[Senate Hearing 107-789]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-789
 
    EXPANDING AND IMPROVING MEDICARE: PRESCRIPTION DRUGS: AN OREGON 
                              PERSPECTIVE
=======================================================================

                             FIELD HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             BEAVERTON, OR

                               __________

                            AUGUST 15, 2002

                               __________

                           Serial No. 107-33

         Printed for the use of the Special Committee on Aging







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                       SPECIAL COMMITTEE ON AGING

                  JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada                   LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont           RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin       RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon                    SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas         MIKE ENZI, Wyoming
EVAN BAYH, Indiana                   TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware           JOHN ENSIGN, Nevada
DEBBIE STABENOW, Michigan            CHUCK HAGEL, Nebraska
JEAN CARNAHAN, Missouri              GORDON SMITH, Oregon
                    Michelle Easton, Staff Director
               Lupe Wissel, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon Smith........................     1

                           Panel of Witnesses

Bobby Jindal, Assistant Secretary for Planning and Evaluation, 
  U.S. Department of Health and Human Services...................     4
Roy Dancer, Retired Educator and Senior Citizen..................    21
Lydia Lissman, Assistant Director, Oregon Department of Human 
  Services, Seniors and People with Disabilities.................    26
Michael Kositch, M.D., Medical Director for Primary Care 
  Services, Kaiser Permanente Northwest Region...................    35

                                 (iii)

  


    EXPANDING AND IMPROVING MEDICARE: PRESCRIPTION DRUGS: AN OREGON 
                              PERSPECTIVE

                              ----------                              


                       THURSDAY, AUGUST 15, 2002

                                       U.S. Senate,
                                Special Committee on Aging,
                                                      Beaverton, OR
    The committee met, pursuant to notice, at 10:34 a.m. in the 
Beaverton City Council Chambers, 4755 S.W. Griffith, Beaverton, 
OR, the Hon. Gordon Smith presiding.

           OPENING STATEMENT OF SENATOR GORDON SMITH

    Senator Smith. Good morning, ladies and gentlemen. I would 
like to welcome you all to this special field hearing of the 
Senate Committee on Aging. It is the purpose of this hearing to 
explore the Oregon perspective on prescription drugs for 
seniors, and we are very thankful that each of you has come and 
have an interest in this.
     We are going to hear from two panels today, and they are 
going to share with us their expertise, and their testimony 
will become part of the congressional record, as we use this 
hearing to help try and move along the national debate on 
prescription drugs in a more productive and informative way.
    If time allows, the panelists will also address questions 
from the audience, and if you would like to pose a question to 
them or to me, please write it down on one of the cards the 
staff will provide, and we'll try to get them answered, time 
permitting.
     Please also make sure that your name and address are 
clearly printed on the cards, because if we run out of time, we 
will make sure your questions are answered by mail and also 
make them part of the congressional record. When you fill out 
your card, please hold it up so that our staff can collect it.
    Before we move forward to the first panel of witnesses, I 
would also like to draw your attention to some of the services 
that are available to you today at this hearing. Case workers 
from my staff and also from the staff of my colleague, Senator 
Wyden, who is not able to be with us this morning, are here to 
help resolve problems that you may have with Medicare, Social 
Security, or other government entities.
    In addition, experts from the Centers for Medicare and 
Medicaid, the agency which administers Medicare, are also on 
hand to help answer questions and resolve problems. 
Representatives from the Senior Health Insurance Benefits 
Assistance Program, or SHIBA, are also here.
    On behalf of the committee, I am also pleased to welcome 
members of the Governor's Commission on Senior Services. We 
appreciate that you are here.
    On behalf of the committee, I would also like to thank all 
of the other agencies that have sent representatives to today's 
hearing for the seniors who have turned out for this event 
today.
    They include the Multnomah County Aging and Disability 
Services, Washington County Aging and Veterans Services, 
Clackamas County Aging and Disability Services, Oregon Alliance 
of Senior and Health Services, Oregon Gerontological 
Association, Elders in Action, RSVP of Washington County, Elsie 
Stuhr Community Center in Beaverton, the King City Senior 
Center, Irvington Covenant Center, Oregon Health Sciences 
University, Social Security Administration, and Medicare 
Northwest. I think that must cover pretty much everyone in the 
room.
    We're very pleased that you're here, and we want this to be 
informative to you and helpful to this national debate.
    I have a statement that I will include in the record and 
share with you in part.
    I will tell you that prescription drugs for seniors is 
truly an issue whose time has come. Medical and technological 
breakthroughs in recent years have made it possible to extend 
and improve life while controlling illness in ways never 
thought possible before, even 50 years ago. People are living 
longer and living better with the help of new treatments and 
therapies.
    But these improvements have come at a price. While Medicare 
has done much to reduce poverty for Americans over 65, it has 
not grown and adapted to keep pace with the health expenditures 
for the 34 million seniors and 5 million disabled younger 
adults who rely upon the program.
    On average, the Americans over age 65 spent an estimated 22 
percent of their income for health services and premiums in the 
year 2000. However, seniors in poor health and without 
supplemental coverage spent even more, about 44 percent of 
their incomes on, health care.
    In 1965, when Medicare was created, the average senior 
spent $65 per year on prescription drugs. Wouldn't that be 
nice? Today, the average senior spends $2,149 each year on 
prescription drugs, 35 times more.
    Well, drug prices are currently the fastest growing segment 
of national health care spending, and yet more than a quarter 
of all seniors, many seniors have no source of coverage for 
their prescriptions. This is a particularly important issue, 
because Americans over age 65 consume three times more 
prescription drugs than people under the age of 65. Looking 
around the room, I probably don't need to tell you this, but 
virtually all Medicare beneficiaries use prescription drugs on 
a very regular basis.
    One of the purposes of this hearing is to understand 
prescription drug use among Oregon seniors. I would like to 
hear from you how many of you use one or more prescription 
drugs. Can you raise your hand if you are currently taking a 
prescription drug pretty much all around?
    There may be a few that don't have to, and I am glad for 
you.
    How many of you are taking three or more drugs at this 
time?
    A pretty good number. I am not surprised.
    Surveys have shown that seniors with some drug coverage 
will fill, on average, 22 prescriptions a year, while those 
without the coverage will fill less than 15.
    How many of you spent more than $100 last month on 
prescription drugs, a show of hands?
    There you go.
    A new survey just released by the Kaiser Family Foundation 
and the Commonwealth Fund found that nearly one in four seniors 
skip doses in medication or do not fill a prescription due to 
cost. Among lower income seniors, the numbers are much higher. 
The lack of drug coverage is more than simply a financial 
burden; it is a serious health risk for seniors.
    Going without prescribed medications can lead to serious 
adverse consequences for the health of seniors. Medications can 
control chronic conditions and avert acute health conditions if 
taken as prescribed, and it can keep people out of the 
hospitals, which is much, much more expensive. If taken 
incorrectly, seniors' health and quality of life can terribly 
suffer and lead to much more expensive care.
    I have spoken to all seniors around Oregon. If there's an 
issue on their minds, it is prescription drugs that resonates 
most clearly. I feel strongly that the loss of one's health 
should not be the loss of one's home, and I have been working 
to add prescription drug coverage to the Medicare program, so 
that all seniors will have access to affordable drugs.
    I regret to tell you that, over the last 3 weeks, the 
Senate worked on this. That is before the August recess. We 
spent 3 weeks debating and working and amending various 
prescription drug proposals. As you already know, we did not 
clear the 60 vote threshold that the Senate imposes for all of 
these important kinds of issues.
    In working with Senator Graham of Florida, my colleague 
across the aisle, I tried my best to come up with a compromise 
between the two positions that would provide an affordable 
benefit to seniors and to government.
    But, unfortunately, politics won the day, and I am now 
working with him to see if we can't modify our proposal to 
reach another agreement to bring the issue up again in 
September so that our nation's seniors will not have to wait 
yet another Congress for the prescription drug benefit that 
they need and deserve.
    Now, in the absence of other members of the Senate 
committee with us today, I am going to turn to the true experts 
in this debate by introducing our witnesses. Today we will hear 
testimony from two panels of witnesses. The first witness, Mr. 
Bobby Jindal, is the Assistant Secretary for Planning and 
Evaluation at the U.S. Department of Health and Human Services. 
He has analyzed several prescription drug proposals and can 
help us understand the history of Medicare and the effects of 
different bills under consideration. Mr. Jindal is also a 
former state Medicaid Director from Louisiana.
    Mr. Jindal, Oregon welcomes you, and we hope you brought 
some Cajun cooking and maybe some Zantac after that. So, Bobby, 
before I turn to you----I would like to welcome Mr. Roy Dancer, 
a senior citizen from Oregon. He is a retired and distinguished 
school teacher. His wife is with him.
    How long have you been married?
    Mr. Dancer. About 47 years.
    Senator Smith. Well, three more and we're going to have a 
party. That, folks, is the best success story anybody can 
issue. We congratulate you.
     In addition to being a school teacher, he will share his 
experience of getting access to prescription drugs since 
becoming eligible for Medicare.
     Mr. Dancer, it is my pleasure to welcome you here, as 
well, on this first panel.
    Bobby, we'll turn first to you.

STATEMENT OF BOBBY JINDAL, ASSISTANT SECRETARY FOR PLANNING AND 
    EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Jindal. Thank you, Senator. I also want to thank you on 
behalf of the Administration. I was just with the President 
down in Texas for his economic summit. I want to thank you on 
behalf of the Administration for your leadership and hard work 
on this issue. I know you and your staff have worked 
tirelessly, as has the Administration, on adding a prescription 
drug benefit to Medicare.
    It is an honor to be in front of you today. It's an honor 
to be here in Oregon, where the weather certainly is cooler 
than in my home State of Louisiana.
    Senator Smith. You may have trouble selling that to 
Oregonians. Global warming is in full force right now.
    Mr. Jindal. I do take the opportunity to come to you to 
talk about this important topic. As I said, the President is 
down in Texas at his economic summit, and one of the messages 
that came across loud and clear during the health security 
panel, the President made it very clear you cannot have 
economic security without health security.
    One of the messages that came across very clearly is that a 
top priority is that we must make prescription drugs more 
affordable to seniors. We must add that benefit to the Medicare 
program.
    Across the country and around the world, scientists, 
doctors, and innovators have developed new technologies and 
treatments that weren't even imagined in 1965. The private 
sector has been transformed. When you look at modern insurance 
today, it would be impossible to provide a comprehensive 
medical insurance package to the private sector without 
prescription drug coverage.
    During that same time, even though Medicare has provided 
security for millions of Americans since it was created, it has 
not kept pace with the changes in the world around it. Today 
the program is threatened by a system that has failed to 
deliver health plan options for all seniors and by an outdated 
benefits package that includes very limited drug coverage.
    President Bush believes very strongly Medicare must be 
strengthened and must be improved to meet the needs of the 21st 
century, to meet the needs of today's seniors. It is vitally 
important for the Congress and the Administration to work 
together to fulfill Medicare's promise of health care security 
for our nation's seniors and people with disabilities.
    To this end, the President is working with Members of 
Congress, including yourself and other members from both 
parties, to develop a framework for strengthening and improving 
Medicare programs.
    In July 2001, the President presented a framework that 
included the following eight principles. First, all seniors 
should have the option of a subsidized prescription drug 
benefit as part of a modernized Medicare program. Second, 
modernized Medicare provides better coverage and preventative 
care for serious illness.
    Third, today's beneficiaries and those approaching 
retirement should have the option to keep the traditional plan 
they prefer with no changes. Fourth, Medicare should make 
available better health insurance options like those available 
to all Federal employees.
    Fifth, Medicare legislation should strengthen the program's 
long-term financial security. Sixth, the management of Medicare 
should strengthen and improve care for seniors. Seventh, 
Medicare's regulations and administrative procedures can be 
updated and streamlined while instances of fraud and abuse 
should be reduced. Finally, eighth, Medicare should provide 
high quality heath care for all seniors.
    The President's framework for strengthening Medicare and 
improving the program for seniors and disabled Americans calls 
for fair payment options for Medicare beneficiaries. Through 
their Medicare+Choice plans, a lot of beneficiaries receive 
more enhanced benefits than are available under traditional 
Medicare. Enhanced benefits can include prescription drugs. 
These programs provide better preventative care services and 
benefits widely available to millions of Americans who are 
working today.
    Frequently, private plans are providing Medicare benefits 
at a much lower cost as well. Not surprisingly, private plans 
have long been the preferred choice for over 5 million Medicare 
beneficiaries.
    As you know, Medicare+Choice has been particularly popular 
with seniors in Oregon, and 28 percent of your beneficiaries 
have chosen to enroll in the Medicare+Choice plan, compared to 
13 percent of the beneficiaries nationwide.
    The Portland area, indeed, was one of the first areas to 
participate in Medicare's managed care program and remains one 
of the areas where the program is strongest. Six plans serve 
beneficiaries in Oregon, and four companies are right here in 
Washington County. In addition, three plans offer coverage for 
prescription drugs.
    In spite of this popularity, however, the future of 
Medicare+Choice is in question. Since a new payment system was 
implemented in 1998, hundreds of private plans have left the 
program or reduced their service areas, adversely affecting 
coverage for millions of beneficiaries, reversing what had been 
a upward trend in plan availability and enrollment. Here in 
Oregon there are 16,000 fewer enrollees now than at the peak 
enrollment 2 years ago.
    The Administration's proposal is to move toward a more 
secure, equitable, and fair payment system for Medicare+Choice 
plans. This proposal will modify the current formula to better 
reflect actual health care cost increases and allocate 
additional resources to counties that most need them.
    This will make it possible for more private plans to remain 
with Medicare. Proposals to help sustain plan choices in 
Medicare are supported by both Democrats and Republicans.
    The President has also proposed a new system for new types 
of plans to enter the program to encourage a variety of new 
plans, like preferred provider organizations, to participate. 
Even though these are incredibly popular in the under 65 
population, there are currently few or no such choices in the 
Medicare program. Just in the next few days we're rolling out a 
demonstration program to encourage these types of options to be 
available to today's seniors.
    Another important step in bringing Medicare into the 21st 
century is we are forming Medigap plans. Two-thirds of seniors 
rely on individual or employer sponsored supplement plans, and 
yet Medigap premiums have been rising at an alarming rate.
    In the current Medigap structure, all plans offer first 
dollar wrap-around coverage, and yet there are two problems for 
these plans. First, they are expensive for beneficiaries; and, 
second, they do not offer beneficiaries the benefits they want, 
and create incentives for excess utilization.
    According to a recent study by the HSS, it is far easier 
for beneficiaries to buy foreign travel insurance than to buy 
prescription drug coverage under Medigap. It is clear most 
people would prefer drug coverage.
    The President, therefore, has proposed adding two new 
Medigap plans to the existing ten. The new plans would offer 
prescription drug coverage to protect beneficiaries against 
catastrophic health care costs and include modern beneficiary 
cost sharing. For these changes, they are expected to offer a 
more affordable price than the existing popular Medigap plans.
    As you know, since his first days in office, the Secretary 
of Health and Human Services, Tommy Thompson, has made the 
prevention of disease one of his top priorities. He has often 
said, our current medical system waits too long, and it's far 
more expensive and far less effective to treat disease after 
the fact.
    The Administration is determined to promote prevention of 
disease by eliminating barriers for beneficiaries. Yet today, 
beneficiaries who receive screening for osteoporosis, for 
breast, prostate or colorectal cancer, must first meet the 
deductible, or pay a 20 percent copay, or both.
    Beneficiaries who need diabetes self-management education 
and training, which is important to maintain control of 
diabetes in reducing mortality, also face that kind of cost. 
Under the President's proposal, all these important preventive 
services will be excluded from the deductible and from co-
payments. In other words, we would make free to seniors the 
type of preventative care that also reduces cost for the 
program.
    In June, the House of Representatives took a step in the 
right direction by passing a bill calling for these changes. 
Furthermore, as the Secretary has made clear, we are committed 
to helping Americans to prevent and reduce disease by 
encouraging changes in diet and exercise.
    These are important elements in our plan to strengthen and 
improvement the Medicare program. The most pressing challenge 
remains the lack of drug coverage among seniors. Seventy-seven 
percent of seniors have some prescription drug coverage today, 
but 10 million beneficiaries do not.
    Forty percent of these beneficiaries earn less than 150 
percent of the poverty level. In fact, those beneficiaries that 
do not have coverage through private insurance are the only 
Americans today, along with the uninsured, who commonly pay 
full price for prescription drugs.
    Just as you said, beneficiaries without drug coverage spent 
$617 for drugs out of their own pockets, compared to only $352 
for those with coverage. That is simply unacceptable, and the 
problem must be addressed.
    Significant numbers of beneficiaries face unprecedented 
difficulties in obtaining drugs at a time when drug therapies 
have become more important than ever in treating and preventing 
diseases. Recent breakthroughs and those still in the pipeline 
have and will continue to transform treatment of many terrible 
diseases.
    For example, there are now several new treatments in the 
pipeline to treat high cholesterol, including drugs designed to 
interfere with the body's absorption of the cholesterol, and 
that could actually prevent the conversion of the good into the 
bad cholesterol, HDL to LDL. But these and other breakthroughs, 
as exciting as they are, will not help our seniors if they have 
no means to attain them or afford them.
    For this reason, the program needs a drug benefit that will 
allow such innovations out of the lab and into the medicine 
cabinet without stifling future innovations. Many in Congress 
have supported a variety of reform proposals, and yet one of 
the concerns of the Administration is that, under any of these 
proposals, it will take at least until 2005 to get a 
comprehensive drug benefit up and running.
    Seniors need help now, and there are steps that can be 
taken now--for example, low income subsidies and other steps--
to help seniors become immediately a part of a larger, overall 
comprehensive legislation, not as a substitute, but rather as a 
first step.
    Make no mistake. We are committed to strengthening 
Medicare. We are committed to providing a meaningful 
prescription drug benefit for all of America's seniors and 
people with disabilities, and we are also committed to 
providing assistance immediately.
    Last year, the President took the first step when he 
proposed a creation of a new mandatory endorsed drug card 
initiative. The house endorsed the plan, and the Administration 
is hopeful the Senate will, as well.
    The drug card is not a drug benefit and it's not a 
substitute for one. It is, however, an important first step in 
helping seniors afford the drugs they need today. It is modeled 
on private health insurance programs where seniors benefit, 
where they are receiving discounts of 10 to 35 percent.
    Under the President's proposal, Medicare endorses private 
drug cards that meet certain standards, and seniors get 
information they need to obtain manufacturer discounts and 
other available pharmacy services.
    These plans negotiate discounts and rebates directly from 
drug companies and pass the savings on to beneficiaries who 
choose to participate. Beneficiaries could switch cards, and 
they would not be charged more than a nominal, annual 
enrollment fee, to make sure that they get the best discounts, 
the best prices on drugs, but also get services like drug 
interaction programs and other services designed to promote 
preventative care and to reduce medical errors.
    The Administration has also proposed immediate support for 
a comprehensive drug benefit for Medicare beneficiaries up to 
150 percent of poverty, or about $18,000 for a family of two.
    This program, called the transitional Medicare low income 
drug assistance program, would expand existing administrative 
structures operated by the States that already serve the low 
income and would also allow the States to use the new low 
income drug card to provide low income assistance for other 
seniors.
    As an incentive, Medicare would pay for 90 percent of the 
cost of the program to serve the seniors who live in 100 
percent to 150 percent of poverty. This policy is projected to 
expand coverage to 3 million beneficiaries and would also allow 
the States to use the new low income drug card to provide low 
income assistance for other seniors.
    As an incentive, Medicare would pay for 90 percent of the 
cost of the program to serve seniors in 100 to 150 percent of 
poverty. This policy is expected to expand drug coverage to 3 
million beneficiaries who don't have drug coverage today.
    Combined with the low income assistance, the drug card, the 
Administration is also doing something today, while Congress 
continues to deliberate the comprehensive legislation, called 
Pharmacy Plus. This is a program that allows States to provide 
a drug card for Medicare beneficiaries up to 200 percent of 
poverty. We've already approved Pharmacy Plus for over 800,000 
people in five States and received other applications from an 
additional five States.
    I would like to close by saying the President is committed 
to working with Congress to enact legislation consistent with 
his principles. By strengthening and improving Medicare and 
putting prescription drug benefits in place, we can keep the 
promises we made to seniors and disabled Americans today and 
for those who will rely on Medicare tomorrow.
    The Administration and Congress must take this opportunity 
to take important steps to strengthen and improve the program. 
Seniors should have a program to provide better benefits, 
better value both for them and for the government, a program 
that is fiscally sound, does not cause disruption to but that 
strengthens the coverage they currently have and continues the 
rapid pace of medical innovation which will bring tomorrow's 
cures to America's seniors.
    On June 28, the U.S. House passed the Medicare 
Modernization and Prescription Drug Act of 2002, H.R. 4954, a 
good step toward making Medicare a better prescription drug 
program for all seniors. The Senate now has an opportunity to 
follow the house's example. We believe by working together, 
seniors can have a Medicare program that fulfills the promise 
of secure and vibrant retirement.
    Senator Smith, I will close where I started. Again, I came 
to Portland directly from Texas, from the President's economic 
summit, where time and time again the President heard from real 
Americans like you're doing today, senior Americans saying that 
we must make prescription drugs more affordable.
    I will also close again by thanking you for your 
leadership. The Secretary and the President send their personal 
regards, and they want to tell you again how much they 
appreciate the hard work you're doing to make the Medicare drug 
benefit a real part of the program.
    [The prepared statement of Mr. Jindal follows:]
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    Senator Smith. Thank you, Bobby.
    I think one of the biggest debates, in the Senate anyway, 
and I am sure it is in the House, is the delivery system a 
prescription drug benefit we would use. Everybody agrees that 
there ought to be a prescription drug benefit system. The 
debate is over two ways, both of which can work, and the 
question is, what do people want and which will work the best?
    You can do it through Medicare. In other words, the 
government manages these things, and it does it under a 
formulary, or you can do it through existing private insurance, 
and that can work, as well. Some insurance companies say 
they're interested and others say they're not. I have voted for 
both versions, anxious to get something to conference so we can 
get something to the President and get some relief quickly.
    I think what you're telling me is that the discount card 
that you've come up with can be done immediately, and that is 
not a substitute for one of the other two delivery systems.
    Mr. Jindal. That is correct. Senator, you know, I applaud 
you. I know that you've been very willing to work in a 
bipartisan way to move this thing forward. Today's seniors in 
America want the drug benefit, and we agree with you.
    We obviously believe that a delivery system should preserve 
within the private sector the innovations that are happening. 
We don't want to see something where the government is picking 
which drugs seniors can receive access to. We think it's better 
to give seniors options and want them to decide, and their 
doctors to decide, which medicines they get.
    Like you, we also agree it doesn't make any sense to wait 
and continue fighting. The drug card is something that can be 
done right away. The low income assistance program is a program 
that can be done right away, as the Medigap options. Pharmacy 
Plus has already provided drug coverage to 800,000 seniors and 
will probably serve several more.
    The Medigap reforms I am talking about can provide coverage 
for another 1.5 million seniors, including half of them whom 
that don't have coverage today. The low income program can 
provide coverage to 3 million seniors.
    The drug discount card can provide 15 to 35 percent 
discounts to every senior. None of these is a substitute for 
comprehensive coverage. But you're absolutely right; that is 
one way we can take some immediate first steps while we put in 
place the more comprehensive coverage that serves every senior.
    Senator Smith. Just so you all know, the way I evaluated 
two bills and, frankly, the reason I supported the compromise, 
was my democratic colleague, Bob Graham. The democratic bill 
had two major flaws.
    I don't have a problem with Medicaid or Medicare being the 
delivery system, frankly. It can work, and so can the other 
way. But it had two horrendous flaws. It was very open-ended in 
terms of availability and very little in terms of deductibles 
and things like that of requirements on Medicare.
    But it was sunseted--I mean, the program ended in 7 years. 
Moreover, it had a formulary in order to control the cost that 
was so limited that it only offered 10 percent of current 
available prescription drugs. That's all you could get.
    I voted against that bill for that reason; in particular, 
the gimmick of the sunset, No. 1, and, frankly, a formulary 
that said the government was substituting its judgment for the 
prescriptions you need for that of your doctor. So I found that 
that policy was just wrong. It was very limited.
    The Republican version, the version used in a private 
sector delivery, had a much more generous formulary system and 
ultimately left more discretion to you and your doctors to get 
what you need.
    So these are the tradeoffs that you get, unless you're 
prepared to say everything is free, in which event, we're 
really fooling you. You've got to draw some lines, and this is 
the fight between the two contending views. But the frustrating 
part is that we're close, and we ought to get it done in this 
Congress and not the next.
    Bobby, before I let you go, I have a couple other comments. 
Ron Wyden and I have been fighting pretty hard to get 
additional money for the Medicare+Choice program, and that's 
something that is very popular in Oregon. I wonder if the Bush 
Administration will support additional funding for that.
    Mr. Jindal. Absolutely, and we do applaud you and your 
fellow Senator from Oregon for doing that and for sending a 
letter to Senator Daschle and others. As part of the 
Administration's 2003 budget, we ask that Medicare providers be 
reimbursed in the budget in a neutral way, so that any 
additional spending will go to benefit beneficiaries.
    One exception that we made was to say that we do think 
there needs to be additional funding for the Medicare+Choice 
program to stabilize enrollment and to provide those options 
that seniors want. I am not saying that everybody will want 
that and that anybody should have to be forced to choose that, 
but rather to say, for seniors that want those choices, they 
should have those choices. They should have those choices.
    We do support efforts to stabilize that program. Since 
1998, up until 1998, the program was flourishing, it was 
growing, providing more and more options, low premium programs, 
no premium programs for prescription drug coverage.
    Since 1998, since those changes in many counties, these 
programs have received 2 percent updates per year. Anybody that 
has been reading the newspapers, anybody that's been watching 
the news, knows that medical inflation has been growing at a 
much higher rate than 2 percent per year.
    So when you look at the cumulative effect, we had plans 
over the last several years that maybe received 11 percent 
inflation updates, whereas the government program received much 
more than that.
    So all we're saying is, let's simply balance the playing 
field. Let's give those clients additional resources so they 
can continue offering preventive services and lower payments 
for seniors.
    Senator Smith. Bobby, has the Administration done any 
estimating in terms of savings to Medicare in terms of hospital 
costs with the addition of a prescription drug benefit? I would 
be interested to know what those savings are. The way these 
plans were costed out, they ranged anywhere from $370 billion 
over 10 years to $570 billion. But, in truth, one plan was 
probably a trillion dollars over 10 years, if the real costs 
were totaled up.
    So I guess my question is, OK, those are potentially the 
costs. What are the savings? Do you have a calculation there?
    Mr. Jindal. I think you're absolutely right to ask that 
question. Part of the rationale in the Pharmacy Plus is we're 
allowing States who serve already 800,000 seniors and a lot of 
additional States to serve more. We know if we provide 
prescription drug coverage, we will keep seniors out of 
hospitals, out of nursing homes with a more comprehensive 
Medicaid package.
    Up until now it's been all or nothing. You needed every 
benefit and you had to spend down into poverty or you'd get no 
assistance. Well, we're telling States it's more cost effective 
for the government to provide prescription drug assistance to 
help keep seniors out of the nursing homes, out of the 
hospitals, and living in the community.
    In terms of the more comprehensive Medicare benefit, I know 
this is an issue that's been debated frequently by government 
actuaries and nonpartisan actuaries that do these form of 
estimates for Republicans and Democrats both. They continue to 
go back and forth on this question that I am exploring.
    The Secretary is a strong believer--for example, not only 
will prescription drugs have some offsetting savings in other 
parts of the program, but adding things like preventive 
benefits will also have savings, doing things like allowing 
seniors to have free access to these types of screenings. The 
house added an upfront physical if you join the program, so 
your doctor can get an assessment of services you might need.
    He's a strong believer that prevents other health care 
spending. This contingency is a source of debate. What other 
nonpartisan experts look at, they've never given us a 
tremendous number of savings. They've scored, for example, 
preventive services being quite expensive and will continue to 
do that.
    Senator Smith. Thank you, Bobby.
    Mr. Jindal. Thank you, Senator.
    Senator Smith. Roy Dancer.

  STATEMENT OF ROY DANCER, RETIRED EDUCATOR AND SENIOR CITIZEN

    Mr. Dancer. Thank you, Senator, for the opportunity to come 
and make our presentation.
    My name is Roy Dancer, and I reside at 108080 Southwest 
Davies Road, Beaverton, OR, 97008. I was born in Oregon, I was 
raised in Oregon, I was educated in Oregon, and I have lived in 
Oregon my entire life. I am 76 years old, and I reside at 
Hearthstone and Murray Hill with 165 other senior citizens.
    In the last 2 weeks, I have gone around at both lunch and 
dinnertime and visited with every table in the lunchroom and 
the dining hall of both the assisted living and the independent 
living, and my comments today are made from those observations 
and conversations with my fellow senior citizens.
    I am certain that I speak for many of them this morning 
regarding the high cost of prescription drugs and how it has 
greatly impacted their standard of living. My wife is 77-years 
old. I didn't mean to point out that I married an older woman, 
but she is 5 months older than I am.
    Senator Smith. You may not make that 50 years after all.
    Mr. Dancer. I think she has her cane with her this morning.
    I have heart disease which has resulted in numerous 
surgeries, including several angioplasties and two triple 
bypass, one 2 years ago in October, plus I have ulcers. My 
ulcer is kept under control by a prescription drug twice per 
day at a cost of $121 per month. Currently I am taking eight 
prescription drugs daily. I am far over the average that you 
found earlier.
    My wife, Betty, is being treated for her high blood 
pressure, her diabetes, and her arthritis. Betty's drug 
prescriptions are also sky high. Betty and I spent over $5400 
last year, as documented on our Federal income tax, over and 
above insurance. This was an out-of-pocket expense. Betty has 
Blue Cross HMO, and I have Medicare and an ODS supplement. The 
$5400 was over and above insurance. I don't know what people do 
without insurance.
    I have talked to residents throughout our retirement 
community, and I discovered several of them have out-of-pocket 
expenses for prescription drugs which have exceeded $5,000 last 
year. I thought we were the only ones; we're not. I talked to 
one resident last week who has drug expenses which exceed $700 
per month, and she has no insurance.
    Three years ago when we were in Arizona visiting our 
daughter and family, Betty and I traveled to Mexico to buy 
prescription drugs and found them to be much cheaper. For 
example, my wife had paid $320 for a 3-month supply of two of 
her drugs here in the United States. In Mexico she bought a 6-
month supply of not only those two drugs but six other 
prescriptions for $340. We're wondering why the difference 
between Mexico and the United States.
    Carol Wiley, a 63-year-old cancer patient, saves over 80 
percent of the retail price of her drugs by ordering from a 
Canadian mail order company. Carol buys one drug, which costs 
$52.50 U.S. money for 100 tablets of 20 milligram tablets. 
Portland area pharmacies charge her $300, six times that 
amount, for 100 tablets.
    This is related in the Northwest Senior Life, August 2002, 
page 30. The Hillsboro Argus reported last week that 
prescription drugs had gone up over 30 percent in the last 
year, much higher than the cost of living.
    Oh, a member of our community came up to me this morning 
and told me that she had ordered a drug 2 months ago, got a 60-
day supply, went to reorder it yesterday, and the increased 
cost of the same drug, same company, had gone up 10 percent in 
2 months. That's 10 percent in 2 months, 30 percent over the 
course of the year.
    For us senior citizens who are on a fixed income, it is 
imperative that Congress give us major relief on our 
prescription drugs now. Thank you.
    [The prepared statement of Mr. Dancer follows:]
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    Senator Smith. Do you think your experience that you've 
just testified to is not just your experience but everybody you 
live with at the center?
    Mr. Dancer. Yes. As I said, I went around and visited every 
table in both the assisted living and the independent living, 
got ideas from them, and talked to them about the cost of their 
drugs. You know, I went to a table and said, what do you think 
about the high cost of prescription drugs? I went down like you 
did and said, how many of you spent over $100 last month? Then 
when I got to this $700, I almost fainted.
    Senator Smith. You know, I think one of the factors of the 
debate between Canada and Mexico versus us, we just have to 
admit and understand as American people that the pharmaceutical 
industry is located in the United States, not in other 
countries. Even foreign developers, they come here for the 
simple reason that we are not a socialist system in terms of 
producing pharmaceuticals.
    As a result of that, there is still a profit motive that is 
there. There have been abuses by pharmaceutical companies in 
terms of patents and things. We passed a bill to stop those 
before we left Congress. We hope that gets out of conference 
and the President signs it. We're certain he will.
    There is also another, yet another bill, in terms of re-
importing from Canada or Mexico, drugs that they buy through 
their national governments. There is one side of this story 
that everybody ought to understand. You can go to Canada or 
Mexico to buy some drugs; you cannot go there to buy all drugs. 
Because their governments, frankly, are riding on the back of 
our private industry to buy in volume what they approve on 
their formulary, and I don't know how expensive their formulary 
is.
    But the other untold story is of Canadians coming to 
America to buy the miracle drugs because their government, 
through their taxpayers, do not buy those drugs. So you and I--
unfortunately, are bearing the burden of other countries who 
buy in volume or, through their provinces, large amounts of a 
number of prescription drugs.
    We buy individually or through our insurance plans. What we 
have to do is simply figure out how to better pool, either 
through Medicare or insurance companies or larger groups, ways 
to buy a generous enough group of drugs under a formulary that 
would cover 90 percent, not 10 percent of your needs.
    In answer to your question, why the difference, that is the 
difference, and we are on the case. We've got to finish the 
deal.
    Thank you very much for your excellent testimony.
    Senator Smith. Now, we will invite our second panel 
forward. We'll begin with Ms. Lydia Lissman, Assistant Director 
for seniors and people with disabilities for the Oregon 
Department of Health Services.
    Ms. Lissman, better than anyone else I know, can describe 
the characteristics and demographics of seniors in Oregon, as 
well as future trends. Ms. Lissman, the committee welcomes you, 
and thanks you for being here.
    Our final witness will be Dr. Michael Kositch. Dr. Kositch 
is the Medical Director of the operations and primary care 
services at Kaiser Permanente Northwest. Dr. Kositch will 
address the clinical aspects of prescription drug use and the 
availability of Medicare benefits, beneficiaries for 
Medicare+Choice enrollees at Kaiser Permanente.
    Dr. Kositch, the committee also welcomes you. But Ms. 
Lissman, we'll start with you.
    Ms. Lissman. Thank you.

  STATEMENT  OF  LYDIA  LISSMAN,  ASSISTANT  DIRECTOR, OREGON 
     DEPARTMENT OF HUMAN SERVICES, SENIORS AND PEOPLE WITH 
                          DISABILITIES

    Ms. Lissman. Good morning, Senator Smith. I am Lydia 
Lissman, Assistant Director for the Oregon Department of Human 
Services, and I am responsible for the statewide programs and 
policies for seniors and people with disabilities.
    I am also the Director of the State unit on aging, 
responsible for programs and services that are provided through 
the Older American Act.
    First of all, Senator Smith, before I begin with my 
testimony, I would like to thank you for your efforts to 
increase the Federal medical assistance percentage as a part of 
the prescription drug initiatives considered last month in the 
Senate.
    As you know, Oregon's economy lags severely behind many 
other States, while the demand for human services has been on 
the rise, so we sincerely appreciate your recognition of this 
reality.
    I also want to thank you today for holding this field 
hearing to look at the impact of prescription drugs on Oregon 
seniors. My written testimony today touches on a number of 
issues, and I am going to limit my remarks this morning to a 
couple of things.
    I am going to touch upon the demographic issues and changes 
a little bit on access and payment, and then I am going to talk 
a little bit about one of Oregon's own efforts to better serve 
seniors in the area of prescription drugs. Last, but not least, 
I will offer a few recommendations that will echo what you have 
heard from the first two presenters.
    Seniors represent a very large and growing portion of 
Oregon's population. Between now and the year 2030, our State 
will experience an unprecedented shift in the age of our 
population. According to the U.S. census in the year 2000, the 
population in Oregon that was 65 or over the age of 65 was 
nearly 13 percent of the total Oregon population. That is a 
little bit higher than the national average, which is just over 
12 percent. But what is significant is that by the year 2030, 
which really isn't that very far off, the senior population 
will comprise more than 20 percent of the Oregon population.
    What's really important to know about now is there are 
areas of Oregon, counties in Oregon, that are already at or 
above 25 percent of their population being the age of 65 or 
older. There are areas that are seeing very rapid growth. Some 
of those include Coos, Curry, Jackson, Josephine, and Deschutes 
counties. In those areas, we have fast approached that point.
    Senator Smith. So 25 percent are at 65 and older in those 
rural counties?
    Ms. Lissman. They are getting very close to that, yes, in 
those rural counties. Because we have had unprecedented growth, 
and some  of  these  areas  have  been  very  popular  areas  
for  seniors to either locate in for retirement, or they have 
been areas where, in fact, the population is simply aging. We 
don't have as many young people coming into the area or people 
staying in the area, which is, in part, reflective of the 
economic environment that we have.
    Senator Smith. Maybe housing and fixed costs like that, are 
cheaper there, so they are not coming, moving to populated 
areas.
    Ms. Lissman. Those are some of the issues, as well. So in 
some of the areas we have people staying. But again, because of 
the economic issues, families are not moving into those areas, 
so the proportion of the population that is older is 
disproportionate to other areas.
    Medications play a very crucial role, as you've heard 
today, in maintaining and managing the health of Oregonians 
and, in particular, seniors. I think the last presenter 
certainly illustrated that.
    Slightly more than 37,000, out of a total of 438,000, 
seniors in Oregon receive Medicaid. I think people are aware of 
the very low standards of income and assets to qualify for 
Medicaid. While seniors represent about 8.9 percent of the 
total number of Medicaid recipients in Oregon, this group 
accounts for 23 percent of all the Medicaid pharmacy 
expenditures in this State.
    It is estimated that slightly over 30 percent of all the 
seniors in Oregon have income below 200 percent of the Federal 
poverty level. That is a significant number. I think, again, 
this is reflective, in part, of the cost of living increases 
we've seen over time, inflation.
    Senator Smith. Can you state that number again for the 
record, please?
    Ms. Lissman. Slightly over 30 percent of seniors in Oregon 
have incomes below 200 percent of the Federal poverty level.
    Senator Smith. You know, it's interesting. The bill Senator 
Graham and I produced, it covered seniors at 100 percent of 
coverage. Below 200 percent of poverty, the average in the 
Nation is, it would have covered about 47 percent of seniors. 
Nearly half of seniors live at 200 percent below the poverty 
level, which is pretty remarkable, actually. We're relatively 
better off than many other places in the country.
    Ms. Lissman. There are several major issues that affect 
seniors and their access to vital prescription medications, and 
you've heard about a couple of those today.
    Again, I have some information in my written testimony, but 
certainly access and ability to pay is a significant issue, and 
I am going to talk a little bit more about that. But medication 
management, chronic disease self-management, and medication 
administration are very significant issues, and those also have 
been mentioned.
    What I would say about the access and cost is that seniors 
make a lot of dangerous choices in Oregon, as they do in other 
places, because of the expense of prescription drugs. Some of 
them forego even filling prescriptions or they forego some of 
these prescriptions that are newer prescriptions and perhaps 
more costly and have a significant impact on the quality and 
length of their lives.
    They skip dosages or they reduce dosages or they try 
cheaper remedies. Noncompliance with what a physician indicates 
is required for their prescriptions results in very poor health 
outcomes, and those range from progression of a chronic disease 
to increase in preventable complications and disability.
    Let me tell you from a State's perspective, as has been 
mentioned, and as you yourself mentioned, Senator Smith, it not 
only results in a very significant impact on the quality of 
lives, but on loss of productivity and on the increase of costs 
as a result of avoidable hospitalizations and premature need 
for long-term care services.
    Certainly what I hear from our field offices is that we see 
people who come into the long-term care system because their 
condition has degenerated as a result of either the lack of 
appropriate use of prescriptions or the lack of prescriptions, 
and those are very significant issues. This increased cost is 
borne by both the public and private sector, so there is 
definitely a shift of cost related to this.
    What I would like to talk about now, very briefly, is one 
of the efforts that Oregon is making to seek some solution, but 
I also want to point out there are some real limitations to 
this solution. In the last Oregon legislative session in 2001, 
the Oregon legislature authorized a senior prescription drug 
program.
    This is a program that seniors will be able to apply for. 
It's hoped that it will become available and implemented in 
November of this year. It's a one-page application, and, for a 
$50 fee, Oregonians over 65 with incomes less than 185 percent 
of the Federal poverty level will be able to purchase their 
medications at the current Medicaid rate.
    The current Medicaid rate is 100 percent of the average 
wholesale price minus 14 percent, so that will be available to 
Oregonians. We estimate that somewhere around 100,000 seniors 
may be eligible.
    But the important thing here I want to point out is that 
there is also an asset limitation, and it mirrors the asset 
limitations for Medicaid that's $2,000. That's a very small 
amount of assets. It does not include your home or vehicle, but 
that is not very much in terms of----
    Senator Smith. Anything above that disqualifies you?
    Ms. Lissman. That's correct.
    Senator Smith. So 200 percent of poverty is----
    Ms. Lissman. 185 percent for one individual senior would be 
roughly $1,366 a month gross.
    There are a number of other things. But first, let me move 
now to my closing remarks, which would be the things that, from 
my perspective, I really want to encourage the Special 
Committee on Aging to pursue. Certainly foremost is the 
coverage of prescription medications through the Medicare 
program.
    This is extremely important to maintaining the health of 
our aging Oregonians and to reducing both the Medicare and 
Medicaid acute and long-term care costs. We encourage you to 
support Medicare coverage for medication and chronic disease 
management that has been mentioned previously, and we encourage 
you to urge the pharmaceutical industry to consolidate and 
simplify and provide outreach for their reduced cost of 
medication programs.
    I want to acknowledge that they do have these programs, and 
I want to acknowledge our Area's Agencies on Aging who really 
make every attempt to connect our senior population with those 
programs. But much more needs to be done in that arena, and 
there's certainly not funding locally to support that.
    I want to encourage the committee also to seek and, where 
possible, fund solutions to what is a crisis in this country, a 
growing crisis, around the work force shortage of nursing and 
other caregivers. Very important.
     Also, it's important to support those efforts that are 
being made around national caregivers and family caregivers for 
our aging population; and last, to fund Medicare coverage of 
technology. There's terrific new technology that's emerging in 
the area of medication and administration, including the smart 
pill bottles, and technology that can remind people to take 
medications that are very important for seniors to remain safe 
and independent.
    I want to thank you for the opportunity to share my 
thoughts on this challenging issue, and I want to commit to you 
that we look forward to working with you and our other Federal 
partners to identify solutions to what is a very difficult and 
challenging problem that is very much to the hearts and minds 
of our senior population here in Oregon.
    [The prepared statement of Ms. Lissman follows:]
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     Senator Smith. Lydia, thank you, for your excellent 
testimony. The point of this hearing is to get an Oregon 
perspective on the prescription drug issue, and you did that 
very, very nicely.
    Dr. Kositch, welcome. It is nice to have you here.

   STATEMENT OF MICHAEL KOSITCH, M.D., MEDICAL DIRECTOR FOR 
   PRIMARY CARE SERVICES, KAISER PERMANENTE NORTHWEST REGION

    Dr. Kositch. Thank you for the opportunity to speak to you 
today about the role of prescription drugs and health care 
needs of our Oregon senior citizens.
    I have been in the practice of medicine for over 15 years 
here in Oregon, and I am certified in both internal medicine 
and geriatric medicine. I work with Kaiser Permanente 
Northwest, which is a fully integrated health care system that 
operates in Portland and Salem in Oregon, as well as Southwest 
Washington.
    Our regional membership is 450,000. 225,000 members live in 
Oregon and 128,000 are in Washington. Among those members we 
have 46,000 Medicare members, 42,000 enrolled in our Senior 
Advantage, our Medicare+Choice program, and also 4,000 in our 
Senior Advantage II, our social HMO program.
    In the early part of the 20th century, discovery of the 
first effective antibiotics was the beginning of the 
development of effective medical prescriptions as a fundamental 
tool in providing quality healthy care. Now, medications are 
very much the cornerstone of nearly all medical care, 
particularly for the elderly who struggle with a large number 
of chronic illnesses.
    Innovations in pharmaceuticals over the last half of the 
last century have contributed to a substantial increase of 
lifespan and an improved quality of that longer life for all 
Americans. In the 20th century, prescription drugs are now 
irreplaceable tools that physicians use in the treatment of 
acute and mostly chronic illnesses affecting the disabled and 
those over 65. I believe that the medications enable practicing 
physicians to shorten the hospital length of stays and, in some 
cases, eliminate need for hospitalization. For example----
    Senator Smith. Do you have a number on that, a percentage?
    Dr. Kositch. No, I think it's too hard to separate it from 
everything else that's gone on with diet and exercise in our 
society, and to attribute it all to one cause is unfair.
     Senator Smith. But it's reasonable to deduce from that 
there would be some savings on hospital and other acute care?
    Dr. Kositch. Yes, on an annual basis. The quandary is is 
that we will lengthen people's lives. If you lengthen people's 
lives, they will use more health care. I can tell you 
individuals may use more costs over the rest of their lives, 
but I can tell you individuals will use less cost in a given 
year.
    An example along those lines is, 40 years ago, a 65-year-
old man who suffered a heart attack, a myocardial infarction, 
frequently was hospitalized for 3 weeks and usually was unable 
to resume work or any--he was advised not to do any physical 
activities at all recreationally.
    Now, many times that person doesn't have that heart attack 
or has it much later in life. If they have that heart attack, 
they might expect only 3 to 6 days in the hospital, and they 
have a very good expectation of eventually resuming a level of 
activity similar to what they had before.
    As with any tool, these prescriptions, to be effective, 
have to be used according to specific instructions. Dosage 
strength, frequency of admission, and the duration of treatment 
all are key in predicting the benefits. When any of these 
parameters are changed or interrupted, the expected outcome 
will be altered and may not be achieved at all.
    That means that the benefits that patients take their 
medicines for may not ever occur. Compliance with the drug 
administration is important to getting those successes. But 
when a barrier exists to the use of prescription drug 
medicines, high quality effective health care that is available 
in the 21st century is compromised.
    Among senior citizens, the most disturbing barrier for 
prescription drug usage is the financial cost. The difficulty 
in admitting patients to obtain these benefits creates an 
inability to get the services that we can give them in modern 
medical care. Patients are frequently having to choose whether 
they can afford their medicines.
    This problem exists in Oregon as well as throughout the 
country. Seniors choose either to forego the prescribed 
medicine altogether, or they make choices about which medicine 
to fill, sometimes eliminating the medicine that has the most 
benefit for preventing future complications in favor of one 
that is either more affordable or one that perhaps minimizes 
their symptoms.
    Many of these patients, as a result, may live in pain, may 
see their condition not improve as we can hope for, or actually 
experience a worsening of their condition due to the cost of 
prescription medicine.
    Senator Smith. Doctor, along that point, I think what we've 
seen a lot of seniors do is to emphasize what it means when a 
senior will reduce the dosage, cut it in pieces, stretch it 
out. What is the impact of that, in your medical opinion?
    Dr. Kositch. Well, the three most common chronic diseases 
in our elderly Americans are hypertension, diabetes, and high 
cholesterol. In each one of those medicines, the benefits of 
treatment are in many ways proportional to the degree of 
reduction in the abnormal blood values that they monitor.
    So by reducing your dose in half, crudely, one can say 
you're getting half the benefit. It's better than nothing, and 
I am thankful that they do take some. But there are more 
opportunities for it improving the health, delaying first major 
events, and improving the quality of that longer life, as well.
    Senator Smith. In the converse of that, my wife always 
tells me, if one works, that doesn't mean two works better.
    Dr. Kositch. I do encourage my patients, as your wife does, 
to talk to their doctor first before making that change.
    Now, I am proud to report that for Kaiser Permanente 
members here in Oregon and Washington, the situation may not be 
quite as bad as it is for many other Americans, because both of 
our Medicare+Choice plans offer a prescription drug benefit and 
always have since the early 1980's when these programs were 
first offered.
    It is the policy and practice of Kaiser Permanente 
Northwest to offer a comprehensive health plan, and the 
definition of a comprehensive health plan includes some 
prescription benefit. As a physician, I work at Kaiser 
Permanente because I knew an inability to use prescriptions 
would effectively tie my hands in helping patients.
    In our standard plan, prescriptions are covered at a 30 
percent benefit, and the out-of-pocket outlay for a member is 
capped, so they would pay no more than $75 for one 
prescription.
    In our social HMO, Medicare+Choice program, Senior 
Advantage II, we offer one of the most comprehensive programs 
in the Nation. A member only pays a $10 copayment for generic 
and a $20 copayment for brand name drugs. There is not an 
annual drug dollar limit on the pharmacy benefit, and it does 
not expire.
    Last, I would like to thank you, Senator Smith, for 
introducing Senate bill 2782 to propose making Senior Advantage 
II a permanent rather than a demonstration project. In many 
ways, the social HMO is the preferred health care model for the 
future, I believe, and I thank you for your foresight in 
leadership in converting this product from a time-limited 
demonstration product to perhaps a permanent offering for all 
Oregonians.
    [The prepared statement of Dr. Kositch follows:]
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    Senator Smith. Thank you, Doctor.
    I talked earlier about the delivery system; do you do it 
through Medicare or do you use private insurance? You work for 
a private insurance company, an HMO, and a good one, from 
everything I have ever heard. I am wondering if you think that 
the private sector can carry this benefit to our Medicare 
population.
    Dr. Kositch. Well, it's a complex question. I think either 
delivery system creates its own complexities. Speaking to your 
earlier comments, your concerns about a formulary restricted 
from 90 percent of the medicines is the one that I have concern 
about. It's quite clear to me that marketing by pharmaceutical 
companies, that they can drive demand for medications which are 
more expensive but are not more effective in any scientifically 
proven way.
    In covering 90 percent of the medicines, it looks to me 
like it's Medicare encouraging that sort of behavior rather 
than encouraging a cost effective prescribing to be done by 
physicians and used by their patients. I welcome discussion 
from my patients when they say, is there another medicine that 
works as well as that but doesn't cost as much?
    I think if you cover 90 percent, there's no incentive for a 
drug company to create a cost effective medicine, only one that 
has a good ad budget.
    Senator Smith. That's a wonderful question. Everybody has 
probably followed the whole debate about formularies and are 
much more educated than most folks about this very issue the 
doctor has cited, and it is really one that deserves the best 
thinking we can put to it.
    In my view, 10 percent of available medicine was a fatal 
flaw of the proposal of the other side and warranted a no vote 
on my part. But 90 percent, you're saying, is too much. What 
is, you know, the Goldilocks? What is just right?
    Dr. Kositch. It's a process rather than a number.
    Senator Smith. OK.
    Dr. Kositch. We currently don't have a standard, but the 
FDA could easily be a group that was charged to take evidence 
based medicine and indicate which medicines are cost effective 
within a certain range.
    I believe the economic forces that drive pharmaceutical 
companies could cause them to have a certain interest in that. 
Just as the elaborate rules around patent expiration and 
extension that you dealt with, a formal Federal review of cost 
effectiveness would put a counterweight, and what percentage of 
medication on a formulary--somewhere between 10 and 90 is a 
fine number with me. It's the process of getting to a second 
part of the conversation, I think, is a more important part.
    Because I can live with even 90 percent if it's 90 percent 
that an objective agency is looking at and saying, these 
medicines make sense, not that these medicines just don't hurt 
you.
    Senator Smith. A formulary should have enough, not 
flexibility but adaptability that, as new drugs are developed, 
some can be added and others can be dropped.
    Dr. Kositch. Absolutely. In our organization, one of my 
colleagues sits on committees as a physician, and they review 
dozens of medicines every month trying to understand, is this a 
new medicine bringing a new benefit? Is this a new medicine 
bringing the same benefit or more convenience or better cost or 
better safety, or is this just what we call a me too medicine, 
another medicine that someone else can put on an ad and have 
patients say, I want the new thing.
    Senator Smith. Doctor, it's been very, very helpful.
    We do have 15 minutes remaining in this hearing, I believe, 
and so we do have some time for questions from the audience of 
our panel. We invite the earlier witnesses to come forward, and 
I will read the questions you've turned in in the order I 
received them.
    So the first one is by Dick Means. Dick says, when doctors 
prescribe more and when seniors take more than they need, 
should prescription drugs become a government benefit?
    Many of you might have that thought. Would doctors churn 
this system? Would they give more than the seniors need if the 
government took it over? In other words, if everything is 
free----
    Dr. Kositch. People could take more. Would they take too 
much? I think it goes to your belief of the human condition. 
Because I would believe it's always good to have some 
recognition of the cost. On the other hand, no one likes going 
up to open up one of those impossible-to-open bottles and 
taking out one of those impossibly small pills and putting it 
in their mouth three times a day.
    Senator Smith. The next question is by Phyllis Rand. Will 
lawmakers act to get a prescription drug benefit in Medicare 
this year?
    I think, honestly, the chance is sort of 50/50, and I will 
explain why. We are in the middle of a political season. I have 
been in politics for 10 years, and what I have noticed is that, 
after each election, when the Congress or legislature goes back 
into session, there's a window of opportunity where problem 
solvers can form majorities across the aisle, and you can 
actually make policy.
    As you get closer to elections, politics trump policy. 
That's an unfortunate thing, but it's part of our democratic 
process, and it leads to an election that will lead, in some 
cases, to new players and in a new dynamic that leads you back 
to making policy.
    Having said that, I would say the political imperative on 
this issue is so acute that I think both sides have incentive 
to revisit this issue in September. If we do, I think we can 
get something. We should get something that hits 60 votes in 
the Senate and then goes to a House/Senate conference, which 
then works with the White House to come up with a final 
package, goes to the White House for the President's signature.
    I think it's a 50/50 proposition. But if we don't get it 
done in the 6 weeks of work time remaining, I think at that 
point the stars will surely align in the President's own 
reelection effort, and the Congress and the new Members of 
Congress with the President surely will have to have this 
resolved on some level.
    Anybody want to correct me on that?
    Senator Smith. The next question is from Bobby Jindal. I am 
sorry if I am mispronouncing your name.
    I am fortunate I am not taking prescription drugs at this 
time. I do receive chiropractic and acupuncture for back pain 
which is not part of Medicare. But the Medicare claims process 
is so complex that it can be months before a claim is paid.
    That's just a fact. You know, we talk about the 
complexities of going the private route versus the public 
route. I mean, Medicare isn't exactly the most efficient system 
that you've experienced in life, I suspect, and adding to its 
complexity doesn't mean it's going to get more efficient and 
better.
    But again, it can work. It's just that government works 
slowly. HMOs and private insurance can work. But then you've 
got a gatekeeper in the private sector with a financial 
incentive to say no. It can work, but it's frustrating to 
seniors. Again, these are the tradeoffs we're wrestling with.
    Is there any hope that Medicare claims can be simplified, 
and can coverage be extended to cover acupuncture and other 
alternative treatments?
    I think, Bobby, you're the one to answer that. You 
represent the Secretary of Health and Human Services.
    Mr. Jindal. Sure. I would say two things about that. First, 
in terms of simplifying the claims and speeding up payment, 
there was a bipartisan bill that actually I think was 
approved--if not unanimously, with one or two exceptions--out 
of the House of Representatives that's intended to modernize 
and streamline the Medicare program; to do things like 
encourage electronic billing and electronic payment, speed up 
the process. It has bipartisan support and that of the Finance 
Committee, as well. So we do anticipate that reaching the 
President's desk.
    However, I think that the woman with the question, the 
person who wrote that question, reaches a more profound point, 
which is, the CEO of the Mayo Clinic, counted 130,000 pages of 
rules and regulations in the Medicare program. He basically 
testified that the Medicare commission in the Congress, that's 
the fundamental challenge for providers and beneficiaries 
staying in the program.
    Senator Smith. How many pages?
    Mr. Jindal. 130,000 pages.
    Senator Smith. That's bigger than the Bible.
    Mr. Jindal. Sir, I don't believe anybody in Washington has 
130,000 pages of things to tell the Mayo Clinic on how to 
practice medicine or provide health care. So there's a question 
of, what is the best way to make the program more flexible and 
responsible?
    When you look at the history of the program, it has never 
been particularly aggressive in adding benefits. Whether it's 
been preventive services, immunizations, or other services, 
it's really lagged behind the private sector.
    One of the reasons the Administration was very encouraged 
by that tripartisan approach--one of the things I should have 
said, because Senator Breaux is chairman of this panel, you 
know, and we encourage the work that he has done with Senator 
Jeffords and other members of the Senate, including your 
support is to encourage the use of private plans and private 
options.
    Historically, those private plans are much more nimble and 
much more quick and responded much more quickly to these 
seniors and adapted new preventive services. So probably the 
best way for Medicare to add new benefits and be more 
responsive in the marketplace is to give seniors more choices. 
What we have seen does not work is to allow the Federal 
Government to make those decisions. It is a very political 
process and very slow process when that happens.
    Senator Smith. I appreciate those comments. Hopefully we'll 
get that to the President, and we can at least bring Medicare 
billing up to today's technology and make it work.
    Next is from Naomi Ballard. She writes, increasingly 
physicians in Washington County are opting out of Medicare. 
This limits access to Medicare. What plans are being made to 
alter this trend?
    Again, that goes back to Bobby.
    Mr. Jindal. Sure. There's something called the sustainable 
growth rate, one of these complicated formulas used by 
Medicare, to reimburse physicians. Back in 1998, 1999, 
everybody agrees there were some mistakes built into a formula 
which resulted in last year almost a 5 percent decrease in 
Medicare payments to doctors. This year there will be another 
decrease and, until we fix it, it will continue to have 
decreases.
    Now, the Administration, we consistently think any new 
spending should benefit the beneficiaries. We've been firm to 
say, we want the first thing that Congress does is to have a 
prescription drug benefit. We've also said of the providers, we 
absolutely do think that the physicians do make a good case and 
have presented convincing data.
    We need to do something to help our physicians. I think 
everybody agrees that we needed to do something to adjust the 
formula to acknowledge that.
    Senator Smith. Very good.
    Jacqueline Stoble writes, most times patients are forced to 
use generic drugs. Many times generics are not quite the same. 
If you can't tolerate generics, will you be denied brand 
medicines?
    In all of the plans that I have seen, both are offered. 
Generics come at a lower copay than the brand, which has a 
higher copay. Instead of 2.50, it's like a $5.00 copay. So it's 
not substantially more, but they are available.
    Mr. Jindal. Senator, also remember, in the tripartisan and 
other bills, it was also an option for medical appeals that if 
you and your doctor certify that the patient has a clinical 
reason for a drug, that there will be a way to cover that drug. 
So you're absolutely right.
    Senator Smith. This is a question for you, Bobby. You're on 
the hot seat right now.
    This is from Mary Ann Warhol. Mary Ann writes, many believe 
that the universal health care, such as Hawaii's, which 
includes a prescription drug benefit, is the best long-term 
solution for Oregonians. Do you support this notion? Why or why 
not?
    Mr. Jindal. Two things. One, I work for a Secretary that 
used to be the Governor of Wisconsin who, in turn, worked for 
the President, who used to be the Governor of Texas. Both of 
them are very eager to give their fellow Governors and their 
States more flexibility for programs.
    Almost 2 million people have additional benefit and 
additional coverage. Almost 5 million people have gotten 
additional benefits, simply by the Secretary saying, we want 
the States to have the flexibility. They receive Federal 
assistance. We want them to have flexibility. We don't want 
them to be tied up in red tape.
    The Secretary supports giving States more flexibility to be 
the innovators, the ones blazing new paths to show how health 
care can be more efficient. The second aspect of that question 
deals with universal care. It is one of the challenges facing 
our health care system. We have 38.7 million uninsured. That 
number only dropped in the last 2 years and probably will 
increase now, despite 10 years of rapid economic growth.
    By having that many uninsured, you have individuals who are 
not getting access to preventive care, but are going to the 
emergency room. They are shifting costs to other individuals, 
and so they're receiving the more expensive, least effective 
type of care, and we do believe that's wrong.
    That's why the President has proposed almost $80 billion in 
refundable tax credits to allow the working poor to have 
coverage. That's why he's made over $3 billion available in 
expiring SCHIP dollars. That is why he's supporting doubling 
the number of community health centers, as well as 40 million 
additional dollars for health professionals to go in shortages 
to pay their costs, their loans, their tuition, so they can go 
serve the underserved population.
    So the Administration strongly believes that the answer is 
in allowing people to have the best access to high quality, 
affordable insurance. Our message is consistent with our 
message on Medicare. We want to help those who cannot afford 
coverage. We don't want to displace coverage that exists, but 
we also don't want to increase government bureaucracy.
    Senator Smith. Sounds to me like a no on universal 
coverage.
    Mr. Jindal. The answer to universal coverage is to allow 
States to have the flexibility so they can do----
    Senator Smith. If they want to have it like Hawaii.
    Mr. Jindal. That's right. The States should have the 
flexibility to do that. The Federal Government, we don't 
support the Federal Government nationalizing or socializing the 
health care system. We do support everybody having access to 
health care coverage, though.
    Senator Smith. Absolutely.
    This is for Dr. Kositch. Does the fact that Kaiser applies 
evidence-based research in setting a prescription drug 
formulary in practice help better assure patients and 
physicians that they choose the right drug for the best price? 
Should this approach be carried forth beyond an HMO model?
    Good question from Jeffrey Cohen.
    Dr. Kositch. It sounds like I wrote that question for 
myself. The short answer is yes. I think it spoke to what I 
said earlier, that if there is a rigorous, scientific approach 
to encouraging effective use of medications that should be a 
goal to provide as much coverage for many as people as possible 
by trying to identify what works the best and what things are 
priced at a market whim rather than any scientific basis.
    Senator Smith. The answer to that will change with every 
research fund.
    Dr. Kositch. It does. But I think you can easily say on an 
annual basis you could update such a list. While there are 
people who would want it to be done sooner, an annual basis is 
more than enough. As long as it's understood there is a process 
that will go on year after year, and it wasn't a one-time 
thing.
    Senator Smith. Very good.
    This is to you, as well, Doctor.
    Oregon's innovative prescription drug research authorized 
under some Senate bills this year provides consumer health care 
providers with consumer reports like Gray to identify the right 
drug at the right price, called evidence based research. 
Oregon's process has been praised by PHRMA and AARP alike. How 
can Congress support and promote expansion of this work?
    Dr. Kositch. I am unfamiliar with this specific product, 
although I am very aware that the state Medicaid program comes 
to us asking for advice on how to screen prescriptions for 
effectiveness, so I am assuming it's a related process.
    Giving information to consumers is another way, as I said, 
also giving the information to the FDA, of using scientific 
knowledge in a way of allocating a resource.
    Senator Smith. There are a couple other questions, but they 
really do duplicate ones that have already been asked. So 
before we adjourn, I would like to remind all of you that 
caseworkers from my office and Senator Wyden's office are 
present. Raise your hand if you're from my office and Senator 
Wyden's office to help here.
    These folks are here to answer your questions and tell you 
about programs available in Oregon and help you deal with any 
problems you may be having. There's also coffee and cookies 
available in the back.
    I truly hope that you have found this Oregon focus on the 
prescription drug issue of value. I have, and I return to 
Congress as committed as ever, but more determined to get a 
result, the sooner the better, and I hope in the 107th 
Congress. Because this is an issue, as I said in the beginning, 
whose time has come, not for debate but for resolution.
    Thank you all.
    [Whereupon, at 12 p.m., the committee adjourned.]

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