be careful with those types of 
provisions. We have enough provisions in the tax codes today to 
transfer payments from one taxpayer to another. We need to be 
very careful about adding more to it.
    Thank you for your work, your dedication. You have been a 
Governor, a very good Governor. You understand what goes on at 
the local level. You remind me of the phrase that Ronald Reagan 
put forth. I have it on a plaque in my office. ``It doesn't 
matter who gets the credit, just get the job done.'' I don't 
care if the Governors take credit for prescription drugs for 
seniors, get the job done. That is your attitude and I 
appreciate it.
    Thank you for your being here.
    Mr. McDermott.
    Secretary Thompson. Thank you for your comments.
    Mr. McDermott. I had to choose between going to the Ways 
and Means Committee and listening to MedPAC talk or come up 
here and listen to you and I thought well, I am going to go see 
the Secretary because I admire you. I think coming from a 
Governor's job to sit up here and be lectured by us is probably 
not exactly what you would like to do, so I admire your 
willingness to serve. I never have understood why you took that 
job.
    Secretary Thompson. Sometimes I wonder myself.
    Mr. McDermott. I know. It is because I respect you that I 
have a little difficulty putting this up here, but you say you 
are for rural health but when we look at your budget, you cut 
Rural Health Administration. For me to put that all together 
because $54 million cut out of there doesn't make sense. Maybe 
you will have an explanation but I have a bigger question than 
that.
    Your budget document says Medicare's extremely complex 
provider payment systems based on regulated prices do not 
always function smoothly or equitably over time. We all agree 
on that. Then you go on to say you are willing to work with 
Congress by making budget-neutral adjustments across provider 
payment updates.
    MedPAC is downstairs telling us that they vote for a full 
inflation increase for outpatient services in 2003 and for 
inpatient payments in rural hospitals, they also want them to 
have full inflation increases.
    In the zero sum game of budget-neutral stuff, that is not 
possible. I guess you want us to gore somebody else's ox. I 
don't know whose ox you are thinking about. If we are going to 
actually give these inflation increases to rural hospitals and 
keep them open and all the rest, and do something about the 
physician business, where are these savings coming from? Is it 
coming out of nursing homes? How is this going to happen? You 
can't have it both ways and you know that.
    Secretary Thompson. First off, let me tell you that on the 
reduction at the Rural Administration, that hurt me. That was 
one of the last things I lost in my tussle with OMB, so I don't 
have much defense for it.
    Mr. McDermott. Thank you. I like that honesty. We will take 
care of it. I am sorry there are no other members here. I come 
from an urban district, so it doesn't mean anything to me. 
There are a lot of people here who have rural districts who 
don't realize you are fighting for them and I like that.
    Secretary Thompson. You must be Irish, Congressman.
    Secondly, in regard to the provider payments, most of these 
things are things you passed, Congress passed in 1998 and 1999 
asking us to do this. We carried out the law and that is why 
the physician payment, that is why the reduction in SNF, the 
reductions are actually laws that have been passed by this 
Congress.
    My answer to you is that the only way we are going to fix 
them is to sit down on a bipartisan basis, put all the provider 
payments on the table and not look to gore one over the other, 
but see whether or not we can make some savings and put them 
all out there and see if we can come up with a plan on 
physicians, on SNFs, on home health and on the outpatient. We 
are working on that. In fact, as we speak, there is a meeting 
going on over in the Humphrey Building doing just that. We have 
another meeting on Monday which I will chair. Hopefully we will 
spend all day Monday looking at where we might be able to come 
up with some savings because Congress has also asked us to come 
up with a budget-neutral answer to this and that is what 
Congressman Thomas has suggested. We are trying to do that, 
trying to comply with what you are saying.
    Mr. McDermott. You have told us that Pogo was right, the 
enemy is us. I get that and I am glad you would say it to the 
committee. I have one other question I want to put on the 
table.
    We are going to have a budget out of this committee in two 
weeks, ready or not, here it comes. I don't think anybody knows 
what in the world they are doing but you believe more people 
are going to go off welfare, don't you?
    Secretary Thompson. Yes, I do.
    Mr. McDermott. Right now, the Child Development Block Grant 
only covers 2 million out of 15 million kids eligible in this 
country and you flatlined that. You gave them no more money and 
the TANF grant, which has also been used for child care, is 
also flatlined.
    I understand we don't want to leave any child behind, but 
if you are going to push people to go to work and have no way 
to pay for decent child care, it doesn't work. I can't 
understand how you can flatline both the Child Development 
Block Grant and the TANF grant and expect that more people are 
going to leave when already less than 20 percent of the 
children eligible get any money in it. If you can give me some 
explanation, I would be pleased to hear it.
    Secretary Thompson. First off, we are flatlining the child 
grant. It is about $5 billion, $2.8 billion in the mandatory 
and $2.1 billion in the discretionary. We are also putting 
$16.5 billion in TANF, of which 30 percent of the TANF dollars 
can go into child care. We are also allowing additional money 
to be taken out of the Social Service Block Grant to be used 
for child care. When you add all those figures together, it is 
about $9 billion. We think that is a giant step forward.
    Because the caseload has been reduced by about 50 percent 
across America and TANF has been at the same level, $16.5 
billion, we think the States should have enough flexibility in 
there to put the additional money into child care. That is our 
assumption.
    Mr. McDermott. I hope you will not grant a waiver to the 
State of Washington for their Medicare Program. They want to 
set up waiting lists and all kinds of awful things because 
there is $1.5 billion they have to cut out of the budget, big 
chunk comes out of Medicaid and these programs and we have the 
highest unemployment in the country.
    Maybe everyone else believes the economy is taking off and 
this problem is going to go away, but I think you are going to 
get more people back on welfare in the next few months because 
of the fact that all those people we pushed out on $6 a hour 
jobs have been cut. They are not making beds at Holiday Inn 
anymore. It is this crunch I see the States in, you having been 
a Governor know better than anybody else.
    Secretary Thompson. Your Governor was in to see me for a 
hour this week, Governor Gary Lock, and he told me he had full 
support for his waiver except for you.
    Mr. Collins. With that, the gentleman's time has expired.
    Mr. Fletcher.
    Mr. Fletcher. Mr. Secretary, thank you for coming back 
here. We want to laud you for the wonderful job you have done 
in a very difficult situation we faced over these last months 
as a Nation and laud you for the efforts as we look at 
addressing some of the concerns. Welfare was mentioned and as a 
Governor, you kind of led the Nation in that reform. I am glad 
you didn't listen to some of the far left radical ideas that we 
may hear around here. Otherwise we would have still have a 
number of people locked in a cycle of poverty with no hope of 
ever rising to their potential. Thank you for doing that. 
Certainly we are glad you are at the helm of further reforming 
welfare to give more people in poverty hope of lifting 
themselves out of that. Thank you.
    Let me ask you about the uncertainty of the baseline that 
we heard a lot of discussion about here, if that demonstrates 
the need for any fundamental Medicare reform now in the sense 
that it is very difficult to predict, as we have heard with the 
different estimates we get on the best baseline.
    Secretary Thompson. You are absolutely correct, as you 
usually are. I applaud you for your question and for your 
dedication in this arena.
    The truth of the matter is that there are certain economic 
assumptions that are made by CMS and by CBO and they are not 
always the same and you are going to have a difference. The 
second thing is outpatient expenditures have gone down. It was 
projected to go up at this level, it has been level pretty much 
for the last two fiscal years, so you are starting at a lower 
baseline for the outpatient expenditures. It is going to start 
going up but it is not going to go up as rapidly as it was. 
That is an assumption that continues through our actuaries at 
CMS.
    The third thing is that we took into consideration what the 
law tells us to do, that is that there is going to be a 
provider payment on SNFs and on physicians. When you put all 
the variables in there you come out with an answer. That answer 
is that there is going to be a reduction there. As a result of 
that, the baseline is not going to go up as rapidly as CBO 
predicts. So there are changes and there are some differences 
that need to be reconciled.
    The best way to reconcile, as you have indicated, is to 
come up with a streamlined and strengthened Medicare reform 
package with prescription drugs. This law was enacted in the 
1960's and we all know there are many changes that have taken 
place in health care led by your profession. There are many 
changes that need to be done, namely prescription drugs have to 
be included as well as catastrophic loss has to be included.
    There are ways I believe that we can streamline it and make 
some savings that will be good for the system and make it 
better for future populations.
    Mr. Fletcher. There are a couple of areas I know you are 
interested in and the administration is interested in as well, 
and that is the uninsured, your efforts to reduce that to 
provide more availability and access to quality health care. 
Let me ask you a question about the tax credits. We have 
several options, one of expanding the availability of getting 
into CHIPS. I am speaking of folks that may have this tax 
credit, but because the individual market is not as strong and 
healthy as it should be, we need to make sure, especially for 
lower income people, high risk, that they have an opportunity 
to get into some sort of plan that is affordable, CHIPS, 
Medicaid.
    I wondered if there is any possibility of coming up with a 
grant for our high risk pools back in the States? We have 
looked at whether it is 75 or $100 million, something that is 
not tremendously large but would help those risk pools 
especially with tax credits. These people would have an 
opportunity to buy in at an affordable rate.
    Secretary Thompson. That is part of the budget. We are 
allowing States to pool in this provision and we are allowing 
individuals to be able to go into a regional IRS office, get a 
number right away, take that to the insurance agent and be able 
to use that number as money up front so they can start making 
the monthly payments on their health insurance policy which is 
an improvement.
    Second, we are giving States the authority to set up 
pooling arrangements within the State, so you can put all the 
uninsured into a pool. A lot of the uninsured are young, 
healthy individuals so the pooling rate should be fairly good, 
I would think. Maybe you could put some high risk in there as 
well and make an overall pool that would be able to allow for 
the $3,000 to be able to purchase a very good health insurance 
benefit for a family or $1,000 for an individual.
    Mr. Fletcher. I appreciate that. I think we do need to look 
at several avenues there. We did some pooling in Kentucky and 
some other things.
    Secretary Thompson. We did in Wisconsin too and they worked 
out very well.
    Mr. Fletcher. As long as we make sure that you can have a 
good competitive market which keeps the rates down for the 
young, healthy folks, they get in. Take care of the high risk 
folks and if there is some way of making sure they can get in 
an affordable rate, especially low income, then you allow the 
market to work very well and increase the access to health 
care, as you know.
    Secretary Thompson. In Wisconsin we required the insurance 
companies to subsidize. They were not too excited about that 
but it was a way for us to do it.
    Mr. Fletcher. I will be working to see if we can't get a 
small amount here to look at helping with some of the block 
grants in that program.
    I think my time is up. Thank you, Mr. Secretary.
    Mr. Collins. I am going to request that the gentleman take 
the Chair. Mr. Secretary, once again, thank you. I do want to 
read a couple of excerpts from a paper that was drafted by the 
Honorable Jim DeMint from South Carolina. These are words of 
caution. ``By the next election, the majority of Americans will 
be dependent on the Federal Government for their health care, 
education, income or retirement and at the same time, the 
number of taxpayers paying for these benefits is rapidly 
shrinking. Today the majority of Americans can vote themselves 
more generous government benefits at little or no cost to 
themselves.'' Travel with caution, Mr. Secretary.
    Secretary Thompson. Thank you, Congressman. I appreciate 
your admonition and your common sense.
    Mr. Fletcher [presiding]. Let me recognize Mr. Moore now.
    Mr. Moore. Thank you very much, Mr. Chairman. And thank 
you, Mr. Secretary for being here. I think you have probably 
one of the toughest jobs in Washington. So I appreciate the 
fact that you are willing to be here and talk to us about some 
of the concerns that we have.
    Mr. Secretary, I received a letter recently from a 
constituent, a woman. It is very brief and I want to read it to 
you and maybe you can help me answer her. She says she is 
trying to locate a new doctor. ``I had to call four doctors 
before I finally found one who would take me. As soon as I told 
them Medicare was my primary provider even though I have a 
backup, they told me they were not taking any more Medicare 
patients. It does not do any good to have Medicare if you can't 
get a doctor. I don't know the answer but the problem needs to 
be addressed. Thank you.'' I wonder if you can help me answer 
her.
    Mr. Thompson. I wish I knew more about the situation. But 
all I can tell you is that we are attempting to get more 
doctors into the system. We are putting the pressure on the 
providers to take Medicare patients. We are also providing for 
additional money in here to get more doctors into underserved 
areas. I do not know if it is an underserved area.
    Mr. Moore. No, it is not.
    Mr. Thompson. But it is a problem. Of course, one of the 
problems is the reimbursement and we have to take a look at 
that. That is why, according to Congressman Spratt and 
Congressman McDermott as well as Congressman Thomas, we are 
looking at ways in which we can figure out a way on a budget-
neutral basis hopefully to do something for provider payments. 
Hopefully, we will have some suggestions for this committee and 
the Ways and Means Committee in the next 10 days.
    Mr. Moore. Thank you. I do appreciate your very candid, 
honest answers to Congressman McDermott, because when you do 
not have a defense or a justification for something there, and 
it is clearly not your fault, I really appreciate the fact that 
you are very candid with us.
    Another question. I know, and please forgive me if I cover 
something that may have been covered before, I have been in and 
out for a vote.
    Mr. Thompson. I know.
    Mr. Moore. On February 8, Chairman Thomas and Nancy Johnson 
wrote you and Mitch Daniels a letter, and I am going to read 
just one sentence here. ``However, MedPAC has identified 
serious problems such as significant and successive payment 
cuts to physicians which are unsustainable and require 
reform.'' And this is kind of what you addressed. I do not know 
if you have responded to the chairman's letter yet.
    Mr. Thompson. We have been working with him, Congressman, 
and we are going to be responding sometime within the next 10 
days. That is pretty much what I indicated before.
    Mr. Moore. OK. Alright.
    Mr. Thompson. But what you have got to understand, 
Congressman, is that we are implementing what Congress has 
passed. This is the law that was passed in 1998 and 1999, the 
Physicians Provider Payments. So we are implementing that. I 
know it is causing some concern from Members of Congress. We 
are trying to come up with a constructive solution for you and 
for Congressman Thomas and for all Members of Congress. Are we 
going to be able to satisfy everybody? No. But we are working 
on it.
    Mr. Moore. I understand that. Thank you.
    Mr. Secretary, last year Republicans and Democrats in 
Congress provided $285 million to fund graduate medical 
education for pediatric hospitals. This funding, as you know, 
helps pediatric hospitals offset the extremely high cost of 
providing advanced training to pediatricians. The budget that 
has been presented cuts that funding by about 30 percent, from 
$285 million to $200 million. My concern is, and I guess I 
would just ask for your comments or your thoughts on this, 
these cuts I think are going to adversely affect some of our 
most vulnerable children. Your thoughts, sir?
    Mr. Thompson. I do not agree with you, Congressman, and I 
will tell you why. This program was started in fiscal year 2000 
with $40 million. It is now at $285 million and we cut it back 
to $200 million. And the subsidy that a resident gets in a 
children's hospital goes down from $73,000 to $58,000. We think 
a pediatric resident who gets $58,000 subsidy from the Federal 
Government is very lucrative. We can argue about that, but 
since the program was only started in 2000 and now is up to 
$285 million, we do not think a cut down to $200 million, down 
by $85 million, or a reduction from $73,000 per resident to 
$58,000 is that difficult to handle.
    Mr. Moore. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    Mr. Fletcher. You are welcome. Let me just add this briefly 
on the physician reimbursement. Access is a problem. I 
appreciate your working on that. We had looked at scores, about 
$127 billion over 10 years. It is a big cost factor. One of the 
things I had recommended toward the end of the last year was to 
freeze it and then come back and look at it, which does not 
score, obviously, over 10 years. It gives us the ability to sit 
back and really try to look at how we are going to do this. And 
if Medicare could be reformed and you had it more on a market-
based system for pricing rather than mandated, we might have 
some answers there.
    Let me recognize Mr. Watkins now.
    Mr. Watkins. Thank you, Mr. Chairman. I appreciate your 
being here, Mr. Secretary. As usual, Mr. Secretary, I think you 
do a great job and you bring a lot of the zeal and passion to a 
lot of different areas. There are gigantic problems that face 
this country. But I would like to say ditto to what Chairman 
Nussle was talking about in the small town rural America and 
trying to make sure we can have some kind of health care there. 
I am delighted that this is one of your passions. I know you 
have got several, you are spread out quite a bit, but do not 
let up on that because that erosion is taking place.
    Mr. Thompson. It is.
    Mr. Watkins. When you cannot find a hospital, or you cannot 
find a provider for hundreds of miles. There are a lot of 
things we are trying to do in telemarketing health-wise. The 
medical delivery, you are trying to get more especially in 
that. But do not let up on that.
    I want to mention home health care. When I was making the 
race in 1996 throughout our area, I noticed--in my passion to 
try to help--I recognized in home health care that there were 
some abuses. So many of them just blooming out there. Like in 
one of the country areas, only the one store that was down 
there and they had three home health cares. So knowing there is 
some abuse to that, I called all my friends that were in home 
health and I asked them to come meet with me at the Chamber of 
Commerce meeting room in one of my areas to talk to them 
exactly about what was happening. The cost of home health care 
had jumped from $4 billion to $20 billion in like a 6-year 
period. Just like we were talking about a while ago with the 
hospitals, boom, everybody started taking advantage of it.
    I was pleased that nearly every one of them responded 
throughout the area to come and sit down. I said we have got to 
solve a problem. It is going to be a problem in your profession 
of home health care. I am delighted that most of them agreed 
that there is a problem there and most of them sat down and 
started working and they realized there have to be some 
reductions. And also I think what was taking place here, they 
made some reductions. May have cut a little deep in some areas. 
Lots of times it happens. So I worked to try to help later to 
preserve the 15 percent because we had cut out such a 
tremendous amount that it had gone further than what we 
thought. So most of them worked in a very professional way in 
trying to work through all of that.
    So I thank you for taking a good hard look at that 
situation and realize that the home health care has been very 
vital, one of the most economical delivery systems, keeping 
folks in their homes and all. But we cannot cut the muscle out 
there. There were some abuses, some big time abuses and we all 
realized we had to get to it.
    Also, I would like to submit a letter to you about 
Oklahoma.
    Mr. Thompson. I received your letter, Congressman.
    Mr. Watkins. I have even gotten more up-to-date. But if you 
can help me with an answer on that.
    Mr. Thompson. OK. Fine.
    Mr. Watkins. We are trying to do some privatization on the 
health care. But the circular A-87, the interpretation by the 
previous administration goes right against what this 
administration is trying to do in helping move some health care 
to a privatization-type effort, right reverse of what we feel 
strongly about trying to do. So we have got a little time. If 
there is some administrative review that could be pulled back 
to look at that, or if a motion stay or something could be made 
by the administration, I think it would be very helpful not 
only to Oklahoma and several others, but also for the policy, 
the direction that we are wanting to go overall. Could you 
reflect on that for me?
    Mr. Thompson. Congressman Watkins, I have not been able to 
do a great deal of study personally, but I have assigned it to 
my General Counsel because I believe it is up in the Federal 
Court of Appeals. Is that correct?
    Mr. Watkins. That is correct. They are going to be doing 
something but I think we have time to have administrative----
    Mr. Thompson. If we have time to do administrative review, 
I will be more than happy to take a look at it and see if we 
can work with you to find out some happy medium in which we can 
solve this problem. I would like to get it solved and I know 
you want to and you are pushing very hard on it.
    Mr. Watkins. And it is not just the State of Oklahoma. It 
is other States as well. But it is the policy itself that I 
think we are wanting to try to move toward, the lower cost. But 
the thing is in jeopardy because if they do not allow that to 
happen--I put a little chart here about the model that several 
States are using, which you will see is the model based on a 
Medicaid privatization-type effort. That is the model that we 
are using here. So I have updated this in the last 24 hours to 
try to give you a----
    Mr. Thompson. Can you give it to us and we will be happy 
to----
    Mr. Watkins. I made two copies, one for you and one for 
your assistant. If you could get back to me in just the next 
day or two, I would appreciate it very much. The entire State, 
as you know, by middle of March, if it goes into that time 
period, it is going to be too late to pull it back and have a 
review of that interpretation before it goes.
    Mr. Thompson. I will not be able to get back to you 
tomorrow because I have to be in Colorado on an aging issue. 
But I will have somebody get back to you tomorrow, Congressman.
    Mr. Watkins. OK. Let me give you my home phone number. 
Anytime, day or night.
    Mr. Thompson. OK. I have never had this happen. [Laughter.]
    Mr. Watkins. That is how important this is. You can call me 
day or night.
    Mr. Thompson. OK. And you underline ``urgent.''
    Mr. Watkins. Yes. OK. Thank you. Thank you, Mr. Chairman.
    Mr. Fletcher. You are welcome. Let me recognize Mr. Moran. 
And be advised, I believe the Secretary needs to leave at noon. 
So if we can try to keep within the time limits, thank you.
    Mr. Moran. The clock must be behind the screen there. Are 
you suggesting we are getting near noon?
    Mr. Thompson. I hope so. [Laughter.]
    Mr. Moran. Thanks a lot. I do not have any personal kind of 
stuff. Nice job there, Wes. Boy, I hope those constituents are 
someplace in the audience there.
    Mr. Watkins. I hope everybody does not start calling my 
home. [Laughter.]
    Mr. Moran. If I was in your district, I would.
    Mr. Secretary, we all understand that Health and Human 
Services has fallen off to the periphery of the public's and 
thus the President's radar screen. Now we are talking about 
national defense, homeland security, and so on. That has the 
resonance. And so this is pretty much a stand pat budget. I do 
not see much initiative here. Yet you took a lot of initiative 
as Governor, came up with a lot of new ideas, pushed the 
envelope. I have looked through your stuff, I do not see much 
envelope-pushing here. So let me just suggest a couple of 
areas.
    Mr. Thompson. OK.
    Mr. Moran. In subsequent years I would like to see if we 
could not do a little more on them. One is in the area of 
public health. Increasingly, we have concentrations of people 
who are not accessing the traditional health delivery system, 
as you know, particularly with immigrant populations. They are 
not likely to have a traditional health insurance plan or any 
health insurance. They are not likely to have a medical 
practitioner. They are not likely to go to a hospital until 
they get to an acute situation where their kid just is not 
healing or is not getting better and they wind up going to the 
emergency room. We all pay for it with public funds. Not only 
does it cost money, but it is not the way to provide medical 
care, as you know. In too many situations the disease spreads, 
the kid gets an injury that is difficult to overcome as they 
grow up.
    One of the ways to most efficiently deal with that is 
through a stronger public health outreach system, as you know. 
I am not suggesting anything you are not very much aware of. 
And yet, our public health systems have really declined over 
the last several years, epidemiologists particularly. Every 
single year the number of epidemiologists has been reduced. And 
just as we know the reason that you have so many physicians 
that care for the elderly, it is because of Medicare. The 
medical profession goes where the money is and the money is not 
in public health.
    This might have been an opportunity when we talk about 
bioterrorism to beef up public health. Much of that money is 
going to NIH I see. But I do not think it is necessarily going 
where it might have the largest long-term sustainable effect 
upon the Nation's public health. So I would like to hear what 
you are thinking about doing there.
    The second area is in education, vocational education. 
There will only be two and they are both areas you are familiar 
with so you do not necessarily have to take notes. Vocational 
education, it has become a dumping ground in the last 25 years. 
The kids that are the disciplinary problems, that have academic 
problems, they are dumped into vocational education. And so the 
middle class does not put their kids there. What happens in our 
economy is a lot of jobs that pay $50,000, $60,000, $70,000 go 
begging because our high schools are not preparing kids with 
those skills.
    Mr. Thompson. That is right.
    Mr. Moran. And yet there seems to be insufficient incentive 
at the local educational district level to beef up vocational 
education, to get some professional teachers in there, to make 
the connection between the business community and the public 
school community, bringing businesses in to offer people to 
teach, using them in the summer so that you have summer intern 
programs where they can learn those skills and can get the kind 
of motivation they need to fulfill the curriculum.
    Those are two areas that I think you have an interest in. 
They are two areas that do not cost much money but they make a 
lot of difference. And I would like to hear your views on both 
of them and see whether we might see some initiative in 
subsequent years on those areas.
    Mr. Thompson. First, I have to respectfully disagree that 
this is not much innovation because I think there has been 
tremendous amount of innovation. And let me just tick them off.
    First off, we set up a model prescription drug waiver that 
the State of Illinois has taken. It is going to allow for 
368,000 Illinoisans to be covered by prescription drugs.
    We have set up an advance so that all of the waivers that 
were at the Department of Health and Human Services, some going 
back to 1986, are now current. We respond to every waiver 
within 90 days. We have been able to approve waivers and have a 
model waiver so that we have expanded health insurance coverage 
to 1.8 million Americans that did not have coverage through the 
waiver process. We have increased the benefits to 4.5 million 
Americans through the waiver process. And we are up to date. We 
have a model waiver for States to apply. We've got a model 
waiver for prescription drugs for States now to apply, up to 
200 percent of poverty.
    We have increased the response time so that you will get a 
response from CMS now within 20 business days. I am going to 
get it down to 15. When I started it was over 80 days.
    We have a regulatory commission set up to reduce the 
regulations by one fifth in the Department of Health and Human 
Services dealing with doctors and nursing homes and home health 
agencies.
    The department is working. We are making lots of 
improvements. We have 46 personnel departments that we are 
reducing down to 4. We have four bookkeeping agencies that we 
are reducing down to one. We have over 200 computer systems 
that we are going to get into an integrated computer system 
down to one. We are changing the contracting system so that it 
is much faster and more efficient and much more correct than it 
has ever been before. We are reducing the error rates at 
Medicare. Just to name a few.
    In regards to this budget, we are putting $77 billion in, 
Congressman, so that States can have 90 percent money to set up 
their own prescription drug coverage any way they want to. If 
they want to only cover five or ten drugs and still get 90 
percent coverage, we will be able to do it. Very innovative.
    We are putting $89 billion in for health insurance credit 
so that your constituents can go to a regional IRS office, pick 
up a number, can go to an insurance agency, use that number as 
cash to pay for that premium. Something that has not been done 
before.
    We are putting pooling in so that States can set up 
pooling, pools of uninsured that can be covered.
    That is just the innovations.
    In regards to public----
    Mr. Moran. Mr. Secretary, you knocked that pitch out of the 
ballpark. But it is not the one I threw.
    Mr. Thompson. Let me tell you about public health.
    Mr. Moran. Well done. I understand. And while I do not want 
to be quite as parochial as Wes, I have a list of about 50 
different areas where Virginia has actually been cut in this 
budget. I could give you that.
    Mr. Fletcher. Let me interrupt the gentleman. The time has 
expired. I do think he teed it up nicely. You handled that very 
well.
    Mr. Moran. Yes. It was not the one I threw though.
    Mr. Thompson. If I could just take thirty seconds to talk 
about public health.
    Mr. Fletcher. Mr. Secretary, go ahead.
    Mr. Thompson. It is a passion of mine. We are putting out 
$1.1 billion to strengthen public health. This is bioterrorism 
money, but it gives us the opportunity. We have a great team. 
Jerry Howard here is the Deputy Commissioner, D.A. Henderson, 
who is the father of the eradication of small pox, is the head 
of it. He has brought together a group of scientists from all 
over America that is working out of Health and Human Services 
to strengthen and build a public health system that you are 
going to be proud of, that I am going to be proud of, and that 
we can put back and say, you know something, it was a terrible 
thing that happened on 9/11, but because of 9/11 we now have 
the best public health system that any of us could have ever 
envisioned.
    Mr. Moran. I would love to see that. And will you work with 
us on a vocational education initiative as well?
    Mr. Thompson. Absolutely. That is not in my department, but 
I----
    Mr. Moran. Yes, that is Department of Education.
    Mr. Thompson. Yes, but I would love working on it.
    Mr. Moran. I understand.
    Mr. Fletcher. Let me now recognize Mr. Putnam.
    Mr. Putnam. Thank you, Mr. Chairman. Good morning, Mr. 
Secretary. I had an opportunity to chat with you in a different 
subcommittee hearing immediately in the aftermath of September 
11 when we met in your building and talked about a number of 
the bioterrorism concerns. My concern continues to focus on the 
lack of adequate security measures at our airports and seaports 
for the goods coming in, particularly the agricultural 
products.
    Mr. Thompson. Right.
    Mr. Putnam. Tell me, if you would, how we have improved the 
coordination between the patchwork quilt of agencies who have 
various and sundry responsibilities for inspecting different 
items based on whether they were processed, whether they are 
raw, whether they are dairy, or whether they are produce. This 
is really, in my opinion, an outdated system. Please comment if 
you would on how you are cooperating with the other agencies to 
improve that.
    Mr. Thompson. I am not as happy as I would like to be on 
the progress in that regard, Congressman. It is an area that 
needs a lot of improvement. But I do want to thank you and I 
want to thank Congress; we requested $61 million last year for 
food inspectors and Congress was generous and gave us $100 
million. We only have 750 inspectors at FDA. We are only 
inspecting less than 1 percent of the food coming into America 
through 151 different areas. That is not nearly enough. We were 
asking for 400 new inspectors. But because of the generosity of 
the Congress giving us the dollars, we are going to be able to 
hire an additional 700 inspectors, almost doubling what we have 
right now. We are putting more money into laboratories and 
technicians and that should be able to improve our inspections.
    But in regards to the who is inspecting between the 
Department of Agriculture versus FDA, I am working closely with 
Secretary Veneman and the Department of Agriculture but I am 
not satisfied with the progress that is made. There is a lot of 
bureaucratic inertia to keep it as it is and we have to break 
that down. And I look for any ideas that you might have or any 
other ideas anybody else might have in order for us to improve 
it. But I do want to tell you we are in the process of hiring 
those 700, purchasing new equipment, and I would like to be 
able to come back here a year from now and say we have made 
lots of progress as far as food inspections into this country.
    Mr. Putnam. That is so critically important. When we have 
held hearings on terrorism and bioterrorism, it is not just a 
matter of the human casualties that can occur from these acts, 
but the economic disruption, the undermining of public 
confidence in the safety of our food supply.
    The bottom line is, Mr. Secretary, we do not even get the 
everyday stuff right. Prior to September 11 this was a huge 
problem in terms of what it was costing us in economic damage 
and cost to the States from invasive pests and exotic diseases 
and these things that were coming in here that nobody was 
catching. I am willing to stipulate that a bright, intelligent, 
well-funded, well-resourced terrorist would find a way to 
exploit the weaknesses in our system. I would like it if we 
just got the ordinary stuff right, the citrus cankers, and the 
hoof and mouth diseases, and the whole host of snails, turtles, 
ticks and bugs that come in here that have a huge impact on 
public health, have a big impact on the economy, and undermine 
public confidence in the food supply. And this bureaucratic 
inertia, I agree that it is there, but if you and the Secretary 
of Agriculture and Fish and Wildlife and all at your level can 
agree that it is a priority, then I really have great hopes 
that we can streamline this and make it work.
    Mr. Thompson. It is a passion of mine. I do want to point 
out one problem, and that is that we have 80 percent of the 
responsibility in FDA and we only have 700 inspectors. We have 
to inspect 56,000 different places. We only have 100 inspectors 
right now to inspect food coming into 150 different ports and 
airports and ports of entry in America. So you can see the 
magnitude of the problem.
    Mr. Putnam. Sure.
    Mr. Thompson. So this is something that I requested last 
year and I was not getting much support until after 9/11 and 
then this Congress responded tremendously and has given us a 
lot of help. Right now, if you come into El Paso, if there is 
any suggestion of any tainted foods, you have to unload the 
truck and then you have to take a sample, you have to send it 
to Kansas to have it analyzed, and then you have to send it 
back. That, to me, is just a very inefficient way to do it. So 
we are looking at many ways in which we can improve the system. 
But there needs to be further cooperation between Agriculture 
and the Department of Health and Human Services, and I am 
confident Secretary Veneman wants to accomplish it as much as I 
do.
    Mr. Putnam. Thank you, Mr. Secretary.
    Mr. Fletcher. Mr. Holt.
    Mr. Holt. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for giving us your valuable time 
on this. A number of my colleagues have addressed some of the 
things that I have concerns about, dish payments, health 
professions training. I would also--if we had more time--
address the attention to mental health in SAMHSA and the fact 
that it is frozen, and pediatric doctors training. But let me 
not take time with those and instead turn to something that is 
on the minds of some of us here, which is the Centers for 
Disease Control.
    Coming from central New Jersey, I am very sensitive to the 
concerns about terrorism. It hit us hard. Many people in my 
district were killed. Anthrax was being spread, presumably from 
my district, and anthrax spores were also found in my office 
here on Capitol Hill. So it is something I hear a great deal 
about. I am concerned that CDC actually takes a cut in your 
proposed budget when indexed for inflation. It seems to me that 
is a necessary part of addressing terrorism. And it is so 
important to recognize that the actions that can be done to 
beef up and improve CDC, and by the way, I recognize there are 
some reforms and improvements that need to be made within the 
organization, within CDC, but many of the changes and steps 
that can be taken within CDC have benefits far beyond 
terrorism.
    Mr. Thompson. You are right.
    Mr. Holt. So I am concerned that--although I am sure you 
would explain part of this as removing the one-time purchases 
from last year's budget of small pox vaccines and so forth--it 
seems to me this is not the time to cut back on CDC.
    With regard to preparedness for bioterrorism, it seems to 
me hospital preparedness does not get adequate attention in 
your budget. You did address with Mr. Moran, public health to 
some extent. But we face a big problem. I cannot remember the 
last time I saw a student who said ``I want to go to medical 
school so I can go into public health.'' We need to do a great 
deal more to attract good people into that field. That seems to 
be missing in your budget.
    Also at NIH, a good part of that budget is directed to 
bioterrorism but it is not clear where it is heading. Where are 
we heading with this terrorism R&D? In general, I want to see 
more devoted to research and development, and your budget does 
that, although it seems to be two things: bioterrorism without 
good direction and cancer. And so the second question if there 
is time I would like to get to is, what is happening to the 
other institutes at NIH? We need an investment in bioterrorism, 
we need an investment in cancer, but I think it leaves a lot of 
the others high and dry. So that is a separate question.
    But if you could address this hospital preparedness, CDC, 
public health matter, I would appreciate it.
    Mr. Thompson. You have raised several topics, so let me try 
and get through as many as I possibly can. There is a shortage 
of a lot of people going into the health professions--nursing, 
pharmacists, laboratory technician is probably the number one, 
epidemiologists. We have to do a better job of convincing high 
school graduates and college students to go into these 
professions. I speak about this all over the country and it is 
important for you and other Members of Congress to do it as 
well.
    In regards to CDC, a big reduction in CDC is because we put 
so much money into purchasing antibiotics for small pox. We 
have now purchased enough small pox that we are going to have 
288 million vaccine units so that every man, woman, and child 
will be covered. That is a big reduction. There were some 
administrative reductions made in CDC, but we also are 
improving the laboratories, the safety, as well as the 
perimeters. CDC is spread out all throughout Atlanta. We have 
three campuses plus 24 other locations rented. I am trying to 
consolidate them into those three campuses and get away from 
the rented property and build the buildings on there so we have 
much better improvements.
    In regards to bioterrorism----
    Mr. Holt. So that is no time to cut CDC----
    Mr. Thompson. We are putting money into that, putting money 
into the capital expansion. You may argue that it is not 
enough, but there is a huge amount of money that is going into 
new constructions.
    In regards to bioterrorism, I have brought together I think 
probably the best team in America. We have D.A. Henderson from 
Johns Hopkins, Jerry Howard from New York, Dr. Mike Asher from 
the University of California, Dr. Phil Russell, retired Major 
General, who ran USSAMRAD. They are over there, they have set 
up, and they have hired and brought in people. We have set up 
an information war room over there so we are able to get out 
information on new science if there is any problem whatsoever. 
It is staffed during certain periods of time, 24 hours a day, 7 
days a week.
    With regards to NIH, we are putting $988 million into new 
research, mainly to come up with vaccines and new antibiotics 
for botulism, for plague, for the hemorrhagic viruses, as well 
as coming up with a new anthrax vaccine. Big portion of that is 
under Dr. Tony Fauci who is doing just an outstanding job.
    In regards to the other institutes, we are trying to make 
sure that the other institutes--they are not getting the same 
increase percentage-wise as cancer or bioterrorism. In regards 
to bioterrorism money, we are building a BSL-3 lab on the 
campus at NIH, we are building a BSL-4 lab at Fort Detrick, and 
we have got a BSL-4 lab out in Montana, I cannot remember the 
name of it. But these are laboratories that are going to be 
tremendously useful for coming up with these new kinds of 
vaccines and to look at these viruses, the very virulent 
viruses. And we need that kind of laboratory capacity at NIH. 
And so this is money well spent.
    And I want to assure you in regards to public health, we 
are sending out $1.1 billion over the course of the next 60 to 
90 days to States. They have to develop a plan. So we have a 
national plan; we have to look at hospital preparedness, 
emergency wards, so that they get the information and are able 
to be able to utilize that information adequately.
    Mr. Holt. Thank you, Mr. Secretary. I look forward to 
exploring all of those further.
    Mr. Thompson. I wish you would come over to the department 
and see what we are doing in bioterrorism. I think you would be 
very impressed.
    Mr. Holt. Thank you.
    Thank you, Mr. Chairman.
    Mr. Fletcher. My understanding too is if you take out some 
of the supplementals, the small pox, there is no cut at all on 
CDC. In fact, it was $4.2 billion in 2001, $5.7 in 2003. So 
that is my understanding of that.
    Mr. Secretary, if you would indulge us just another couple 
of minutes. The Ranking Member would like to have a few 
questions, and there is one other thing I would like to cover 
very briefly after he does that, then we will let you get on 
your way, if that would be OK.
    Mr. Spratt. Thank you. My only question is a request, Mr. 
Secretary. We would appreciate a copy of your response to 
Chairman Thomas. If you would copy me as ranking member as well 
as the chairman on behalf of the committee, we would very much 
appreciate it.
    Mr. Thompson. Absolutely, Congressman. You know I will.
    Mr. Spratt. Thank you very much.
    Mr. Thompson. And if you want myself to come up and talk to 
you after that, I would be more than happy to, Congressman.
    Mr. Fletcher. Mr. Secretary, one of the problems you noted 
when you first took over the helm of HHS was 240-some computer 
systems that could not talk to one another. In medicine, we 
have problems with quality, the Institute of Medicine reports. 
We do not have any incentives for digitalization of medical 
information. I would hope that our effort in bioterrorism and 
the need to be able to communicate medical information, along 
with the appropriate privacy and security, would be one of your 
priorities. I would like for you to address that. I think if 
medicine is going to move forward efficiently and make sure 
that we can provide quality health care, like other industries 
that have used technology to provide the basis for some of 
that, we need to allow medicine to do that and actually empower 
them to do that. I wonder if you could give me a few comments 
on that and then we will let you be on your way.
    Mr. Thompson. You know, I think that is where we have to 
go. I think the way we deliver the medical system in America is 
really arcane and we have to bring in new kinds of technology. 
The technology is there. We have just got to find the way to do 
it. We are developing a program, as you know, I think it is 
called Infomatics and it is a combination of Department of 
Defense, Department of Veterans Affairs, Department of Health 
and Human Services. Department of Health and Human Services is 
the lead agency in this. We are trying to build together a 
common vocabulary for all of the patients so that we could 
build a uniform patient list for veterans, for Department of 
Defense, and for Department of Health and Human Services 
through Medicare, which would go to cover a great portion of 
the population in the United States, and use the same numbers, 
the same figures and so on and so forth and develop that. We 
are setting aside $1.5 million to get this set up and running 
this year. And I will be more than happy to keep you current as 
to the progress we are making.
    Mr. Fletcher. Well thank you. I would like to see, I know 
the veterans program and some of the others have a platform for 
medical data. We would like to see, at least I personally would 
like to see a common platform across the Nation so that 
everybody can talk to one another. So I appreciate it.
    Mr. Thompson. Vitally important. The veterans are doing a 
great job on dispensing the drugs. I think they have got one of 
the best systems. I would like to be able to take that system 
and get it mandated across America.
    Mr. Fletcher. Mr. Secretary, I think that is all the 
questions we have. Thank you very much.
    Mr. Thompson. Thank God. [Laughter.]
    Mr. Hoekstra [assuming Chair]. We are now going to continue 
with the second panel. Our first witness will be Dr. Tara 
O'Toole. She is currently the Director of the Johns Hopkins 
University Center for Civilian Biodefense Strategies and a 
member of the faculty of the School of Hygiene and Public 
Health, with a whole list of accomplishments and 
responsibilities that we will pass over. But we are very glad 
that you are here today. Welcome.
    Our second witness will be Dr. Gail Wilensky, who serves as 
the John M. Olin Senior Fellow at Project HOPE where she 
analyzes and develops policies relating to health reform and to 
ongoing changes in the medical marketplace. She also co-chairs 
the President's Task Force to Improve Health Care Delivery for 
our Nation's Veterans. Gail also has a long list of 
accomplishment and achievements, including receiving a Ph.D. in 
economics from my alma mater, the University of Michigan. So 
Gail, welcome to you.
    And our third witness is Steven M. Lieberman, who is the 
Executive Associate Director for the Congressional Budget 
Office. Steve, welcome to you. I do not have your whole list 
and litany of things that you have accomplished. I have got it 
for your boss but we probably do not need to go through that 
one. But Steve, welcome and thank you for being here.
    Dr. O'Toole, we will begin with you.

STATEMENTS OF TARA O'TOOLE, DIRECTOR, JOHNS HOPKINS CENTER FOR 
   CIVILIAN BIODEFENSE STRATEGIES; GAIL R. WILENSKY, SENIOR 
   FELLOW, PROJECT HOPE; AND STEVEN M. LIEBERMAN, EXECUTIVE 
        ASSOCIATE DIRECTOR, CONGRESSIONAL BUDGET OFFICE

                   STATEMENT OF TARA O'TOOLE

    Ms. O'Toole. Thank you, Mr. Chairman. I am happy to be here 
today to offer my support for the administration's HHS budget 
in advancing our preparedness for bioterrorism. There were two 
large sections to this bioterrorism preparedness budget. One 
pertains to upgrading public health at the local and State 
level, and the other is support for research and development 
funds for NIH. Both of these are critical to our national 
security.
    In the aftermath of 9/11 and the anthrax mailings, we began 
to get a glimpse of how essential public health capability is 
to national security in these days of catastrophic terrorism. I 
would caution the committee, however, that the anthrax mailings 
are not the story of bioterrorism. They are not even the 
prologue to the story of bioterrorism.
    Biological weapons are highly lethal. If delivered 
perfectly with sophisticated preparation, they are comparable 
to nuclear weapons in terms of their lethality. The know-how 
and the materials needed to build biological weapons are widely 
accessible and cheap. These weapons are very appealing to those 
who would mount a so-called asymmetric threat against the 
Nation, seeking to do great harm to America without coming up 
against our traditional military prowess. And finally, these 
weapons and their potency and diversity are yoked intimately to 
advances in the life sciences, in which we are making 
prodigious progress. As we better understand why a particular 
virus is virulent or what causes antibiotic resistance, we are 
going to garner great benefits for medicine and for 
agriculture, but we are also creating knowledge which, 
malevolently applied, can build more powerful and more diverse 
biological weapons. So this is a very, very important topic.
    But in all of the media attention to the anthrax mailings 
and bioterrorism, I fear that it was lost how much we can do to 
prepare for these kinds of attacks. Preparation would greatly 
mitigate the consequences of a bioterrorist attack on U.S. 
civilians. But much of what we have to do, in fact almost all 
of what we have to do, has to be in place before the attack 
occurs. We have to have diagnostic tests that can rapidly 
distinguish those who are infected with a bioweapons agent from 
those who are sick from common illnesses. We have to have the 
drugs and vaccines we need identified and available. We have to 
be able to treat large numbers of sick people very quickly. We 
have to be able to communicate not just between health 
professionals and the public, but among health professionals, 
and between the hospitals and the public health system. All of 
this complex interplay of organizations and activities really 
needs to be practiced beforehand if it is to move smoothly in 
time of crisis.
    The 18 cases--and there were only 18 cases--of anthrax 
significantly stressed our public health system. In the four 
States and the D.C. area which were affected by the mailings, 
people were literally sleeping in laboratories for weeks on end 
to get the analyses done. We were pulling in people from all 
over the Maryland public health department in order to handle 
the demands that these 18 cases imposed upon our system. CDC 
was also out flat. Twice in the course of the anthrax mailings, 
CDC's web site went down and one could not communicate with CDC 
from the public health system except by phone. We need to do 
better in public health and the funds that are being proposed 
will address many of the core bioterrorism functions that we 
need to have in place in order to mitigate the consequences of 
a bioterrorist attack.
    I think that the guidance that HHS put out last week for 
the fiscal year 2002 monies is fantastic. I confess it was 
written by my former boss, D.A. Henderson. Nonetheless, it is a 
very clear, concise, and I think well-structured guidance that 
actually gives us a chance of standing up very able programs in 
the public health area.
    I would caution the committee, though, we are asking for 
$1.1 billion for the States in fiscal year 2002 and similar 
amounts in fiscal year 2003 in these budgets. That is a lot of 
money. It will make a meaningful difference. But we have a 
history in public health of avidly funding the ``disease of the 
day'' and then that money quickly goes away. In New York City, 
for example, they stood up a terrific program after the West 
Nile Virus outbreak in 1999. Now having had it in place for 1 
year, they are seeing their budget, rumor is, cut in half, 
which is going to decimate a lot of the activities they have 
already just begun to get underway.
    We cannot do that again with bioterrorism preparedness. It 
is going to be very difficult to sustain these budgets given 
the economic context the States are in. But we have to figure 
out a way to do it. We should be practical and forward-thinking 
about the need to sustain bioterrorism budgets.
    Hospitals, I agree with one of the previous Congressmen, do 
not get enough money for bioterrorism preparedness in this 
budget. However, I think the request is an appropriate amount 
of money. We do not know how to create the capacity in the 
hospital system to deal with massive casualties. The 
appropriate investments right now ought to be in planning and 
studying the situation. We should do some simple things 
quickly, such as develop community-wide response plans, before 
we sink a lot of money in hospital preparedness. But at some 
point we do have to figure out how to take care of mass 
casualties. We cannot do this now. There is not a city or a 
contiguous geographic area of the country that could handle 500 
sudden casualties today.
    Finally, biodefense R&D gets a big increase as you have 
noted. I think this is appropriate. I agree with the Secretary: 
in the short term, our focus ought to be on the production of 
vaccines and treatments for those bioweapons agents that we 
think are likely to be used. In the longer term, however, we 
need to formulate a strategy for R&D that would help us get at 
the core of infectious diseases, that would help us understand 
innate immunity and the mechanisms of pathogenesis of 
infectious organisms generally.
    Looking into the future at the advances that are going to 
come in the life sciences and which will propel advances in 
biological weapons, we are going to need to be able to 
diagnose, to treat, and to develop vaccines for anything that 
gets thrown at us, including bioengineered organisms. We could 
do that. The United States has absolutely phenomenal capability 
in biological sciences and we could, if we chose to do so, take 
on infectious disease to the end of removing biological weapons 
as weapons of mass lethality or mass destruction.
    In the course of doing that, if we truly invested in that 
kind of research project, as we did after Sputnik went up in 
the race to the moon, I think we could make enormous progress 
in eliminating biological weapons as threats to the integrity 
of the country. We could, at the same time, start getting at 
the root causes of infectious diseases. Infectious diseases 
cause half of the premature mortality in the developing world. 
According to the National Intelligence Council, removing some 
of that overburden of infectious diseases in developing 
countries would aid them in their transition to democracy and 
could possibly help alleviate some of the root causes of 
terrorism.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Tara O'Toole follows:]

   Prepared Statement of Tara O'Toole, M.D., M.P.H., Director, Johns 
           Hopkins Center for Civilian Biodefense Strategies

    Mr. Chairman, distinguished members of the committee, I am the 
Director of the Johns Hopkins University Center for Civilian Biodefense 
Strategies. I am a physician trained in internal medicine and public 
health and am on the faculty of the Johns Hopkins Bloomberg School of 
Public Health. I have had the privilege to serve, or am now serving on 
a number of advisory panels related to bioterrorism including 
committees sponsored by the Defense Science Board, the National Academy 
of Sciences, the National Academy of Engineering, and the Defense 
Threat Reduction Agency. I appreciate the opportunity to appear before 
you today to discuss President Bush's proposed Department of Health and 
Human Services (HHS) bioterrorism related programs and budget 
priorities for fiscal year 2003.
    I am strongly supportive of the President's fiscal year 2003 HHS 
budget request for bioterrorism funding. The proposed budget is 
unprecedented in two ways: it includes an ambitious, realistically 
funded and comprehensive program to upgrade the capacities of State and 
local public health departments to detect and respond to bioterrorist 
attacks, as well as a huge increase for biodefense-related research and 
development. I believe that the objectives and requested funding levels 
of both of these programs are not only appropriate, but represent 
essential national security expenditures.
                   public health and medical response
    The emphasis which Secretary Thompson has placed on improving the 
capacity of State and local agencies to respond to bioterrorist attacks 
is absolutely the right priority from national security perspective. 
Although the terror and suffering that might be associated with 
biological weapons attacks has been glimpsed in the aftermath of the 
anthrax mailings, the true potential for civilian deaths and for 
economic and social disruption which these weapons hold have, 
fortunately, yet to be realized. It is notable that the Commission on 
National Security in the 21st Century chaired by former Senators Hart 
and Rudman cited biological weapons as possibly the ``greatest security 
threat facing the country.''
    It is also important to recognize, that a great deal can be done to 
mitigate the consequences of bioterrorist attacks. Appropriate 
preparation on the part of the medical and public health community, 
coupled with effective medicines, vaccines and diagnostic technologies 
could significantly ameliorate the potential calamity of bioterrorist 
attacks on civilian populations. In this respect, biological weapons 
differ significantly from the threat posed by nuclear weapons. But once 
an attack is underway, it is too late to mount an effective 
bioterrorism response from scratch. The preparations and response 
systems have to be designed and implemented and practiced beforehand to 
be successful.
    It is well understood that the response to a catastrophe--whether 
it be a natural event such as an earthquake, or a terrorist attack such 
as we experienced on September 11--is and must be carried out by local 
authorities. The immediate aftermath of such events, before Federal 
resources can be mustered and gotten to the scene, is critical. As we 
saw with the anthrax mailings, the first responders to bioterrorism 
threats are public health professionals, clinicians and laboratorians.
                     state and local public health
    What the proposed HHS program for upgrading local and State public 
health capacities attempts to do is create a program ``template'' for 
health agencies which outlines the core functions that would be needed 
to respond to a deliberate epidemic. State/Territory health agencies 
are required to submit a self-assessment of their current ability to 
carry out such functions as well as a plan to implement needed 
upgrades.
    This is not a plan to improve public health across-the-board--the 
functional capacities that the plan addresses are those specifically 
needed to respond to biological attacks. It is also noteworthy that the 
proposed program integrates what are now three separate funding streams 
(from the Centers for Disease Control and Prevention, the Office of 
Emergency Preparedness, and the Health Resources and Services 
Administration). This integration will greatly improve fiscal and 
program accountability and should also enable more efficient management 
of bioterrorism preparedness efforts.
                         hospital preparedness
    The amount requested for hospital preparedness (HRSA funds) are 
nowhere near sufficient to prepare the Nation's 5,000 hospitals to cope 
with mass casualty situations, i.e. contexts in which 1,000 or more 
people need immediate medical care. Over the past decade, hospitals and 
health care organizations have reacted to the financial pressures on 
health care by shedding ``excess capacity,'' staff has been reduced and 
just-in-time models are used to manage everything from nursing rosters 
to medical supplies and pharmaceuticals. An HHS study reports that only 
10 percent of hospitals surveyed could handle 50-100 patients suddenly 
needing care, and only 3 percent had conducted bioterrorism disaster 
drills. Unfortunately, there is no ``payer'' for hospital disaster 
preparedness, and so operational plans that would be critical in a mass 
casualty setting have yet to be devised or tested.
    The country will eventually have to determine how to pay for 
creation of adequate hospital preparedness, but it makes sense at this 
point to invest limited funds in planning what needs to be done. It is 
urgent that hospitals become engaged in community wide bioterrorism 
response planning. Hospitals would be a critical component of any 
response to bioterrorism--even much of the military and all of their 
dependents rely on civilian hospitals. Until now, however, hospitals 
and health care organizations have not participated in preparedness 
activities. The funds requested are essential to allowing and 
encouraging hospitals to begin such engagement.
                      sustained funding necessary
    The HHS guidance for State health departments posits an extremely 
ambitious agenda. If accomplished, we will have substantially improved 
the country's ability to respond to a bioterrorist attack, and make 
important headway in minimizing loss of life and social disruption. 
However, rebuilding public health--or rather, creating a public health 
system for the 21st Century--will be a job of many years and will 
require sustained funding.
    We have a long record of funding the disease or public health issue 
``du jour'' and then abandoning these programs. For example, New York 
City built an excellent program to deal with West Nile Virus and then 
saw Federal funding for these efforts cut in half once the initial 
anxiety and media coverage subsided. How do we avoid having such a 
vital national security need as bioterrorism preparedness suffer a 
similar fate?
    HHS appears to recognize this danger and has called for States to 
devise performance measures and set milestones to gauge progress--
presumably in order to both affirm genuine progress toward preparedness 
goals and to keep investments focused on bioterrorism priorities. I 
hope both Congress and Governors pay close attention to these programs 
and their progress. Sustaining these investments--which will be 
difficult in the budget context States now face--is highly unlikely if 
States cannot demonstrate clear gains.
             need to attract new talent into public health
    State and local health departments have widely different levels of 
bioterrorism preparedness and functional capacity. Nonetheless, ALL are 
likely to need an infusion of new people to achieve an adequate skill 
mix and response capacity. Improving the talent base of the public 
health system should be a high priority, either through new hires or 
via on-the-job training and development.
    Many States have imposed hiring freezes in response to the economic 
conditions and local budget constraints. It would be extremely helpful 
if the Federal funds required waivers for such freezes.
    It would also be very helpful to the Federal workforce if we could 
find ways to allow mid-career professionals--especially experienced 
clinicians and public health experts--to work for Federal and State 
agencies for one to two years. This would provide an immediate infusion 
of expertise into the very stretched Federal system.
     need greater emphasis on communications skills and capacities
    One relatively neglected aspect of the otherwise comprehensive 
preparedness program proposed pertains to the need to improve health 
departments' ability to communicate with the media and the public in a 
timely way. Health officials at State and local levels could benefit 
from training in how to interact effectively with the media. It would 
also be advantageous to educate at least some members of media about 
bioterrorism issues and response plans in advance of actual attacks, 
and to have public health officials identify technical experts who 
could be available to the media during a crisis. Israel has done this 
with considerable success.
    It is also important that health agencies develop prepared fact 
sheets and other materials that would be ready to go in an emergency. 
Prepared communications plans that are able to deliver clear messages 
to all facets of the community, including non-English speaking persons 
are also essential.
                  biodefense research and development
    The unprecedented amount of money being requested for NIH/NIAID 
strongly signals that the administration understands the important role 
biological science and biotechnology must play in protecting national 
security during this new era of catastrophic terrorism.
                      need for clear r&d strategy
    Investing these funds wisely, and structuring the investment so 
that the country gets the products we need--e.g. effective treatments 
and vaccines, rapid diagnostic tests, etc.--will require a research and 
development strategy. It is not yet clear what this strategy will be--
or who gets to have a say in its creation.
    To its credit, the National Institutes of Health held a 2-day 
meeting of distinguished bioscientists earlier this month to discuss 
potential research directions. Such openness to the professional 
community's ideas is commendable and useful. However, the scope of the 
biodefense agenda and the urgent need for success may require a more 
innovative and aggressive approach to managing biodefense research.
    engaging top scientists from universities and the private sector
    The United States has enormous talent in biomedical research, and 
of course we would like to have the best scientists involved in 
biodefense work. But this will not happen unless the practical aspects 
of the scientific enterprise are understood and taken into account.
    The bulk of the talent in bioscience research works in either 
universities or the private sector--e.g. the pharmaceutical and 
biotechnology industries. University scientists are extremely reluctant 
to enter a new field of research without a high degree of assurance 
that funding in the field will be sustained. Funding concerns require 
that most research faculty solicit research grants years in advance. 
Thus, most top scientists have completely full dockets, and cannot 
easily change the direction of their studies on short notice.
    Some universities forbid classified research. The constraints of 
classification, as well as the costs of implementing new research 
security standards now under consideration may discourage some 
university scientists from pursuing biodefense work.
    Federal funding for biodefense research is now spread across 
multiple agencies, making it difficult for scientists who are working 
on relevant topics or interested in becoming engaged in biodefense work 
to ``plug in'' to Federal needs and funding opportunities. Biodefense 
research encompasses a rich and diverse spectrum of scientific 
disciplines including biology, medicine, engineering, information 
technology, etc. A Federal clearinghouse that provided a map of 
contract and grant offerings would be very useful. A clear articulation 
of broad government priorities would also aid private sector scientists 
who are trying to decide if participation in government-sponsored 
research is worthwhile.
    In addition, there are a number of legal and procedural issues that 
must be resolved if the private sector is to become significantly 
involved in biodefense R&D. These issues include intellectual property 
matters--which are currently treated differently by NIH and DARPA; 
uncertainties associated with the FDA approval process for vaccines and 
drugs against bioweapons agents--which cannot, for ethical reasons, be 
tested in humans; and concerns about Federal contracts and grants 
processes themselves. The traditional NIH grant process, for example, 
requires elaborate proposals and incorporates long review times. These 
features make it difficult for small biotech companies, which often 
must move quickly to secure funding and produce product, to 
participate.
        need for research in public health and systems building
    NIH is the premier basic biomedical research center in the world. 
It has an unsurpassed record of promoting top-notch bench research in 
basic biology and human disease. There are, however, areas of 
biodefense R&D that deserve critical attention, but which fall outside 
NIH's traditional scope of endeavor.
    For example, there is an urgent need to develop--not just discover 
or test--certain urgently needed biodefense products, such as rapid 
diagnostic tests, vaccines and drugs for the most likely bioweapons 
pathogens. The biotechnology and pharmaceutical industries have far 
more expertise and experience in producing such products than do 
Federal agencies. Whether such product development should be based in 
NIH or in the private sector is a critical question worthy of careful 
deliberation. I do not have the answer to this, but our experience with 
vaccine production suggests it deserves focused attention.
    Another essential area of research involves matters which pertain 
to public health practice and the design of public health systems. It 
is not clear if NIH intends to support this type of research, but there 
is no other obvious source of funding. For example, there is a clear 
need to develop criteria by which we could evaluate the dozens of 
disease surveillance systems now being proposed throughout the country. 
Considerable effort and money is being invested in different prototype 
surveillance systems aimed at providing an electronic, population-based 
picture of the leading edge of epidemics. The idea is to detect an 
attack (or a natural disease outbreak) when the initial patients first 
become ill, thereby facilitating early intervention, saving lives, and 
preventing the spread of contagious disease.
    But such surveillance systems require sophisticated analytical 
algorithms and depend on data collection from diverse sources. In most 
of the systems piloted to date, such data requirements have levied 
heavy burdens on the involved medical and public health systems. It 
also remains unclear which systems, if any, significantly contribute to 
epidemic control. Some proposed surveillance systems would link 
individual medical records to credit card histories and other sensitive 
information, raising important questions about privacy and 
confidentiality. The country needs to develop ways of evaluating these 
systems before we waste hundreds of millions of dollars on something 
that doesn't work. Integration of these systems into a national level 
database would be highly desirable, but is unlikely to occur without 
Federal intervention and significant investigation.
    Similarly, we need research on ways to manage massive numbers of 
casualties without building an unsustainable infrastructure that is 
wasted on ``normal'' days. Indeed, the creating the public health 
system we need for biodefense involves research questions comparable in 
complexity to those in the basic bioscience research realm. Yet, as 
noted, it is unclear if NIH is to be the sponsor of such research.
                                summary
    The proposed HHS fiscal year 2003 bioterrorism budget is very well 
thought out, and of sufficient scope and size to make a meaningful 
improvement in bioterrorism preparedness. The proposed investments in 
upgrading the bioterrorism response capacities of State and local 
public health departments are critical to US national security. We have 
seen how much suffering and disruption ensued from 18 cases of anthrax, 
a treatable disease. In the absence of significant improvements in our 
public health infrastructure, the country is vulnerable to the 
potentially calamitous consequences of a large bioterrorist attack.
    The proposed funding streams, together with bioterrorism 
preparedness monies in the fiscal year 2002 HHS appropriation, 
constitute an important down payment on the construction of a 21st 
century public health system that could adequately respond to a 
bioweapons attack or to a large, naturally occurring outbreak of 
infectious disease. It is imperative that such investments be sustained 
over many years. The US public health system has been under funded and 
understaffed for decade, it will not be transformed in a year or two. 
As we go forward, it will be important to devise planning strategies 
that establish clear and reasonable expectations for future funding so 
that States and regions can sustain the cost of maintaining these 
systems in a state of readiness.
    The proposed investments in biodefense R&D are also commendable and 
absolutely necessary. Science and technology can provide crucial tools 
needed to render bioweapons obsolete as weapons of mass destruction and 
high lethality. I would encourage the leadership of HHS and NIH to 
continue the open dialogue it has begun with the scientific community 
as it establishes priorities and directions for research. The 
development of R&D strategy will no doubt evolve as the science (and 
our understanding of the threats) progresses. An R&D strategy is needed 
that assigns priorities to urgent projects, such as the pressing need 
for second generation anthrax vaccine, and for rapid and reliable 
diagnostic tests for likely bioweapons agents. Such a strategy should 
be developed in collaboration with the scientific community to the 
maximal possible extent and should take into consideration the need for 
research in public health as well as basic biomedical fields.
    Careful consideration should be given to how the country might 
effectively engage the tremendous talent inherent in the university 
research community and in the private sector. To this end, it would be 
important for the government to contemplate the establishment of 
different types of research grants and contracts to better accommodate 
the needs of these different communities. Innovative organizational and 
funding arrangements, such as those found at DARPA or the CIA's InQTel 
should be investigated as possible models. The Human Genome Project, a 
highly successful collaboration among government and academic 
scientists, which pursued a very complex and specific research goal, 
may offer useful lessons.
    I urge the Congress to fully support the administration's funding 
requests for HHS bioterrorism programs in fiscal year 2003. The 
proposed investments in rebuilding the Nation's public health 
infrastructure are essential to national security. The proposed 
biodefense research funds are likewise critical. President Bush is 
correct to emphasize the importance of this unconventional threat.
    It should be recognized that these investments will not only better 
protect American civilians against terrorist attack, but will also 
yield additional benefits even in peacetime. A more robust public 
health system will be better able to cope with emerging infections and 
the consequences of natural disasters.
    A half century ago, in response to another national security 
threat, the United States embarked on a research and development 
program designed to ``send a man to the moon and bring him back within 
this decade.'' Given America's scientific talent and the extraordinary 
progress being made in life sciences research, it is conceivable that 
we could make enough progress in the understanding and treatment of 
infectious diseases to render biological weapons effectively obsolete 
as weapons of mass destruction.
    In pursuing such an aim, we would undoubtedly also learn much that 
could diminish the scourge of infectious disease in developing 
countries, where they account for half of all premature mortality. The 
National Intelligence Council has written that this overburden of 
infectious disease, which accounts for account for half of all 
premature mortality in the developing world, is hampering some nations' 
transition to democracy. Lessening this burden would be a worthy 
humanitarian goal, and might also address some of the despair on which 
the plague of terrorism feeds.

    Mr. Hoekstra. Thank you very much.
    Dr. Wilensky.

                 STATEMENT OF GAIL R. WILENSKY

    Ms. Wilensky. Thank you very much, Mr. Chairman and Mr. 
Spratt, for inviting me to appear before you. I am here to 
discuss today the administration's proposals on Medicare, the 
general issue of Medicare reform and prescription drug 
coverage, and whether or not the administration's proposals are 
addressing these issues. Let me summarize the points in my 
written testimony as follows.
    You have been hearing detailed descriptions about what the 
administration has proposed, including the $190 billion to be 
spent to modernize and reform Medicare. Some specific 
provisions are included. The more general long term reform 
goals of Medicare are presented but not many of the specifics 
of Medicare reform. However, the proposal funding will go to 
support a Medicare-endorsed prescription drug card, a new 
Medicare low-income drug assistance program, incentives for 
some new private plan options, and an ability to strengthen 
Medicare+Choice.
    But let me step back for a moment and talk about the need 
for Medicare reform. Medicare is a program that has done much 
of what we have asked it to do; that is, to provide high 
quality care for seniors. But despite this, the program needs 
to be reformed. In many respects it still remains a 1960's 
program. As you well know, there are serious solvency and 
financial issues that Medicare will face. Seventy-eight million 
baby boomers are going to start retiring at the end of this 
decade. And behind the baby boomers come the baby bust 
generation. That means that at the very time we will have more 
and more seniors retiring, we will have fewer people there to 
support their retirement needs.
    The problem is not just solvency, and it is certainly not 
just the Part A Trust Fund. Part B is growing even faster than 
Part A and faster than the economy. But in addition to the 
solvency issues, we need to reform Medicare because there are 
problems with Medicare. You have heard many times that the 
benefit structure is inadequate. There is also no outpatient 
prescription drug coverage. There is no catastrophic coverage. 
There are other inequities in Medicare as well. Large transfers 
go from high cost, aggressive practicing States to low cost and 
conservative practicing States, and to the areas within them. 
That is not fair. We talk about the variations in spending in 
Medicare+Choice, but those same variations in spending levels 
exist in traditional Medicare.
    The administrative structure of Medicare is excessively 
complex and bureaucratic. My understanding is today a report 
that was requested by Chairman Nussle from the GAO is being 
released which has the wonderful title, ``Medicare Provider 
Communications Can Be Improved.'' What they found verifies what 
I know Members of Congress have been hearing loudly for at 
least the past year, although for many years before that, 
including when I was the administrator of HCFA. Among the 
findings, the information given to physicians is frequently 
difficult to use, out of date, inaccurate and incomplete. The 
Medicare bulletins contain dense language, are sometimes 
incomplete and are poorly organized. Consumer service lines do 
not fare much better. Some 15 percent of the test calls were 
fully complete and accurate, and the web site had only 20 
percent of the time all of the information that was needed to 
respond.
    I mention this to say Medicare's only problem is not that 
it lacks prescription drug coverage. This is a real issue but 
it is not the only issue that Medicare faces.
    The reason I raise this point is I believe Congress has to 
ask itself whether or not it is ready to reform Medicare in its 
many dimensions to make it viable for the 21st century. If not, 
does it make sense to add a drug benefit to traditional 
Medicare? My assessment is that would be a very risky activity 
to undertake. I believe it is imprudent to substantially 
increase the spending needs of a program that is already 
financially fragile in terms of meeting its current 
obligations.
    The second point, and this is probably something I need 
least to say to the Budget Committee, is that the actual costs 
of a new benefits are likely to be underestimated, no matter 
what the estimate of my esteemed colleague on my left is, if 
history is any guide. We know what happened with the end stage 
renal disease program introduced in 1972. The catastrophic 
program that was passed in 1988 and then repealed in 1989 
increased by two and a half-fold from the time it was first 
introduced to the time it was repealed. Many people are waiting 
for the new CBO estimates for the legislative proposals on 
prescription drugs introduced in the last session of Congress. 
Everyone believes that the estimates will be higher, maybe 
substantially higher. And there is still a lot of dispute about 
design issues.
    If you cannot reform Medicare this year, even if you were 
to pass a prescription drug benefit this year, it is likely to 
take at least 2 years to implement a new prescription drug 
benefit because of the time it takes to write new regulations. 
So the question Congress has to ask is whether some type of 
interim program would make sense. Several designs are possible. 
The administration this year has proposed a program that has a 
very highly leveraged Medicaid expansion for people who are 
above 100 percent of the poverty line to 150 percent of the 
poverty line, 90 cents on the dollar to the States. Last year, 
there was an immediate helping hand different designs of grants 
to the States. Congress could look to give prescription drug 
coverage first to specially designated populations like the 
QMBY, the qualified Medicare beneficiary, or the SLMBY, those 
who are already getting special help under Medicare.
    The question is whether or not Congress believes that the 
interim program would be worth the political capital it would 
cost to create it, whether it is possible to begin Medicare 
reform soon enough so that it does not seem worthwhile, or 
whether or not it makes some sense to help people who do not 
have coverage now for prescription drugs, understanding that at 
least as of today two thirds of the seniors do indeed have some 
prescription drug coverage.
    Finally, let me end with a plea that this is really the 
time to start full Medicare reform. It will take time to build 
the infrastructure of a reformed program. Future seniors need 
to know the kind of design that they will face. And perhaps 
most importantly, it is urgent that Congress understand that 
future seniors will be different from today's seniors, many of 
whom will probably be exempted from most of the changes 
Congress ultimately decides to make in a reformed Medicare 
program. The new generation of seniors are likely to be 
substantially more educated, have higher incomes, have 
different experiences in terms of the kind of health insurance 
claims that they have faced. This is especially true for the 
women, most of whom will enter their senior years having spent 
a substantial portion of their adult life working, choosing 
their own health insurance, and frequently with their own 
income and assets.
    To the extent it is possible to begin Medicare reform now, 
that would be the best move. If not, I urge you to be very 
cautious about implementing a major new expensive program 
without taking on the rest of reform that Medicare needs. If 
you want to do something for low income seniors, then I think 
you should consider the kind of prescription drug benefit that 
is specifically geared to low income seniors until you are 
ready and able to take on full Medicare reform. There is no 
question Medicare does need an outpatient prescription drug 
benefit. It is just not the only change that it needs.
    [The prepared statement of Gail R. Wilensky follows:]

  Prepared Statement of Gail R. Wilensky, Ph.D., John M. Olin Senior 
                          Fellow, Project HOPE

    Mr. Chairman and members of the Budget Committee, thank you for 
inviting me to appear before you. My name is Gail Wilensky. I am the 
John M. Olin Senior Fellow at Project HOPE, an international health 
education foundation and I am also co-chair of the President's Task 
Force to Improve Health Care Delivery for Our Nation's Veterans. I have 
previously served as the Administrator of the Health Care Financing 
Administration (now the Centers for Medicare and Medicaid Services) and 
also chaired the Medicare Payment Advisory Commission. My testimony 
today reflects my views as an economist and a health policy analyst as 
well as my experience directing HCFA. I am not here in any official 
capacity and should not be regarded as representing the position of 
either Project HOPE or the Presidential Task Force.
    My testimony today discusses the administration's programs for 
Medicare and prescription drug coverage, the need for Medicare reform 
and the extent to which these needed reforms are being addressed.
                the administration's medicare proposals
    The administration has proposed to modernize and reform Medicare 
with a program that will include $190 billion in net additional 
spending. Although the details are not included in the budget, the 
framework was outlined last year. The reformed Medicare program would 
include an improved traditional fee-for-service plan and improved 
health insurance options, so that ultimately, Medicare would look more 
like Federal Employees Health Benefits Program (FEHBP). Some of the 
important principles underlying the reform include giving all seniors 
the option of a subsidized prescription drug benefit, providing better 
coverage for preventive care, allowing seniors to keep traditional 
Medicare, providing better options to traditional Medicare, 
strengthening the program's financial security and streamlining 
Medicare's regulations and administrative procedures.
    Because reforming Medicare is likely to take some time to 
implement, and perhaps also to pass, the administration is proposing 
some short-term changes that could be implemented quickly. The 
President has previously announced an initiative to create a Medicare-
endorsed Drug Card. This could not only provide short-term relief, 
helping seniors get lower drug prices, but might also provide useful 
experience to Medicare in terms of administering a prescription drug 
program. The White House has indicated that a revised drug card 
proposal, with a public comment period, will be released shortly. The 
administration has also developed a model Pharmacy Plus drug waiver 
that States can use to provide drug-only coverage to low-income seniors 
through Medicaid.
    In place of the Immediate Helping Hand Program that was announced 
last year, the President has proposed a Medicare low income drug 
assistance program where States could implement a comprehensive drug 
program for seniors with incomes up to 150 percent of the poverty line 
without waiting for a full Medicare prescription drug program to be 
fully phased in. States already have the option under Medicaid to cover 
seniors up to the poverty line. This new program would provide a 90 
percent match to the States for seniors between 100 percent and 150 
percent of the poverty line.
    The administration has also provided incentives for new options to 
be included among Medicare's private plans, and has proposed to 
strengthen the existing Medicare+Choice program by correcting for 
previous underpayments. It has also proposed that two additional 
Medigap plans be offered in addition to existing ten currently 
available.
                      the need to reform medicare
    Although Medicare has resolved the primary problem it was created 
to address, ensuring that seniors had access to high quality, 
affordable medical care, there are a variety of problems with Medicare 
as it is currently constructed. The administration has correctly 
assessed the most important of these flaws: inadequate benefits, 
financial solvency, excessive administrative complexity and an 
inflexible Medicare bureaucracy.
    A part of the motivation for Medicare reform has clearly been 
financial. Concern about the solvency of the Part A Trust Fund helped 
drive the passage of the Balanced Budget Act in 1997. Part A, which 
funds the costs of inpatient hospital care, Medicare's coverage of 
skilled nursing homes and the first 100 days of home care, is primarily 
funded by payroll taxes. The changing demographics, associated with the 
retirement of 78 million baby boomers between the years 2010 and 2030 
and their longevity, means that just as the ranks of beneficiaries 
begins to surge, the ratio of workers to beneficiaries will begin to 
decline. The strong economy of the last decade and the slow growth in 
Medicare expenditures for fiscal year 1998-2000 has provided more years 
of solvency than was initially projected following passage of the BBA 
but even so, Part A is expected to face cash flow deficits as soon as 
2016.
    As important as issues of Part A solvency are, however, the primary 
focus on Part A as a reflection of Medicare's fiscal health has been 
unhelpful and misleading. Part B of Medicare, which is financed 75 
percent by general revenue and 25 percent by premiums paid by seniors, 
is a large and growing part of Medicare. Part B currently represents 
about 40 percent of total Medicare expenditures and is growing 
substantially faster that both Part A and than the economy as a whole. 
This means that pressure on general revenue from Part B growth will 
continue in the future even though it will be less observable than Part 
A pressure. It also means that not controlling Part B expenditures will 
mean fewer dollars available to support other government programs.
    However, as the committee understands, the reasons to reform 
Medicare are more than financial. Traditional Medicare is modeled after 
the Blue Cross/Blue Shield plans of the 1960's. Since then, there have 
been major changes in the way health care is organized and financed, 
the benefits that are typically covered, the ways in which new 
technology coverage decisions are made as well as other changes that 
need to be incorporated into Medicare if Medicare is to continue 
providing health care comparable to the care received by the rest of 
the American public.
    Much attention has been given to the outdated nature of the benefit 
package. Unlike almost any other health plan that would be purchased 
today, Medicare effectively provides no outpatient prescription drug 
coverage and no protection against very large medical bills. Because of 
the limited nature of the benefit package, most seniors have 
supplemented traditional Medicare although some have opted-out of 
traditional Medicare by choosing a Medicare+Choice plan.
    The use of Medicare combined with supplemental insurance has had 
important consequences for both seniors and for the Medicare program. 
For many seniors, it has meant substantial additional costs, with some 
plans exceeding $3,000 in annual premiums. The supplemental plans also 
mean additional costs for Medicare. By filling in the cost-sharing 
requirements, the plans make seniors and the providers that care for 
them less sensitive to the costs of care, resulting in greater use of 
Medicare-covered services and thus increased Medicare costs.
    There are also serious inequities associated with the current 
Medicare program. The amount Medicare spends on behalf of seniors 
varies substantially across the country, far more than can be accounted 
for by differences in the cost of living or differences in health-
status among seniors. Seniors and others pay into the program on the 
basis of income and wages and pay the same premium for Part B services. 
These large variations in spending mean there are substantial cross-
subsidies from people living in low medical cost States and States with 
conservative practice styles compared to people living in higher 
medical cost States and States with aggressive practice styles. The 
Congress and the public is aware of these differences because of the 
differences in premiums paid to Medicare+Choice plans but seems unaware 
that the differences in spending in traditional Medicare is now even 
greater than the variations in Medicare+Choice premiums.
    Finally, the administrative complexities of Medicare, the 
difficulties that CMS and the contractors face administering Medicare 
and especially the frustrations that are being experienced by the 
providers providing care to seniors are issues that have been raised 
repeatedly during the past year. Although these are not new issues, the 
frustration being felt by providers has increased substantially. 
Physicians, in particular, have become increasingly vocal, as was 
evidenced in a number of hearings held last year. Among the many 
complaints that have been raised--uncertainty about proper billing and 
coding, inadequate and incomplete information from contractors and 
discrepancies in treatment across contractors seem to be at the top of 
most lists.
    In a report being released today that was requested by the 
chairman, ``Medicare Provider Communications Can Be Improved'', the GAO 
verifies the validity of many of these complaints. Among their 
findings: information given to physicians by carriers is often 
difficult to use, out of date, inaccurate and incomplete. Medicare 
bulletins are poorly organized, contain dense legal language, are 
sometimes incomplete and are not always timely. Customer service 
representatives on toll-free provider assistance lines and websites 
didn't fare much better. Only 15 percent of the test call answers were 
complete and accurate, and only 20 percent of the carrier websites 
reviewed contained all the information required by CMS. CMS, in turn, 
was also criticized for having established too few standards for 
carriers and for providing little technical assistance to providers.
           assessing the administration's medicare proposals
    The administration understands that Medicare needs to be reformed 
in many dimensions. Medicare's benefits are clearly outmoded, but 
Medicare problems are far greater than just the absence of prescription 
drugs and catastrophic coverage. Medicare needs to be modernized to 
accommodate the needs of the retiring baby boomers and to be viable for 
the 21st Century.
    The principles the President articulated last July and reaffirmed 
in the budget lead to a long-term modernization of the Medicare program 
that would be modeled after FEHBP and the work of the Bipartisan 
Commission for the Long Term Reform of Medicare. The specifics of such 
a proposal have not yet been released. However, the budget does contain 
several provisions that could improve Medicare benefits immediately, 
such as the prescription drug card program and a new Medicare drug 
program for low-income seniors.
    The budget as presented raises at least two questions. If there is 
a lack of agreement about other areas of reform, should a prescription 
drug program be added to traditional Medicare now, with other reforms 
to follow at some time in the future? If not, is there any place for a 
drug program for low-income individuals, particularly one that 
ultimately could be integrated with the Medicare prescription drug 
program when it is implemented?
    Although I believe it is important to pass a reformed Medicare 
program soon and that a reformed Medicare package should include 
outpatient prescription drug coverage, I also believe that just adding 
this benefit to the Medicare program that now exists is not the place 
to start the reform process. The most obvious reason is that there are 
a series of problems that need to be addressed in order to modernize 
Medicare. To introduce a benefit addition that would substantially 
increase the spending of a program that is already financially fragile 
relative to its future needs without addressing these other issues of 
reform is a bad idea.
    I personally support reform modeled after the FEHBP. I believe this 
type of structure would produce a more financially stable and viable 
program and would provide incentives for seniors to choose efficient 
health plans and/or provider and better incentives for health care 
providers to produce high quality, low-cost care. This type of program, 
particularly if provisions were made to protect the frailest and most 
vulnerable seniors, would allow seniors to choose among competing 
private plans, including a modernized fee-for-service Medicare program 
for the plan that best suits their needs.
    I recognize that the FEHBP is controversial with some in Congress, 
especially because of some of the difficulties the Medicare+Choice 
program has been having. It is important to understand, however, that 
many of the problems of the Medicare+Choice program reflect the 
exceedingly low payments that have been going to the plans where most 
of the enrollees live which the administration has proposed to address. 
Inadequate payments added to the problem of the differential spending 
on seniors between traditional Medicare and the Choice plans in the 
same geographical area plus the excessive regulatory burdens imposed on 
the plans during the first years following BBA helped transform what 
had been a vibrant rapidly growing sector into a stagnant and troubled 
one.
    A second reason not to add a drug benefit without further reforms 
to Medicare is the difficulty of correctly estimating the cost of any 
new, additional benefit. Our past history in this area is not 
encouraging. The cost of the ESRD (end-stage renal disease) program 
introduced in 1972 was underestimated by several fold. The estimated 
cost of the prescription drug component of the catastrophic bill passed 
in 1988 and repealed in 1989 increased by a factor of 2\1/2\ between 
the time it was initially proposed and the time it was repealed. Many 
in Washington are now eagerly awaiting the next round of Congressional 
Budget Office forecasts for the prescription drug bills introduced in 
the last session of Congress.
    In addition to cost and estimating concerns, important questions 
remain about how best to structure a pharmacy benefit. Most recent 
proposals have made use of pharmacy benefit managers or PBM's as a way 
of moderating spending without using explicit price controls. These 
strategies, when used by managed care, showed some promise for a few 
years although more recently they have seemed less effective. But most 
PBM's have relied heavily on discounted fees and formularies and only 
recently have begun using more innovative strategies to more 
effectively manage use and spending. If Medicare is to make use of 
PBM's, decisions will need to be made about whether and how much 
financial risk PBM's can take, the financial incentives they can use, 
how formularies will be defined and how best to structure competition 
among the PBM's.
    All of these issues taken together reinforce my belief that just 
adding a prescription drug program to traditional Medicare is not a 
good idea. A better strategy would be to agree on the design of a 
reformed Medicare program and begin to implement changes now. It is 
likely to take several years to build the infrastructure needed for a 
reformed Medicare program and to transition to a new program. Producing 
the regulations needed to implement the legislation needed for a new 
drug benefit is likely to take at least 2 years.
    Because of the delay in implementing major new Federal benefits, a 
reasonable interim step would be to put in a place a program providing 
prescription drug coverage to help those most in need. There are a 
variety of ways such a program could be designed. The current 
administration budget proposes one way. Last year, the administration 
had proposed the Immediate Helping Hand program, a grant program to 
States that allowed States to extend existing pharmaceutical assistance 
programs, expand Medicaid coverage or introduce a new program. Another 
strategy would be to provide coverage first to those populations who 
already get special treatment under Medicare, that is, the qualified 
Medicare beneficiary (QMBs) and the specified low-income beneficiaries 
(SLMBs)
    Whether or not the benefits of providing an interim program of 
outpatient prescription drug coverage for selected needy populations is 
worth the costs, is a decision the Congress will need to make. Congress 
might well decide it's not worth the political capital it would take 
and focus its efforts directly on broader Medicare reform, which should 
certainly include a prescription drug program.
    Let me re-emphasize the importance of making decisions on broader 
Medicare reform sooner rather than later. Concerns will always be 
raised about instituting significant changes in a program involving 
seniors. Whatever changes are made to the Medicare program may need to 
be modified for at least some subsets of the existing senior 
population. Some groups of seniors may need to be excluded from any 
change.
    As we contemplate a Medicare program for the 21st century, it is 
also important to understand that the people who will be reaching age 
65 over the next decade as well as the baby boomers have had very 
different experiences relative to today's seniors. Most of them have 
had health plans involving some form of managed care, many of them have 
had at least some experience choosing among health plans, most have had 
more education that their parents and many will have more income and 
assets. The biggest change involves the women who will be turning 65. 
Most of these women will have had substantial periods in the labor 
force, many will have had direct experience with employer-sponsored 
insurance and at least some will have their own pensions and income as 
they reach retirement age. This means we need to think about tomorrow's 
seniors as a different generation, with different experiences, with 
potentially different health problems and if we start soon, with 
different expectations.
    Let me summarize my points as follows.
    The administration proposes to spend $190 billion in fiscal year 
2003-12 to modernize and reform Medicare:
     Specific provisions of long term Medicare reform have not 
yet been submitted; framework and principles are outlined in the 
budget;
     Funding includes support for a Medicare-endorsed Drug 
Card, a new Medicare low-income drug assistance program, incentives for 
new private plan options and strengthening Medicare+Choice.
    Medicare needs to be reformed:
     Solvency and financial pressures will continue as 
important issues;
     The current benefit structure is inadequate and unfair; 
existing geographic cross subsidies are also unfair;
     Medicare's administrative structure is excessively complex 
and bureaucratic; information given to providers is often inaccurate, 
incomplete, untimely and difficult to use.
    Adding a stand-alone drug benefit to traditional Medicare without 
further reform is risky:
     Imprudent to substantially increase the spending needs of 
a financially fragile program;
     Actual costs of a new benefit will be underestimated if 
history is any guide;
     Still a lot of dispute about design issues.
    Interim program for those most in need seems a reasonable first 
step:
     Several designs are possible: increasing the Medicaid 
match for people just above poverty, limiting the program to special 
populations, e.g. QMB and SLMB;
     Interim program may not be worth the political capital it 
would require
    Starting soon to design and implement a reformed Medicare is a good 
idea:
     Building the infrastructure will take time;
     Future seniors need to know the design of the future 
Medicare program;
     Future seniors will be different from today's seniors in 
terms of work experiences, income and education.

    Mr. Hoekstra. Thank you very much.
    Mr. Lieberman.

                STATEMENT OF STEVEN M. LIEBERMAN

    Mr. Lieberman. Thank you, Mr. Chairman, Mr. Spratt. It is a 
pleasure to be here this afternoon. I would like to spend four 
or five minutes in my oral statement updating CBO's projections 
of Medicare spending and comparing our baseline projections of 
Medicare spending with those of the administration. I have a 
statement for the record that I would like to submit, and I 
would also like to express Director Crippen's apologies. 
Unfortunately, a scheduling conflict caused him to have to 
leave.
    We have just completed updating our projections of Medicare 
spending as part of CBO's analysis of the President's budget. 
In fact, next week we will be rolling out the entire analysis. 
But these projections are, if you would, the leading edge of 
that larger effort.
    I would like to summarize by saying that CBO's new 
projections lower Medicare spending by about $80 billion 
relative to our January estimates. The revisions are primarily 
based on new information, and they leave our estimates about 
$225 billion higher than the administration's Medicare 
baseline. It is important to keep in mind that this difference 
is a small fraction of the more than $3 trillion that the 
Nation is going to spend on Medicare over the next 10 years.
    Before turning briefly to our updated projections, I would 
like to underscore that the long-range fiscal picture remains 
unchanged. Baby boomer retirements which will begin within the 
current 10 year budget window--2003 through 2013--will double 
the number of Medicare beneficiaries over the next 30 years. As 
the chart shows the ``big three'' entitlement programs--
Medicare, Medicaid, and Social Security--will virtually double 
as a share of GDP, rising from 8 percent to 15 percent of our 
Nation's economy. As you know, Mr. Chairman and Mr. Spratt, 
that 7-percentage point increase in GDP is about what we are 
spending on discretionary appropriations in total.
    Let me turn now to our revised projections and then go from 
there to how they compare with the administration's. CBO's 
projection for 2002 of gross Medicare spending is now about 2.4 
percent of GDP, or $248 billion. Beneficiary premium payments, 
mostly for Medicare Part B coverage, are projected to be about 
$26 billion, which results in projected net mandatory spending 
for 2002 of about $223 billion. After this, for simplicity, I 
am going to talk about net spending for benefits and ignore 
premiums as a separate calculation.
    Over the 10 year budget window, CBO projects that gross 
spending--that is before deducting premiums--will be $3.6 
trillion. Taking out the $0.4 trillion of premiums leaves us 
with net spending of $3.2 trillion.
    As I mentioned, CBO's baseline is about 2.5 percent, or $80 
billion, lower than it was a couple of months ago. Three 
factors, which mainly reflect new information, account for the 
$80 billion revision. The first and biggest part of the 
revision was for Medicare+Choice. A new regulation that the 
administration put out caused us to change our assumption about 
the cost of Medicare+Choice slightly. The second factor is that 
we reduced our projections of the cost of hospital outpatient 
services because, again, the administration had announced a new 
regulation. And third, we reduced projected spending by about 
another $15 billion for three additional factors.
    The administration projects that net Medicare spending will 
total $3 trillion over the next 10 years. On a net basis, the 
administration estimate of growth is 5.4 percent. If you take 
the premiums out--as Secretary Thompson did--it is 5.7 percent. 
CBO and the administration both estimate that rates over the 
next few years will be lower than the average each project for 
the full 10 years of the projection period, and lower than the 
average each projects for the later years of the period. 
However, the administration's estimates of growth rates are 
lower than CBO's, on average, throughout the 10-year period.
    The administration's cumulative 10 year baseline for 
Medicare, as I mentioned before, is $225 billion, or about 7-
percent below CBO's, as shown by this chart. Hopefully, the 
chart also underscores that, although one would hardly want to 
sneeze at $225 billion, over this base, it is not that large a 
difference.
    Differing economic assumptions, differing treatment of 
anticipated administrative actions, and differing technical 
assumptions account for the differences in the two baselines. 
To quickly run through these, about $40 billion of the 
difference over the 10 years is due to differing economic 
assumptions. In general, CBO assumed that the annual updates 
that drive Medicare payments will be one or two tenths of a 
percentage point a year higher than the administration's 
estimate. That is relatively small difference, but it 
accumulates to become the kind of change that we would all like 
to have in our pockets.
    Another 10 to $20 billion of the difference between the 
baselines derives from the rules CBO uses; specifically, not 
anticipating administrative action. In contrast, the 
administration might announce that it was going to do something 
and then reflect that action within its baseline.
    Differing technical assumptions account for about $175 
billion over the 7 to 10 year period. It will be difficult to 
compare those assumptions, point-by-point, because one of the 
big areas in which CBO differs from the administration is in 
its projection of Medicare+Choice enrollment, which is 
currently in the range of 14 to 15 percent of all 
beneficiaries. CBO projects that Medi
care+Choice enrollment will fall to about 8 percent of 
beneficiaries by the end of the period. The administration has 
it remaining basically at the same level--14 to 15 percent--at 
the end of the 10 years.
    Growth in fee-for-service spending is often driven by 
increases in the volume and mix of services. Both CBO and the 
administration assume that per capita spending on services in 
the fee-for-service sector will grow faster than inflation, as 
Dr. Wilensky mentioned. However, CBO expects that increases in 
per capita costs above these arising from inflation will be 
larger than the increases assumed by the administration. The 
largest differences are in the areas of skilled nursing 
facilities, outpatient services, and home health services.
    Both CBO and the administration estimate that growth in the 
so-called volume and mix of services will contribute less to 
spending growth than it did before the Balanced Budget Act was 
enacted in 1997. However, CBO's estimates of those 
contributions are somewhat higher than the administration's. We 
are assuming that rates will tail down from about 7 percentage 
points of excess growth in annual spending on skilled nursing 
facilities to only 4.5 percentage points, and from about 5.3 
percentage points annually for hospital outpatient services to 
3.8 percentage points. The administration also assumes that 
those contributions to spending growth will go down, but more 
rapidly.
    One category where the two baselines diverge somewhat, is 
in home health spending. CBO assumes that the home health 
spending contribution to Medicare spending growth will decline 
from 12.5 percentage points to 7 percentage points a year. The 
administration appears to assume a somewhat slower decline in 
that contribution that CBO assumes in the first 5 years of the 
budget window, but then a very rapid decline in the last 5 
years.
    Mr. Spratt. Excuse me. I do not want to interrupt you, but 
I have a question to ask at this point. It will give you a 
breather anyway. Does this assume that the 15 percent across-
the-board payment will be implemented since the law provides 
for it?
    Mr. Lieberman. I am glad you asked that, Mr. Spratt. 
Absolutely. We have assumed not just the 15 percent cut in home 
health payment rates but every feature of law, including full 
implementation of the new prospective payment systems. The only 
other point I was going to make is that place where CBO and the 
administration actually are quite similar is on the physician 
payment, the so-called substantial growth rate system. For 
hospital inpatient services, we are also generally quite 
similar.
    To conclude, over the 5 year period--2002 through 2007--
CBO's baseline and the administration's projections differ as a 
result of all factors by 4 percent. Considering the different 
economic and baseline assumptions, I believe 4 percent is a 
relatively modest difference. Not surprisingly, the difference 
broadens over the entire 10-year period, rising to 7 percent. 
The uncertainty associated with 7 to 10 year projections, the 
sheer complexity of the Medicare program, and the point that 
the Secretary was making about implementing new prospective 
payment systems--again we do assume those systems, but we have 
virtually no information about how providers will respond and 
how quickly spending will grow under them--those factors 
account for this $225-billion difference on a more than $3 
trillion base of projected spending.
    With that, I am happy to answer any questions.
    [The prepared statement of Dan L. Crippen submitted by 
Steven M. Lieberman follows:]

 Prepared Statement of Dan L. Crippen, Director, Congressional Budget 
                                 Office

    Chairman Nussle, Congressman Spratt, and members of the committee, 
I am pleased to be here today to discuss projections of Medicare 
spending under current law.
    As part of the Congressional Budget Office's (CBO's) analysis of 
the President's budgetary proposals, we have just completed updating 
our projections of Medicare spending. My testimony today will summarize 
those projections, which are part of our forthcoming March baseline, 
and discuss how they have changed since January. I will then compare 
CBO's baseline projections of Medicare spending with the 
administration's baseline projections. I will focus my discussion on 
projections of mandatory spending for Medicare benefits and on the 
premiums paid by Medicare beneficiaries.
        cbo's projections of medicare spending under current law
    CBO projects that gross mandatory outlays by Medicare will total 
$248 billion in 2002. Benefits account for over 99 percent of that 
total, with spending for peer review organizations, efforts to control 
fraud and abuse, and other administrative activities making up the 
rest.
    In 2002, beneficiaries who are enrolled in Part B of Medicare (the 
Supplementary Medical Insurance program) will pay a monthly premium of 
$54.00. Premiums in the Part B program are set to cover about 25 
percent of spending for its benefits. A small number of beneficiaries 
who are not entitled to Part A benefits (through the Hospital Insurance 
program) on the basis of their work history (or that of a spouse) also 
pay a premium to enroll in Part A. CBO estimates that premium payments 
by beneficiaries will total $26 billion in 2002, resulting in net 
mandatory spending of $223 billion this year. In addition, the costs of 
administering the program, which are funded by appropriations, will 
amount to an estimated $3.6 billion in 2002.
    CBO projects that gross mandatory outlays for Medicare will total 
$3.6 trillion over the 2003-2012 period, with beneficiaries paying 
about $400 billion in premiums (see the table on the next page). 
Therefore, if current law remains unchanged, net mandatory spending is 
estimated at $3.2 trillion over the next 10 years.
    Net mandatory spending for Medicare as a share of the Nation's 
gross domestic product will be 2.2 percent this year, CBO estimates. 
That share will remain relatively constant through 2007; it will then 
begin to rise, reaching 2.5 percent by 2012, driven both by the large 
increase in enrollment as the baby boom generation turns 65, and by the 
ever-expanding demand for health care.

 SUMMARY OF CBO'S MARCH 2002 BASELINE PROJECTIONS OF MANDATORY MEDICARE
                                 OUTLAYS
                            [By fiscal year]
------------------------------------------------------------------------
                                    Billions of dollars   Average annual
                                 ------------------------ rate of growth
                                     2002      2003-2012     (percent)
------------------------------------------------------------------------
Gross Mandatory Outlays.........         248       3,590             6.9
Premiums........................         -26        -413             8.4
                                 ---------------------------------------
Net Mandatory Outlays:
    Unadjusted..................         223       3,177             6.7
    Adjusted for timing                  226       3,177             6.6
     shifts\1\..................
------------------------------------------------------------------------
Source: Congressional Budget Office.
 \1\ Outlays adjusted to eliminate the effect of accelerating payments to
  group plans from October to September in some years.

               spending growth has varied in recent years
    Net mandatory spending for Medicare grew by 10.3 percent in 2001. 
However, that rate of growth was inflated by a provision of the 
Balanced Budget Act of 1997 (BBA) that accelerated $3 billion in 
payments to group plans from October to September 2001 or from fiscal 
year 2002 to fiscal year 2001. When spending is adjusted for that 
accelerated capitation payment, the underlying rate of growth in 2001 
was 8.7 percent, a substantially larger increase than the changes in 
annual spending during the 1997-2000 period, which averaged 1.2 
percent. Significant growth resumed in 2001, after Medicare absorbed 
the substantial changes in the program's payment rules enacted in the 
BBA in 1997. That growth also reflected increases in payment rates and 
other changes enacted in the Balanced Budget Refinement Act of 1999 and 
the Benefits Improvement and Protection Act of 2000. CBO projects that 
net mandatory spending in 2002 will be 7.1 percent higher than such 
spending in 2001, after adjusting for the accelerated capitation 
payment.
           components of spending growth in the coming decade
    Over the next 10 years, net mandatory spending for Medicare is 
projected to grow at an average annual rate of 6.6 percent again, after 
adjusting for shifts in the timing of payments to group plans. About 
1.7 percentage points of that growth rate stem from increases in 
enrollment in the Medicare program, and about 3 percentage points are 
attributable to automatic hikes in payment rates in the fee-for-service 
sector to adjust rates for changes in the prices of inputs. Another 3 
percentage points are due to changes in the use of services above those 
accounted for by changes in enrollment. The increased use reflects 
boosts in the number of services furnished per enrollee, and a shift in 
the mix of services toward higher-priced and often more technologically 
advanced services. Those increases are offset in part by a decrease of 
about 1 percentage point as a result of updates in the rates paid to 
Medicare+Choice plans, which will be lower than updates to payment 
rates in the fee-for-service sector.
    Projected rates of growth in net mandatory spending are relatively 
low through 2006 (averaging 5.7 percent a year), because updates to 
payment rates for many services will be held below the increase in the 
prices of inputs in the next few years and because enrollment in 
Medicare is projected to grow by only about 1 percent a year. Rates of 
spending growth are higher after 2006 (averaging 7.7 percent a year) 
because updates to payment rates for many services will be fully 
adjusted for changes in input prices and because enrollment will grow 
at an average rate of about 2 percent a year (see Table 1).
              projections of spending by type of provider
    Payments to hospitals for inpatient services and payments to 
physicians are the largest components of Medicare spending, accounting 
for about two-thirds of the program's outlays. They are also the 
slowest-growing components of spending in the fee-for-service sector. 
Payments to hospitals will grow at an average rate of 6.3 percent a 
year through 2012, CBO projects, and payments to physicians will grow 
at an average rate of 5.4 percent a year. By contrast, payments are 
projected to grow at rates that average 9 percent to 16 percent a year 
for services furnished by home health agencies; hospital outpatient 
departments and other facilities covered under Part B; and nonphysician 
professionals and other providers of ancillary services. CBO estimates 
that payments to Medicare+Choice plans and other group plans will 
decline through 2006 and then grow slowly, returning to their 2001 
level by 2012.
            changes from january to march in cbo's baseline
    CBO's March baseline projection of $3.2 trillion in net mandatory 
spending for Medicare over the 2003-2012 period is about $80 billion or 
2.5-percent lower than its projection in January. Three factors account 
for that revision:
    Reduction in projections of payments to Medicare+Choice plans about 
$30 billion over the period. That change reflects the administration's 
January announcement of preliminary payment rates for Medicare+Choice 
in 2003, as well as updates to CBO's projections of enrollment in those 
plans.
    Reduction in projections of payments for hospital outpatient 
services about $35 billion over the 10-year span. That change reflects 
the administration's announcement of an implementation date for a final 
rule concerning pass-through payments and an analysis of updated data 
on the cost of ``buying down'' (contributing more to) co-insurance paid 
by beneficiaries for hospital outpatient services.
    Reduction in projected spending, another $15 billion over 10 years 
to reflect an updated analysis of the effect on spending of the 
changing age distribution of Medicare beneficiaries; an improved method 
of converting the price indexes that the administration uses to update 
payment rates to price indexes based on CBO's economic projections; and 
the effects of revised projections of outlays on premiums collected 
from beneficiaries.
    The change in CBO's projections of payments to Medicare+Choice 
plans reflects a significant revision in CBO's methods. Under the rules 
established in the Balanced Budget Act and modified in subsequent 
legislation, the rates paid to Medi
care+Choice plans are supposed to move gradually to the higher of a 
floor amount or a 50:50 blend of rates based on local per capita 
spending in the fee-for-service sector and the national average amount 
of spending per capita, adjusted for variation in local prices. When 
the payment rate is at either the floor amount or the 50:50 blend, it 
will be increased each year at the same rate as the increase in 
spending per capita in the fee-for-service sector. The transition to 
the floor amounts took effect immediately with the legislation's 
enactment. The transition to the 50:50 blend is subject to a minimum 
update that is generally 2 percent and to a budget-neutrality provision 
requiring that payment rates, on average and overall, grow from their 
pre-BBA levels at the same rate as the increase in per capita spending 
in the fee-for-service sector.
    In CBO's January baseline, as in previous baselines, rates paid to 
Medi
care+Choice plans were assumed to grow, on average, at the same rate as 
per capita spending in the fee-for-service sector.
    In January, the administration issued a preliminary notice of the 
rates that Medicare would pay to Medicare+Choice plans in 2003. The 
notice stated that because of revisions to estimates of growth in per 
capita spending in the fee-for-service sector, payment rates would be 
reduced to comply with the budget-neutrality provision in the BBA. 
However, the notice also stated that because of the minimum-update 
provision, all payment rates including rates at the floor amounts would 
be increased by 2 percent in 2003. The administration did not announce 
its projections of updates to payment rates for 2004 and later years.
    CBO drew several conclusions from the administration's 
announcement: Medicare+Choice payment rates, on average, are above the 
budget-neutral amount and under current law will remain permanently 
above it. Overall, therefore, Medicare pays more for enrollees in 
Medicare+Choice plans than it would pay if those beneficiaries were in 
the fee-for-service sector.
    All payment rates will increase again by 2 percent (the minimum 
update) in 2004.
    Floor amounts will increase by more than 2 percent in 2005 and will 
grow with fee-for-service spending in subsequent years, but all other 
rates will increase by 2 percent each year until they reach the level 
of the floor or the 50:50 blend. (CBO estimates that the proportion of 
payments made at floor rates or at 50:50-blend rates will increase from 
about 40 percent in 2005 to 95 percent by 2012.)
    CBO has also revised its projections of enrollment in 
Medicare+Choice plans on the basis of the program's recent experience 
and projected payment rates. The percentage of Medicare enrollees in 
Medicare+Choice plans is now estimated to decline from 15 percent in 
2001 to 8 percent in 2012. By contrast, CBO last year projected that 
the percentage of Medicare beneficiaries enrolled in Medicare+Choice 
plans would remain relatively stable throughout the 10-year budget 
window.
         comparison of cbo's and the administration's baselines
    The administration projects that net mandatory spending for 
Medicare will grow at an average rate of 5.4 percent a year through 
2012. It also projects that growth will tend to be lower than that 10-
year average rate through 2006 (averaging 4.0 percent annually) and 
higher after 2006 (averaging 6.4 percent). The administration also 
estimates that net mandatory spending for Medicare will total $3.0 
trillion over the 2003-2012 period, which is about $225 billion, or 7 
percent, lower than CBO's projection for the same period (see Table 2 
and Figure 1).
             differences arising from economic assumptions
    About $40 billion of the 10-year difference between CBO's and the 
administration's estimates is due to differing economic projections. 
Payment rates for most services are adjusted, or updated, each year to 
reflect changes in the prices of inputs. In general, CBO projects that 
those updates to payment rates will be one or two tenths of a 
percentage point higher than the administration's projected updates.
  differences resulting from assumptions about administrative actions
    Another $10 billion to $20 billion of the 10-year difference stems 
from possible administrative actions that the administration's baseline 
assumes, but that CBO's does not. The administration's baseline assumes 
that the payment method for outpatient prescription drugs covered under 
the program will be changed in 2003. However, the administration has 
not yet announced any specific proposal for changing the payment rules. 
As a result, CBO's projections incorporate the assumption that Medicare 
continues to use the existing payment method.
            differences stemming from technical assumptions
    The remaining difference of about $175 billion over 10 years 
reflects different technical assumptions about participation in 
Medicare+Choice plans and in the rate of increase in the volume and mix 
of services furnished to beneficiaries in the fee-for-service sector. A 
clear comparison of CBO's and the administration's baselines by payment 
category is difficult, because the two groups of estimates reflect very 
different assumptions about the proportion of beneficiaries who will 
participate in Medicare+Choice plans.
    Medicare+Choice. The administration projects that the proportion of 
beneficiaries enrolled in Medicare+Choice plans will remain fairly 
stable in the range of 14 percent to 15 percent over the coming decade, 
whereas CBO projects a sharp decline in that share to 8 percent by 
2012. The administration's assumption that a relatively large share of 
Medicare enrollees will remain in those plans while their payment rates 
are growing much more slowly than rates in the fee-for-service sector 
may contribute significantly to the differences between CBO's and the 
administration's baseline projections.
    Growth Stemming from the Volume and Mix of Services in the Fee-for-
Service Sector. Both CBO and the administration assume that spending 
per capita on services in the fee-for-service sector will grow at a 
faster rate than will the adjustments to payment rates for changes in 
input prices. In general, however, CBO assumes larger increases in per 
capita spending as a result of changes in the volume and mix of 
services than does the administration.
    The biggest differences between those assumptions about increases 
in spending are in the areas of skilled nursing services, hospital 
outpatient services, and home health services. The payment systems in 
all three settings have been changed substantially in the past few 
years, and how the volume and mix of services will change under the new 
systems is uncertain. Both CBO and the administration assume that 
increases in the volume and mix of those services will contribute less 
to growth in spending under current law than they contributed under the 
payment systems that existed before the BBA. CBO estimates that those 
effects will steadily decline over the coming decade as follows: From 
about 7 percentage points a year in the next few years to 4.5 
percentage points by 2012 for skilled nursing services; from about 5.3 
percentage points to 3.8 percentage points a year for hospital 
outpatient services and other payments to facilities for services 
covered under Part B of Medicare; and from 12.5 percentage points to 7 
percentage points a year for home health services.
    The administration appears to make a similar assumption about the 
steadily lessening effect of changes in the volume and mix of services 
although it projects a more rapid weakening than does CBO for skilled 
nursing services and hospital outpatient services. Compared with CBO's 
assumption about volume and mix changes for home health services, 
however, the administration's assumption seems to reflect more-rapid 
increases in the volume and mix of home health services through 2005 or 
2006, and a more rapid decline in the volume and mix insubsequent 
years.
    CBO and the administration make very similar assumptions about the 
effect of volume and mix changes in relation to the sustainable growth 
rate (SGR) system of payment for services on the physician fee schedule 
and in relation to payments to hospitals for inpatient services.
    The SGR system automatically adjusts payment rates for services on 
the physician fee schedule to compensate for changes in the volume and 
mix of services. Therefore, the differences between CBO's projections 
of payments under the physician fee schedule and the administration's 
projections are almost entirely attributable to economic factors and to 
differences in the projected number of beneficiaries in the fee-for-
service sector. Likewise, both CBO and the administration assume that 
changes in the mix and volume of services contribute about 1 percentage 
point to annual increases in payments to hospitals for inpatient 
services 1 percentage point, that is, above the growth resulting from 
increases in enrollment and adjustments for inflation.
    In the near term, CBO's baseline and the administration's 
projections are similar, differing by only 4 percent over the 2003-2007 
period. The differences between the estimates over the 2003-2012 period 
broaden, amounting to about 7 percent cumulatively. That difference is 
not very large in view of the uncertainty that is always associated 
with a 10-year budget window and, in particular, in view of the new 
payment systems that Medicare has recently instituted in a number of 
areas.

                              TABLE 1.--CBO'S MARCH 2002 BASELINE PROJECTIONS OF MANDATORY OUTLAYS FOR MEDICARE, 2002-2012
                                                        [By fiscal year, in billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   2002    2003    2004    2005    2006    2007    2008    2009    2010    2011    2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part A: Hospital Insurance
    Fee-for-service program:
      Hospital inpatient care...................................     102     108     115     122     130     138     147     156     166     176     188
      Hospice...................................................       4       4       4       5       5       6       6       6       7       7       8
      Skilled nursing facilities................................      14      14      15      17      19      21      23      25      27      30      33
      Home health services......................................       6       6       6       7       9      10      12      13      15      17      19
                                                                 ---------------------------------------------------------------------------------------
        Subtotal................................................     126     132     141     151     162     174     187     201     215     231     248
    Group plans\1\..............................................      18      18      17      18      15      17      17      18      18      21      19
                                                                 ---------------------------------------------------------------------------------------
          Total, Part A Benefits................................     144     150     158     169     177     191     204     218     234     252     267
                                                                 =======================================================================================
Part B: Supplementary Medical Insurance
    Fee-for-service program:
      Physician fee schedule....................................      43      44      44      46      49      52      56      60      64      68      72
      Other professional and outpatient ancillary services\2\...      19      21      23      26      29      32      35      38      42      46      50
      Other facilities\3\.......................................      21      22      24      27      29      32      36      39      43      46      51
      Home health services......................................       6       7       8      10      11      13      15      17      20      23      26
                                                                 ---------------------------------------------------------------------------------------
        Subtotal................................................      88      94     100     108     118     129     142     155     168     183     199
      Group plans\1\............................................      15      16      15      16      13      15      15      16      17      19      17
                                                                 ---------------------------------------------------------------------------------------
          Total, Part B Benefits................................     103     109     115     124     131     144     157     171     185     202     216
                                                                 =======================================================================================
        All Medicare Benefits...................................     247     259     273     293     309     335     361     389     419     454     483
                                                                 =======================================================================================
    Other Mandatory Outlays.....................................       2       2       2       1       2       2       1       2       2       1       2
    Gross Mandatory Outlays.....................................     248     261     274     294     310     336     363     391     420     456     484
    Premiums....................................................     -26     -28     -30     -32     -35     -39     -42     -46     -50     -54     -58
                                                                 ---------------------------------------------------------------------------------------
        Net Mandatory Outlays...................................     223     233     245     262     275     298     321     345     371     402     426
                                                                 =======================================================================================
Memorandum:
    All Home Health Agencies....................................      11      12      14      17      20      23      27      31      35      40      45
    All Group Plans.............................................      33      34      31      33      28      32      32      34      35      41      36
    All Fee-for Service Programs................................     214     225     241     260     280     303     329     355     384     414     447
    Outlays as a Percentage of GDP..............................     2.2     2.1     2.1     2.2     2.1     2.2     2.3     2.3     2.4     2.4     2.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.
 \1\ Group plans include Medicare+Choice plans, plans paid on a cost basis, health care prepayment plans, and some demonstrations. Nearly all enrollment
  and spending is in Medicare+Choice plans.
\2\ Includes durable medical equipment, independent and physician in-office laboratory services, ambulance services, and other services paid by
  carriers.
\3\ Includes hospital outpatient services, laboratory services in hospital outpatient departments, rural health clinic services, outpatient dialysis,
  and other services paid by fiscal intermediaries. Also includes payments to skilled nursing facilities for services covered under Part B.


              TABLE 2.--COMPARISON OF CBO'S AND THE ADMINISTRATION'S BASELINE PROJECTIONS OF NET MANDATORY OUTLAYS FOR MEDICARE, 2002-2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   2002    2003    2004    2005    2006    2007    2008    2009    2010    2011    2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Mandatory Outlays (Billions of dollars):
    CBO.........................................................     223     233     245     262     275     298     321     345     371     402     426
    Administration..............................................     223     229     237     252     260     279     297     317     337     363     378
                                                                 ---------------------------------------------------------------------------------------
        Difference (CBO minus administration)...................       0       4       7      10      15      19      23      28      34      39      48
Annual Percentage Change in Spending:
    CBO.........................................................     4.0     4.7     4.9     7.3     4.8     8.3     7.6     7.6     7.5     8.3     6.1
    Administration..............................................     4.0     2.8     3.6     6.4     3.2     7.3     6.4     6.6     6.4     7.8     4.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office.

    Mr. Hoekstra. The bottom line then I think for the 
difference in the numbers is that, what I am hearing you say, 
given all of the uncertainty, it might actually be remarkable 
that two groups of experts taking a look at this and ending up 
as close as what you are is kind of surprising.
    Mr. Lieberman. That would certainly be the story that the 
estimators like myself would tell. We have worked very closely 
and keep working closely with the CMS actuaries. My 
characterization of the difference between the two baselines is 
that relatively minor honest technical estimating differences 
drive it. There are some economic differences because our 
economic assumptions are different from the administration's, 
and there is some variation as a result of where different 
conventions go on and what we put into the baselines.
    Mr. Hoekstra. And then also would you dare admit that you 
are probably both going to be off by at least 7 to 10 percent 
if we are sitting here in 10 years and taking a look at these 
numbers?
    Mr. Lieberman. Mr. Chairman, I think we would be happy to 
admit that. As you know, in CBO's budget documents we regularly 
try to look at the uncertainty surrounding our forecast. Our 
estimators all do poorly in calling turning points, whether 
they are in the economy or in Medicare spending. None of us 
projected that Medicare spending a couple of years ago would 
decline below what it had been in the prior year. Let me just 
leave my answer as a, ``yes sir.''
    Mr. Hoekstra. I think what I am just trying to say is that 
the numbers are very, very important to take a look at from a 
trend, because I do not think any of us are disputing the 
trends and that we are going to see significantly increasing 
costs and percentage of GDP, but if we actually start to try to 
take a look at the exact differences, we are talking about some 
issues that maybe are not necessarily that important. That both 
CBO and OMB agree on the trends and directionally where we are 
headed.
    Mr. Lieberman. I think that is absolutely fair. And again, 
I think the point is the one that you made, Mr. Chairman, that 
the one thing that we really do know is that we are doubling 
the number of Medicare beneficiaries as the baby boomers 
retire. Almost the entire history of the program suggests that 
the per-beneficiary cost increases faster than the growth of 
the economy. So when you put together the enormous demographic 
shift of a doubling of beneficiaries but only a 15 percent 
increase in the workforce with real inflation-adjusted growth 
in spending per beneficiary, you have very, very difficult 
fiscal circumstances starting just at the end of this budget 
horizon.
    Mr. Hoekstra. I came out of the private sector and I did a 
lot of forecasting for new product sales. If two of us sat down 
and projected out what the sales might have been for a new 
product 10 years out and we were this close together, we 
probably would have been pretty happy and said, hey, we think 
we see the world pretty much in the same light and viewing it 
in the same context.
    Dr. O'Toole, it went right by me. What did you say at the 
end of your testimony about additional research on infectious 
diseases and the impact that could have on bioterrorism?
    Ms. O'Toole. I was saying that if we make substantial 
investments in research in infectious disease, which we will 
have to do in order to keep up with what I anticipate will be 
the advances in biological weapons we will, I think, outrun the 
weapons race. We will be able to create the vaccines and the 
drugs that we need to defeat any future weapons. And that same 
research, if appropriately directed and robust enough, will 
inevitably, as offshoots of this investigation and how to 
defeat weapons, also give us clues to how we could combat 
common diseases such as malaria, HIV/AIDS, and drug resistant 
TB, for example.
    Mr. Hoekstra. Are you also saying that if we invest in this 
research, that you would find some kind of a magic key or 
combination that can be used multiple times against 
bioterrorism. I mean, is there some secret that we uncover that 
if we----
    Ms. O'Toole. Well, I do not think there is any silver 
bullet that defeats all diseases.
    Mr. Hoekstra. OK.
    Ms. O'Toole. But if we knew more, for example, about how 
our immune system worked so that we could pump up the immune 
response more generally against different kinds of infections; 
if we understood what causes pathogenicity, the reasons why 
bacteria and viruses successfully attack human health, then we 
would probably have big clues and very powerful weapons against 
diseases generally whether they were intentionally inflicted 
through biological weapons or occurred naturally.
    Mr. Hoekstra. Earlier in your testimony I know you said the 
more we learn the greater risk and the greater threats we may 
face.
    Ms. O'Toole. Yes.
    Mr. Hoekstra. So even with that kind of research it may 
give as much information to the bad guys as it does to the good 
guys.
    Ms. O'Toole. Well, there is no avoiding that.
    Mr. Hoekstra. Right.
    Ms. O'Toole. The dark side of biology is upon us. Biology 
is now powerful enough that if you apply biological knowledge 
with malevolent intent, you can make terrible biological 
weapons. We are going to pursue biological knowledge because we 
desperately want the good stuff that comes of understanding the 
life sciences. We want the medical advances. We want the 
agricultural advances. And furthermore, that research is being 
propelled by international corporations with big capital 
budgets and whose products are avidly desired. So that is going 
to go forward, and it should. What we need to do is figure out 
how to responsibly manage that knowledge and also how to apply 
it to protect ourselves against the dark side.
    Mr. Hoekstra. I think it is kind of interesting, and you 
may both want to address this issue, Dr. Wilensky and Dr. 
O'Toole, all of my hospitals now are being driven to be 
efficient, kind of like a just-in-time inventory, that there is 
just exactly enough inventory in terms of space and beds and 
all of these types of things to meet existing conditions or to 
meet the various demands that may be placed on them. It is kind 
of ``OK, let's get this down to be as efficient as possible.'' 
Our private payers want us and need us to be as efficient as 
possible. The Federal Government keeps ratcheting this down.
    So I go to my hospitals and they are closing wings, they 
are closing rooms, they are taking beds out of circulation, and 
they are doing in many ways what we have told them to do--
become very, very efficient. And I am wondering whether we need 
to change that criteria in terms of, what you talked about 
earlier, the capacity issue.
    In my district and I think, as you said, in no part of the 
country today, contiguous area, could they handle an instance 
of 500 people becoming ill because of an attack and have the 
facilities. You said research that. Do you have any suggestions 
or how we start going after that?
    Ms. O'Toole. I do not have any easy answers. It is a very 
difficult problem and, as you point out, it is a structural 
problem. It is a consequence of what happens when you make 
health care into a business. The financial pressures on health 
care have caused hospitals and health care organizations to 
eliminate so-called excess capacity. So they do use just-in-
time modeling, and not just for equipment, but also for nurses. 
Tomorrow's nursing staff is based on today's patient census. It 
makes it almost impossible to ramp up quickly in order to meet 
surges in patient demand, let alone a great big sudden surge 
such as you would see in a big bioweapons attack.
    There are not any quick fixes to this. It really is a 
structural problem. You can get some marginal improvement if, 
for example, we coaxed hospitals into collaborating with each 
other during disasters instead of having them operate as 
autonomous competitors, which is what we have driven them to in 
the current context. But those are improvements at the margins.
    I think that if we had a big bioterrorism attack, we would 
have to go to some dramatically new way of caring for patients, 
a real phase shift. It might be that you take over armories and 
schools and made them into makeshift hospitals, although you 
still need the staff to take care of such facilities and it is 
not clear where they would come from. It may be that we go to 
home-based care and use telemedicine capabilities and so forth. 
But there is no easy answer.
    Ms. Wilensky. I would like to offer a slightly dissenting 
view. I believe in certain areas, like in inventory control and 
in some of the meal production and laundry services, that 
hospitals have substantially improved their efficiency using 
some of the industrial engineering strategies that are 
available. But in the basic delivery of health care systems, I 
think we are very much at the beginning of the process. This is 
especially true in the number of medical errors that go on, the 
inability to get it right the first time. The kind of process 
engineering that has been very much a part of other sectors of 
the economy has not happened in health care delivery. It was 
part of the whole Institute of Medicine report on medical 
errors and could have very profound implications for being able 
to do a much more effective job in terms of delivering health 
care. It will require better integration of information than 
goes on now and perhaps that will be the up side of the very 
costly activities that are being undertaken now as part of 
HIPAA regulations.
    But I think what you are raising is a somewhat different 
issue, although they are somewhat related. That is if you have 
a reasonably efficiently running health care system giving good 
quality of care, how do you make sure you can handle peak load-
crises? I do not think anybody gave it much thought before 9/
11, to be perfectly honest. Now they are.
    There are all sorts of capabilities that might be 
considered. VA stands as the backup to the military when there 
is an emergency situation in the military in terms of being 
able to provide excess capacity. It may be important to step 
back and think about how health care delivery in the military, 
in the VA system, and in the public health part of our health 
care system could be mobilized in the event of an emergency. 
Because of the Presidential Task Force I am now co-chairing, I 
am spending much more time understanding how VA and DOD works 
and does not work together. But I think there has not been 
enough thought about how the rest of the health care system 
could interact.
    We all understand, post 9/11, we need to think in ways we 
have not thought of before. But I do not think our economy can 
stand the notion of let's ramp up more excess capacity. We 
already are probably the most over-capacitated country in the 
world in terms of medical care capacity, and we should think 
hard and long about trying to increase that capacity for what 
are likely to be very rare, peak load problems.
    Mr. Hoekstra. You have an interesting problem.
    Ms. O'Toole. Could I respond?
    Mr. Hoekstra. Part of the reason we have got the capacity 
issue is the demand side. But did you want to add something?
    Ms. O'Toole. Yes. I think I agree with virtually everything 
Dr. Wilensky said. Just as one example, the medical errors 
systems that we need to cut down on the times that patients get 
the wrong drug dose in the hospital and so forth, if we build 
them correctly, we could use those systems on a normal day to 
track and reduce medical errors and then flip them during a 
catastrophe into systems that monitor the progress of an 
epidemic.
    But in order to plan that far in advance, in order to 
inject that kind of innovation into the system, you have got to 
give something now so that there is a person there to plan. We 
may have some ``excess capacity'' but on a given day there are 
not a lot of people at Johns Hopkins standing around without 
ten things to do. And that is the problem: we have to be 
forward looking in the health care system even as we take care 
of the daily demands, which are many.
    Mr. Hoekstra. Thank you. Mr. Spratt.
    Mr. Spratt. Thank you all for your testimony. Each one of 
you made a very substantive contribution to our discussion 
today. I am sorry more were not here to hear it. Nevertheless, 
be assured it will be part of our base of knowledge when we 
deal with the budget this year.
    First of all, Mr. Lieberman, you describe the difference as 
relatively minor. But $225 billion is still a lot of money, 
even for government work.
    Mr. Lieberman. Absolutely, Mr. Spratt. I would note that 
the differences are smaller in the first couple of years and 
then they increase. But there are significant differences. I 
believe that there is a table in the written statement that 
shows the annual amounts. I do not mean to trivialize them 
and--as I said in my response to the chairman, from a technical 
estimator's viewpoint and considering the complexity--I do not 
think there is anything certain in it; honest people can have 
differing interpretations. I think when you get down to it, 
there is a relatively modest but real difference.
    Mr. Spratt. What struck me is that in the near term the 
assumption is even more hopeful; namely, that costs will be 
about 4 percent through 2006, and after 2006 it picks up to 
between 6.5 and 7 percent.
    Mr. Lieberman. Yes, sir. That is the administration's 
projection.
    Mr. Spratt. That means we would have a pretty sharp break 
between the rate of increase over the last couple of years and 
next year, does it not?
    Mr. Lieberman. It does. It is not clear to me why the CMS 
actuaries are assuming quite the low rate that they are. Part 
of the low rate derives from some legislative cuts that are in 
effect, but those effects should be in both of our baselines.
    Mr. Spratt. They are in the baseline?
    Mr. Lieberman. They are in both baselines. My sense is that 
CBO's projection is about a full percentage point higher over 
the first 5 years than the administration's in terms of annual 
growth spending.
    Mr. Spratt. Yes. Now looking back 10 years, what was the 
rate of growth in Medicare costs?
    Ms. Wilensky. Ten to 12 percent per year from 1990 to 1997.
    Mr. Spratt. Ten to 12 percent. Then after 1997 it dropped 
to--well in 1999 it was just about zero.
    Ms. Wilensky. It was 1.5 percent the first year, minus a 
half a percent the second year, 3.3 percent the third year post 
BBA.
    Mr. Spratt. But last year it was?
    Mr. Lieberman. Last year, after adjusting for the shift in 
payments to group plans----
    Mr. Spratt. Yes. That is right, you had a----
    Mr. Lieberman. It was about 8.7 percent. So it was lower 
than it had been historically, but it was still significant.
    Mr. Spratt. That is a pretty significant drop when there is 
no policy change. You have got policy changes after 1997 that 
account for the sharp fall off. With no policy change, they are 
saying we are going from 8.7 to 4 percent.
    Mr. Lieberman. That is a correct observation, Mr. Spratt.
    Mr. Spratt. Let's hope it happens. But we have to formulate 
policy. We sat here last year looking at a $5.6 trillion 
estimate of the surplus. By August the economic and technical 
factors had taken that down 40 percent. No policy changes, just 
estimation forecasting techniques accounted for huge shrinkage 
in it. We have got a big policy decision to make about exactly 
what Medicare is going to cost before we add on additional 
expenses for provider payments and what have you.
    In any event, I think there still is a significant 
difference between you and them even after you have made some 
accommodations to reflect their----
    Mr. Lieberman. Yes sir--a difference of 4.2 percent over 
the first 5 years, and 7 percent over the whole 10 year budget 
window. As Mr. Hoekstra just said, for throwing darts, it is 
probably reasonably accurate, but for making policy the way 
that this committee has to, I wish CBO's and the 
administration's projections were in tighter alignment.
    Mr. Spratt. Dr. Wilensky, you have been on the Medicare 
Payment Advisory Commission I believe.
    Ms. Wilensky. Yes. I was its chair for 4 years.
    Mr. Spratt. You are aware then of the recommendations that 
MedPAC made that Chairman Thomas of the Ways and Means 
Committee has sent to Secretary Thompson?
    Ms. Wilensky. I am aware.
    Mr. Spratt. Do you think that those provider payment 
adjustments need to be made for the sake of the system and for 
the sake of cost justice itself?
    Ms. Wilensky. Well, I was not part of their deliberations, 
but I thought it was an awful lot of money. I was surprised at 
how much it would cost.
    I believe there is a problem with Medicare physician 
payments as they now exist, particularly with the updates which 
are tied to the growth in GDP. The previous year when I was 
still chair, MedPAC had recommended that it replace that system 
and make the updates more comparable in notwithstanding to the 
rest of Medicare. I wish it had happened then. Last year would 
have produced a smaller update. The physicians were very quiet 
about the changes upsides last year. For the previous three 
years they had unusually high updates because of the linkages 
with GDP. If it had been changed a year ago, it would have 
produced better policy and cost far less then now. The problem 
is how to make the adjustment now. Minus updates for three or 
four years, it appears to be likely now is probably going to 
produce some access problems, although this has not been a 
problem in the past.
    I do not think you can fix the whole problem right away. It 
is too much. I think you need to look hard at the rest of the 
updates. Historically, market basket has not been the update in 
Medicare and yet many of the recommendations were for full 
market basket updates. There may be some reason why that now 
appears to be necessary but it is not historically what 
Congress has done.
    Mr. Spratt. Well the physician payment update is $128 
billion out of $175 billion of the total package.
    Ms. Wilensky. I do not see how you can implement the full 
recommendation unless you have much more money than I am aware 
of. But I think there needs to be some accommodation both 
because otherwise I think series will experience problems, and 
because it is not good policy.
    Mr. Spratt. Dr. O'Toole, you noted that 18 anthrax cases 
over-stressed the system. We had two witnesses here, I have 
forgotten the name of the commission they co-chaired, Lee 
Hamilton and Newt Gingrich. Newt made an interesting 
observation; namely, that the New York attack did not over-
stress the system to the extent that it might have in different 
circumstances because, unfortunately, most of the people who 
were affected were killed. So, we did not have the wounded, and 
in addition it was to some extent, a macabre sense, a 
conventional attack as opposed to a chemical/biological/nuclear 
attack. Would you agree that we have yet to see the system 
stressed and it could be vastly worse than what we saw in New 
York?
    Ms. O'Toole. Yes, I think that is exactly right. We really 
have not seen the health care system stressed in a mass 
casualty disaster where people require intense medical care 
right away for many decades. Even the Oklahoma City bombing 
resulted in I think 72 hospital admissions and many of them 
were straightforward trauma victims. So we really have not had, 
thank Heavens, the experience of having to care for a lot of 
people suddenly needing intense medical care, let alone ICU-
type care.
    Mr. Spratt. As you look at exposed and vulnerable 
facilities and all the places where terrorists willing to take 
the risk of their own lives might attack us, it is just 
infinite, it is endless. You have to draw a line somewhere. One 
of the recommendations the two of them made was that we 
probably could not do this in every locality, we needed to have 
it regionally based. New York, I guess, would be a region unto 
itself, so would Los Angeles and Chicago, the major cities 
would be, but for most of the country we would have a regional 
crisis preparedness. Do you subscribe to that view yourself, 
and is this a trend that you detect in the plans the 
administration has laid here?
    Ms. O'Toole. Well, I think that is definitely the way to 
go. I think, for example, in Baltimore, the city that I know 
best, it would not make sense to make every hospital equipped 
to handle a chemical weapons attack which requires capital 
outlays for decontamination stations and so forth. We should 
probably have one hospital that can do that very well and 
everybody ought to have some capacity to do it. But I think 
regionalization of responsibilities and capabilities is 
absolutely the most sensible way to go.
    I would like to see the Hospital Associations embrace that 
view. I think it is politically difficult for them to do so. 
There are many more rural hospitals in number than urban health 
centers, for example, and we do need to have a plan to make the 
rural areas in the country capable of dealing with an attack. 
Who knows where the next one will be? Who would have thought 
Oklahoma City would be the site of a terrorist attack?
    But we do need to have some kind of regional plan. The HHS 
guidance at this point does require States to address regional 
capabilities. That is about all it says. It is a good place to 
start. I do not know that we could go much farther at this 
point. But I would hope that next year we would see a much more 
coherent ``who is going to do what'' blueprint laid out so that 
we could get some efficiencies in the system.
    Mr. Spratt. One final question. In the aftermath of 9/11 
some Members went from here to Atlanta just to see CDC, what do 
they do and what kind of security preparations have they made. 
They came back very concerned about the physical state of their 
facilities, about the limit to which they are already pressed 
to their capacity, and about the lack of any really consciously 
laid security plan around the premises. You did not mention 
that. Do you think we are overlooking something here in the 
budget? There is no real plus-up for CDC in this budget at all.
    Ms. O'Toole. Well I am always happy to advocate for more 
money for public health. I think if you set priorities, the 
priority has to be on improving local response because that is 
where the burden is going to fall. And if you think CDC is in 
decrepit shape, let me show you a few State health departments. 
And that is the problem. If you have some extra money around, 
CDC can certainly use it and it would be of benefit to the rest 
of the country. But the emphasis I think is appropriately on 
local and State health departments in this budget. I do think, 
as Secretary Thompson said, CDC desperately needs money for 
improved infrastructure. My other plea for CDC would be for 
ways of bringing in more people from the medical and public 
health professions to CDC, particularly mid-career people who 
might be able to come in for two or 3 years and then go back 
out, infusing them immediately with some experienced folks.
    Mr. Spratt. Thank you very much, all of you, for your 
testimony.
    Mr. Hoekstra. Mr. Holt.
    Mr. Holt. Thank you, Mr. Chairman.
    Dr. O'Toole, I would like to pursue some points you raised. 
And forgive me, I had to be out of the room for your oral 
testimony but I have read your written testimony, and forgive 
me if I am asking you to repeat things that you have already 
covered. Along the lines of your discussion with Mr. Spratt, 
you say, I think appropriately, that when we are talking about 
bioterrorism we want to choose responses that have other 
humanitarian and peacetime benefits as well, and you make that 
case very well. And you say that in light of the expense in 
various ways, from the 18 cases of anthrax that you do not 
think that we are spending too much in the President's budget 
to deal with bioterrorism.
    But you do point out a couple of problems having to do with 
the R&D. And that has to do with whether there is a real R&D 
strategy. I asked the Secretary earlier if he could explain how 
they know where they are going with the research. I would like 
you to expand on that a little bit.
    Also, you talked about the need for a clearinghouse and 
some coordination. I certainly have observed, as I have looked 
into this work with pathogens, that there has been 
disorganization and sometimes turf fights. The Army, SAMRAD, 
CDC have not always worked as closely as I would like to see. 
What do you have in mind for coordination of this cross-agency 
government effort?
    Ms. O'Toole. Well, as you say, what might be called 
biodefense research and development is spread over multiple 
agencies in the government and there is no one place where you 
can find out who is doing what. This has been very problematic, 
for example, for biotech firms who think they have something 
useful to offer who do not know how to plug in. Even a simple 
sort of clearinghouse, a web-based list of who is doing what 
across the government, could help us engage the talent in the 
biotech and university research communities to the benefit of 
these government programs.
    It would be terrific if we could figure out some way of 
dealing with the congressional cross-jurisdictional issues in 
biodefense R&D. This is a very singular problem. We have a 
national security problem, bioterrorism preparedness. This is 
not a public health problem primarily, this is a national 
security problem and yet its jurisdiction is spread over 
multiple committees and is going to have to mend with programs 
in the Department of Defense if we are going to get the best 
bang for the buck.
    At the same time, in order to really utilize the real 
talents in bioscience in America, we must engage the university 
researchers and the folks in biotech who do not now do business 
with the government by and large except via the traditional NIH 
grant route, which may not be the best or at least the only 
mechanism through which we want to solicit R&D work, 
particularly the development work which NIH does not typically 
do.
    So I think that it may be unfair to say that we have a 
problem with the absence of an R&D strategy. These monies just 
got out there within the last month, NIH has reached out to the 
traditional research community to solicit ideas. I think what 
we do need to do though is make sure that there is a strategy 
going forward and hopefully that strategy will reach across 
multiple institutions of government and multiple congressional 
committees.
    Mr. Holt. I do think that this--you refer to the 
development part of R&D--it seems to me this is a particularly 
noteworthy area where directed research can have great 
humanitarian and peacetime benefits.
    Changing the subject to something that maybe you can answer 
quickly; in helping us here in Congress deal with this, and I 
think you have some experience in that, do you think we would 
benefit from having an Office of Technology Assessment?
    Ms. O'Toole. Yes.
    Mr. Holt. Thank you.
    Ms. O'Toole. How is that for brief?
    Mr. Holt. Thank you.
    Thank you, Mr. Chairman.
    Mr. Hoekstra. Chairman Nussle.
    Chairman Nussle. I just wanted to thank our panelists. I 
wish I could have been here for the actual testimony. I read 
some of it. I think the one thing that I was most encouraged 
by, first of all, is that HHS has a huge budget and a number of 
different areas but health care is really the key component. We 
have a lot of successes and I know a lot of bipartisan support 
in a number of areas, but, boy, health care is going to be a 
tough nut to crack. And it is not even a partisan issue. As 
some of you know, it becomes regional, rural and urban; all 
sorts of things.
    So more than anything else I just wanted to thank you for 
your advocacy in suggesting that Medicare should be tackled in 
total. As I said to the Secretary, while I certainly would be 
very interested in providing a prescription drug benefit to my 
seniors, if the hospital closes they do not have health care. 
So OK, great, you have got a really nice prescription drug 
benefit but you do not have a doctor anymore. Sorry. That is 
not going to fly. It does not make any sense. So solving 
prescription drugs--which seems to be a nice bumper sticker 
issue--does not help us in many of our areas, as you know 
because you have been tackling this as long as I have.
    So I just want to thank you for your advocacy. I do not 
have any questions. Also, I want to thank you for testifying 
before our committee today.
    Mr. Hoekstra. Yes. I guess the chairman knows that now with 
consumer advertising of prescription drugs you do not need 
doctors anymore.
    Thank you very much. You have been a very good panel.
    There being no more questions, the committee will be 
adjourned.
    [Whereupon, at 1:10 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]

                                
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