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



 
   PRESIDENT'S 2003 BUDGET PROPOSALS FEATURING HHS SECRETARY THOMPSON
=======================================================================


                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION
                               __________

                            FEBRUARY 6, 2002
                               __________

                           Serial No. 107-55
                               __________

         Printed for the use of the Committee on Ways and Means






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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

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

                     Allison Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel

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









                            C O N T E N T S

                               Page______
Advisory of January 29, 2002, announcing the hearing.............     2

                                WITNESS

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

                       SUBMISSION FOR THE RECORD

AdvaMed, statement...............................................    51










   PRESIDENT'S 2003 BUDGET PROPOSALS FEATURING HHS SECRETARY THOMPSON

                              ----------                              


                      WEDNESDAY, FEBRUARY 6, 2002

                          House of Representatives,
                                Committee on Ways and Means
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:12 a.m., in 
room 1100 Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
January 29, 2002
No. FC-11

                  Thomas Announces a Hearing Featuring

                     HHS Secretary Thompson on the

                   President's 2003 Budget Proposals

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the President's fiscal year 2003 budget for the U.S. Department of 
Health and Human Services. The hearing will take place on Wednesday, 
February 6, 2002, in the main Committee hearing room, 1100 Longworth 
House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the Honorable Tommy G. Thompson, 
Secretary, U.S. Department of Health and Human Services (HHS). However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    On January 29, 2002, President George W. Bush will deliver his 
State of the Union address, in which he is expected to outline several 
legislative initiatives. The details of these proposals are expected to 
be released on February 4, 2002, when the President is scheduled to 
submit his fiscal year 2003 budget to the Congress. The budget for HHS 
is expected to include initiatives aimed at: strengthening and 
improving Medicare; assisting individuals who lack health insurance; 
reforming managed care; ensuring medical records confidentiality; and 
reauthorizing and improving Temporary Assistance for Needy Families, 
and related programs.
      
    In announcing the hearing, Chairman Thomas stated: ``The Committee 
looks forward to Secretary Thompson's appearance. This hearing will 
help lay the groundwork for the coming year's legislative business. The 
Committee will examine measures to secure a drug benefit, strengthen 
Medicare, protect consumers in managed care, reduce the number of 
uninsured, and guard sensitive personal medical information,'' Thomas 
said.
      
    ``In addition, we will work to build on the tremendous successes of 
welfare reform. Earnings for low-income parents have risen, child 
poverty is down sharply, and welfare caseloads have been cut in half. 
We need to press on with the work-focused approach taken since 1996 and 
resist efforts to turn back the clock to pre-reform policies 
discouraging work and promoting dependence.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing is to review the President's fiscal year 
2003 budget proposals for the U.S. Department of Health and Human 
Services.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
``[email protected]'', along with a fax copy to 
202/225-2610 by the close of business, Wednesday, February 20, 2002. 
Those filing written statements who wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the full Committee in room 1102 Longworth 
House Office Building, in an open and searchable package 48 hours 
before the hearing. The U.S. Capitol Police will refuse unopened and 
unsearchable deliveries to all House Office Building.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
``[email protected]'', along with a fax copy to 
202/225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
     The above restrictions and limitations apply only to material 
being submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov/.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                


    Chairman Thomas. Good morning, and welcome to the 
Committee's second hearing on the President's fiscal year 2003 
budget. This morning we will hear from U.S. Department of 
Health and Human Services (HHS) Secretary Governor Tommy 
Thompson. The President's budget, as we said yesterday, lays 
out three clear and concise priorities: Win the war, protect 
our homeland, and revive the economy. These, to a very good 
extent, relate to the tragic events of September 11th. Almost 8 
million Americans are now unemployed, many of them without 
access to affordable health insurance. This House addressed 
that issue last year. The Senate's failure to act on stimulus 
means the unemployed are still waiting.
    The President's budget includes $90 billion in refundable 
and advancable health care tax credits for the unemployed and 
other uninsured.
    As the first of the baby boomers approach retirement age, 
this budget takes steps toward providing retirement security. 
Medicare clearly forms a part of a secure retirement, but 
Medicare, in its basic form, is 35 years old. The most obvious 
wrinkle on the face of Medicare is the lack of a Medicare 
prescription drug benefit, and that needs to be addressed. In 
fact, it is overdue in being addressed. No one designing a 
modern health program for seniors today would exclude 
prescription drugs. In fact, the House has acted last Congress 
on a prescription drug program. We plan to act in this 
Congress. The difficulty has been in getting the Senate to act 
so we can move together a bill to the President's desk.
    Given the realities on terrorism and the recession, I 
commend the President for not reducing the resources he 
proposed last year for prescription drugs and Medicare reform. 
That $190 billion was placed on the table in a period of 
surplus. The $190 billion in today's budget is placed in a very 
clouded atmosphere of significant additional resources, 
demands, and I underscore, I commend the President for that 
effort.
    All of our seniors and disabled citizens deserve a 
comprehensive prescription drug benefit in a modernized 
Medicare Program. The President's proposal to provide immediate 
relief to seniors through a prescription drug card is a good 
interim step. I underscore ``interim.'' It will lay the 
groundwork for Medicare and develop an infrastructure for a 
fully funded prescription drug benefit and for seniors to learn 
how to use it. It is a bridge to a more comprehensive drug 
benefit program, and I hope that bridge is of short duration.
    Modernization of Medicare must also include a 
rationalization of how health care provider services are paid 
for. Our government-run payment systems are fundamentally 
flawed, whether it is how we pay private health plans in 
Medicare or physicians serving our beneficiaries.
    Mr. Secretary, you have been a strong leader on the issue 
of health and welfare, both now in your current capacity as 
Secretary and previously as Governor of Wisconsin. We look 
forward to working with you. You have already made significant 
changes in the administrative structure. I know you need 
additional assistance. We do need to reauthorize the Temporary 
Assistance to Needy Families, or the TANF program. That law has 
been a resounding success, and we need to move forward in this 
area as well.
    The President's budget, I think, has started a constructive 
dialog on many important issues. We look forward to continuing 
the dialog and hearing your testimony, but more importantly, we 
need to figure out how to structurally make the changes and how 
budgetarily to finance the very real reforms that need to be 
made. Nothing is more fundamental than providing prescription 
drugs for our seniors. And so, prior to hearing from you, Mr. 
Secretary I would ask the gentleman from New York, Ranking 
Member, if he has any comments.
    [The opening statement of Chairman Thomas follows:]
Opening Statement of the Hon. Bill Thomas, a Representative in Congress 
from the State of California, and Chairman, Committee on Ways and Means
    Good morning, and welcome to the Committee's second hearing on the 
President's fiscal year 2003 budget. This morning we will hear from 
Health and Human Services Secretary Tommy Thompson.
    The President's budget lays out three clear and concise priorities: 
win the war, protect our homeland, and revive the economy. These, to a 
great extent, relate to the tragic events of September 11th. Almost 
eight million Americans are now unemployed, many of them without access 
to affordable health insurance. This House addressed that issue last 
year. The Senate's failure to act on stimulus means the unemployed are 
still waiting.
    The President's budget includes $90 billion in refundable and 
advancable health care tax credits for the unemployed and other 
uninsured.
    As the first of the baby boomers approach retirement age, this 
budget takes steps toward providing retirement security. Medicare 
clearly forms a part of a secure retirement, but Medicare in its basic 
form is 35 years old. The most obvious wrinkle on the face of Medicare 
is the lack of a Medicare prescription drug benefit, and that needs to 
be addressed. In fact, it is overdue in being addressed. No one 
designing a modern health program for seniors today would exclude 
prescription drugs.
    In fact, the House acted during the last Congress on a prescription 
drug program. We plan to act in this Congress. The difficulty has been 
in getting the Senate to act, so we can together move a bill to the 
President's desk.
    Given the realities of terrorism and the recession, I commend the 
President for not reducing the resources he proposed last year for 
prescription drugs and Medicare reform. That $190 billion was placed on 
the table in a period of surplus. The $190 billion in today's budget 
comes in a very clouded atmosphere of significant additional resource 
demands, and so I underscore: I commend the president for that effort.
    All of our seniors and disabled citizens deserve a comprehensive 
prescription drug benefit in a modernized Medicare program. The 
President's proposal to provide immediate relief to seniors through a 
prescription drug card is a good interim step. I underscore 
``interim.'' It will lay the groundwork for Medicare to develop the 
infrastructure for a fully funded prescription drug benefit, and for 
seniors to learn how to use it. It is a bridge to a more comprehensive 
drug benefit program, and I hope that bridge is of short duration.
    Modernization of Medicare must also include a rationalization of 
how health care provider services are paid for. Our government-run 
payment systems are fundamentally flawed, whether it is how we pay 
private health plans in Medicare or physicians serving our 
beneficiaries.
    Mr. Secretary, you have been a strong leader on the issue of health 
and welfare, both now in your current capacity as secretary, and 
previously as governor of Wisconsin. We look forward to working with 
you. You have already made significant changes in the administrative 
structure. I know you need additional assistance. We do need to 
reauthorize the Temporary Assistance to Needy Families, or TANF, 
program. That law has been a resounding success, and we need to move 
forward in this area as well.
    The President's budget, I think, has started a constructive 
dialogue on many important issues. We look forward to continuing the 
dialogue and hearing your testimony, but more importantly, we need to 
figure out how structurally to make the changes and how to finance the 
very real reforms that need to be made. Nothing is more fundamental 
than providing prescription drugs for our seniors.
    And now, prior to hearing from you, Mr. Secretary, I would ask the 
gentleman from New York, the ranking member, if he has any comments.

                                


    Mr. Rangel. Thank you, Mr. Chairman. Let me agree with you 
that we are pleased to have the Secretary to come before us and 
to provide the leadership as we try to protect the health care 
for our aged and those people that, for no reason of their own 
will, have to be relying on federally supported assistance and 
welfare. And I agree with the Chairman that all we are doing is 
having dialog. We realize we are in a war, we are in a 
recession. The luxury we had in talking about surpluses are no 
longer before us, and so to a large degree, we have got to 
determine the priorities of the Congress and the 
Administration. I do hope that any ideas that the Democrats 
have in welfare that--led by Mr. Cardin and in health care, led 
by Mr. Stark, we will have an opportunity perhaps, even outside 
of the Committee, to at least have a review by the 
Administration so that when the President talks about 
bipartisanship, he truly means we work together in trying to 
reach a conclusion and to further that goal. Then with the 
permission of the Chair and the Committee at this time, I would 
like to yield to Mr. Stark.
    Mr. Stark. Thank you, and thank you, Chairman Thomas. Thank 
you, Mr. Secretary for being with us today. The unfortunate 
thing about the budget that you have got to work with is that 
there is not much there. As far as domestic spending is 
concerned, it is long on rhetoric and very short on dollars to 
get the job done. The Medicare trust fund will disappear in the 
year ahead, and we will go well into the Social Security trust 
fund. So much for the Medicare and Social Security lock boxes, 
which we all voted for time and time again. We are just, I 
gather, ignoring those.
    We hear rhetoric about reforming Medicare, and it is clear 
that the Republican policy is to privatize Medicare--turn it 
into a voucher system--as it is a Republican policy to 
privatize Social Security and instead invest those funds in the 
private sector as payback, I suppose, to the help they receive 
from Enron.
    So much for doing anything to protect the average senior, 
either in health care or in Social Security. There is some 
opportunity to expand the uninsured program. We can probably do 
it better not using the Tax Code, which often is not the best 
way. There are a series of items that I think we could work 
together on, to fine-tune some of the problems that we have 
with Medicare.
    Obviously, the physician payment formula needs some work. 
It was put together when we were in the majority, and you all 
were in the White House. We made some mistakes. I think we 
should fix those. Even though we don't have the money to do 
what is right, we can change those formulas and improve the 
status quo.
    And there are some other items. Indeed, the Senate has a 
bill that we sent over on regulatory reform and modernization, 
things that should help you and help--I still say Health Care 
Financing Administration (HCFA)--do their jobs better. We have 
to stay away from the budget discussion, because the drug 
benefit isn't meaningful, and the seniors understand that. They 
can count the benefits with their shoes and socks on, and they 
are not going to be flim-flammed into thinking they are getting 
a benefit when they are just getting a pat on the head.
    So regarding the budget, as we say in Oakland, California, 
there is no ``there'' there, but let's deal with what we can.
    I know that your testimony, Mr. Secretary, does deal with 
TANF and some of the welfare issues which we normally don't get 
to put a large audience when we deal with welfare issues in 
this Committee. I would like to, if I may, yield briefly to Mr. 
Cardin.
    [The opening statement of Mr. Stark follows:]
 Opening Statement of the Hon. Fortney Pete Stark, a Representative in 
                 Congress from the State of California
    First I'd like to thank Secretary Thompson for being with us today 
to help illuminate the details of President Bush's health care 
priorities since one cannot read the budget documents and ascertain 
much in that regard.
    Unfortunately, this budget is like much of what we've seen out of 
the Bush Administration with regard to domestic spending priorities: it 
is long on rhetoric and short on policy and dollars to get the job 
done.
    So much for a Social Security or Medicare lock-box. This budget 
spends both of these trust funds for the foreseeable future just to run 
the government. This is hardly sound budgeting. We know we've got an 
explosion of Social Security and Medicare beneficiaries at the end of 
the decade--we should be saving for those costs--not blowing the bank 
now.
    We all know that dedicating $190 billion over 10 years for a 
Medicare prescription drug benefit doesn't come close to providing the 
necessary funding. To create a meaningful prescription drug benefit--
one that provides each Medicare beneficiary with even a decent 
prescription drug benefit--would probably cost at least $500 billion 
over that timeframe.
    We also know that the $190 billion allocated in the President's 
budget doesn't all go to prescription drug benefit. $77 billion of 
these funds are optional money to the states should they choose to 
expand prescription drug benefits in Medicaid to seniors between 100-
150% of poverty. There is no requirement that the states spend any of 
this money and actually provide drug coverage for anyone. The only two 
other prescription drug proposals highlighted in the President's budget 
are a waiver program, described as a budget neutral way for states to 
expand drug coverage, and the President's phony prescription drug 
discount card. In fact, much of the remaining funds seem to go to 
Administration efforts to ``reform'' Medicare by turning it into a 
voucher system in which government funds are protected and the 
financial burdens on seniors increase.
    The President claims to want to help the uninsured get health 
insurance. Unfortunately, he has proposed a tax credit which simply 
won't accomplish that goal.
    These tax credits begin phasing out for individuals at $15,000 
income and families with $25,000 in annual income. The subsidy level of 
$1000/$3000 will not cover half the cost of a standard health insurance 
plan ($2600 individual/$7000 family). For families with incomes below 
$25,000, they would have to spend some 10-15% of their gross incomes to 
be able to afford a policy under this proposal--and that is only if 
they are healthy enough to qualify for coverage. Those costs are too 
high for a family making decisions about paying the mortgage, or 
putting dinner on the table, not to mention buying a health insurance 
policy.
    Expanding health insurance for the uninsured is a goal I hope all 
of us share. I would advocate building on existing government programs 
as a much more effective method of expanding coverage and urge you to 
remain open to such alternatives this year.
    There are many other components of the President's health care 
budget which I haven't touched on. But, I think I will close with my 
belief that the presentation of a budget is really a list of 
priorities. It is clear from the President's 2003 Budget that providing 
a prescription drug benefit to seniors ranks far below providing tax 
breaks to the wealthy. It is obvious that steps for expanding access to 
health insurance will be small. Clearly, it will be up to Congress to 
come up with policies in both of these arenas if we are to see real 
advancements in the near future.
    I look forward to hearing from the Secretary with his thoughts on 
these matters.

                                


    Chairman Thomas. The gentleman's time has expired.
    The Chair would indicate that the Chair was extremely 
generous in the first hearing. Many Members on both sides, 
going 8, 10 and 12 minutes. To the degree that we can 
discipline ourselves to the rules in terms of 5 minutes, which 
includes questioning, and to the extent possible, the response 
of the witness, I believe we can move along. And with that, I 
would indicate----
    Mr. Rangel. Mr. Chairman----
    Chairman Thomas. The gentleman from Maryland is recognized.
    Mr. Rangel. Mr. Chairman, just a courtesy to have an 
exchange, so I can--what you are saying, and just inquire as to 
whether or not this strict support of the rules would include 
the Chair, because in honesty, you do have a tendency to 
comment on everything that the Members have to say, which I do, 
too, if I had the chance, and it would help us to discipline 
ourselves if there--if we can see you set an example.
    Mr. McCrery. Mr. Chairman, if I might be recognized.
    Chairman Thomas. The gentleman from Louisiana.
    Mr. McCrery. I was a Member of this Committee when we were 
in the minority, and it has always been a rule on this 
Committee that the Chair has wide latitude on his comments; he, 
the Chair of the Committee. And I would hope that would be 
maintained regardless of which party is in control of the 
Committee.
    Mr. Rangel. And I respect that.
    Mr. McCrery. And I respect the Chairman's ability to run 
this Committee, and I think he has the right as Chairman to 
comment as he pleases.
    Mr. Rangel. I respect that. I support that. I respect 
majority rule. I was only trying to set a tone of fairness and 
equity, but you certainly can do what you think you can get 
away with.
    Chairman Thomas. And what the Chair indicated was that 
normally when the Ranking Member makes a statement out of 
courtesy, he is not clocked either, if the gentleman will 
notice the apparatus that determines the time available.
    Mr. Rangel. You have been very kind, Mr. Chairman.
    Chairman Thomas. The gentleman from New York handed off to 
the gentleman from California. The Chair continued to allow it 
to go forward. The gentleman from California handed off to the 
gentleman from Maryland. Now, at some point, the relay is going 
to end, and I made that point, and then to recognize you for 
your generous intervention, the Chair said he would recognize 
the gentleman from Maryland for a brief statement. The point 
is, when you are given a privilege, you don't abuse it, and 
frankly, the Chair believes that what was occurring was an 
attempt to abuse the privilege, and the Chair will exercise 
every power and prerogative to the Chair when privileges are 
abused. The gentleman from Maryland wish to make a comment?
    Mr. Cardin. Thank you, Mr. Chairman, and Secretary 
Thompson, I want to welcome you here, and thank you for your 
leadership on TANF. I am the Ranking Member, as you know, on 
the Human Resources Subcommittee. I look forward to working 
with you on TANF reauthorization. I am an optimist, and I think 
that the structure that you have brought forward gives us 
latitude to reach a bipartisan agreement on TANF, and I thank 
you for the leadership within the Bush Administration on this 
area.
    I particularly want to compliment you on trying to update 
the illegitimacy fund to make it a constructive fund to help 
American families with technical assistance and eliminating the 
discrimination on two-parent families today. I think they are 
both improvements. But as you said in your statement, but even 
with those notable programs, much more needs to be done, and I 
agree with you.
    So it is time to take it to the next level. You suggest 
that we add to the TANF legislation child's well-being. I would 
suggest that you broaden that to poverty reduction, and the 
reason I say that is that we have been reducing the number of 
people on welfare much faster than American families have got 
now poverty.
    Still, now one in six children live in poverty, and you and 
I know we need to do a lot better than that. So I would suggest 
that as we work toward reauthorization, look at ways that can 
help people get out of poverty, like the current restrictions 
on vocational training need to be eased up, and the work 
support programs, such as child care and wage supplements for 
low-income families also need to be reviewed. So we need to do 
more in resources. If we don't adjust the basic--there is a 22-
percent reduction, and I look forward to working with you. I 
think with your leadership, we can work out a bipartisan 
agreement, but it is going to take some more money. Thank you, 
Mr. Chairman.
    Chairman Thomas. You are welcome. The Committee rules have 
been that the Chair and the Ranking Member make opening 
statements. All other Members can submit written statements, 
and the Chair will apologize to the Chair of the Health 
Subcommittee and to the Chair of the Welfare Committee who 
chose not to abuse the privilege, and the Chair appreciates 
that.
    And now, Mr. Secretary, once again it is a privilege to 
have you before us. Your job is indeed a daunting one. There 
are never enough resources, and unfortunately we haven't been 
so creative as perhaps all of us would like in addressing a 
very serious concern. But utilizing the resources you have with 
the staff, very capable staff that you have surrounded yourself 
with, we look forward to hearing your plans for the upcoming 
budget year.
    You have a written statement, I assume. It will be made a 
part of the record, and with that you may address us in any way 
you see fit. And I believe you need to turn that mirophone on.

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

    Mr. Thompson. Thank you, Mr. Chairman, and good morning. 
Good morning, Mr. Chairman, Congressman Rangel, Members of the 
Committee. Mr. Chairman, thank you for your friendship and 
support in my first year as HHS Secretary. Your counsel and 
consideration have been both helpful and generous, and I 
appreciate them very much.
    Mr. Rangel, we may be an opposite sides of the aisle, but 
we are on the same side when it comes to caring about the 
health and well-being of every American. Thank you for your 
leadership, and good work.
    It is good to be with all the Members of this Committee 
again. They had the opportunity to discuss the President's 
Fiscal Year 2003 Budget for the Department of Health and Human 
Services. Mr. Chairman, when I first appeared before you a year 
ago to describe President Bush's ambitious agenda, I told you 
that I accepted this job, because I wanted to help secure the 
safety and welfare of the American people. Health security is 
the ultimate goal of our efforts, and I believe that we are 
reaching that goal to a degree never before in our history.
    First, Mr. Chairman, let me review a few of our most 
notable accomplishments. We responded quickly and effectively 
to the terrorist attacks of 9-11 and the anthrax attacks that 
followed. We made tremendous progress in providing health care 
to lower income Americans. We provided 1400 waivers and State 
plan amendments, expanding eligibility to about 1.8 million 
people, over 300,000 in the State of California and over 
600,000 in the State of New York, and we enhanced benefits to 
4\1/2\ million individuals in America.
    We have also committed substantial resources to community 
health centers. Last year, I also committed to you to change 
the way the Centers for Medicare and Medicaid Services (CMS) 
work, and we are working every day to ensure you and this 
Committee that the agency is run in the most efficient way 
possible, in the most responsible way possible to this 
Committee and other Members of Congress.
    I applaud your work, Mr. Chairman and the Committees in the 
areas of regulatory relief and contractor reform issues. The 
President and I would urge your colleagues in the Senate to 
move those important issues forward as well.
    In addition, we launched a prevention initiative. We got a 
new emphasis on organ donation and dramatically increased, with 
your help and on a bipartisan basis, I might add, funding for 
the National Institutes of Health. We strengthened the health 
and well-being of American families, seniors and the 
traditionally underserved populations. Our progress was 
substantial, but of course it was not complete.
    So this year the work goes on as we propose a balanced and 
responsible approach to ensuring a safe and healthy Nation. At 
the same time, this is a budget about priorities. As the 
President said in his State of the Union message, our Nation 
has no higher immediate priorities than defeating international 
terrorism, defending our homeland and restoring economic 
growth. So we must choose our priorities carefully, and I 
believe the President is doing just that.
    The President is providing unprecedented resources to 
prepare for bioterrorist attacks against us, and he recognizes 
that securing the safety and welfare of our country goes beyond 
preparing for bioterrorism and protecting our borders. It goes 
to the heart and the health of every American.
    Mr. Chairman, the total HHS request for fiscal year 2003 is 
$488 billion, almost a quarter of all Federal spending. This is 
an increase of $29 billion, or 6\1/2\ percent over the 
comparable fiscal year 2002 budget. The discretionary component 
of the HHS budget totals $64 billion in budget authority. An 
increase of $2.4 billion, or 3.9 percent.
    Today, Mr. Chairman, I would like to focus on two groups of 
Americans whose well being is of particular concern to all of 
us as public servants, those who are struggling with continued 
dependence on welfare, including the children and the young 
people, as well as those older Americans who deserve a strong 
improved Medicare system.
    First, I will discuss the President's bold proposals for 
the continued reform of the welfare system. As you know, 
welfare reform has always been one of my greatest concerns. In 
Wisconsin, we devoted substantial resources to helping 
individuals get the training, health insurance, child care and 
other services they needed to go from welfare to work. Welfare 
reform has worked beyond expectations, resulting in millions 
moving from the shackles of Aid to Families with Dependent 
Children (AFDC) to the independence of work. Nearly 7 million 
fewer individuals now are on welfare today than in 1996, and 
2.8 million fewer children are in poverty because of welfare 
reform.
    In New York City, where employment loss is perhaps one of 
the greatest concerns, there still were more than 53,000 job 
placements for welfare recipients, from September through 
December of last year. While the number of TANF recipients 
increased briefly due to the terrorist attacks of September 
11th, by December there were about 15,000 fewer individuals on 
the TANF roles than in August. In fact, in December, there were 
fewer individuals in New York City on welfare than at any time 
since 1965, but we are not done. There is a clear and important 
next step to welfare reform. The budget boldly takes that next 
step, and I applaud the President for keeping us moving forward 
in this historic endeavor.
    The next step requires to work with States to help those 
families that have left welfare, to climb the economic ladder 
and become more secure in the workforce, as Mr. Cardin has just 
indicated. And while doing so, we must not leave behind those 
that are still in our caseloads. Our budget also provides 
$16\1/2\ billion for block grant funding. It provides 
supplement grants to address historical disparities in welfare 
spending among States and strengthens work participation 
requirements.
    It also provides $100 million in broad demonstration 
authority, focused primarily on encouraging stronger and 
healthier families. Next, we will be submitting a proposal to 
create a matching State grant program to strengthen families 
and reduce out-of-wedlock births.
    While this represents level funding for the TANF grant, in 
reality, it provides money that States can spend on helping 
workers remain in the work force. States will be able to apply 
the savings gained from caseload reduction to new programs that 
help workers thrive in the work force. We are giving States the 
flexibility they need to creatively mix effective education and 
job training programs with work, as well as money to strengthen 
families and reduce illegitimacy. We hope to work closely with 
all of you in Congress to more closely shape the next step in 
welfare reform. In doing so, however, we cannot get away from 
the foundation of welfare reform success, and that foundation 
is work.
    Work must remain at the core of TANF, for work is the only 
way to climb out of poverty and become self sufficient, and we 
must continue to make sure that work pays for families, 
providing the proper child care and the proper health care 
programs.
    President Bush's budget helps in this regard by providing 
another $350 million in Medicaid benefits for those in the 
transition from welfare to work. I appreciate this Committee's 
tremendous effort and want to recognize Mr. Herger's as well as 
Mr. Cardin's bipartisan leadership, in particular, in support 
of all of our initiatives to help America's families. Your 
support was very evident recently as you advanced the 
President's safe and stable families program, Mr. Herger, 
through the legislative process.
    The President's 2003 budget would increase funding for the 
safe and stable families for this program to $505 million, 
fully supporting the increased authorization included in this 
new law which was supported on a bipartisan basis in this 
Committee. These additional funds will be used to help move 
children to adoption more quickly so that they become part of a 
safe and stable family, as well as enhanced preventive efforts 
to help families in crisis.
    Our budget framework includes resources for a number of 
additional programs targeted at protecting our most vulnerable 
and at-risk children. The budget provides nearly $5 billion for 
foster care, nearly $2 billion for adoption assistance, and $43 
million in adoption incentive funds.
    As we provide funding for programs and policies that will 
enable adults to transition from welfare to work and to be able 
to help ensure them a healthy start in life for disadvantaged 
young people, we must not neglect our obligations to those on 
the other end of life's horizon, our Nation's seniors. The 
President's budget lays a firm foundation for meeting those 
obligations, now and in the future, through a stronger Medicare 
Program.
    Right now, Medicare covers only 53 percent of the average 
senior's annual Medicare expenses, and the program's benefit 
package has not kept pace with advances in medication and 
treatment. So the budget dedicates $190 billion over 10 years 
for immediate improvements in 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 the 
$190 billion over 10 years is not enough, but we believe this, 
amount is sufficient. The President and I will work with this 
Committee and Congress to achieve that goal this year.
    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. Let me assure you the President 
remains committed to that framework and to bring the Medicare 
Program up to date by providing prescription drug coverage and 
other improvements.
    The President and I are absolutely committed to providing 
immediate assistance to seniors who currently have to pay the 
highest prices for prescription drugs, and the policies we have 
announced in the budget establish a framework necessary for a 
Medicare prescription drug benefit. This budget proposes 
transitional drug coverage for low-income seniors to help them 
with high drug costs. The Federal Government will help States 
provide comprehensive drug coverage 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 do not now have prescription drug 
assistance. It would be a mistake to address this issue in a 
vacuum, however, which is why we propose that this program 
should be integrated into the full benefit as quickly as 
possible. But we don't need to wait to help now the most needy 
seniors.
    As you know, last year the President proposed the creation 
of a new prescription drug card to reduce the costs of 
prescription drugs for seniors. This year HHS will continue 
working to implement a Medicare endorsed prescription drug 
card, which will give beneficiaries immediate access to drug 
discounts, hopefully up to 25 percent and other valuable 
pharmacy services.
    In addition, I announced several weeks ago a model drug 
waiver program called Pharmacy Plus, to allow States to reduce 
drug expenditures for Medicare beneficiaries and disabled 
individuals with family income up to 200 percent of the Federal 
poverty level, making it easier for States to take similar 
steps to help their senior citizens who need help the most is a 
goal we all must make.
    The bottom line is that we need to enact a prescription 
drug benefit this year, but it would be a mistake to address 
prescription drugs in a vacuum. We must also make it part of a 
comprehensive strengthening of Medicare, and I know you are for 
that, Mr. Chairman, and I applaud you, securing the viability 
of this popular program for our baby boomers and future 
generations. We simply can't put the problems facing Medicare 
off any longer. As I said a few moments ago, now is the time to 
act.
    The budget also includes an increase in funding to 
stabilize the Medicare+Choice program by realigning payment 
rates more closely with overall spending. Over 500,000 seniors 
lost coverage last year, because Medicare+Choice plans left the 
program. Today, about 5 million seniors choose to receive 
quality health care through Medicare+Choice. Many seniors like 
this option, and we must preserve it. And some of these 
initiatives are immediate and tangible help to seniors, but let 
me make it clear. These are not substitutes for a comprehensive 
reform and a prescription drug benefit. Ultimately we must work 
together on these broader issues, and I look forward to you, 
Mr. Chairman, and other Members, to join you in this important 
task.
    Mr. Chairman, I know many Members of this Committee have 
expressed concerns about Medicare payment systems, including 
hospitals and physician payments. The President's budget 
demonstrates that the Administration is willing to work with 
you and Congress to address this issue. We agree that changes 
should be made and believe that we must approach significant 
changes carefully and consider all the provider payments, but 
let me be clear: If increasing physician payments is on the 
table, then we think adjusting other provider payments should 
be as well.
    I look forward to working with you, Mr. Chairman, and you, 
Mr. Stark and your colleagues on this issue.
    Finally, Mr. Chairman, the President's budget includes $89 
billion in new health credits to help American families buy 
health insurance. The program will support purchase of health 
insurance, as well as affordable expansions in State and 
Federal programs and will provide the States the kind of 
flexibility they need to set up State-sponsored purchasing 
pools to harness the economics of group purchasing.
    The budget I bring before you today contains many different 
elements of a single proposal, but binds them together as the 
desire to ensure a safe and healthy America and to improve the 
lives of the American citizens, while fostering the discipline 
the state of our economy demands. All of our proposals, from 
increasing access to health care for seniors and all Americans, 
to protecting the Nation against bioterrorism, to investing in 
biomedical research to supporting healthier communities, are 
put forward with the single goal of building a safe and healthy 
country.
    I know this is a goal that we all share, and with your 
support, we are committed to achieving it more fully in the 
year 2003. Thank you again, Mr. Chairman, for letting me come 
before you today. I look forward to answering your questions.
    Chairman Thomas. Thank you very much, Mr. Secretary. And I 
appreciate the comments and your remarks about being willing to 
work with us, because frankly we have some difficulty with the 
math, as it has been presented to us.
    [The prepared statement of Secretary Thompson follows:]
Statement of the Hon. Tommy G. Thompson, Secretary, U.S. Department of 
                       Health and Human Services
    Good morning, Mr. Chairman and members of the Committee. I am 
honored to appear before you today to discuss the President's FY 2003 
budget for the Department of Health and Human Services (HHS). 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. Our budget supports 
the development and well-being of America's families; increases access 
to health care; strengthens Medicare with a prescription drug benefit 
and other improvements; and increases support for bioterrorism research 
and preparedness, and supports the President's Management Agenda 
through a number of management reform initiatives within the 
Department. The President's budget also includes a $4 billion increase 
for biomedical research at the National Institutes of Health (NIH). 
This final installment of the President's five-year doubling is largest 
year-to-year dollar increase that NIH has ever received.
    Mr. Chairman, the total HHS request for FY 2003 is $488.8 billion 
in outlays. This is an increase of $29.2 billion, or 6.3 percent over 
the comparable FY 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. This committee has jurisdiction over much of 
this budget. Allow me to highlight several important aspects of the HHS 
budget.
STRENGTHENING AMERICA'S FAMILIES
    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 the 
Committee 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--or 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, they have 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 four-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.
    In the near future, we plan to unveil our reauthorization proposal 
to build on current successes of the program. 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 five 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 the Committee 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 almost $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.
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 the 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 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 FY 2000 States transferred $2 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--goals this Committee has supported 
vigorously. 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 
three 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.
Promoting Responsible Fatherhood
    Helping custodial parents, generally mothers, collect support is an 
important part of our efforts to assist America's families, but we 
cannot ignore the critical role fathers play in the lives of their 
children and families. Our budget includes a request for $20 million to 
begin an initiative to promote responsible fatherhood by providing 
competitive grants to organizations that work to strengthen the role 
that fathers play in their children and families' lives. Faith and 
community-based organizations and Indian tribes will be encouraged to 
compete for these grants. These funds will be used to support programs 
that effectively encourage responsible fatherhood and parenting skills 
and to fund programs that promote successful parenting and healthy 
marriages. We appreciate the support shown by Representative Herger in 
introducing the President's proposal last September and look forward to 
working with the Committee on its enactment.
Compassion Capital Fund
    The President has been a leader in recognizing the important role 
that charitable organizations play in delivering services to the 
public, and we are proposing steps to increase Federal support for 
these groups. Specifically, our budget seeks $70 million in additional 
funds for the Compassion Capital Fund, for a total of $100 million. 
These new funds will be used to expand the number of public and private 
partnerships engaged in this critical effort and strengthen our ability 
to identify those successful models for providing social services by 
charitable organizations. Our budget also includes $1.6 million to 
continue the Department's Center for Faith-Based and Community 
Initiatives established under the President's Executive Order.
Promoting Safe and Stable Families
    I appreciate this Committee's tremendous support for our efforts to 
help American families, most recently your work shepherding through to 
enactment the President's initiative to reauthorize and expand the 
Promoting Safe and Stable Families Program. 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 additional 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.
    Our budget also supports the new authority for funding the 
mentoring children of prisoners initiative included in the legislation 
and advanced by the President in last year's budget. The budget 
requests $25 million for grants to provide a range of activities to 
mentor children of prisoners.
    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 improvements 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 Abstinence Education grants to community-based 
organizations ($73 million). Both grants 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.
STRENGTHENING MEDICARE
    The FY 2003 budget dedicates $190 billion over ten 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 
providing better coverage for preventive care and serious illness. The 
program's lack of drug coverage is just one example of its outdated 
benefits and it will have even more difficulty giving beneficiaries 
modern and appropriate treatment for their health problems in the 
future. We propose that preventive benefits have zero co-insurance and 
be excluded from the 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 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 working to 
implement the drug card, which will give beneficiaries immediate access 
to manufacturer discounts on their medicines and other valuable 
pharmacy services. The President is absolutely committed to providing 
immediate assistance to seniors who currently have to pay 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% 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 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 coverage 
of 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.
    In addition, last week, I announced a model drug waiver program--
Pharmacy Plus--to allow States to reduce drug expenditures for 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 Illinois initiative illustrates how we can expand 
coverage to Medicare beneficiaries in partnership with the federal 
government. The program we approved last week will give an estimated 
368,000 low-income seniors new 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 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 close to 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.
EXPANDING ACCESS TO HEALTHCARE
    President Bush and I also are proposing to improve the health of 
the American people by taking important steps to fund health care for 
the uninsured and create new tax supports to help purchase health 
insurance. The President is proposing to combine new tax provisions to 
help more Americans purchase health insurance with affordable 
expansions of federal and state programs. Beginning in 2003, advance 
credits will be available to individuals and families to directly 
reduce their monthly premium payments for health insurance. We propose 
to allow States, if they choose, to use pooling arrangements to give 
these citizens even better options for their premium dollars. These 
initiatives will go a long way in improving the well being of our 
citizens and the quality health care they receive.
    The President's budget also will increase and expand the number of 
Community Health Centers, which provide family oriented preventive and 
primary health care to over 11 million patients through a network of 
over 3,400 health sites. About 40 percent of the patients treated at 
health centers have no insurance coverage, and many others have 
difficulty affording the care their insurance does cover. The FY 2003 
budget will increase and expand the number of health center 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.
PROTECTING THE NATION AGAINST BIOTERRORISM
    Mr. Chairman, as you may know, the Department of Health and Human 
Services is the lead federal agency in countering bioterrorism. And 
while this Committee's primary jurisdiction does not include 
bioterrorism, I know all Members share my concern that we must better 
protect our homeland from bioterrorism attacks. So, if the Committee 
would permit, I would like to briefly touch on what this budget 
proposes with respect to bioterrorism.
    The President's FY 2003 budget request for bioterrorism is $4.3 
billion, an increase of $1.3 billion, or 45 percent, $3.9 billion 
excluding emergency funding provided through a supplemental 
appropriation, and it underscores his commitment to providing the 
Department with the necessary resources to protect the American people 
from any biological or chemical attack. Our budget funds a wide variety 
of bioterrorism prevention, identification, and response activities 
that are administered through the Centers for Disease Control and 
Prevention (CDC), the National Institutes of Health (NIH,), the Office 
of the Secretary, the Substance Abuse and Mental Health Services 
Administration (SAMHSA), the Health Resources and Services 
Administration (HRSA) and the Food and Drug Administration (FDA).
    The President believes, as do I, that state and local preparedness 
must be a primary focus of our nation's bioterrorism protection 
efforts. We have requested $1.5 billion, an increase of $406 million, 
for planning and physical improvements to regional and local hospitals. 
Additionally, our budget provides critical resources to state and local 
organizations to improve laboratory capacity, enhance epidemiological 
expertise in the identification, surveillance and containment of 
bioterrorism-related diseases, improve electronic communication and 
distance learning. The FY2003 budget also continues to provide $65 
million in grants to states for the implementation of distribution 
systems for pharmaceuticals deployed by the National Pharmaceutical 
Stockpile
    Our nation's hospitals, for example, must be capable of handling 
the large number of patients that could result from a mass-casualty 
incident, such as a bioterrorist attack. The President's FY 2003 budget 
provides $591 million for hospital preparedness and infrastructure to 
enhance biological and chemical preparedness plans focused on hospital 
surge capacity and support a newly expanded focus on cooperative 
training between public health agencies and state and local hospitals. 
Our request will upgrade the capacity of hospitals, outpatient 
facilities, emergency medical services systems and poison control 
centers to care for victims of bioterrorism.
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 FY 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 
FY 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 FY 2001 achievements 
include:
           Reducing Erroneous Medicare Payments: CMS has 
        continued to reduce the payment error rate, cutting improper 
        payments from 7.97 percent in FY 1999 to 6.8 percent in FY 2000 
        and exceeding its targets in both years. CMS, with the 
        assistance of the Office of the Inspector General, is committed 
        to further reducing the error rate to 5 percent by FY 2002.
           Moving Families Toward Self-sufficiency: ACF 
        reported that 42.9 percent of adult recipients of TANF were 
        employed by FY 1999. This is a primary indicator of success in 
        moving families toward self-sufficiency. It improves on the FY 
        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 FY 2001 by collecting $18.9 billion, one billion 
        over FY 2000 levels. In one such initiative in FY 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 and 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 Thomas. As you know, I complimented you for 
maintaining the Administration's position of $190 billion 
through two budget years that look significantly different. 
However, the budget that the House and the Senate were working 
on had about $300 billion earmarked for this particular area, 
Medicare reform and prescription drugs. And what I will request 
of you is I will provide a written question to you, and so you 
need not respond now and take the Committee's time up now. But 
the question will run along these lines: You have in the budget 
$190 billion for Medicare reform and prescription drugs. You 
have outlined a program for low-income seniors that costs in 
ball park of $75 to $80 billion. You have some modest savers in 
the budget of about 5\1/2\ billion, but the Medicare+Choice 
increase that you outlined is about 6.5 percent which is 
somewhere in the vicinity of $3.7 to $4 billion. When you look 
at the group that recommends changes to Medicare to us, MedPAC, 
or the Medicare Payment Advisory Commission, we have before us 
squarely the physician payment problem, both in terms of 
formula and the dollar amounts which require a substantial cut 
over 5 percent. If we are going to reinstate that, the ball 
park budgetary figures that I am now getting is somewhere in 
the vicinity of $80 billion.
    The hospital recommendation was a full market basket update 
for rural and disproportionate share hospitals. There is some, 
then, pressure to go across the board with that kind of a 
recommendation, just for rural and dish, it is about $6 
billion.
    There was a recommendation of increased payments to 
dialysis facilities at about $3 billion. We still have that $15 
billion home health sword hanging over our head that we need to 
deal with. I have outlined, just in those areas of providers, 
about $100 billion in payments.
    This Committee, and indeed this House, has shown its 
willingness to make tough decisions, but what we believe is 
that as you are willing to work with us, decisions that are 
very difficult in terms of payment adjustments between areas of 
providers and new program initiatives, like drugs for seniors, 
are going to require us linking our arms and working together. 
And what this Chair would very much like is in response to the 
very specific questions I will be asking you, where at all 
possible, specific answers back as to a range of decisions that 
the Administration would be willing to stand with the House on, 
both in terms of provider payments and for areas of adjustment. 
And I would hope that there would be a short turnaround on that 
so that we can begin to construct the kind of increases in 
payments, adjustments in other areas and initiatives in new 
programs that not only seniors and disabled, but indeed all 
Americans need.
    Mr. Thompson. Mr. Chairman, I appreciate that, and I will 
be looking forward to your letter. We will get a very quick 
response to it. There is no question that this Administration 
wants to work with you. I would like to point out quickly that 
the $77 billion for Immediate Helping hand for prescription 
drugs is, we anticipate would only be $7.7 billion. We expect 
that after 3 years, it would be phased out and would be pushed 
into the comprehensive Medicare drug benefit, and therefore you 
would not use the balance.
    We also believe that all the provider payment issues should 
be on the table. I know Mr. Stark mentioned it. You have 
mentioned it to me several times. I think that we are willing 
to work with you. We are willing to look at it across the 
board. There needs to be some changes. The law needs to be 
changed. We can only implement the laws as they currently 
exist, and we want to work with you, Mr. Chairman, and we 
certainly will, and we think that we can come up with a 
comprehensive package that will do what you want and what the 
Administration wants on a bipartisan basis.
    Chairman Thomas. Thank you, Mr. Secretary. And I do 
appreciate your willingness to get it to me quick. My goal 
would also that it be specific, and to the degree quickness 
denies specificity, I will wait. But I would like to have a 
very specific response.
    The gentleman from California wish to be recognized?
    Mr. Thompson. I am confident that if it is not specific, I 
will hear directly from you, Mr. Chairman.
    Chairman Thomas. Thank you, Mr. Secretary.
    [The questions and responses follow:]

                                      U.S. House of Representatives
                                               Washington, DC 20515
                                                   February 8, 2002
The Honorable Tommy Thompson
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201

The Honorable Mitchell E. Daniels
Director
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
    Dear Secretary Thompson and Director Daniels:
    Thank you for testifying at the Ways and Means Committee this week. 
We appreciate your hard work in developing the President's budget in 
this difficult time for our Nation.
    As we stated in the hearings, we commend the President for not 
reducing the resources he devoted to prescription drugs and Medicare 
modernization last year, notwithstanding the new realities of the war 
on terrorism and an economic downturn, which has produced short-term 
budget deficits. We share your commitment to ensuring that our seniors 
and disabled beneficiaries receive the highest quality of care for a 
price our taxpayers can afford.
    The President's budget provides $190 billion over 10 years for 
prescription drugs and Medicare modernization, of which $77 billion is 
reserved for low-income drug assistance. The budget proposes spending 
increases for private plans in Medicare of $4.1 billion. It also 
proposes several modest savings proposals--competitive bidding for 
durable medical equipment, Medigap reform, Medicare Secondary Payer and 
Graduate Medical Education reform--which collectively total $6.5 
billion. Hence, there is $116 billion remaining for prescription drugs 
for all non-low income beneficiaries and Medicare modernization. 
Although we believe $116 billion is insufficient for a comprehensive 
prescription drug benefit, we assume you share our belief that none of 
this money is intended for provider payment increases.
    The Administration's budget includes a statement that any provider 
payment adjustments must be budget neutral in both the short and long-
term. However, the Medicare Payment Advisory Commission (MedPAC), a 
non-partisan advisory Committee of Medicare experts, recently 
recommended provider payment changes that could collectively total more 
than $174 billion over 10 years. The MedPAC recommendation for 
reforming the physician sustainable growth rate alone would cost $128 
billion according to the CMS actuary. Clearly, we are not suggesting 
that we could afford, or that we should implement every MedPAC 
recommendation. However, MedPAC has identified serious problems, such 
as significant and successive payment cuts to physicians, which are 
unsustainable and require reform.
    Does the Administration believe Congress should address any of the 
problems identified by the MedPAC (see attached list) 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 neutral payment adjustments, please provide a specific 
list of Medicare savings recommendations, which can finance appropriate 
provider payment changes.
    Given the short legislative year, and our intention to act on 
Medicare legislation this spring, we would appreciate a prompt and 
detailed response to these requests.
    Best regards,
                                                        Bill Thomas
                                                          Chairman,
                                        Committee on Ways and Means

                                                   Nancy L. Johnson
                                                          Chairman,
                                             Subcommittee on Health
                                        Committee on Ways and Means
    Enclosure: MedPAC Recommendations
                                 ______
                                 

 ------------------------------------------------------------------------
                                                        10 yrs  billions
 Medicare Payment Advisory Commission Recommendations      of dollars
------------------------------------------------------------------------
Physicians
   The Congress should repeal the sustainable         \1\ $127.7
 growth rate and replace it with the Medicare
 Economic Index. The Secretary should revise the
 physician productivity offset from -1.5% to -0.5% to
 reflect the productivity of all costs rather than
 just labor. The resulting update for 2003 is 2.5%...
Hospitals
   The Congress should phase out the                        * 15
 difference in the inpatient national rates between
 hospitals in MSAs > 1 million and hospitals in all
 other areas starting in 2003. In the first year, the
 update for hospitals in MSAs < 1 million and rural
 areas should be increased 0.55%.....................
Rural Hospitals
   The Congress should revise the Medicare               \2\ 1.8
 Disproportionate Share payment formulas so that the
 payments for rural and small urban hospitals are
 capped at 10% rather than 5.25%.....................
Skilled Nursing Facilities
   If refinement of skilled nursing payment               \3\ 10
 system is adopted by the Secretary as planned,
 Congress should fold-in the resource utilization
 group (RUG) add-on payments into the skilled nursing
 rates...............................................
Home Health Agencies
   The Congress should update home health
 payments by market basket for FY 2003. (Current law
 is mb-1.1%.) The Congress should retain the 10%
 bonus payments for rural home health agencies.......
   The Congress should eliminate the 15%                      *2
 adjustment to home health payments, which otherwise
 would result in a 4% to 7% reduction in payments....
Dialysis Facilities                                               \4\ 17
   The Congress should update dialysis                      *0.5
 payments by 2.4% in 2003............................
------------------------------------------------------------------------
TOTAL................................................                174
------------------------------------------------------------------------
\1\ Office of the Actuary, Centers for Medicare and Medicaid Services
  (CMS), February 7, 2002.
\2\ Medicare Payment Advisory Commission, February 7, 2002.
\3\ CMS, Health Care Industry Market Update, February 6, 2002.
\4\ Congressional Budget Office (CBO), January 2002.
* Estimates based on BBRA, BIPA and discussions with CBO, February 6,
  2002.

                                 ______
                                 
                  U.S. Department of Health and Human Services, and
                                    Office of Management and Budget
                                               Washington, DC 20201
                                                     March 14, 2002
Hon. Bill Thomas
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515

Hon. Nancy L. Johnson
Chairman
Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C. 20515
    Dear Chairman Thomas and Chairman Johnson:
    Thank you for your letter to the two of us regarding the 
President's budget and the ways Congress could adjust Medicare payments 
to health care providers in a budget-neutral fashion. We know you share 
the Administration's dedication to better meeting the health care needs 
of elderly and disabled Americans, and appreciate your longstanding 
interest in and untiring dedication to these important issues.
    President Bush believes that the Nation has a moral obligation to 
fulfill Medicare's promise of health care for America's seniors and 
people with disabilities. Medicare has provided this security to 
millions of Americans since 1965. However, as Medicare's lack of 
prescription drug coverage demonstrates, Medicare is not keeping up 
with rapid changes in the way health care is delivered or with benefits 
available in the private health insurance market.
    To ensure that Medicare continues to provide our Nation's elderly 
and disabled secure access to modern health care, the President's 
Fiscal Year (FY) 2003 Budget renews his commitment to comprehensive 
Medicare modernization with integrated prescription drug coverage. His 
proposal is based on the framework for bipartisan legislation that he 
proposed in July 2001. Specifically, the President's budget proposes to 
invest $190 billion in Medicare to modernize the program by improving 
health insurance plan options that include prescription drug coverage. 
We agree with you completely that all of the new funding should be used 
for the President's top priority of improving the coverage options 
available to beneficiaries, including prescription drugs, and not for 
increasing payments to fee-for-service Medicare providers.
    The President's top three goals for improving Medicare include 
quickly phasing in assistance with drug costs for Medicare 
beneficiaries, sustaining and enhancing the options available to 
beneficiaries in Medicare+Choice,, and strengthening and modernizing 
the Medicare Program. This includes transitioning low-income 
prescription drug assistance into a drug benefit that serves all 
Medicare beneficiaries and adding new plan options for beneficiaries 
and updating the benefit package. Many of these improvements, such as 
full implementation of a prescription drug benefit, will take several 
years to set up. The needed improvements identified in the President's 
budget can begin to take effect sooner by building on existing 
programs.
    We agree with you that the current administrative pricing system 
creates extremely complex provider payment systems that do not always 
function smoothly or equitably. In our view, these problems further 
underscore the need for the President's priority of fundamental 
modernization of the Medicare program. We believe the primary focus of 
the Congress should be on strengthening and modernizing Medicare, not 
on revamping outdated, overly complex payment systems.
    While we appreciate the work the Medicare Payment Advisory 
Commission (MedPAC) has put into developing their proposals, we do not 
believe these ideas are the appropriate starting point for a discussion of Medicare provider payments.
    We have no compelling evidence that there is a problem with the 
overall adequacy of provider payments, although we recognize that 
recent short-term adjustments have been substantial in the system 
Medicare uses to pay physicians. For example, while home health 
services are vitally important to the Medicare program, home health 
spending is expected to rise by over 42 percent this year and 12 
percent next year, and this includes the adjustment to payments already 
scheduled in current law. And although certain provider payments may 
benefit from adjustment, we believe such adjustments can be 
accomplished without draining new funds that are even more urgently 
needed for improving Medicare benefits.
    In the context of moving forward on our shared goal of modernizing 
and strengthening Medicare, the Administration is willing to work with 
Congress to consider limited modifications to provider payment systems 
in order to address payment issues. Most importantly, as we all 
consider changes to payment systems, we need to be cautious and recall 
that any increases in spending will be borne, in part, by beneficiaries 
in the form of higher premiums and coinsurance payments.
    Therefore, while the President's Budget did not contemplate any 
particular provider payment changes, we are willing to consider limited 
adjustments to payment systems and to work with you to develop a 
comprehensive package that is budget neutral across providers. We will 
not support any package of provider payment changes unless it is budget 
neutral in the short- and long-term. To this end, we recognize that 
some provisions in law that, in the past, have restrained growth in 
payments are about to expire, and extension of these provisions is one 
potential way to ensure a budget-neutral package of reforms.
    We believe it is possible to develop a fiscally responsible package 
of provider payment adjustments that remain budget neutral. We are 
happy to begin to work with you to provide technical support for such a 
package if you desire. Enclosed is some additional information on 
various provider issues that we hope will be useful in our continuing 
discussions of these issues.
    We look forward to working with you to advance the priorities of a 
prescription drug benefit, a strengthened Medicare+Choice program, and 
a modernized Medicare program, while also pursuing the issues 
surrounding modifications to provider payment systems.
            Sincerely,
                                                  Tommy G. Thompson
                                                          Secretary

                                           Mitchell E. Daniels, Jr.
                                                           Director
                                 ______
                                 
Administration's Views on Various Provider Payment Issues
Physician Payment Update
    The current system for updating Medicare's payment for physician 
services was originally established in law in 1989, and has been 
adjusted a number of times since then, eventually resulting in the 
Sustainable Growth Rate (SGR) system that is used today. In general, 
Congress' goal for the payment system was to restrain unsustainable 
growth in physician payment under Medicare. The system has been working 
precisely as designed. Between 1997 and 2001, Medicare physician 
spending increased from 17.6 percent to 20.5 percent of total Medicare 
fee-for-service spending. Moreover, physician spending continued to 
increase, growing 5.3 percent in 1999, 10.7 percent in 2000, and 11.2 
percent in 2001, far outpacing inflation in the broader economy.
    Last year, a number of factors combined to cause the physician 
payment formula, as set in law, to produce a negative update. First, 
there has been a downturn in the economy, which affected the SGR 
because it is tied to estimates of the nation's Gross Domestic Product 
growth per capita. Second, actual cumulative Medicare spending for 
physicians' services in prior years was higher than expected. Third, 
information on services that were not previously included in the 
measurement of actual expenditures was now included. Had this 
information been captured in the measurements originally, spending 
increases would have been 5.9 percent in 2000, and 9.7 percent in 2001, 
rather than the respective 10.7 and 11.2-percent increases mentioned 
above. Counting these previously uncounted actual expenditures, as 
required by law, contributed to this year's negative update to 
physician payments. However, despite the negative update, overall 
Medicare physician spending is not projected to decrease this year. In 
fact, as the Congressional Budget Office (CBO) noted before Congress 
two weeks ago, program spending increases by 5.9 percent in 2002.
    While a formula that produces these payment fluctuations year-to-
year should be reviewed, the underlying system is sound and effective. 
As CBO Director Dan Crippen concluded in his testimony before Congress:
    ``In considering whether to change the current system for setting 
Medicare physician payments, the Congress confronts the prospect of 
reductions in the fees paid per service for the next several years. 
MedPAC's recommendation would increase the Federal government's 
spending for physicians' services under Medicare by $126 billion over 
the next 10 years. In contrast, other approaches might have the 
potential to lessen the volatility in the update without dismantling 
the mechanism for linking physician fees to total spending for 
physicians services or growth in the economy.Changes that increase 
Medicare payments to physicians will increase Federal spending. 
Incorporating higher fees for physicians' services into Medicare 
spending as currently projected would add to the already substantial 
long-range costs of the program and to the fiscal challenge to the 
nation posed by the aging of the baby boomers. Raising fees would also 
increase the premium that beneficiaries must pay for Part B of Medicare 
(the Supplementary Medical Insurance program). Inevitably, over the 
long run, higher spending by Medicare for physicians' services will 
require reduced spending elsewhere in the budget, higher taxes, or 
larger deficits.''
    We believe that considerations of sustainability and of our other 
urgent priorities in Medicare argue strongly that, if changes in the 
physician payment system are undertaken this year, they should be 
undertaken carefully and implemented in a way that does not 
significantly worsen Medicare's long-term budgetary outlook. The 
Administration supports reforms in physician payment that lessen 
volatility, and further believes that any short-term payment problems 
can be addressed at a much lower cost than the MedPAC recommendation 
implies.
Home Health
    The President's budget also assumes no further delay in the 
implementation of the ``15-percent reduction'' in home health interim 
payment system (IPS) limits. As you may know, this reduction is 
somewhat of a misnomer. It does not translate into an across-the-board, 
direct cut in Medicare payment rates for home health services, as many 
have described it. Rather, the 15 percent reduction is a decrease in 
the payment caps under the old IPS. The actual percentage reduction in 
payments that will result from lowering the limits is much less. In 
fact, the CMS actuary estimates that the 15 percent reduction will only 
reduce payments to home health agencies by about 7 percent, not 15 
percent. Further, after the PPS rates are reduced by 7 percent, we 
would apply the home health update (currently estimated to be 2.1 
percent), leading to a net reduction of approximately 4.9 percent.
    Home health spending is expected to rise by 42 percent for FY 2002. 
Even if the 15 percent adjustment occurs, we estimate that home health 
spending would increase 12 percent in FY 2003, 8.3 percent in FY 2004, 
and 7.8 percent in FY 2005. Therefore, we do not support a repeal of 
the 15 percent adjustment in the caps.
Skilled Nursing Facilities
    Prior to the enactment of the Balanced Budget Act 1997 (BBA), many 
nursing home companies were expanding rapidly, taking on significant 
debt, and leveraging themselves heavily for acquisitions of new homes 
and allowing their debt-to-equity ratios to escalate steeply. That 
strategy backfired on many of the industry's biggest companies when the 
nursing home industry came under financial pressure resulting from the 
implementation of the Prospective Payment System for skilled nursing 
facilities (SNFs) and other Balanced Budget Act 1997 provisions. As a 
result, Congress passed two laws to provide some relief. The Balanced 
Budget Refinement Act of 1999 (BBRA) and the Medicare, Medicaid, and 
SCHIP Benefits linprovement and Protection Act of 2000 (BIIPA) required 
three Medicare payment ``add-ons:'' a 4-percent increase in per diem 
rates; a 16.66-percent increase in the nursing component of each 
Resource Utilization Group; and a 20-percent increase for certain 
categories of high-cost, medically complex patients. The first two add-
ons expire on October 1, 2002. The third will expire when FIRS 
implements a case-mix refinement rule. The Administration is currently 
moving forward in its development of this refinement rule.
    The President's budget proposal reiterates the administration's 
commitment to paying SNFs fairly and appropriately for the delivery of 
services to Medicare beneficiaries. CMS recently explored the fairness 
and appropriateness of Medicare SNF payments in the February 6, 2002, 
Health Care Industry Market Update--Nursing Facilities. While we surely 
want to avoid overpaying any of our providers, we also must be 
sensitive to their funding needs in order to maintain high quality 
services. We are willing to continue to review the substantive 
justification for modifying SNF payments with the Committee.
Hospital Updates
    Under the President's budget assumption, inpatient hospital 
payments for FY 2003 would follow current law and be updated by the 
market basket, which accounts for inflation in the factors that 
contribute to the costs to provide hospital services, minus 0.55 
percentage points. Under current law, the update beyond FY 2003 would 
be equal to the full market basket. Since the inception of the 
inpatient prospective payment system (PPS), hospitals have received a 
full market basket update only once in FY 2001. Since FY 1984 hospitals 
have received on average approximately 60 percent of the market basket 
forecasted increase. Even so, since the early 1990's, the Medicare PPS 
inpatient margin has risen sharply from 1.3 percent in FY 1993 to a 
historical high of 16.0 percent in FY 1997. Although there was a 
decrease in FY 1999 to a 12.4 percent margin, the Medicare inpatient 
hospital margins have begun to increase again. In addition, since the 
early 1990's, there has been a significant drop in the number of 
hospitals with negative inpatient margins. In FY 1991, 61.2 percent of 
hospitals had negative inpatient margins compared to approximately 25 
percent in FY 1999.
    The stabilization of overall hospital margins in recent years 
suggests that, overall, the restrictions on market basket increases of 
recent years have not resulted in inadequate hospital payments. 
Reasonable and modest limits on hospital market basket updates would 
appear to provide adequate reimbursement for hospitals. Modest limits 
below full market basket updates could be linked to continued careful 
review of Medicare hospital margin data to ensure that margin problems 
do not worsen, and certain hospital types that show clear evidence of 
negative and declining Medicare margins could be monitored closely for 
special consideration. The Administration believes that the savings 
from such measured changes in hospital payment updates could be more 
than adequate to finance reasonable net increases in total payments to 
physicians.
    There are market updates for other providers that were established 
in the Balanced Budget Act 1997. To help restrain spending growth, you 
could also consider extending market basket update reductions to the 
calculations for other prospective payment systems.
    We are prepared to provide further technical guidance to the 
Committee whenever it is requested.

                                


    Mr. Stark. Thank you, Mr. Chairman. In an effort to get 
back in the good graces, I will ask three quick questions, Mr. 
Secretary, and then you can take as long as you want to answer 
them. Then we will see how that works.
    First of all, I have a question about the issue of 
providing medical services to low-income pregnant women. It is 
my understanding that under the rules laid down by President 
Clinton that are still in effect, that it is possible now to 
cover pregnant women under the children's health insurance 
program or other programs. Therefore, it would be not necessary 
to define a fetus as an unborn child and enter into that 
argument area that will only separate many of us on issues 
other than health care.
    The second issue is that you state that Medicare+Choice is 
underpaid, and that is very popular with the Medicare+Choice 
lobbyists. The facts that I look at are that Medicare+Choice 
payments have increased 25 percent since 1997, while Medicare 
has only gone up in costs of 21 percent per capita under the 
total cost of Medicare. The U.S. General Accounting Office 
(GAO) tells us in its latest study that HMOs or Health 
Maintenance Organizations, Medicare+Choice plans, are overpaid 
as opposed to traditional Medicare.
    So in the face of lower increase in per capita and the 
GAO's study that we are already overpaying them, I would be 
curious to know why you think that they are underpaid.
    My third question is an attempt to elicit from you your 
commitment, and this is prospective. It appears--and the 
Chairman will blame this on the democratically controlled 
Senate--but it does appear that there may not be a tax bill 
this year. If the Senate doesn't bring it up and if your budget 
mavens on your side of the aisle decide that that is an issue, 
there is $600 billion leftover in the budget. If that is the 
case--these are a lot of ifs--would you commit your personal 
battle to get half of that, $300 billion, into Health and Human 
Services so that we could use it for Medicare drug benefit and 
TANF benefits? Those are my three questions.
    Mr. Thompson. Well, Congressman Stark, let me tell you the 
last one. Sure I will fight for anything I can get into 
Department of Health and Human Services. There is a lot of 
assumptions there that have to fall into place.
    Mr. Stark. I understand.
    Mr. Thompson. But if there is $600 million, I think I would 
only fight for 25 percent because that is what we usually get, 
but I will fight for that very hard.
    Mr. Stark. Start high. We will take it.
    Mr. Thompson. We have got a lot of needs that we could use. 
The second question in regards to the unborn, there is an area 
that really pregnant women are not covered for prenatal care, 
and you know----
    Mr. Stark. But they can be under current law.
    Mr. Thompson. No, there is not. Under existing law, there 
is--unless the State applies for the waiver.
    Mr. Stark. Right.
    Mr. Thompson. If the State applies for the waiver. We 
thought it was easier, because this is a group of individuals 
that we really wanted to serve, and I didn't want to get into a 
pro-life and a pro-choice battle. I want to serve low-income 
women and give them the prenatal care because we, you and I and 
everybody on this Committee wants healthy babies. And I think 
that we can achieve that. I know it got turned around and got 
into this, and the rule is going to be out there.
    We are going to have a chance to work on the rule. 
Hopefully we can mitigate some of the harshness, the rhetoric 
out there and be able to come up with a compromise that is 
going to be able to allow for low-income women to get prenatal 
care. That is my ultimate objective. I am pledged to that, I am 
passionate about it, and I want to accomplish that. There is a 
group of women out there that are not getting the coverage and 
they need it.
    In regards to Medicare+Choice, according to all of our 
indications you look at it, there is only 14.2 percent of the 
Medicare population now being covered by Medicare+Choice. We 
lost coverage for 500,000 individuals last year, some in 
Milwaukee in the State of Wisconsin, a city that----
    Mr. Stark. What happens to the county executive? Will he 
get covered with that modest pension he is going to get in 
Milwaukie?
    Mr. Thompson. The executive did not qualify for this 
particular plan. He had his own health insurance plan, and 
knowing that you come from that area, Congressman Stark, you 
are fully familiar with it and so on. But it always appears 
from all of the indications that Medicare+Choice plans are the 
ones that are losing. That is why the President wanted to 
stabilize it; I wanted to stabilize it. That is why the 
additional money was placed in there. And I think that it is 
the right thing, because the people that are in Medicare+Choice 
plans really like them. We would like to be able to continue 
that choice, even though it is a declining amount. There are 
only 14.2 percent, as I indicated, of the population currently 
covered by Medicare+Choice. Those are my answers, Mr. Chairman.
    Chairman Thomas. The gentleman's time has expired. Does the 
gentleman from Illinois wish to inquire?
    Mr. Crane. Yes. Thank you, Mr. Chairman. Mr. Secretary, let 
me start off by saying that I commend your efforts to move a 
prescription drug benefit and modernize the Medicare program. 
That said, I think we all recognize that this is the first year 
that the baby boom generation shows up in the 10-year budget 
window for Medicare. Your budget states that the part B deficit 
overwhelms the surplus and part A revenues, a shortfall that is 
projected to be $46 billion in fiscal year 2003 and $553 
billion over the next 10 years. Given the Congressional Budget 
Office (CBO) and Office of Management and Budget (OMB) 
baselines for Medicare spending, it is clear that the program 
is expending tremendous revenues annually.
    The budget also states that many payment policies need to 
be reformed, and you have proposed to do it in a budget-neutral 
manner. Frankly, I believe this program is in need of 
fundamental reforms. However in the absence of achieving 
fundamental reforms, how can we change those policies in order 
to keep up with the increase in health care expenditures in a 
budget-neutral manner?
    Mr. Thompson. Basically, Congressman Crane, I agree with 
you. We have to--we have to make some structural changes in all 
of these programs, and that is what we want to do. We want to--
we are going to answer the questions in written form by the 
Chairman, and we are going to come back with suggestions on how 
we might be able to modify them, and we also believe that we 
should put prescription drugs in. We are putting an additional 
$190 billion in to accomplish that. We are putting in Immediate 
Helping Hand by allowing States to get a 90/10 match for 100 
to150 percent poverty, and we think that is very important, 
especially for that.
    On the assumptions, we believe that our assumptions are 
correct. And we think the assumptions the Medicare expenditures 
on the baseline are going to be lower than what CBO has, and 
CBO, of course, as we all know, will correct those figures in 
March of this year, but as of right now, based upon our 
assumption, based upon our experts, which this Committee has 
used on a bipartisan basis in the past, we feel that our 
assumptions are very correct.
    Mr. Crane. Mr. Secretary, as regards temporary assistance 
for needy families, it is my understanding that caseloads have 
been reduced in excess of 50 percent over the last 5 years, 
which is certainly very good progress. According to your report 
in fiscal year 2000, work efforts among current welfare 
recipients were three times its 1996 levels. As you know, this 
Committee will work to reauthorize TANF this year, and I am 
confident that we will further reform the program in such 
manner as to reduce caseloads even further across all 50 
States.
    You are certainly an expert in this field, and my question 
to you is this: Given the aforementioned progress the States 
have made in reducing caseloads, and given the prospects by 
which caseloads will be reduced in the near future, do you 
believe that we need to send $16.7 billion to the States this 
year rather than staying level? Shouldn't the amount in the 
budget be going down each year?
    Mr. Thompson. I really sincerely believe that we should 
have level funding, Congressman. I will tell you why. Fifty 
percent of the cases remaining are going to be the hardest to 
place. These are individuals that have a lack of education, a 
lot of those individuals have one or more drug problems, 
alcoholic problems. Several have not finished school. Several 
have not worked and you are going to spend more money on those 
particular cases, integrating them into the work force. That is 
point number one.
    Point number two, you want to be able to use some of this 
money, and what we are asking for this Congress to give us is 
allowing the States more flexibility to use some of their 
excess dollars to put in to work assistance, to be able to help 
workers be able to go up the economic ladder, and that is 
expensive. It requires training. It requires education. It 
requires a lot of assistance in order to move people up the 
ladder, because these are individuals that have been poorly 
trained in the past or no training at all.
    The third thing you want to do is you want to be able to be 
sure the money--up to 30 percent of the TANF grant can go into 
child care. We think this is a very important thing to provide 
for quality child care and be able for those children to be 
able to have a good start in life. To me, all of these things 
argue for level funding, and I know I argued with OMB for level 
funding. I know some people think there should be more money. 
Other people think there should be less. I think it is just 
right. I think what we need to do is continue to move forward, 
move to the next level, the next plateau, refine TANF, make it 
even better, and get more people off the roles. We must give 
people the opportunity to move up the economic ladder.
    Mr. Crane. Thank you, Mr. Secretary, and we look forward to 
working with you.
    Chairman Thomas. I thank the gentleman. The gentlewoman 
from Connecticut wish to inquire of the Chair of the Health 
Subcommittee?
    Mrs. Johnson OF CONNECTICUT. I thank you very much. 
Welcome, and thank you for being here. Secretary Thompson, do 
you support privatizing Medicare?
    Mr. Thompson. No.
    Mrs. Johnson OF CONNECTICUT. I want that heard loud and 
clear. I am Chairman of the Health Subcommittee. I do not 
support privatizing Medicare, and I am sick and tired of this 
partisan divide that some are trying to create between those 
who want to privatize Medicare and those who don't. I don't 
know anyone who wants to privatize Medicare. We have an 
obligation. We have taken it on by law and we intend to fulfill 
it in Social Security and Medicare to provide retirement income 
security seniors and retirement health care security to 
seniors, and I know no one who supports privatizing Medicare, 
and I want the record to note that very clearly.
    I do, though, want to make two comments, and one short 
question. First of all, I appreciate, Secretary Thompson, that 
you have acknowledged that this body, not the House, because we 
will bring forward another prescription drug bill. We are 
committed to that. Seniors need it, modern health care can't 
proceed without prescription coverage. We have done it once. We 
will do it again, and with it will come some very significant 
modernization of the Medicare program and justice for a lot of 
our providers through the administrative reforms that we passed 
here already once.
    So I believe we can make significant progress in the House 
on improving the quality of the Medicare Program, as well as 
including prescription drugs. I am less optimistic that the 
Senate will be able to act.
    So I am very impressed that you have, through your budget, 
laid out the way we can, through the government, increase 
access to prescription drugs for our seniors, freeing up 
valuable Federal dollars so that we can subsidize senior 
prescription drugs to higher income people in higher cost parts 
of the State like Connecticut--of the Nation like Connecticut. 
And that through your effort to provide a discount card are 
going to really be able to move manufacturer discounts down to 
all seniors.
    If you do that, you will help every senior significantly 
and low-income seniors tremendously, and I hope that we will 
move through the House and Senate a prescription drug bill that 
then can assure that this will become a Medicare benefit in 2 
or 3 years, but since it takes two or 3 years for our plan to 
be implemented, I am very glad that I see in your budget this 
commitment to meeting seniors' needs now and that also in your 
budget, it is loud and clear the need to move forward on health 
care for the uninsured.
    That much said, I do want to just correct a fact that was 
stated earlier by the Ranking Member, Mr. Stark, about the 
Medicare choice programs, because, again, you are committed in 
your budget to helping us fix the problems. Sixty-five percent 
of seniors in America that get the valuable benefits, I mean, 
if they weren't valuable, we wouldn't see so much complaining, 
would we?
    Mr. Thompson. No.
    Mrs. Johnson OF CONNECTICUT. Sixty-five percent of those 
seniors live in areas where Medicare choice plans have gotten a 
14-percent increase since 1998 as opposed to the 21-percent 
increase that fee-for-service patients have received. No wonder 
these plans are having difficulty. These skewed results that my 
colleague referred to that makes it look like the choice plan 
has got more results from the artificial floor that the Senate 
and the House passed for rural counties.
    So the money is going to areas where there are no people, 
and the areas where there are people, benefits from these 
programs are being starved. This is our only means, our only 
means as a Congress to help seniors deal with the challenge of 
multiple chronic illnesses. And managing those chronic 
illnesses is high on my agenda, so I am very glad to see you 
are so committed to helping us fix the Medicare+Choice plans.
    As for my question, I will just refer to it because I am 
not going to give you time to answer it clearly, but I wanted 
to get these issues on the table.
    My question is really the Chairman's question. It is 
unconscionable for the government to drive capable physicians 
out of practice, and we cut their reimbursements this year 
because we have an arbitrary formula in place that I was on the 
Committee when we passed it, and I am proud to say I opposed 
it, because it is the only payment system that is tied to 
economic growth and it is the only payment that caps volume.
    So if you are an internist and you see more seniors because 
we have more seniors and they are living longer, your 
reimbursement gets cut. It is absurd, but we are in this 
terrible position that to fix what is an absurd law that was 
passed when I was on the minority side of the Subcommittee, I 
might add, and opposed, I have got to get that in there, 
because it is so important, when--to fix that now under the 
current circumstances is going to be extraordinarily expensive, 
and that is only one of the very big payment problems we have.
    But 2 years ago, 45 percent of our doctors felt Medicare 
was treating them unfairly, and 2 years later we are in very 
deep trouble in terms of the quality of care that is going to 
be available to our seniors if we don't act. So thank you for 
listening. We do have our work cut out for us and I look 
forward to working with you.
    Mr. Thompson. Thank you very much, Congresswoman Johnson, 
and I thank you for your questions and your comments. I 
couldn't agree with you more, with your statement. There is no 
intention whatsoever to privatize Medicare or Social Security 
in this Administration or me personally. We certainly want to 
make sure Medicare+Choice is able to survive. As most people 
that have Medicare+Choice like it--would like to be able to 
continue it. I think it is the right thing to do. In regards to 
provider payments, I think we have to look at all of them. The 
physicians' payment is the only one, as you indicate, when the 
economy goes down, they get cut. When the economy goes up, they 
get an increase. It doesn't make much sense, and so hopefully 
we can change that. But we have to implement the law as it is 
written, and therefore we will work with you on a bipartisan 
basis and you specifically, Congresswoman Johnson, because you 
have taken the lead in this along with the Chairman, we want to 
be able to try and correct this, and we will do everything we 
possibly can to assist you.
    Chairman Thomas. I thank the gentlewoman. The gentleman 
from Pennsylvania, Mr. Coyne wish to inquire?
    Mr. Coyne. Thank you, Mr. Chairman. Mr. Secretary, as you 
know, the State of Pennsylvania conducts the--administers the 
Program of All-Inclusive Care for the Elderly (PACE), which is 
a highly effective.
    Mr. Thompson. Right.
    Mr. Coyne. Pharmaceutical----
    Mr. Thompson. It is one of the best ones, Congressman.
    Mr. Coyne. And I am just wondering how the new program that 
is being proposed by your Administration at Health and Human 
Services is going to interface with the program that we have 
already in Pennsylvania.
    Mr. Thompson. It would be extremely helpful to the State of 
Pennsylvania Congressman. Once the State pays 100 percent of 
the PACE Program, then for the 100 to 150 percent, the State of 
Pennsylvania would receive 90 percent payment and be able to 
expand their program, probably get some reimbursement dollars 
out of it. It would be very helpful to the State of 
Pennsylvania. It would be directly integrated. Pennsylvania 
would apply for the program, and they would certainly--it would 
certainly be granted because of the PACE Program is one of real 
stars out there for prescription drug coverage as you know.
    Mr. Coyne. So there would be no problem with the State 
applying to the Federal Government to go beyond the current----
    Mr. Thompson. No. It is our intention that it would build 
upon the PACE Program and allow them to go the next step. It 
may even allow for the State of--the State of Pennsylvania to 
get some dollars.
    Mr. Coyne. Thank you.
    Mr. Thompson. Okay.
    Chairman Thomas. I thank the gentleman. The gentleman from 
New York, wish to inquire?
    Mr. Houghton. Thank you, Mr. Chairman. I am going to give 
you a Christmas present early. I am not going to ask you a 
question, but I do have several questions that I would like to 
refer to you, and I will put them in writing.
    Mr. Thompson. Thank you.
    Mr. Houghton. I just wanted to say that, you know, we are 
dealing with probably the most difficult issues in our 
government, you know, the whole concentration on the budget and 
on terrorism and everything is absorbing our time. But what you 
are doing I think is extraordinary. You bring clarity of mind. 
You bring purpose. You are supporting the present. I think you 
are doing a great job. Thanks very much.
    Mr. Thompson. Thank you, Congressman. That is the best 
question I have ever received in this Committee, and I thank 
you very much.
    Chairman Thomas. The gentleman's time has expired.
    Mr. Thompson. I wish his question could keep going on, Mr. 
Chairman.
    Chairman Thomas. The gentleman from California, Chairman of 
the Human Resources Subcommittee, Mr. Herger wish to inquire?
    Mr. Herger. Thank you very much, Mr. Chairman. I would like 
to continue on that best question that you ever received. Mr. 
Secretary, I want to thank you for the work that you have done.
    Mr. Thompson. Thank you.
    Mr. Herger. It is a pleasure as Chairman of the Human 
Resources Subcommittee to be working with you in reauthorizing 
welfare reform for the next 5 years. It is a pleasure to be 
able to work with a program that is probably arguably the most 
successful program in the last generation, one which is unlike 
the old AFDC welfare program where we saw caseloads increasing 
even during prosperous times of the 1980s. We have actually 
seen the caseload decrease by, as was pointed out, more than 50 
percent, and even in your State, I understand, in Wisconsin, it 
has been reduced by even more than 90 percent, talking with 
you. I want to thank you for--and at the same time, I might 
mention the poverty levels have been going down.
    Mr. Thompson. That's right.
    Mr. Herger. The poverty levels for children, have been 
decreased by more than 2 million during this period of the 
TANF, Temporary Assistance to Needy Families, reform. You have 
already answered--responded to one of the questions I had, and 
that is on the funding level.
    Mr. Thompson. Yes.
    Mr. Herger. In responding to the gentleman from Illinois, 
there are many who talk--who mention to me that with the roles 
decreasing by more than 50 percent, shouldn't we be reducing 
the funding? And I believe you responded to that. You made the 
comment that we cannot do welfare reform on the cheap, yet we 
have others who would come to me and say we need to increase it 
by tens of billions of dollars, and it would seem to me that we 
are being very generous on maintaining the level of $16.5 
billion spending, considering the roles have decreased by 52 
percent.
    But I would like to move to another area. Certainly two of 
the key reasons why I believe welfare reform has been so very 
successful, one has been that we are--we have begun to require 
work, and certainly in your State where you did experimentation 
with this prior even to the 1996 law, I am very interested in 
what your thoughts are for maintaining this work. And we have 
some who would propose that we slack off in our work 
requirements. Right now we have increased by three-fold 30 
percent of those on welfare are working. Many, like myself, 
feel that should be increased, or should be more than 30 
percent of those who are able-bodied and working. Some would 
like to, perhaps, go back to just education, and certainly, I 
have concerns on that, of doing anything.
    That old adage that I heard growing up on the farm, ``if it 
ain't broke, don't fix it.'' I certainly would think it would 
be a disaster if we were to fix something that is working. 
Certainly, we want to fine-tune and work and make it better. 
But I would like to begin by, just on this area of the work 
area, the other, the time limits I would like to get into, but 
just in the area of work, what are your responses to those who 
would like to see us move away from work, and how well do you 
feel this is working? What is the recommendation of the 
Administration?
    Mr. Thompson. Thank you very much, Congressman. Let me 
quickly point out that I was head of the National Governors 
Organization when the first TANF bill was enacted, and we 
negotiated with Congress for $16.5 billion, and we asked that 
it not be cut for 5 years. And the Congress kept their 
commitment. I think the Governors kept their commitment, and it 
has been, I think, a very successful program. The only area 
where I disagree with you is that I think it is probably the 
biggest social change in 60 years rather than 25 years. That is 
the only change I would make to your statement, Mr. Herger.
    In regards to work, I think it is absolutely essential. I 
think work has got to be a very viable component of any 
reauthorization of TANF. In the existing law, 50 percent was 
supposed to be in a work capacity, but every time a State 
reduced the caseload down by 1 percent, the work requirement 
was reduced by 1 percent.
    So now we are down to about 5 percent instead of 50 
percent. It is about 5 percent that are required to work in 
America, pursuant to a law, because the caseloads have been 
reduced. In my own State of Wisconsin, we don't have any work 
requirement pursuant to the Federal level. We have a State 
requirement that requires it. I absolutely think it is 
important. I think it is the only way to get out of poverty. I 
think there has to be more, but also I think we can now move to 
the next step and use some adjustments to allow for education 
and for training to be able to continue up the economic ladder, 
and I fully want to work with you and the Members of this 
Committee in order to accomplish the next step. I really feel 
passionately about this, and I think it is great for 
individuals. It is great for children, and I think it can be 
even a better program if we work together to accomplish that.
    Mr. Herger. Thank you, Mr. Secretary.
    Chairman Thomas. I thank the Chairman. The gentleman from 
Michigan, Mr. Levin, wish to inquire?
    Mr. Levin. Well, thank you, and we are glad you are here.
    Mr. Thompson. Thank you, Mr. Levin.
    Mr. Levin. I am going to continue with some friendly 
questions. I won't pick up your statement about this 
Administration opposing privatization of Social Security, which 
I don't think is really its position, but let us go back to 
welfare for a moment, because I think your answer to Mr. Herger 
and to Mr. Crane, that answer is an important one, because no 
one wants to weaken the work requirement. What we want to do is 
to, as you say, help people who are working move up the 
economic ladder.
    Mr. Thompson. That's true.
    Mr. Levin. And we are glad that you are emphasizing that.
    Mr. Thompson. Thank you.
    Mr. Levin. The figures are pretty clear, though. I think 
the reporting requirements under the welfare bill were too 
weak, and I think you would agree. We don't really have a good 
enough idea of what is happening to people. But from the 
studies available, it is pretty clear that the majority of 
people who leave welfare to work remain in poverty are working 
at jobs that pay $6, $7, $8 an hour. That is the majority of 
people.
    Mr. Levin. If we want work to lead to independence, the 
work has to be ruminative enough, and I think that is what you 
are emphasizing.
    I might also point out, when we talk about level funding, 
if you take into account inflation, what is being requested 
here really isn't level if you compare it with the original 
amount; and as you know so well, because you have been a 
pioneer in this, I think now about maybe more than 50 percent 
of TANF is going for support services, not for cash income. So 
the question becomes how do we help people become productive 
enough in terms of their remuneration?
    So let me ask you in that regard about transitional 
Medicaid because, as you know, a very substantial portion of 
people who leave welfare for work don't end up with health 
care; and, as you know, some of us, Mr. Castle and others and 
I, have proposed--and Mr. Cardin is very much into this--
transitions into traditional Medicaid to make sure people who 
are working have health care. There is no provision in this 
budget, as I see it, for any improvements in transitional 
Medicaid. Why not?
    Mr. Thompson. Congressman, we are putting in $350 million, 
which was going to be terminated in order for a continuation of 
1 year of health care. We think that is a very positive step. I 
think we need to look at what you are saying, but, right now, 
the $350 million is a tremendous step forward.
    The second thing you mentioned that I wanted to comment on 
is in regards to the cases, in regards to records. There are a 
lot of States that have not kept individual case files on every 
case. I think it is very important for us. If we are going to 
move and allow for individuals to be able to continue, there 
has to be a case history, a case file and a case direction on 
every individual coming off of TANF. Right now, that is not the 
case.
    Wisconsin is the only State that does that. I think it is 
very important if we are going to keep individual case files, 
we should be able to do them with our counselors, and States 
should have them. States will not particularly like it, but I 
think in this case when we are level funding, giving them the 
necessary dollars, that we should develop that case file. With 
that I think you can give the assistance necessary through the 
$25 million in counseling that we are asking in this budget 
bill, to be able to, in technical advice to the States, allow 
for a plan to be developed for each individual to be able to 
assist them in moving.
    Mr. Levin. Okay. I want to ask you about the social 
services block grant quickly. I just urge--I think the 
transitional Medicaid improvement isn't in there because of a 
shortage of money. It is a grievous problem. People move out of 
TANF for--they may have some income support and they have no 
health insurance.
    Let me ask you about social service block grant. Can you 
answer in just a couple of seconds? The funding request is $1.7 
billion. Where is the money going to come from to improve it, 
to increase it? I understand the President agreed earlier today 
or yesterday to keep the promise made to the Governors to raise 
it. Where is the money going to come from?
    Mr. Thompson. I am not sure, Congressman, of the answer. I 
will be back in touch with you.
    Chairman Thomas. The gentleman's time has expired.
    It is the Chair's intention to continue this hearing until 
the bells ring. My understanding is that approximately 20 
minutes to 12:00 p.m. the bells will ring. There will be two 
votes, and that will consume the remainder of the time. So if 
our Members are mindful of the time and especially of those who 
might have indicated that they would very much like to ask 
questions of the Secretary, the Chair would urge you to, among 
yourselves, try to prioritize the amount of time we have 
remaining. The Chair will call on each Member. The gentleman 
from Louisiana wish to inquire?
    Mr. McCrery. Thank you, Mr. Chairman. I will be brief.
    Quickly, on the question of privatization of Medicare, I 
think Chairwoman Johnson spoke to that well. However, I would 
note, Mr. Secretary, that the President's emerging proposals on 
Medicare do stem from the recommendations of the National 
Bipartisan Commission on Medicare Reform, and those in fact do 
envision a much larger role for the private sector in the 
delivery of health care through the Medicare system; isn't that 
correct?
    Mr. Thompson. That is correct. It is about choices, 
Congressman. It is about allowing an individual to have the 
same choices under Medicare as a Federal employee does, with 
their own health insurance programs.
    Mr. McCrery. Exactly.
    Mr. Thompson. That is absolutely correct.
    Mr. McCrery. I just wanted to make that clear. On the issue 
of welfare reform, there is no one better situated than you, 
Governor Thompson.
    Mr. Thompson. Thank you.
    Mr. McCrery. Mr. Secretary, to comment on the funding that 
was agreed to in 1995 and later enacted in 1996, I was on the 
Conference Committee on Welfare Reform, and you were ever 
present, as were a number of other Governors, Michigan's, for 
example, in pressing us to give the most liberal funding for 
the next 6 years; and we did that.
    Mr. Thompson. That is correct.
    Mr. McCrery. In fact, Mr. Secretary, isn't it true that we 
gave the States, the Governors, a choice of base years on which 
to----
    Mr. Thompson. You did.
    Mr. McCrery. Base the funding; isn't that correct?
    Mr. Thompson. That is correct, and we negotiated----
    Mr. McCrery. And in each case the State chose the base year 
with the highest level of funding; isn't that correct?
    Mr. Thompson. Not the highest. It could go back a couple of 
years.
    Mr. McCrery. The highest among the 3 years----
    Mr. Thompson. Among the 3 years. They could pick a base 
year out of those 3 years. You are absolutely correct. They 
couldn't go back beyond that. But you are absolutely correct. 
It was negotiated between the Governors and the Conference 
Committee, and I thought we came out very well as Governors----
    Mr. McCrery. Yes. I thought the Governors came out 
extremely well. You did a----
    Mr. Thompson. Well, I thought fairly well----
    Mr. McCrery. Great job of negotiating on their part.
    I say all of that just to underscore the Administration's 
contention that the $16.5 billion level funding is sufficient 
for this program. In fact, I would certainly urge us to look at 
decreasing the funding. I know that may not be possible, but 
certainly no increase is warranted based on the discussion you 
and I just had and the experience we have had with the program 
over the last 6 years. With that, Mr. Chairman, I will yield 
back the balance of my time.
    Mr. Thompson. Let me just say I do not think it would be in 
the best interest to cut it. I think we can get by on----
    Mr. McCrery. I am not sure that it would, but I think we 
ought to explore it.
    Mr. Thompson. And the second thing is I did want to point 
out in my first answer to you, Congressman, that the President 
and I feel very strongly that a senior on Medicare should have 
the option to either go into the new program or stay in the 
existing one.
    Mr. McCrery. Absolutely.
    Chairman Thomas. The gentleman from Louisiana yields back 
his time. The gentleman from Maryland wish to inquire?
    Mr. Cardin. Thank you, Mr. Chairman.
    Mr. Secretary, let me follow up on this fund level, because 
I think there are some misunderstandings here. We keep on 
saying there has been a caseload reduction, and I am not sure 
the figures we are using are accurate. There has certainly been 
a cash assistance reduction dramatically.
    Mr. Thompson. That is right.
    Mr. Cardin. But the number of people being served with TANF 
funds is still a very large number.
    Mr. Thompson. It is.
    Mr. Cardin. And that is good. That is a success story. When 
we help people move up the economic ladder, as you point out, 
that is what this should be about.
    Mr. Thompson. That is true.
    Mr. Cardin. So States are using more and more of their TANF 
money for noncash assistance programs; and to the extent that 
we don't make Federal funds available, those programs are going 
to be the first hit, the ones we want to encourage the most, 
because cash assistance is going to have to be paid out. And if 
the economy remains soft and we know people are losing their 
jobs, we know some of them are not qualifying for unemployment 
insurance, they are going to end up--could end up back on cash 
assistance.
    So I just caution my colleagues who are talking about the 
fact that they think that we have had dramatic reduction in the 
needs of the States, it is just not accurate; and, of course, 
the Governors and the legislators, State legislators, are here 
telling us that on a daily basis.
    The last point on funding, if you level fund it by 2007, it 
is a 22 percent reduction in the basic funding level on what it 
could buy; and I hope we could do better. I agree with Mr. 
McCrery. I think we should consider the funding level. I take 
it from a different side. I think we need to at least adjust it 
for inflation, and I hope we will have a chance during the 
budget debate to talk about that.
    I also want to also put in a plug, as I said earlier, about 
changing the goals. You mentioned child welfare, which I think 
is good. I would urge we broaden it to reduction of poverty, 
and I hope we will have a chance to sit around and talk about--
--
    Mr. Thompson. I do.
    Mr. Cardin. The explicit goals within the welfare system. 
That is not a dollar issue. It is an issue of what is the next 
level. What do we expect the States to be able to accomplish 
during the next 5 years?
    Then on the work requirement I want just to concur on your 
comments. I think giving a caseload reduction makes the work 
requirement meaningless. So I think we need to look for a 
better way to define it. We would suggest you take a look at 
making the credit based upon employment rather than on caseload 
reduction, because that is more relevant to what we are trying 
to accomplish.
    Then, last, I want to thank you for, in the President's 
budget, having the child support pass-through provisions. This 
Committee has passed that on several occasions. We have not 
been able to get it through the other body. I am a little bit 
concerned on how you pay for it, but I do hope that we will be 
able to get that finally passed. That is extremely important to 
low-wage families and people who really need this additional 
assistance, and I want to thank you for including that in the 
President's budget.
    Mr. Thompson. Thank you. If I could quickly comment on 
several things.
    First off, in regards to the pass-through, as you know I 
pioneered that when I was Governor of the State of Wisconsin. 
We have 100 percent pass-through which we have paid through 
waiver savings. It has been very good, and there has been a 
recent study put out in the State of Wisconsin by I believe the 
Institute of Poverty. That shows that any welfare mother that 
has received any amount of money up to $100 per month once she 
leaves welfare is less likely to go back on if she is receiving 
the money from the father or the spouse that doesn't have 
custody of the child, a noncustodial parent.
    The second thing is, in regards to work, I think it is 
important for us to modernize that, because the work 
requirement right now is nonexistent for most States and it is 
at such a low level we should be doing that. I appreciate that.
    In regards to indexing the amount of money, that is a 
question we are going to have to discuss. You and I have 
discussed that in the past; we will in the future. I think I 
have a meeting with you coming up sometime in the middle of the 
month to sit down. I hope we can get together, Congressman 
Herger and Congressman Cardin, and sit down and develop a 
bipartisan--I think there are really some wonderful innovative 
things we can do to improve children and spouses in regards to 
going on to the next plateau.
    In regards to child poverty, I think there are other 
things. I am willing to discuss that, but I think there is also 
child abuse and healthy standards for children, nutrition and 
so on and so forth all should be considered, all should be in 
the dialog, and I am willing to sit down and discuss that with 
you.
    Mr. Cardin. Thank you, Mr. Secretary.
    Chairman Thomas. Thank the gentleman for yielding back his 
time. The gentleman from Michigan, Mr. Camp, wish to inquire?
    Mr. Camp. Yes, thank you, Mr. Chairman.
    Mr. Secretary, I appreciate your testimony today and 
particularly your comments that we ought to continue the 
success of the 1996 welfare reform law. Obviously, you laid out 
very well the successes in terms of caseloads declining by 50 
percent, 2 million children having left poverty, work by 
welfare recipients having risen by 50 percent or more and 
record shares of single parents working now.
    My question is, having just visited a Michigan work site 
which is really to help remove barriers to employment that 
people have and I was very struck by the efforts and successes 
they have had there, can you tell us what other States are 
working with people to help find good jobs and jobs of the 
future like the program we have in Michigan?
    Mr. Thompson. Absolutely. The wonderful thing about the 
block granting of the TANF dollars is it allows States the 
flexibility to set up new and innovative programs. There are so 
many States that have set up different ways to do it, but there 
is one problem in the existing law. It did not require the 
States to develop a case record of every person.
    What should be done, I believe very strongly in the new 
reauthorization of TANF, is that every State, every person that 
is still on TANF has to have a history and a plan of work and 
education and also development, and it should be based upon 40 
hours every week. You should be able to do that, and I think 
you would be able to enhance, you know, the benefits for the 
recipient, but I think you would also make great progress in 
moving more people into work and in better jobs.
    If you follow that record and follow that history, you 
should be able to develop a better plan for individuals; and 
with the declining caseload it seems to me that is where we 
should be putting some emphasis in the next reauthorization 
bill.
    Mr. Camp. I appreciate that; and just quickly, because I 
want to give other people some time as well, I appreciate the 
principles you laid out on Medicare reform.
    Mr. Thompson. Thank you.
    Mr. Camp. Also, that any recipient could stay with the 
current system if they chose to. I think that is an important 
point to make. No one would have to opt for changes if they 
didn't want to.
    Mr. Thompson. That is correct.
    Mr. Camp. Thank you. Thank you, Mr. Chairman.
    Chairman Thomas. Thank the gentleman. The gentleman from 
Wisconsin, Mr. Kleczka, wish to inquire?
    Mr. Kleczka. Thank you, Mr. Chairman.
    Mr. Secretary, if I could start out by making an 
observation, it wasn't too long ago when you were Governor of 
the State of Wisconsin, and the State had a small surplus, and 
you sent checks out to all the taxpayers. Then last year, when 
you are part of this Administration, we thought we had a 
surplus, and we sent checks back to all the taxpayers. Well, 
now, as you well know, the State of Wisconsin has a rather 
large deficit, $1.2 billion, and now as you come here before 
the Committee and testify, this budget puts us back into a 
deficit. Now, I don't really think you are a jinx, Governor, 
but there is some real bad luck following you around, Okay?
    Mr. Thompson. I have been congratulated over here, and I am 
being criticized now for the----
    Mr. Kleczka. I am just trying to make this observation, 
that there is some bad luck following you around. But, on a 
serious note, I have to believe that the Administration 
voiced----
    Mr. Thompson. I just would like to point out that I vetoed 
the first bill that the legislature passed to send back the 
checks. Then they went back and passed another one instead of 
having it vetoed, so you know that.
    Mr. Kleczka. Right. But there is a deficit of $1.2 billion.
    But I think I recall that the Administration did voice 
support for the Breaux-Frist Medicare reform bill which 
provides for a voucher or some of us say a premium support plan 
wherein the seniors are going to get a fixed dollar amount and 
have to go shopping in the private market for a health 
insurance plan. I just recall as I sit here the words of former 
Speaker Gingrich who indicated that his goal was to have 
Medicare wither on the vine, and I think if we ever go to that 
system you are going to see that Medicare is going to be slowly 
phased out. So for those of us who fear that once that system 
comes on board that we are going to privatize Medicare, I think 
those fears are genuine, and I think that criticism is right on 
the mark.
    What the Committee Republicans tried to do was partially 
privatize Medicare with this thing they called Medicare Choice, 
and I think it is time that, instead of slugging another $4 
billion into Medicare Choice, we admit it is a failed 
experiment.
    I can only point out to the Milwaukee experience wherein 
the seniors there in their Choice plan, one of the remaining 
Choice plans, didn't pay a deductible, and this company came 
and indicated, well, now we are going to put into the policy 
a--was it $350 hospital deductible for the seniors? And they 
just blew a gasket and, you know, thanks to the hard work of 
Mr. Scully, they did come to their senses and drop it somewhat.
    But, nevertheless, the GAO came before this Committee early 
last year, and they indicated point blank that the Medicare 
Choice program is costing Medicare more dollars than the fee-
for-service. Now, the Chairman of the Health Subcommittee, Ms. 
Johnson, can try to remake history, but that is exactly what 
the GAO told us.
    So my plea to you and to our Health Subcommittee, which 
will be meeting on this issue shortly, is to admit defeat. The 
Medicare choice program did not work. Over a half a million, 
500 million I think----
    Mr. Thompson. Five----
    Mr. Kleczka. Five-hundred million seniors have already 
exited the program knowing full well it is not to their 
benefit, and let us admit the mistake and move on.
    Now as far as the drug benefit, everyone is talking today 
about the need for a drug benefit as part of Medicare. Well, 
the rhetoric doesn't match the facts. The program that this 
Committee passed out 2 years ago provided for a drug benefit 
run by the insurance companies. When we asked the insurance 
companies whether or not they wanted to participate in this, 
all of them said, no; and I think later on one said, maybe. So 
that was the Republican drug benefit.
    As I look at this budget, what we are talking about is a 
welfare drug benefit. Now there are no other portions of the 
Medicare Program shared with the States. This is a Federal 
initiative. I think if we are going to be honest with our 
seniors, some 30, 35 million seniors, let us provide for a drug 
benefit as part of the Medicare Program just like we provide 
for physicians care, just like we provide for hospital care, 
and forget this stuff about just a welfare program. Because the 
Medicare Program was never meant to be a welfare program, and I 
don't think that we should change it at this juncture.
    So those are the observations, Mr. Secretary, that I wanted 
to make to you. Hopefully, we can work together over the coming 
months to make the program better but to leave in place the 
guaranteed benefit of a Medicare Program. If we are going to 
start shifting these folks to the private market like we tried 
in the Medicare Choice, we are going to go back to where we 
were 35 years ago, where 50 percent of the seniors in this 
country didn't have any health care insurance because they 
couldn't afford it. If we tamper with that guaranteed Medicare 
benefit, that is exactly, Mr. Chairman, where we are going to 
be headed. Thank you very much.
    Chairman Thomas. The gentleman's time has expired.
    Mr. Thompson. Congressman----
    Chairman Thomas. For accuracy in the record, the Chair 
would like to note that former Speaker Gingrich's statement 
about withering on the vine was in reference to HCFA or the 
Health Care Financing Administration. And, lo and behold, 
rather than withering on the vine, there was a mercy killing 
under this Administration.
    With that, the last Member that the Chair would recognize 
prior to the two votes carrying us to noon would be the 
gentleman from Minnesota, Mr. Ramstad.
    Mr. Ramstad. Thank you very much, Mr. Chairman.
    Like my colleague, Mr. Kleczka, I agree that you did a 
great job as Governor of Wisconsin and you are doing a great 
job as Secretary of Health and Human Services, especially for a 
guy from Wisconsin.
    Mr. Thompson. Thank you, Congressman.
    Mr. Ramstad. But as my neighbor and long-time friend, Mr. 
Secretary, you know that our States are penalized by the 
Medicare managed care reimbursement formula, a formula that 
defies logic by rewarding high-cost, inefficient health care 
States. I notice that the President's budget includes some 
reforms for Medicare+Choice that will improve conditions but 
unfortunately stop short of the comprehensive reform that is 
needed. Why doesn't the Administration support looking at more 
a comprehensive reform that includes reimbursement reform?
    Mr. Thompson. Congressman, I wish I had a simpler answer 
for you. I don't. I think that the only way we are going to be 
able to do that is to get involved in restructuring Medicare 
and strengthening it and taking care of those discrepancies 
that you talked about for Minnesota and Wisconsin and Iowa and 
a lot of rural States in which their reimbursement formulas are 
under what other individuals get. It is going to require 
dollars, but with the limited dollars that we had we wanted to 
structure a Medicare benefit for pharmacy and for drugs, and we 
also felt that that was the best thing.
    We also wanted to keep the Medicare+Choice plans as viable 
as we could within limited dollars we had, and that is the 
reason, sir.
    Mr. Ramstad. I understand those limited dollars, but the 
current disparities are just an unconscionable outrage for 
Minnesota seniors, Wisconsin seniors, Iowa, North Dakota, and 
South Dakota. Those more rural States--Washington State. They 
are just so inequitable to those seniors and States that have 
been delivering health care in a cost-effective way. We are 
being penalized----
    Mr. Thompson. Absolutely.
    Mr. Ramstad. And that makes no sense. Just as I said 
earlier, it defies logic.
    The other question I had, I was encouraged to see a strong 
commitment to addressing the problem of access to substance 
abuse treatment. The President's budget calls for an increase 
of $127 million as a first step to close the treatment gap to 
serve an additional 52,000 Americans suffering from addiction. 
I hope Administration, and I am sure you do, realizes that this 
is a small step, that last year 3\1/2\ million drug addicts, 
drug addicts according to the Office of Drug Control Policy, 
3\1/2\ million drug addicts were denied treatment for lack of 
access in this country. So to give 52,000 Americans treatment 
is a step in the right direction, but the American Medical 
Association (AMA) tells us there are 26 million alcoholics and 
addicts in this country. Until we go to parity for chemical 
dependency treatment in the private sector as well as mental 
health treatment, we are not going to solve this problem. Is 
there any consideration of supporting chemical dependency 
treatment parity?
    Mr. Thompson. Yes, there is, Congressman, and we are 
looking at that. This Administration, the President feels very 
strongly about it, and that is why he put that $127 million in 
there. There are limited resources, but this is indicating that 
this is a priority of this Administration, and we want to make 
sure that we provide for improving chemical and drug treatment 
as well as mental health in this country. We also wanted to do 
this by putting in the $127 million and trying to get away from 
the disparity that now exists.
    Mr. Ramstad. I am so heartened to hear you say that, Mr. 
Secretary. The AMA declared in 1956 addiction and alcoholism 
are a disease; and if you accept that, which I think most 
Americans do, you can't justify the discrimination against 
treatment of this disease vis-a-vis all other physical 
diseases. So thank you very much for that recognition and your 
efforts.
    Chairman Thomas. Thank the gentleman. The Chair would note 
we have less than 5 minutes on the vote.
    Mr. Secretary, there are Members on both side of the aisle 
on this Committee that wish to ask you questions. We will make 
sure that they submit them in writing, and we would appreciate 
a relatively rapid response to those questions.
    With that, the hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Questions submitted from Messrs. Houghton, McInnis, Foley, 
Doggett, and Mrs. Thurman to Secretary Thompson, and his 
responses follow:]

           Questions Submitted by Representative Amo Houghton

Question:
    The President has proposed $77.1 billion over 10 years for States 
to offer prescription drug coverage for low-income seniors. As you 
know, some States already have significant programs in existence; for 
instance, New York covers seniors with individual incomes up to $35,000 
and families of two up to $50,000 (approximately 300 and 400% of the 
Federal poverty level, respectively). Would this new proposal allow 
States like New York to use the new Federal money in place of current 
expenditures (and free up money for other health initiatives) or would 
they only be allowed to use the new Federal assistance for further 
expansion of current programs?
Answer:
    Yes. The new Federal money may be used in place of current 
expenditures. While the administration would encourage that it be used 
for further expansion of current programs, it is not a requirement. As 
I've stated at previous hearings, this administration is committed to 
ensuring that beneficiaries receive the high quality care they need and 
deserve, including prescription drugs, and we want to continue to work 
together to develop a comprehensive prescription drug benefit.
Question:
    I applaud you and the administration for not proposing any further 
cuts to providers--my rural district in upstate New York is still 
struggling with BBA cuts. I look forward to working with the 
Administration to ensure quality care for these fragile areas. There's 
a part in the budget proposal that I believe states that any payment 
adjustment to providers should be budget neutral--could you clarify? Is 
that budget neutral among just the provider pool?
Answer:
    The Administration shares your commitment to ensuring quality of 
care for all Medicare beneficiaries, including those in America's rural 
areas. You are correct, the administration's budget proposal does state 
that any adjustment to providers be done in a budget neutral manner 
across all providers. So if increasing payment to one type of provider 
is on the table, then we think adjusting other provider payments should 
be as well. We believe that any such change should be undertaken 
carefully to ensure that we do not adversely impact beneficiaries' 
access to care.
Question:
    I applaud you and the administration for your proposal to continue 
funding levels of the TANF block grant, despite the reduction in case 
load--I think that will allow states to take ``the next step'' in 
continuing the success of welfare reform. Can you expand on what 
general improvements the Administration would like to see made to 
welfare program?
Answer:
    On February 26, President Bush announced the administration's 
proposal to build on the successes of the Temporary Assistance for 
Needy Families (TANF) program. The President's welfare reform agenda 
will strengthen families and help more welfare recipients work toward 
independence and self-reliance.
    Key components of the President's welfare reform proposal include 
helping welfare recipients achieve independence through work by 
increasing the minimum work requirements. Under current law, at least 
50% of welfare families are required to participate in work and other 
activities designed to help them achieve self-sufficiency. The 
President's plan phases out the caseload reduction credit (which 
significantly reduced current state work participation requirements) 
and increases the work requirement by five percentage points each year 
until reaching 70% in FY 2007.
    The plan also requires welfare recipients to be engaged in work 
activities for 40 hours per week, either at a job or in programs 
designed to help them achieve independence. At the same time, the 
President wants to give states more flexibility to count education, job 
training or substance abuse treatment as work. Therefore, the proposal 
would require that only 24 hours be spent in the workplace. The 
additional 16 hours could include training, education and other 
activities related to a TANF purpose, as determined by the state. 
States have broad latitude to define these additional constructive 
activities. The plan makes special accommodations for parents with 
infants, teenage mothers attending school, and individuals who need 
substance abuse treatment, rehabilitation or special work-related 
training.
    The Administration also proposes to strengthen child support 
enforcement by encouraging states to give child support payments to 
custodial parents and their children. Under current law, government 
keeps a substantial portion of the money collected to pay child support 
in cases of families that have ever received welfare. The President's 
proposal provides financial incentives for the states to give as much 
of this money as possible to families, especially to parents who have 
left welfare.
    Our proposal embraces the needs of families by promoting child 
well-being and healthy marriages. To this end, we establish improving 
the well-being of children as the overarching purpose of TANF. This 
meaningful change recognizes that the four current goals of TANF 
(providing assistance to needy families so that children may be cared 
for in their or their relatives' homes, ending the dependence of needy 
parents on government benefits, preventing and reducing the incidence 
of out-of-wedlock pregnancies, and encouraging the formation and 
maintenance of two-parent families) are important strategies for 
achieving this purpose. Similarly, we clarify and underscore that the 
fourth goal of TANF is to encourage the formation and maintenance of 
healthy, two-parent, married families and responsible fatherhood. In a 
new initiative, the President's plan directs up to $300 million for 
programs that encourage healthy, stable marriages. These programs 
include pre-marital education and counseling, as well as research and 
technical assistance into promising approaches that work.
    Finally, the proposal encourages innovation by states to help 
welfare recipients achieve independence. New waiver authority would be 
established to enable states to integrate a range of programs in order 
to improve their effectiveness. This new flexibility will help states 
design fully integrated assistance programs that could revolutionize 
service delivery. Under the President's proposal, states would be given 
the flexibility to streamline and coordinate support programs--such as 
food stamps, childcare, income supplements and transportation 
assistance--which now operate under different agencies, different 
rules, and different reporting requirements. Although the waivers will 
allow new flexibility, States will remain accountable for program 
performance and will be required to develop integrated performance 
goals, measures and evaluation criteria. The integrated programs must 
meet the underlying objectives of the involved programs.

                                


          Questions Submitted by Representative Scott McInnis

Question:
    Mr. Secretary, your Medicare budget document notes that you 
recognize that ``Medicare's extremely complex provider payment systems, 
based on regulated prices, do not always function smoothly and 
equitable over time.'' The document also states that you are willing to 
work with Congress to reform payment policy by making ``budget neutral 
adjustments across provider payment updates.'' Does this mean that some 
providers will benefit and others will not? I represent a number of 
rural areas in Colorado with small community hospitals as well as some 
larger hospitals in more urban areas. Mr. Secretary, can you explain 
how changes in hospital payment updates for Fiscal Year 2003 are going 
to impact these different sectors in health care?
Answer:
    As you may know, the hospital market basket update is set into law 
at market basket minus 0.55 for FY 2003. It should be noted that since 
the inception of inpatient PPS, hospitals have only once received a 
full market basket update (FY 2001). Given this, the hospital industry 
overall has faired well. In 1997, the inpatient PPS margin rose to a 
historical high of 16.0 percent. Although there was a decrease in 1999 
to a 12.4 percent margin, the inpatient hospital margins still remain 
very high. Hospitals in large urban areas are fairing better than those 
in smaller urban areas and in rural areas. There are several proposals 
that address this issue including MedPAC's upcoming recommendation of 
an update of market basket minus 0.55 for large urban areas and a full 
market basket update for hospitals in all other areas. As we move 
forward, we need to explore such proposals and continue to ensure that 
hospitals are paid appropriately, regardless of their location.

                                


            Questions Submitted by Representative Mark Foley

Question:
    Do you have any recommendations on how to get more Federal money to 
hospitals for the care they provide to illegal aliens?
Answer:
    Historically, Medicaid, like other federally funded entitlement 
programs, has never been allowed to cover ``illegal'' or 
``undocumented'' aliens. It is generally limited to legal immigrants 
who intend to remain in the United States permanently. The Personal 
Responsibility and Work Opportunity Reconciliation Act 1996, in 
addition to reforming the nation's welfare programs, tightened up 
longstanding immigration laws to ensure that legally admitted aliens 
can support themselves without turning to publicly supported programs. 
The law prohibited new entrants from receiving Medicaid benefits for 5 
years after entry. The President has indicated that he does not intend 
to pursue a change in this 5-year prohibition as part of the 
reauthorization of the 1996 law.
    There are very limited circumstances in which hospitals can be paid 
by Medicaid for services provided to illegal aliens. States are 
required to cover emergency services for all aliens who meet all other 
Medicaid eligibility requirements. This includes people in the country 
illegally, as well as non-citizens in the United States legally, but 
barred from Medicaid for some other reason. ``Emergency services'' are 
those needed immediately to treat conditions of sudden, unpredictable 
onset that have possible serious health outcomes.

                                


          Questions Submitted by Representative Lloyd Doggett

Question:
    Since nicotine addiction is the leading cause of preventable death 
in America today, what new initiatives have you undertaken as Secretary 
to reduce this public health epidemic?
Answer:
    In fiscal year 2002, the Department of Health and Human Services 
(HHS) increased its commitment to funding tobacco control programs by 7 
percent, for a total of $975 million. The National Institutes of 
Health's (NIH) tobacco control research budget increased by 14 percent 
to $486 million. Listed below are additional initiatives I have been 
pleased to be part of:
           An initiative to increase awareness of tobacco use 
        among women and girls. In August, Women and Smoking: A Report 
        of the Surgeon General was released. HHS and our public and 
        private partners have undertaken this initiative to engage 
        women across the country in the fight against tobacco.
           I have taken a number of steps to increase the 
        visibility and coordination of tobacco use cessation and 
        treatment initiatives throughout HHS. The Agency for Healthcare 
        Research and Quality (AHRQ), the Centers for Disease Control 
        and Prevention (CDC), the Centers for Medicare and Medicaid 
        Services (CMS), the Health Resources and Services 
        Administration (HRSA), NIH and the Substance Abuse and Mental 
        Health Services Administration have all collaborated on the 
        development of a national blueprint for disseminating and 
        implementing evidence-based clinical and community strategies 
        to promote tobacco use cessation.
           I have asked the Office of the Surgeon General and 
        CDC to establish a cessation sub-committee to the Interagency 
        Committee on Smoking and Health.
Question:
    Tom Novotny, a 23-year employee of your Department was the leader 
of the US delegation to the International Framework Convention on 
Tobacco Control (FCTC). Since the August 2001 announcement of his 
departure, has the US delegation taken any position on any pending 
public health issue at variance with the position of the tobacco 
industry? Is so, please describe them.
Answer:
    HHS is committed to a strong FCTC. Dr. Kenneth Bernard now serves 
as the head of the US delegation. Dr. Bernard brings to the delegation 
a wealth of public health, international, and diplomatic experience. 
Under Dr. Bernard's leadership, the process for developing the US 
position has remained unchanged. An experienced and active interagency 
workgroup, comprised of highly qualified professionals from across the 
Federal government, is the primary vehicle for discussion and debate. 
In addition, Dr. Bernard and other members of the interagency workgroup 
have met with a variety of private organizations interested in the 
FCTC. These organizations include tobacco product manufacturers as well 
as non-governmental health advocacy organizations. While it is 
essential that the delegation be informed regarding the issues and 
concerns of all interested parties, the position of the U.S. Government 
is developed through independent and objective analysis. This position 
is being developed to ensure an effective framework for reducing 
tobacco use globally. We continue to believe that the Member States of 
the World Health Organization must work together to achieve a 
convention the majority of members can sign. The FCTC will be a strong 
convention because of its breadth and the large number of members who 
sign it.
Question:
    In your July 2001 response to my prior questions regarding the 
involvement of your Department in deliberations of an interagency 
working group related to tobacco trade matters, you stated that HHS 
played an advisory role in discussions between the United State Trade 
Representatives (USTR) and the Government of the Republic of Korea 
regarding the privatization of the Korean Government's tobacco monopoly 
and the imposition of import tariffs on cigarettes. Specifically, you 
stated, ``In considering the potential public health impact, HHS has 
focused on whether the proposed policies would increase demand for or 
reduce the price for tobacco product.''
    Did your Department conclude that public health would not be 
adversely affected by any reduction or delay in the imposition of the 
40% tobacco import tariff proposed by the Korean government?
    Please also provide a full description of HHS analyses and 
conclusions on this matter, along with any and all documentation. 
Include in this a complete listing of all agencies and employees within 
your Department that were involved.
Answer:
    HHS is actively involved in the implementation of Executive Order 
13193--Federal Leadership on Global Tobacco Control and Prevention. HHS 
was involved in the interagency discussions of proposed changes to the 
Korean Tobacco Business Act and privatization of the Korean 
Government's tobacco monopoly. HHS' position in these discussions was 
based on scientific findings that demonstrate increasing the price is 
one of the most effective ways to decrease consumption of tobacco 
products. Based on this scientific evidence, HHS supports policy 
actions that increase the price of tobacco products. Therefore, the 
U.S. position in the discussions with Korea was consistent with public 
health goals because the tariff on tobacco products was increased.
Question:
    Aside from the Korean trade proceedings, has the USTR invited your 
Department to offer advice on any other tobacco-related matters? If so, 
provide a complete listing of each instance along with a description of 
the circumstances and include any analyses and conclusions developed by 
your Department. Include in this material a complete listing of all 
agencies and employees within your Department that were involved in 
developing your advice.
Answer:
    Since July 2001, USTR has consulted HHS on three matters.
           In September 2001, the USTR considered a request 
        from the Government of Indonesia to designate 12 additional 
        products for benefits under the Generalized System of 
        Preferences (GSP). Tobacco was initially one of the 12 
        products. HHS recommended excluding tobacco from the list of 
        products for which GSP was granted. After interagency 
        deliberation, tobacco was excluded.
           In February 2002, USTR contacted HHS regarding a 
        request for guidance from the Embassy in Warsaw, Poland 
        regarding correspondence from Phillip Morris that expressed 
        concern over a government of Poland proposal to raise the 
        tariff on unprocessed tobacco from 30 percent to 105 percent. 
        USTR indicated that their recommendation was that Embassy in 
        Warsaw not make representations to the government of Poland. 
        HHS concurred with this recommendation.
           USTR requested HHS participation in an interagency 
        meeting as part of the ongoing negotiations on the U.S. Chile 
        Free Trade Agreement. Dr. Stuart Nightingale represented HHS at 
        this meeting, and presented positions developed by CDC in 
        consultation with the U.S. Department of Agriculture. As an 
        adviser to USTR in these matters, HHS requested that its 
        position be noted in all public discussions of the U.S. 
        position, including the summary of the discussions that will be 
        made available to the public at the close of negotiations, as 
        required by Executive Order 13193. Because negotiations are 
        ongoing, this information is considered deliberative. For 
        further information, please contact John Veroneau, Assistant 
        U.S. Trade Representative for Congressional Affairs, who can 
        set up a briefing for a member of your staff with the 
        appropriate clearance.
Question:
    I was also pleased to hear from you that your Department, in 
accordance with section 2(c) of Executive Order 13193 ``Federal 
Leadership on Global Tobacco Control and Prevention,'' has made 
progress with international tobacco control needs assessments. In your 
July 2001 correspondence with my office, you stated that the CDC would 
produce the first report on the People's Republic of China by December 
31, 2001.
    Please provide me with a copy of this report. In addition, please 
update me on the status of the needs assessment on India, which in your 
July 2001 letter you stated would be ready for peer-review early this 
year.
Answer:
    I am pleased to report that significant progress has been made on 
the international tobacco control needs assessment. Although the 
complexity of the tobacco control situation in China and the challenges 
of coordinating a global peer review process has resulted in some 
delay, the report currently is undergoing final review. As soon as the 
report has been finalized, we will provide you with a copy. With 
respect to the report on India, work has already begun and we project 
the report will be completed by the end of the year. CDC staff will be 
in India in April and will use this opportunity to continue discussions 
with Indian officials and researchers working on the report to advance 
its progress.
Question:
    Regarding section 2(d) of Executive Order 13193, you stated that 
the National Institutes of Health (NIH) worked collaboratively with the 
World Health Organization to issue a Request for Application (RFA) that 
would solicit research projects on the global burden of tobacco use. 
Please provide me with a detailed description of any responses to that 
RFA. Also, please update me on the progress you have made since July 
2001 in implementing this initiative.
Answer:
    NIH's International Tobacco and Health Research and Capacity 
Building Program is a unique Fogarty International Center program 
developed in cooperation with several other NIH institutes, including 
the National Cancer Institute and the National Institute on Drug Abuse. 
The NIH received 62 applications in response to the RFA. These grant 
applications were reviewed on March 4 and 5 by an NIH Special Emphasis 
Panel, organized by the National Cancer Institute, that included 
scientists with special expertise in tobacco control issues globally. 
Once scores are available, the Fogarty International Center, and its 
collaborating partners, will prepare a funding plan based on the number 
of applications of high scientific merit and available funds.

                                


          Questions Submitted by Representative Karen Thurman

Question:
    My question is simply this, given these circumstances, how do you 
expect states like Florida to pay for the President's Pharmacy Plus 
program?
Answer:
    The President's budget includes two low-income drug proposals. 
Under the Transitional Medicare Low-Income Drug Assistance program, 
starting in FY 2003, the Administration proposes to expand drug 
coverage for low-income Medicare beneficiaries. States could expand 
drug only coverage to Medicare beneficiaries up to 100 percent of 
poverty at regular Medicaid FMAP. This should be considerably less 
expensive than providing the entire Medicaid benefit package. For 
individuals between 100 and 150 percent of poverty, Medicare would pay 
90 percent of the costs of the drug only benefit and States would be 
responsible for the remaining 10 percent. Starting in FY 2006, the 
President's budget proposes a comprehensive Medicare modernization 
program that includes a prescription drug benefit for all Medicare 
beneficiaries. Federal support for comprehensive drug coverage for low-
income beneficiaries would continue even after the Medicaid drug 
benefit is fully implemented, and would be integrated with it. There 
would be subsidies for premiums and cost sharing for the low-income.
    While the Transitional Medicare Low-Income Drug Assistance program 
requires new legislation, States can implement the Administration's new 
Pharmacy Plus model waiver demonstration program right now. Pharmacy 
Plus is HHS' response to states' desires to initiate responsible 
solutions to a growing need for pharmaceutical access. Pharmacy Plus 
contains a check off application, model terms and conditions and a 
budget neutrality shell to guide states through the process of 
preparing and submitting a request for Medicaid Section 1115 
demonstration authority to expand pharmacy only coverage. This 
initiative is intended to provide States with flexibility to design 
programs that meet the needs of state-specific populations, while 
guidance is provided up front on what HHS will require of states.
    While states can provide drug benefits to the elderly with incomes 
below 100 percent of the poverty level, they must provide the entire 
Medicaid benefit package and cannot limit Medicaid coverage just to a 
drug benefit without a waiver. Without Pharmacy Plus, to provide drug 
benefits to this group, states would have to provide the full range of 
Medicaid-covered services as well. This would be very expensive, and 
many states don't have the funds available to provide that kind of 
coverage to a larger client population.
    The Medicaid Pharmacy Plus waiver templates that CMS is providing 
as a companion to the President's Transitional Medicare Low-Income Drug 
Assistance budget proposal will help states get to the starting line of 
100 percent of poverty if they are not already there.
Question:
    I think many of my colleagues on both sides of the aisle have heard 
from their constituents that they simply cannot pay for their 
prescription drugs because they are just too expensive. Can you assure 
me that the President will be able to force manufacturers to provide a 
genuine discount to Medicare beneficiaries, and that the local 
pharmacist will not have to take a cut in their margin?
Answer:
    The Administration highly values the important role pharmacists 
play in the lives of Medicare beneficiaries. It is extremely important 
to the President that this key role be preserved under the Medicare-
endorsed drug assistance initiative. The initiative is designed to 
expand beneficiary access to the range of important services 
pharmacists provide beyond filling prescriptions, including counseling, 
information on the benefits of generic substitution, and identification 
of dangerous drug interactions.
    The proposed design of the Medicare-endorsed Prescription Drug Card 
Assistance Initiative would deliberately move the discount pressure of 
the current discount card market away from pharmacies and toward 
manufacturer rebates and discounts. The Medicare-Endorsed Prescription 
Drug Card Assistance Initiative would pool market power to allow card 
sponsors to negotiate rebates or discounts with manufacturers. Medicare 
beneficiaries would belong to only one card program at a time, and 
would be allowed to switch card programs every 6 months. These two 
attributes of the proposed drug card initiative would give card 
sponsors the power to effectively negotiate with manufacturers for 
rebates.
Question:
    Mr. Secretary, is there anything in the President's budget that 
keeps these plans from taking the money and running away with it in the 
following year?
Answer:
    Let me assure you, I am committed to improving the Medicare+Choice 
program and seeing that it remains a viable option for Medicare 
beneficiaries. I, too, was troubled by the number of plan departures 
last year and this administration is committed to bringing stability to 
this program.
    As you know, since 1998, payment increases for private plans have 
failed to stay anywhere close to medical cost increases in many parts 
of the country--the so-called ``non-floor'' counties that have 
accounted for the vast majority of Medicare+Choice enrollment. Between 
1998 and 2002, private plan payments in these areas increased by just 
11.5% while Medicare fee-for-service costs (government plan costs) went 
up by 22%--almost twice as much. It is no wonder the plans are having 
to cut benefits, raise copayments, and even pull out of the program--
creating serious problems for the beneficiaries who depend on them.
    Even with all the problems caused in recent years by the unfair 
payment system for private plans, there are still over 5 million 
Medicare beneficiaries enrolled in private plans--so for many seniors, 
private plans are the best option. Indicators of care quality and 
enrollee satisfaction in these plans are high. And even after the 
recent cutbacks in benefits, they can still be a better deal for 
seniors than enrolling in traditional Medicare and buying an expensive 
supplemental policy to cover the large benefit gaps.
    We support a fairer payment system for private plans in Medicare 
because the current payment system is causing seniors to lose access to 
valuable benefits and is clearly hurting the quality of care they 
receive. I look forward to working with you on this important issue in 
the coming months.
Question:
    Mr. Secretary, given the track record of Florida's high risk pool 
and the fact that premiums for risk pool enrollees are typically over 
250% higher than for group insurance, do you think the President's tax 
credit proposal will provide enough coverage to enrollees? And, Mr. 
Secretary, how is Florida going to pay for reopening their already 
bankrupt high risk pool?
Answer:
    The Administration's proposal creates a refundable income tax 
credit for the cost of health insurance purchased by individuals. The 
credit provides a subsidy of up to 90 percent of the health insurance 
premium, up to a maximum credit of $3,000 for a family of four. The 
credit is targeted toward lower income individuals and families who do 
not get coverage through their employer or a public program--since they 
are more likely to be uninsured and do not benefit from the existing 
tax subsidy for employer-provided insurance.
    To increase the purchasing power of this credit, qualifying health 
insurance could be purchased not only in the individual market, but 
also through private purchasing groups, state-sponsored insurance 
purchasing pools and state high-risk pools. High risk pools exist in 29 
states and for people with serious illnesses they can provide an 
important vehicle to obtain quality insurance that provides 
comprehensive coverage. The credit would make premiums more affordable 
for those already getting coverage in a high-risk pool, but by their 
nature such pools do generally require state subsidies to cover their 
costs.
    Recognizing that states with high-risk pools may not decide to 
expand their availability--and that many states do not have high risk 
pools--the President's proposal gives states additional options. In 
particular they will have the option of letting certain individuals use 
the credit to buy into privately contracted state-sponsored purchasing 
groups--such as Medicaid or SCHIP purchasing pools for private 
insurance, or state government employee programs (for states in which 
Medicaid or SCHIP does not contract with private plans). Overall this 
proposal will permit up to 6 million Americans who would otherwise be 
uninsured during a year get coverage, and will support many more lower 
income working families who must currently purchase health insurance 
with little or no government help.
Question:
    The 15 percent cut. Are you or the President against eliminating 
this cut?
Answer:
    The President's budget assumes no further delay in the 
implementation of the ``15-percent reduction'' in home health interim 
payment system (IPS) limits. As you may know, this reduction is 
somewhat of a misnomer. It does not translate into an across-the-board, 
direct cut in Medicare payment rates for home health services, as many 
have described it. Rather, the 15-percent reduction is a decrease in 
the payment caps under the old IPS. The actual percentage reduction in 
payments that will result from lowering the limits is much less. In 
fact, the CMS actuary estimates that the 15-percent reduction will only 
reduce payments to home health agencies by about 7 percent, not 15 
percent. Further, after the PPS rates are reduced by 7 percent, we 
would apply the home health update (currently estimated to be 2.1 
percent), leading to a net reduction of approximately 4.9 percent.
    Home health spending is expected to rise by 42 percent for FY 2002. 
Even if the 15 percent adjustment occurs, we estimate that home health 
spending would increase 12 percent in FY 2003, 8.3 percent in FY 2004, 
and 7.8 percent in FY 2005. Therefore, we do not believe a repeal of 
the 15 percent adjustment in the caps is necessary.
Question:
    Do you or the President support increasing the composite rate for 
dialysis facilities by 2.4 percent?
Answer:
    I appreciate your special concern for the state of dialysis 
facilities. I share your concerns and am committed to providing the 
best possible care for all Medicare beneficiaries, including those with 
dialysis needs. To this end, we have been working to improve quality 
and to strengthen the conditions of coverage at dialysis facilities. 
For example, we are working to implement an electronic system to 
measure the appropriateness of care delivered at individual dialysis 
centers. We are also developing measures to improve the performance and 
accountability of ESRD Networks and State survey agencies. Furthermore, 
to increase options for ESRD beneficiaries, we have recently completed 
a demonstration project involving Medicare+Choice and we expect to have 
the results of an independent evaluation of the project by the end of 
the year. Although we are working to improve dialysis for Medicare 
beneficiaries administratively, changing the composite rate, as MedPAC 
recommends, would require legislation. There are a number of ideas on 
the table for addressing Medicare provider payment adjustments. The 
Administration is committed to working with Congress to make 
adjustments to provider payments that are budget neutral overall. We 
look forward to examining all of MedPAC's forthcoming recommendations 
and working with Congress on this issue.
Question:
    Have you changed your mind, or will you seek to address medical 
errors this year?
Answer:
    This is a high priority for this Administration and for me. A 
number of steps are being taken by this Administration to reduce 
medical errors and improve patient safety.
    Last year, I created a Patient Safety Task Force, with the Centers 
for Medicare and Medicaid Services (CMS) as an active participant. 
Currently, CMS is working with its Federal agency partners--the Agency 
for Healthcare Research and Policy, the Centers for Disease Control and 
Prevention, and the Food and Drug Administration, as well as with the 
Veterans Health Administration's National Surgical Quality Improvement 
Project, to develop the Medicare Patient Safety Monitoring System. The 
task force recognizes and stresses the importance of partnerships--
within HHS, across the Federal government and with the private sector 
and health care professionals.
    The aim of the system is to produce state and national rates of 
patient harm and the risk factors that contribute to the harm among 
hospitalized Medicare beneficiaries. The system is scheduled to be in 
production in June 2002 with the initial reports ready by October 2002.
    In addition, CMS is supporting special studies on patient safety by 
the New York and Ohio Quality Improvement Organizations (QIOs, formerly 
PROs). Also, several QIOs are carrying out local projects in patient 
safety. For example, the Wisconsin QIO is working with a statewide 
coalition to implement best practices to improve medication safety in 
Wisconsin hospitals. The Ohio QIO also has implemented a project in 
falls prevention in hospitals using safety culture surveys, root cause 
analysis tools as well as probabilistic risk assessment tools and the 
Alabama QIO is working to improve medication safety in dialysis 
centers.

                                


    [A submission for the record follows:]
                          Statement of AdvaMed
    AdvaMed is the largest medical technology trade association in the 
world, representing more than 800 medical device, diagnostic products, 
and health information systems manufacturers of all sizes. AdvaMed 
member firms provide nearly 90 percent of the $68 billion of health 
care technology products purchased annually in the U.S. and nearly 50 
percent of the $159 billion purchased annually around the world.

    AdvaMed strongly supports the Presidents commitment to the 
protecting and preserving the Medicare program, increasing medial 
research through funding for the National Institutes of Health (NIH) 
and extension of the research and experimentation (R&E) tax credit, 
improving access to technologies for people with disabilities, and 
expanding access to health care coverage for the uninsured. We look 
forward to working with the Administration to ensure that the medical 
research developed by the government and in the private sector not only 
improves the quality of the care delivered to patients in all settings 
and programs, but also the productivity of the health care system 
itself.

    With great interest, we noted that during President Bushs State of 
the Union address, the President mentioned the need to ensure Medicare 
beneficiaries access to the latest health care options. As the 
Committee knows, and has tried to address legislatively, Medicare is 
often too slow to incorporate technologies and methods of delivering 
care. These time delays frustrate the programs ability to provide the 
most cost-effective, high-quality care to Americas seniors and 
individuals with disabilities.

    We believe it is in the best interest of patients and the Medicare 
program to have the Medicare system capitalize on advanced 
technologies, which have revolutionized the U.S. economy and driven 
productivity to new heights and new possibilities in many other 
sectors. Significant advances in health care technologies--from health 
information systems that monitor patient treatment data to innovative 
diagnostics tests that detect diseases early and lifesaving implantable 
devices--improve the productivity of the health care system itself and 
vastly improve the quality of the health care delivered. New 
technologies can reduce medical errors, make the system more efficient 
and effective by catching diseases earlier--when they are easier and 
less expensive to treat, allowing procedures to be done in less 
expensive settings, and reducing hospital lengths of stays and 
rehabilitation times.

Medicare Beneficiary Access to Technology
    AdvaMed applauds Congress for the steps it took in the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Benefits Improvement and 
Protection Act (BIPA) of 2000 to begin to make the Medicare coverage, 
coding and payment systems more effective and efficient. In addition, 
the Centers for Medicare and Medicaid Services (CMS) has recently made 
some changes to modernize its coverage and payment systems.

    Despite these efforts, however, current policies still fail to keep 
up with the pace of new medical technology. Serious delays continue to 
plague the amount of time it takes Medicare to make new medical 
technologies and procedures available to beneficiaries in all treatment 
settings.

    As demonstrated by a Lewin Group report provided by AdvaMed to the 
Congress in 2000, Medicare delays can total from 15 months to five 
years or more because of the program's complex, bureaucratic procedures 
for adopting new technologies. Keep in mind that all this is after the 
two to six years it takes to develop a product and the year or more it 
takes to go through the Food and Drug Administration (FDA) review. In 
addition, these delays are even more pronounced when you consider that 
the average life span of a new technology can be 18 months.

    The impact on patients has been dramatic. As physician witnesses 
testified in Congress last year, cancer patients have had to fight for 
years to get Medicare to cover positron emission tomography, a 
potentially lifesaving scanning technology that has been broadly 
available to people under private health insurance for a decade. In 
addition, tens of thousands of seniors and people with disabilities 
have not been able to receive advanced technologies like coronary 
stents (which reopen blocked arteries), cochlear implants (which 
restore hearing) and heart assist devices (which keep patients alive 
while waiting for a heart transplant).

    These delays stem from the fact that for a new technology to become 
fully available to Medicare patients, it must go through three separate 
review processes to obtain coverage, and receive a billing code and 
payment level. Serious delays in all three of these areas create 
significant barriers to patient access.

    That's why we strongly support provisions based on language from 
H.R. 2973, the Medicare Innovation Responsiveness Act introduced by 
Representatives Ramstad (R-MN) and Thurman (D-FL), and incorporated in 
HR 3391, the Medicare Regulatory and Contracting Reform Act developed 
with the leadership of this Committee, that would create a council for 
technology and innovation within CMS to oversee and coordinate Medicare 
coverage, coding and payment decisions on new technologies and require 
a GAO report on ways CMS can make better use of external sources of 
data to expedite hospital inpatient payment updates.

    As the Senate continues work on this legislation, we look forward 
to Congressional receipt of the first annual BIPA-required report that 
was due December 1, 2001, on the time taken by the Secretary to make 
and implement necessary coverage, coding, and payment determinations 
for newly covered items, services, or medical devices.

Making Medicare's Coverage Process More Transparent and Timely
    While CMS has improved the transparency for making national 
coverage decisions and attempted to instill timeframes within the 
process, timeliness is still a major problem. Under the current 
national coverage process framework, CMS has 90 days to determine 
whether it will make a coverage decision or refer the request to either 
the Medicare Coverage Advisory Committee (MCAC) or an outside health 
technology assessment (HTA) group--or sometimes even to both. These 
outside assessments take between 3 and 12 months each. CMS then has 60 
days to review the recommendations of the MCAC or HTA, and should a 
positive coverage determination be made, it takes 180 days from the 
first day of the next calendar quarter to issue a code and set a 
payment level.

    The coverage process should be streamlined and made more 
accountable, timely and transparent. Steps should be taken to reduce 
redundancies in the MCAC panel and HTA reviews. In addition, the focus 
of the MCAC panels should be directed toward gaining practical clinical 
advice from the medical experts on its panels.

    Some of these issues were addressed in BIPA which requires CMS to 
act within 90 days of receiving a coverage decision request, to provide 
an avenue of appeals for affected parties, and to report annually to 
Congress, beginning December 1, 2001, on the coverage, coding, and 
payment timelines relating to the decisions made each year (noted 
above.) We have become increasingly distressed over the delay in 
implementing these provisions and request that the Committee urge CMS 
to implement BIPA without further delay.

    These concerns at the national level highlight the importance of 
local coverage determinations in providing Medicare beneficiaries with 
access to new medical technology. Generally, about one dozen decisions 
are made a year at the national level; compared to thousands made 
locally. We request that the Committee urge CMS to assure that it will 
continue to support local coverage decision-making authority.

Reforming the Coding Process
    After coverage is approved, a coding process is used to determine 
how a device or procedure will be identified and to which payment 
bundle it will be assigned. There are three different coding systems, 
but each of them involves significant time lags in assigning and 
updating codes. Under the new hospital outpatient perspective payment 
system (PPS), CMS now assigns and updates codes on a quarterly basis. 
To reduce coding delays of 15-27 months, CMS should use the outpatient 
PPS system of quarterly updates as a model for applying similar systems 
to other settings, such as the inpatient hospital setting and doctors' 
offices.

Inpatient Prospective Payment System
    Improving the timeliness and accuracy of Medicare payment 
adjustments to account for advances in medical technology and 
procedures used in the hospital inpatient setting remains an important 
priority for AdvaMed. An important provision in H.R. 2971, the Ramstad/
Thurman bill, would address the concerns about inpatient reimbursement. 
Specifically, Section 5 of the bill would require the Secretary to 
assign items to an existing DRG if the national average base payment is 
at least equal to 90% of the cost of care involving the technology and 
within $2500 of the cost of such care. If no existing DRG satisfies 
these criteria, the Secretary would assign the technology to a New 
Technology DRG that does. We look forward to working with the Committee 
in 2002 to address concerns about timely inpatient technology access 
for Medicare beneficiaries.

Outpatient Prospective Payment System
    The hospital outpatient prospective payment system (OPPS) has had a 
difficult time in these first two years of its implementation. One 
reason is that the type of data needed to construct the base Ambulatory 
Payment Classification (APC) groups is not easily obtained from 
historical claims submissions.
    We believe that data inadequacies, as well as policies on 
incorporating resource costs associated with devices and medical 
technology will continue to be issues in the 2003 OPPS update, underway 
now. We request that the Committee urge CMS to:
           make this process open and transparent,
           share proposed data and methodology with interested 
        stakeholders now during the development stages of the proposed 
        rules
           define and accept additional sources of data, and
           work collaboratively to resolve issues before 
        publishing the proposed rules.
    Although the majority of new device categories under the pass-
through payment system will sunset at the end of this year, this 
program, along with new technology APCs, provide important access for 
Medicare beneficiaries to innovation in the outpatient setting. CMS did 
not approve any new pass-through categories during the quarterly cycles 
since April 1, 2001. Some of the criteria established last fall for 
eligibility for a new pass-through category or new tech APC seem overly 
burdensome. We request that the Committee monitor this program, and 
urge CMS to be flexible.

Payment for New Clinical Laboratory Tests
    Innovative diagnostic tests help saves live and reduce health care 
costs by detecting diseases earlier when they are more treatable. With 
today's advanced technology, testing can be performed in a variety of 
settings from large clinical reference laboratories to hospital 
outpatient labs, to physician offices, and even in patient's nursing 
homes.

    Although BIPA substantially improved the processes for setting 
reimbursement rates for advanced diagnostic tests, serious flaws still 
exist, making it difficult for beneficiaries to gain access to many 
innovative technologies. That's why AdvaMed strongly supports 
provisions based on H.R. 1798, the Medicare Patient Access to 
Preventive and Diagnostic Tests Act introduced by Reps. Dunn (R-WA) and 
McDermott (D-WA) and incorporated in HR 3391 that would establish much 
needed procedures and criteria for determining reimbursement for new 
clinical laboratory tests. We are hopeful that similar provisions will 
be included in a companion bill in the Senate.

Conclusion
    AdvaMed applauds Congress and the President for recognizing the 
value of medical research and innovation for improving the quality of 
care Americans receive. Innovative technologies can modernize and 
advance the efficiency of the Medicare program, and all other health 
care options, with early detection, better health care information 
technologies, less invasive procedures and devices. We look forward to 
working with Congress, the President and Secretary Thompson on ways to 
modernize Medicare, incorporating the benefits technology can bear, and 
furthering advances in medical research.

                                
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