[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
      A REVIEW OF THE ADMINISTRATION FY2004 HEALTH CARE PRIORITIES
=======================================================================



                                HEARING

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 12, 2003

                               __________

                            Serial No. 108-8

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                               __________








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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                  (ii)

  


                           C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Thompson, Hon. Tommy G., Secretary, U.S. Department of Health 
      and Human Services.........................................    24
Material submitted for the record by:
    Thompson, Hon. Tommy G., Secretary, U.S. Department of Health 
      and Human Services, response for the record................    87

                                 (iii)

  


      A REVIEW OF THE ADMINISTRATION FY2004 HEALTH CARE PRIORITIES

                              ----------                              


                      WEDNESDAY, FEBRUARY 12, 2003

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:15 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members present: Representatives Tauzin, Bilirakis, Barton, 
Upton, Stearns, Gillmor, Greenwood, Cox, Deal, Burr, Whitfield, 
Norwood, Shimkus, Wilson, Shadegg, Fossella, Buyer, Radanovich, 
Bass, Bono, Walden, Terry, Fletcher, Rogers, Issa, Otter, 
Waxman, Markey, Towns, Pallone, Brown, Deutsch, Eshoo, Stupak, 
Engel, Wynn, Green, McCarthy, Strickland, DeGette, Capps, John, 
Davis, Allen, Schakowsky, and Solis.
    Staff present: Kathleen Weldon, majority professional 
staff; Patrick Morrisey, deputy staff director; Eugenia 
Edwards, legislative clerk; John Ford, minority counsel; 
Bridgett Taylor, minority professional staff; Karen Folk, 
minority professional staff; Amy Hall, minority professional 
staff; and Jessica McNiece, minority staff assistant.
    Chairman Tauzin. The committee will please come to order.
    Before the Chair recognizes himself for an opening 
statement, I have a brief unanimous consent request. As members 
may recall, there was a lengthy discussion about opening 
statements at our committee organization meeting 2 weeks ago, 
and the ranking member and I discussed a possible committee 
rule change to address what is often very lengthy periods for 
opening statements.
    The following request is modeled after our discussion. I 
ask unanimous consent that during the period for opening 
statements, and prior to the recognition of our first witness 
for testimony, any member, when recognized, may completely 
defer his or her 3-minute opening statement and instead use 
those 3 minutes during the initial round of witness 
questioning.
    By way of explanation, a couple of points. If a member 
comes after all opening statements have been completed, he or 
she will just be entitled to the usual 5 minutes of 
questioning.
    And, two, members may not defer a portion of their 
statement, members may only defer their statement completely, 
that means all 3 minutes, or not at all. That is, they can 
deliver a 1-minute opening statement, but if they do they 
cannot reserve the remaining 2 minutes. You either reserve all 
three or none at all.
    Finally, members desiring to defer their 3 minutes must be 
here to be recognized for that purpose.
    Is there any objection to that request?
    Mr. Waxman. Reserving the right to object----
    Chairman Tauzin. Mr. Waxman?
    Mr. Waxman. [continuing] and I won't object, Mr. Chairman, 
but if we are going to follow this rule, then some members will 
get additional time to pursue questions. I understand the 
Secretary's time is limited, but I hope he will stay, so that 
all members will have a chance to ask him questions, because it 
would be a shame if this rule gave some members reward of extra 
time to pursue questions, but then not all members would be 
able to get their chance.
    Chairman Tauzin. My understanding is that the Secretary has 
2\1/2\ hours for us today, and I think that will accommodate us 
all. But by the way, you will get your 3 minutes either way, an 
opening statement or in questions. So it gets used up one way 
or the other.
    Is there any objection to the unanimous consent request? 
Hearing none, it is so ordered, then. And the Chair will 
recognize himself for an opening statement.
    Our committee is, once again, very fortunate to have 
Secretary Tommy Thompson testify before us today. The Secretary 
has done an outstanding job for this administration in some 
extraordinary times, and for that he should be commended. Like 
the administration, the Energy and Commerce Committee has a 
very ambitious health care agenda on tap for the next several 
months.
    We will be addressing a significant number of issues, 
including Medicare modernization, Medicaid reform, medical 
liability reform, global AIDS, bioshields, substance abuse 
treatment, patient safety, the uninsured, and the important 
vaccine-related matters to name just a few.
    Under the President's proposed budget, the Department of 
Health and Human Services will have outlays of $539 billion in 
the year 2004. That is an increase of 7.3 percent over the 
President's proposed 2003 levels. The discretionary component 
of the budget is proposed at $65 billion. That is an increase 
of 2.6 percent.
    The budget continues the President's commitment to 
strengthen and modernize our entitlement programs, to fight 
bioterrorism--an increasingly difficult subject--and to 
increase biomedical research, and expanding Americans' access 
to health care services.
    The President has proposed some innovative new initiatives 
that we need to examine closely here in our committee, and that 
is why it is particularly timely to have the Secretary with us. 
Mr. Secretary, we would like to discuss your bold new option 
for States under the Medicaid program.
    Under this proposal, States would be able to take their 
Federal Medicaid funding in two lump-sum allotments, one for 
long-term care services and one for acute care services. The 
budget includes $3.4 billion in additional Medicaid funds for 
2004 for States that elect this option, potentially critical 
funding for States contemplating cutbacks today in those 
services. At the same time, you initially recognize that money 
alone won't solve the growing crisis in the Medicaid programs.
    I look forward to hearing more from you about this plan and 
how we can solve the long-term problems facing Medicaid in all 
our States.
    With respect to Medicare, the President has included--and 
we are very grateful--a $400 billion item in the budget over 10 
years for Medicare modernization and a prescription drug 
benefit. The details of the President's plan obviously have not 
been finalized, but I think we can all agree on several points 
about Medicare.
    First, the program needs to be modernized, with the 
addition of preventive benefits, catastrophic coverage, and, of 
course, prescription drug coverage.
    Second, seniors deserve more choices in the program than 
the ones they currently have. At the very least, they deserve 
the same range of choices that Members of Congress and their 
staffs have through the Federal Employee Health Benefits Plan.
    And, finally, we need to ensure Medicare is placed on a 
sound financial footing, so that future generations will have 
access to the program.
    As the President notes in his budget, the present value of 
Medicare's unfunded liabilities is $13.3 trillion. That is the 
excess of benefits promised to future retirees over expected 
tax revenues to Medicare. We need to ensure that Medicare is 
structured in such a way that the Federal Government can 
continue, indeed, to support the program long term.
    On issues related to bioterrorism, the President also 
continues to make great strides. The HHS budget allocates $3.6 
billion to fight bioterrorism, including $1.6 billion for NIH, 
$1.4 billion for the CDC, and $618 million for HRSA, and $176 
million for the FDA.
    I am anxious to hear from you, Mr. Secretary, on how we 
will use this funding and how this country will be safer as a 
result.
    Perhaps one of the boldest strokes in the budget is the 
promise of $15 billion over 5 years to combat global AIDS. I 
recognize that the bulk of this new money is in the U.S. Agency 
for International Development, but $400 million is located 
within HHS. I would like to hear more from the Secretary about 
how the entire U.S. effort on global AIDS will be coordinated.
    The budget also expands access to health care for all 
Americans and works to improve the health of our communities. 
Additional funding is included for community health centers, 
which we are grateful for, a national health service corps, an 
innovative substance abuse treatment program, a disease 
prevention initiation, and many other laudable programs.
    Once again, the President has proposed a refundable tax 
credit to increase health care access for uninsured Americans. 
We look forward to working with the administration on these 
initiatives.
    Mr. Secretary, as always, we are grateful to have you 
appear before this committee. We look forward to hearing your 
perspective on the administration's health care priorities, and 
in working with you to address the important health care issues 
facing this country. And I thank you and yield back my time.
    The Chair recognizes Mr. Waxman.
    Mr. Waxman. Mr. Chairman, I would like to ask unanimous 
consent, in Mr. Dingell's absence, that the 5 minutes he would 
take be given to Mr. Sherrod Brown.
    Chairman Tauzin. Without objection, it is so ordered. Mr. 
Sherrod Brown?
    Mr. Brown. I thank my friend from California. Thank you, 
Mr. Chairman.
    I thank the Secretary for joining us. We may not always 
agree, but I respect your dedication and leadership, Secretary 
Thompson. I wish your visit today, however, were under better 
circumstances. Important health programs are on the verge of 
being seriously damaged and critical guarantees sacrificed, 
rolling back decades of progress.
    For example, the administration's proposed budget directly 
imperils two crown jewels--the two crown jewels of our health 
care safety net, Medicare and Medicaid, in the name of more tax 
cuts for the most privileged among us. Important public health 
priorities are critically underfunded.
    Mr. Chairman, I like Secretary Thompson, but I do not like 
what he and others in the Bush Administration are doing to 
those most in need. If we don't prevent steep Medicaid cuts, 
coverage for 2 million beneficiaries is at risk. If we block 
grant Medicaid, the very program is at risk. Medicaid covers 44 
million Americans; the stakes are high.
    Rather than bolster Federal support for Medicaid, your 
budget offers States a loan, available only if they agree to 
take 100 percent of the responsibility for any future variation 
in Medicaid costs. In other words, they must agree to a block 
grant. With all due respect, that is a fool's bargain. It 
assuredly contradicts the President's stated health care goals. 
When you arbitrarily cutoff Federal funding, you arbitrarily 
cutoff access to health care.
    SCHIP is a block grant, and eligible kids are sitting on 
waiting lists rather than getting needed health care. It is 
because SCHIP is a block grant that we are struggling to 
restore the funding needed to keep 900,000 kids insured. 
Offering States a loan, and tethering it to the block granting 
of Medicaid, is an astoundingly dismissive response to the 
States' budget crises.
    Mr. Secretary, it displays a remarkable indifference to 
Medicaid's 44 million beneficiaries. Medicaid, as we know, is 
the largest health insurer in the United States, and it is an 
essential part of the Nation's health care system, our long-
term care system, and our economy.
    Medicaid is the only program--state or Federal--that 
responds when seniors in poverty need nursing home care. And 
because of Medicaid, 21 million children get the health care 
they need. Medicaid is fiscally responsible. Medicaid costs are 
growing at half the pace of comparable private health 
insurance, half the pace of private--of comparable private 
health insurance.
    Peter King and I, along with more than 110 original co-
sponsors, are introducing bipartisan legislation today that 
would provide a temporary increase in Federal Medicaid funding. 
In keeping with the President's coverage goal, this bill is 
designed to help stabilize access to coverage in the current 
economic climate, and to prevent an increase in the number of 
uninsured.
    Mr. Secretary, I hope the President will see that block 
granting Medicaid actually contradicts his coverage goal. I 
hope you will work with us to secure passage of the King-Brown 
bill.
    Secretary Thompson, if we do not restore the $2.7 billion 
in funding for the State Children's Health Insurance Program, 
900,000 children, as we said before, will lose their health 
insurance. The President's budget would restore just one-third 
of the lost funding.
    Chairman Tauzin and Ranking Member Dingell have introduced 
legislation to restore the $2.7 billion and keep those children 
on the restored rolls. In light of the President's health care 
goals, I hope you will lend your support to this effort.
    Based on the President's State of the Union address, the 
President would require Medicare beneficiaries to enroll in 
private health plans in order to receive drug benefits. If you 
want prescription drug coverage, the President told us in the 
State of the Union, then you must join an HMO. This also 
contradicts the President's stated goal of high-quality, 
affordable health care for every American.
    Since the original Medicare program, the original fee for 
service Medicare is more reliable, more flexible, and more cost 
efficient than private coverage, with much more extensive 
choice. There is only one reason to abandon Medicare in favor 
of insurance vouchers. It allows the Federal Government to 
shift more costs onto Medicare beneficiaries and on their 
families.
    If that is not the President's goal, I hope you will 
explain to this committee why the President is, in fact, 
conditioning access to drug benefits on a senior's willingness 
to join a private HMO.
    Finally, Mr. Secretary, on a more positive note, I want to 
congratulate you on being named the new Chairman of the Global 
Fund to Fight AIDS, TB, and Malaria. That is good news for the 
42 million people around the world who have AIDS. It is good 
news for the 2 million that died--that will die every year from 
tuberculosis unless we take action. It is good news for the 
million people that will die of malaria every year unless we 
take action.
    I hope under your leadership the Global Fund will come to 
play a more prominent role in the President's global AIDS, TB, 
and malaria initiatives, and I thank you.
    I yield back my time, Mr. Chairman.
    Chairman Tauzin. I thank the gentleman for yielding back.
    The Chair is pleased to recognize the chairman of the 
Health Subcommittee of our committee, Mr. Bilirakis.
    Mr. Bilirakis. Mr. Chairman, I would yield an oral opening 
statement, but I do ask unanimous consent that a written one 
may be made a part of the record.
    [The prepared statement of Hon. Michael Bilirakis follows:]
   Prepared Statement of Hon. Michael Bilirakis, a Representative in 
                   Congress from the State of Florida
    Good morning, I am extremely pleased to welcome the Honorable Tommy 
Thompson, Secretary of the U. S. Department of Health and Human 
Services. Mr. Secretary, I would first like to commend you on your 
leadership throughout the last few years. You have demonstrated 
remarkable capacity and ingenuity in the face of unforeseen hardships--
thank you sir. In particular, your leadership has been critical in 
developing our nation's capacity to respond to the threat of 
bioterrorism. Your continued work in this area will ensure the safety 
and security of Americans for many years to come.
    The Department of Health and Human Services (HHS) fiscal year 2004 
budget continues our efforts to develop systems and programs to improve 
the health and welfare of our country. The HHS request includes $539 
billion in total outlays--an increase of $36.9 billion, or 7.3% over 
the requested fiscal year 2003 levels. I am pleased that the budget 
continues to build on your significant request last year for new 
funding to combat bioterrorism. While some might argue that the 
Administration has proposed reducing the department's funding for 
bioterrorism, I would point out that the Administration's request of 
$3.6 billion for HHS's bioterrorism activities is in addition to the 
funding that HHS is planning to transfer to the new Homeland Security 
Department. Furthermore, it is important to note that another reason 
for the perceived decrease was because many of the needed facility 
updates that were included in last year's budget request addressed one-
time only needs. Also, I am very eager to learn more about project 
Bioshield. I have no doubt that we can all agree that the best policy 
in this area is one of prevention.
    I would also like to thank you and President Bush for focusing on 
improving access to health care and modernizing Medicare. As you know, 
last year we passed a Medicare prescription drug package that would 
have moved the ball forward on this issue. Unfortunately, the Senate 
was unable to act. This year you and the President have put a great 
deal of resources on the table--$400 billion to be exact, and I believe 
that we can develop legislation to meet all of our needs in this area. 
It is so vitally important that we take steps now to deliver 
prescription drugs to our nations seniors in a manner that is fiscally 
responsible. I look forward to working with you Mr. Secretary as the 
details of this proposal are developed and moved through the Congress.
    The budget also outlines a proposal to provide new resources to 
help strengthen and reform the Medicaid program. As we all are aware 
many states are in the midst of a severe budget crisis, with their 
Medicaid costs growing at astronomical rates. I believe that part of 
the problem is that we have not taken a comprehensive look at this 
program for some time, which I plan to do over the next several months. 
I am very pleased that the Administration is committing substantial 
resources to this effort by requesting $3.4 billion for fiscal year 
2004. These resources will enable us to help states in the short term 
while at the same time implement reforms that will hopefully ensure the 
long-term viability the program. I look forward to working with you and 
your staff as these ideas become more refined over the next several 
months.
    I would also like to thank you Mr. Secretary for requesting an 
increase to the Community Health Center program. I have long been a 
supporter of this program and believe that they are a vital component 
in helping us battle the problems of the uninsured. I think that the 
$169 million increase to this program will bring us closer to the goals 
of expanding the treatment capacity of health centers to treat an 
additional 6 million people by 2006.
    Mr. Secretary, as always the members of this Committee and I look 
forward to working closely with you and the President to address the 
healthcare challenges we are facing at the dawn of the 21st century. We 
must protect our nation against bioterrorism, help the uninsured, 
improve our health care system, and modernize Medicare. Thank you, Mr. 
Chairman. I yield back the balance of my time.

    Chairman Tauzin. The gentleman makes a unanimous consent 
that all written statements be made a part of the record. 
Without objection, it is so ordered. The gentleman yields his 3 
minutes and reserves it for questioning. Is that correct?
    Mr. Bilirakis. That is correct.
    Chairman Tauzin. Then, the Chair will recognize in order 
Mr. Waxman from California.
    Mr. Waxman. Mr. Chairman, I want to get in on this new deal 
of adding question period time. So I will waive my opening 
statement.
    Chairman Tauzin. The Chair recognizes Mr. Upton from 
Michigan.
    Mr. Upton. Defer.
    Chairman Tauzin. Also defers. This is working.
    The Chair recognizes the gentleman----
    Mr. Towns. Defer.
    Chairman Tauzin. The gentleman from New York defers. That 
is a good idea.
    On this side? Let me ask maybe to make it easier, is it the 
chairman's understanding that all members who do not wish to 
give their opening statement at this point want their 3 minutes 
in questioning? Does anybody not want their 3 minutes? I think 
everybody does.
    And does anybody desire to make an opening statement at 
this time? The gentleman Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. I am going to use 
my time this morning to discuss three major program areas in 
which I am concerned that the budget would severely undermine 
our country's health care safety net. These three areas are the 
budget's proposals for Medicare, Medicaid, and the Substance 
Abuse and Mental Health Treatment Services Administration.
    Secretary Thompson, in your budget, you emphasize the 
importance of offering a prescription drug benefit to Medicare 
beneficiaries, and it is clear that you understand the 
importance of adding prescription drug coverage. However, I am 
very concerned that under your proposal seniors will be forced 
to join a private insurance plan in order to get prescription 
drug coverage.
    In my district, largely rural, private plans just haven't 
worked. Nearly all Medicare Plus Choice plans have left my 
district since it is more expensive to provide care to seniors 
in rural areas. It would be unfair to coerce seniors into 
leaving traditional Medicare by offering prescription drug 
coverage only through a private plan that may or may not be 
accessible to all.
    Instead, we must act this year to include a voluntary 
prescription drug benefit that is a part of the fee for service 
Medicare and that doesn't force beneficiaries to choose between 
affordable, reliable, traditional Medicare coverage and a 
private plan with prescription drug coverage.
    I am also concerned about the budget's proposal to change 
the Medicaid program. Medicaid serves more than 40 million 
beneficiaries, providing health care services for low-income 
children, families, pregnant women, long-term care services for 
the elderly and disabled, and assistance with the cost of 
Medicare for low-income seniors.
    Now States are facing budget shortfalls and rapidly rising 
health care costs that make it more difficult to operate these 
Medicaid programs. Although the budget's references to 
increasing flexibility and reducing administrative burden on 
States may sound as though we will provide help to States in 
these tough times, the proposal will really just allow States 
to block grant Medicaid and CHIP, and these dollars will be 
into a single allotment that would not provide States the help 
they need to continue to provide these quality services and 
benefits to the most vulnerable of our population.
    Finally, I am pleased that the budget commits more money to 
substance abuse treatment in the form of $199 million in new 
funds, but I am concerned that these funds will not be used 
effectively. As a psychologist, I know first hand the 
tremendous need in this country for mental health and substance 
abuse treatment services.
    Individuals struggling with mental illness and substance 
abuse problems or, more often, a combination of substance abuse 
and mental illness, frequently find it difficult to obtain 
quality care. As a result, it is difficult for some to hold 
down a steady job that provides health insurance, and, 
consequently, many mentally ill individuals sadly are in our 
prison systems or living on the streets or in our homeless 
shelters.
    When I have time for questions, I hope to learn from you, 
Mr. Secretary, how you intend to assure that the providers 
covered by the voucher program proposed by your budget are 
trained to provide substance abuse counseling services.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Strickland. I yield back whatever time I have. Thank 
you.
    Chairman Tauzin. The gentleman yields back.
    Is there a request for an opening statement on this side? 
Then, the gentlelady Ms. DeGette is recognized.
    Ms. DeGette. Thank you, Mr. Chairman.
    I want to add my thanks to the Secretary for coming today. 
I know you work very hard on these issues. But in my view, at 
no time will there be a greater need for the Federal Government 
to provide leadership and dollars to help the States close the 
huge gaps in funding they are currently facing.
    All of the States are under tremendous budget pressures. 
And, for example, in my home State of Colorado, we have an $850 
million deficit. Much is due to rising health care costs. So to 
help close this gap, our Republican-controlled State House 
Committee voted this last Monday to eliminate Medicaid coverage 
for legal immigrants.
    If this bill receives approval, we will be the first, but I 
will guarantee you not the last, to strip Medicaid coverage 
based on citizens. And it will not be one of our State's finest 
hours or one of this country's finest hours if we exclude those 
who are here legally.
    The President's budget does nothing to help this situation, 
because it adds no additional funds to States to help with 
Medicaid shortfalls or, frankly, with shortfalls to 
disproportionate share hospitals which are suffering because 
they are treating increasing numbers of the uninsured. But that 
is not what I want to talk about today.
    I have so many problems with this budget, but there is 
something that is going to appall the American people when they 
find out about it, and that is the paltry increase in funding 
for the National Institutes for Health. In the administration's 
proposed fiscal year 2004 budget, there is only a 2-percent 
increase in NIH funding over fiscal year 2003 levels, which 
will disrupt the dramatic research progress that we have made, 
frankly, in a bipartisan fashion so far.
    Congress has nearly completed its effort to double the NIH 
budget. These funds have greatly helped us come much closer to 
treatments and cures for many diseases, from sequencing the 
human genome to developing eyelet cell transplantation. The 
rewards of our public investment in financed research programs 
continue to increase exponentially and help the quality of 
life.
    Let me just give a couple of examples. In 1970, the number 
of Americans killed by heart attacks peaked at--or heart 
disease peaked at 1.3 million people. By 2000, that number had 
been reduced by over half. That year, fewer than 515,000 
Americans died from coronary diseases. Advances made in one 
area of human health, as you know, often lead to advances in 
other areas.
    Cholesterol lowering drugs, known as statins, appear to 
have contributed to an unexpected lowering of the risk of 
stroke, and on and on. By reducing the public NIH funding, as 
the President has proposed, we will be backsliding in these and 
other areas.
    While the President's budget does provide additional 
funding for bioterrorism detection analysis--and that is good--
we cannot sacrifice this important vital research for these 
other programs.
    So, Mr. Secretary, I see you nodding. I would hope we can 
work together in a bipartisan fashion to restore this important 
research funding.
    Chairman Tauzin. The gentlelady's time has expired.
    Further requests for opening statements on this side? Mr. 
Stearns?
    Mr. Stearns. Thank you, Mr. Chairman.
    I am going to use my opening statement to welcome the 
Secretary and just tell him that in Florida we have a program 
that you know about. We are calling it Family Directive 
Services, which was Cash and Counseling.
    And I just gave a speech on the floor, Mr. Chairman, and 
bring that to the attention of Americans, that in these States 
there has been flexibility provided with waivers. And these 
waivers allow families in Medicaid to have a choice, and this 
choice can be one to go into Family Directive Service, which 
allows them to select and to use the doctors in the private 
sector. And at the same time, if they don't want to go into the 
Family Directive Service, they don't have to.
    This has been very successful in the State of Florida. 
Governor Jeb Bush has offered this, and I think the Secretary 
should be commended for influencing and providing these kind of 
programs, because we get a better bang for the buck. And, 
ultimately, the people in Medicaid get to be personally 
responsible for their health care and the decision process in 
the family.
    And so, Mr. Secretary, I think that is a very good program, 
and hopefully we will hear some more about it.
    Chairman Tauzin. Thank you.
    Mr. Stearns. I yield back, Mr. Chairman.
    Chairman Tauzin. The gentleman yields back his time.
    Further requests on this side? Ms. Capps?
    Ms. Capps. Mr. Chairman, thank you. I wanted to strike a 
bargain with you to delete from my opening statement the points 
that have already been covered by my colleague, but retain--and 
that takes care of Ms. DeGette's comments on the NIH and Mr. 
Strickland's about what will happen in rural parts of this 
country when seniors find private insurers not wanting to deal 
with their prescription drug needs, and Mr. Brown talking about 
Medicaid--the dissembling of it.
    But I want to thank you. This is my chance to thank you for 
your support, and the administration's, on dealing with our 
legislation to deal with the nursing shortage. But I--and I was 
impressed even with the rhetoric in the budget documents 
released by the Department on this issue, but I was 
disappointed to see that the funding requested doesn't match 
this rhetoric.
    It looks like in this budget there are--one program's 
budget is cut in order to give money to another program. And 
overall spending on nursing programs is actually slightly cut 
from the President's fiscal year 2003 request, and well below 
what was included in the Senate version of the Omnibus bill.
    What we need to do now is increase funding for nursing 
programs so that we can address the national nursing shortage. 
We have to spend more on this priority, and you and I have 
talked personally about what this does about our homeland 
security issues. The two are very intricately connected.
    This shortage will not alleviate itself on its own. And 
until it is addressed on its own, and until it is addressed 
from the Federal Government, it is not going to be possible for 
the communities to deal with it.
    I am hopeful to continue this conversation with you during 
the question time, and thank you for being with us today.
    I yield back.
    Chairman Tauzin. The gentlelady yields back.
    The gentlelady Ms. Wilson seeks recognition.
    Ms. Wilson. Thank you, Mr. Chairman. I would like to forego 
my opening statement and ask additional questions at that time.
    Chairman Tauzin. The gentlelady is entitled to do that, and 
will be so recognized.
    On this side, the gentlelady from California seeks 
recognition. Ms. Eshoo?
    Ms. Eshoo. Thank you, Mr. Chairman, and good morning, and 
welcome, Mr. Secretary.
    I think I can usually find something positive in almost 
everything, or at least I try to. But I am really struggling to 
find the good news in this year's budget proposal and the 
administration's health care program.
    I represent a very, very--everyone thinks they represent a 
distinguished Congressional district. Mine is home to Stanford 
University, to Silicon Valley. It is an area that has produced 
much for the country.
    And I am here to tell you that people are hurting. And my 
objections to the direction that the administration is going is 
to use words to dress up something that I believe is very 
hurtful. Whether it is called block grant, whether it is called 
voucher, if, in fact, this is taking a walk from helping people 
that have become so vulnerable because of what is happening in 
our country today, it is just wrong. It is just wrong.
    And I think that it moves against what has made this 
country strong, and that is that we are usually, and almost 
always, in this together. And so I understand that budgets are 
always debated, budgets are tough to come up with, but when a 
block grant for 10 years--let us talk about 10 years to the 
States--the Federal Government in this block grant relative to 
Medicaid is saying, ``So long.'' It is like pushing a boat with 
children in it out into the middle of the ocean, and it is not 
fair.
    Now, you were a Governor. You know the pressures that 
States have. You know the pressures that States have. On our 
side of the aisle, it is why members fought and felt very 
strongly that in our economic stimulus package we would help 
States with Medicaid funding. And this block grant, no matter 
how you dress it up and walk it around, it is a cut, and it is 
going to hurt.
    And then we say it is optional. It is optional. Well, guess 
what is going to happen with the option? The Governors don't 
have the money. People are not going to get the services. I 
think that we can do much better than this.
    When we have an orange or a red warning in this country 
relative to our own security, you know what? I think the top 
color light should be blinking on and off relative to health 
care. I have unemployed workers that were engineers in Silicon 
Valley that can't afford their COBRA, are getting $300-and-
some-odd a week in unemployment, can't find a job, and don't 
have health care. That is the face of one of the most upscale 
important places in our country.
    So I thank you for your public service, and I couldn't mean 
that more. But I find----
    Chairman Tauzin. The gentlelady's time----
    Ms. Eshoo. [continuing] the proposals of the 
administration----
    Chairman Tauzin. [continuing] has----
    Ms. Eshoo. [continuing] to be so short----
    Chairman Tauzin. [continuing] expired.
    Ms. Eshoo. [continuing] for the American people, that I 
have used my opening statement to describe it.
    Chairman Tauzin. The gentlelady's----
    Ms. Eshoo. Thank you very much.
    Chairman Tauzin. Thank the gentlelady.
    Further requests for opening statements on this side?
    Mr. Allen. Mr. Chairman?
    Chairman Tauzin. Mr. Davis is recognized. Mr. Allen, I am 
sorry.
    Mr. Allen. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here today to explain the President's 
budget.
    I just wanted to take a few moments--every time I look at 
the administration's proposal for Medicare reform, and every 
time I hear the word ``choice,'' I want to put the asterisk in 
and the footnote which says, ``This means that seniors' health 
care will get turned over to private insurance companies,'' 
because I think when you say that, it clarifies what is going 
on.
    It seems to me that to give seniors--to transform 
traditional Medicare, and basically try to move people off 
traditional Medicare into private insurance companies, is a bad 
bargain for the elderly. The reason that Medicare was created 
in 1965 was because the private insurance market had trouble 
covering older and sicker people.
    Right now, Medicare has a kind of stability and 
predictability and continuity that our seniors need and 
deserve, and that would be undermined. If we look at the--by 
the administration's proposals. If we look at the experience of 
Medicare Plus Choice, what we see is in some--you know, in some 
years maybe you get it, maybe you don't. Some States, some 
counties, maybe you get it, maybe you don't.
    The benefits can change every year. The premiums can change 
every year. The co-pays can change every year. I believe the 
administration's proposals are an attempt to transform Medicare 
into maybe-care. And it is the wrong way to go for our seniors.
    My parents a few years ago, when they were on--in their mid 
eighties, they were on a managed care Medicare plan in the 
State of Maine. And I can tell you it was a disaster. It was a 
disaster because what private insurance companies do is they 
deny benefits, and that is how they are trying to save money. 
And for people in their eighties, that is a very bad deal.
    There are no Medicare managed care plans left in the State 
of Maine or in about 15 other States, last I knew. This 
Medicare reform proposal will, if it works at all, would only 
work in more urban areas. It would not be helpful, in my 
opinion, to more rural areas in this country. And I would urge 
the administration to rethink this proposal, to explain how 
your Medicare reform proposal connects with your proposed 
prescription drug plan. Those are some of the areas that I 
think we need to discuss today, but I do very much appreciate 
your being here.
    And, Mr. Chairman, I yield back the balance of my time.
    Chairman Tauzin. The gentleman's time has expired. The 
Chair thanks the gentleman.
    The gentleman from California Mr. Cox is recognized.
    Mr. Cox. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary.
    There is no more important reason for the Federal 
Government, and no more important responsibility of the Federal 
Government, than protecting these United States from attack. 
Your Department heretofore has been devoted to protecting 
Americans from the scourges of poverty and disease, and now you 
have been enlisted on the front line of our fight against 
terrorists who are using disease as a weapon.
    And in that connection, you have asked for over $3.5 
billion for a bioterrorism initiative that I believe this 
committee will strongly support. And I know on the Homeland 
Security Committee we will strongly support this.
    Your budget proposal is aimed in three separate directions. 
First, expanding ongoing medical research; second, State and 
local preparedness funding; and, of course, responding to 
attacks if we cannot prevent them is immediately job one; and, 
third, measures directed to protecting our food supply.
    I also note that you are seeking to dramatically expand NIH 
research funding that is needed to develop vaccines, and I 
appreciate that. We need medicines that will make biologic 
agents much less effective as weapons of attack against 
Americans.
    And I know that you are going to be seeking funding so that 
HHS can continue to manage the strategic national stockpile and 
provide scientific and public health direction needed to ensure 
that the pharmaceutical stockpiles include proper amounts of 
drugs, vaccine, and other biologics.
    Beyond all of this, a portion of the funding that you are 
going to be responsible for lies without the budget of HHS and 
will be within the budget of the Department of Homeland 
Security; specifically, Project Bioshield, which you and I and 
the President and others kicked off up at NIH just a few days 
ago.
    This is intended to bring together the resources of the 
government, so that we can be more successful than we needed to 
be in the past in developing defenses against bioterror. I am 
particularly interested in seeing that the Department, which is 
notwithstanding that the funding is going to be located at 
Department of Homeland Security, which is going to be 
responsible for providing the scientific direction and carrying 
out the actual procurement, that the Department is successful 
in its efforts to provide more flexible contracting and 
procurement authorities for critical biodefense work.
    So I want to encourage you. I note that while people are 
talking about the size of your budget that just the portion 
that you have asked for for bioterrorism works out to nearly 
$100 for the average American household. So if we can imagine 
going door to door and asking for $100 from you and $100 from 
you and $100 from you, all across this country, that is what we 
are doing just for this small portion of your budget.
    It is an extraordinary amount of money, an extraordinary 
commitment. We haven't had to spend this in the past.
    Chairman Tauzin. The gentleman's time----
    Mr. Cox. We now do need to spend it, so thank you very 
much, Mr. Secretary----
    Chairman Tauzin. [continuing] has expired.
    Mr. Cox. [continuing] for being here. And I thank you, Mr. 
Chairman.
    Chairman Tauzin. I thank the gentleman.
    Who seeks recognition on this side? Mr. Davis?
    Mr. Davis. Thank you, Mr. Chairman.
    Chairman Tauzin. The gentleman is recognized for 3 minutes.
    Mr. Davis. Welcome, Mr. Secretary. Your experience and 
insight as a Governor will be particularly useful to us in 
judging the impact of what is being proposed today on the 
people we are all here to represent. I hope you will address 
the points I am about to raise in your oral testimony, and if 
you don't have time, and I don't have time to cover it, perhaps 
your office can follow up in writing.
    No. 1, I would like to know which Governors are asking you 
for the flexibility that you are offering and the way you have 
tied it together.
    No. 2, I would like to know what examples you can cite to 
us as to how States have used waivers, and the kind of 
flexibility you are offering, and how that has genuinely 
improved the lives of people and the delivery of governmental 
services as far as health care.
    And the third thing is that you apparently are thinking 
about tying the drug benefit into a PPO model of delivery, 
which means the beneficiary will probably have to pay an 
additional cost for the privilege of being in a PPO versus an 
HMO. And if that is the case, we need to have the details in 
terms of the additional cost to the people we represent for the 
privilege of having their own doctor as well as this drug 
benefit.
    Thank you, Mr. Secretary.
    Chairman Tauzin. The Chair thanks the gentleman.
    The gentleman Mr. Walden is recognized for 3 minutes.
    Mr. Walden. Thank you very much, Mr. Chairman.
    Mr. Secretary, I am delighted that you are here to join us 
today. I sat here listening to some of the debate, and this is 
probably the only place on the planet where spending can go up 
nearly $37 billion, and we would think that we are somehow 
slashing government.
    As I looked at some of these proposals, Mr. Secretary, I 
want to commend you, because I think they go a long way toward 
getting at what a lot of us want to solve, and that is making 
sure people, regardless of where they live, have access to 
affordable health care in their communities and in their areas.
    And I look at this in the community health centers--$169 
million in the President's budget to enable the program to 
expand services to an additional 1.2 million people at 120 new 
sites. Those community health centers are very important, very 
valuable, and will be very effective.
    The budget includes $24 million for the National Health 
Service Corps, to do something we have worked hard at in 
Oregon, and that is to try and get medical providers to locate 
and serve underserved areas in remote rural areas. I have three 
counties in my district that don't even have a doctor or a 
hospital. It is literally a hundred miles or so to the nearest.
    And so our efforts to try and bring health care into rural 
areas is something I worked on hard when I was in the 
legislature and will continue to do so here, and I commend you 
for the efforts on the National Health Service Corps.
    Substance abuse treatment--the budget includes $199 million 
in new funding for a new State program that would enable 
100,000 additional people to receive drug treatment services. 
Wherever you go in that area, people are saying, ``We need 
access. We need more health.'' And certainly you are trying to 
come up with a program to do that.
    One hundred million dollars in new funding to tackle the 
scourge of diabetes, obesity, and asthma, you know, we are 
talking 50,000 asthma-related hospitalizations would be 
prevented here perhaps. Seventy-five thousand Americans would 
be helped from developing diabetes, and perhaps prevent 100,000 
Americans from the problems with obesity.
    And importantly is improving the access to generic drugs. 
The additional $13 million for the FDA to speed generic drug 
reviews means lower drug costs for all of us, not just senior 
citizens.
    And so, Mr. Chairman, and Mr. Secretary, as I look through 
some of these things, certainly we will have our discussions, 
we will have our debates, but let us not forget that a lot of 
new money is being put toward solving the problems that all of 
us would like to see solved. And I commend you and the 
President for your leadership in this area, and look forward to 
working with you to improve health care for all Americans.
    Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair thanks the gentleman.
    Any further requests for opening statements? The gentlelady 
Ms. Schakowsky is recognized.
    Ms. Schakowsky. Thank you so much, Mr. Chairman.
    Mr. Secretary, welcome. I share your goal of improving 
health and safety of our Nation, and I am anxious to work with 
you on that effort.
    I believe that our great country needs to do more to 
prevent and respond to public health threats posed by 
terrorists, but that we must not do so by sacrificing progress 
toward meeting ongoing health needs at home. Not only can we 
accomplish both goals, but we can--we must do so. And as the 
President said, failure is not an option.
    This committee has a long record of working to improve our 
Nation's health care, particularly through programs like 
Medicare, Medicaid, the Child Health Insurance Program, and I 
believe that we must improve these programs. We must add an 
affordable comprehensive drug benefit to Medicare. We must open 
up Medicaid to more populations who are being denied affordable 
access, or indeed any access in the private market. We must 
preserve the CHIP program and expand it, so that every child 
can receive medical care.
    And while we certainly can improve these public 
initiatives, I believe that we have to be proud of them and 
recognize their successful track record. They have met critical 
needs and done so more cost effectively, in fact, than any 
private market insurer.
    While we are all eager to hear the details of the 
administration's plans regarding Medicare and Medicaid, I have 
to tell you that I am deeply concerned about everything that I 
have heard so far. I hope that you will tell us today that the 
President has decided to provide a meaningful drug benefit in 
Medicare available to all beneficiaries, whether they enroll in 
a private plan or not. I believe it is wrong to pretend that we 
are solving this problem by making a drug benefit available 
only to those who enroll in a private insurance option.
    I am also deeply concerned about the Hobson's Choice being 
offered the States from Medicaid. I believe that we should be 
increasing the Federal match, no doubt, but I do not believe 
that any increase should be linked to a cap in future years or 
that States should be given the authority to increase cost-
sharing requirements or vary benefits from one beneficiary to 
another.
    I am concerned I see no mention of efforts to improve 
nursing home quality by implementing staff ratios, improving 
the Ombudsman Program, or beefing up enforcement.
    As the former Director of the Illinois State Council of 
Senior Citizens, I hope to work with you closely on these and 
other long-term care issues.
    I am pleased to see a proposal by the administration to 
increase home- and community-based options for persons with 
disabilities, but I believe it is more than a question of 
dollars following the individual. It is also a question of 
providing adequate dollars and adequate implementation of the 
Olmstead decision. I hope to work with you on that.
    And, finally, I have spent a lot of time dealing with my 
public health departments and health care providers. They are 
concerned about a tremendous void in Federal assistance, and I 
hope that we are not making--we are not forcing a choice 
between protecting the homeland and protecting our communities. 
It is a false choice, a dangerous choice. Homeland and hometown 
security are one in the same.
    I am so happy to be here as a new member of this committee 
and am eager to work with you, Mr. Secretary, wherever possible 
to meet our Nation's health care needs.
    Chairman Tauzin. The gentlelady's time has expired, and the 
Chair thanks the gentlelady.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Chairman Tauzin. Further requests for opening statements? 
The gentlelady Ms. Solis is recognized for 3 minutes.
    Ms. Solis. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here today to help explain and kind of 
work us through this proposal that the President has proposed.
    First of all, I want to say thank you for coming to Los 
Angeles and for providing some very necessary relief that we 
have been working on for a number of years. But I do want to 
say that I am very--equally concerned with the enormity of the 
problem and issues that we face in Los Angeles as well as in 
the State of California. Eleven of those clinics in Los Angeles 
were closed, three of which served my area.
    We are looking and hoping that we can receive funds so that 
we can acquire Federal dollars to help provide support for 
those clinics that were closed.
    On an average basis, one of those clinics alone in the city 
of Azusa tends to about 40,000 people. And we are talking about 
the working poor. We are not talking about people who are just 
off the street that don't have jobs. I am equally concerned 
that many of our young children in this area are not going to 
be receiving adequate prenatal care that is very necessary.
    Some of the programs that I have read about that you are 
looking at giving flexibility to the States to handle--optional 
programs--right now in the State of California are very, very 
good, meaningful programs that have actually expanded care to 
legal immigrants, to their families and to children.
    In our State of California, which is faced with a 
tremendous deficit right now, as you well know, I think those 
are going to be the first things that get off the table. And I 
am very concerned about your commitment and want to know what 
your thoughts are on that, if you will support States that are 
already doing that.
    And I would be very, very concerned also to hear an 
explanation more about why there has been a reduction in, for 
example, the environmental health programs. And the reduction 
that I saw in one of the budget pages, a document that you 
provided us, a $2 million reduction in environmental health 
funding to the CDC.
    I am very concerned because in my district we have 
contaminants, we have five waste facilities, two Superfund 
sites, and we have heavy cases of asthma. Over 36,000 children 
surrounding my area are afflicted with asthma. I would like to 
know what we are going to do to provide the tools and 
instruments to help remediate these problems that we face.
    I know there has been a lot of good questions that have 
been asked, so I will yield back the balance of my time.
    Chairman Tauzin. The gentlelady yields back.
    Further requests for opening statements? The Chair sees 
none, hears none. And the time for opening statements has 
concluded, which means that any members arriving hereafter will 
be limited to a 5-minute round of questioning. And those who 
have given opening statements will be likewise limited.
    [Additional statements submitted for the record follow:]
    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio
    I thank the Chairman for the opportunity to review the 
Administration's FY2004 health care budget and priorities, and 
certainly applaud the President's initiatives aimed at promoting a 
healthier America. Furthermore, I look forward to learning more about 
the Administration's Medicare reform plan over the next several weeks.
    On another note, I would like to quickly add a ``thank-you'' to 
Secretary Thompson. One of Ohio's major companies, Procter & Gamble, 
has had a food additive petition pending before the Food & Drug 
Administration (FDA) since December 1999. The petition is to remove the 
warning label on products containing olestra, a non-calorie fat 
substitute approved to use in snack foods that has been clinically 
shown to help people lose weight. In mid-1998, the FDA's Foods Advisory 
Committee reviewed data re-confirming the safety of olestra, 
demonstrating that the product did not cause adverse gastrointestinal 
or vitamin effects, and further concluding that the warning label is 
misleading to consumers and should be changed.
    Last month, Proctor & Gamble learned after much delay that the FDA 
is moving to complete action on the requested petition. Again, I thank 
you for your efforts and ask that the FDA move as expeditiously as 
possible to complete action on the petition.
    I look forward to hearing your testimony, and yield back the 
remainder of my time.
                                 ______
                                 
 Prepared Statement of Hon. John Shimkus, a Representative in Congress 
                       from the State of Illinois
    Thank you Mr. Chairman for holding this important hearing today. I 
am pleased we are taking this time to discuss the President's 
impressive health care agenda and how the 108th Congress can work to 
lay the foundation for more successful health care programs with 
greater equity, accessibility and coverage.
    Any health care program that Congress develops or attempts to 
reform must maintain equity in terms of benefits, cost, and 
accessibility among its beneficiaries. Individuals should not be 
disadvantaged or advantaged merely because of where they live. Rural 
beneficiaries should have the opportunities to enroll in plans that are 
comparable to those available in urban areas.
    We need to design a Medicare program that promotes the highest 
attainable quality of care for all beneficiaries. A prescription drug 
benefit must include quality standards and programs to improve rural 
health outcomes. Rural provider organizations need access to mechanisms 
for training personnel and implementing rural-appropriate improvement 
systems. Rural areas must also have access to resources to acquire and 
further develop information systems.
    I applaud the efforts already underway by the Southern Illinois 
University School of Medicine in developing their Telehealth 
initiative. Telehealth delivers health care, health education and 
health community outreach programs over wide distances using 
information and telecommunications technology. Telehealth can 
dramatically improve access to health care in underserved areas and 
balance the distribution of health professionals among rural and urban 
areas. Based on SIU's success in making health care more accessible in 
rural and underserved areas, I look forward to addressing the 
recruitment and retention of health professionals in all fields and 
locations in the 108th Congress.
    With 41.2 million Americans lacking health insurance, a serious 
effort is also necessary to reform the individual insurance market and 
ensure more viable health insurance options for consumers. The 
situation is especially critical in rural and underserved areas. 
Association Health Plans (AHPs) can help address this issue by 
injecting new competition into the market and providing all areas with 
greater options in terms of insurance. AHPs will allow workers in small 
businesses and the self-employed to join together to obtain the same 
purchasing clout and cost savings that employees of large corporations 
and labor unions currently enjoy. Studies estimates that as many as 8.5 
million of those currently uninsured would gain access to private 
sector health insurance through AHPs.
    Finally, I would like to commend the Administrations efforts to 
increase funding for Community Health Centers by $169 million. This 
will enable the program to expand services to additional 1.2 million 
people at approximately 120 new sites. I have had the opportunity to 
observe the benefits of this important program up close; the center 
operating in Springfield, Illinois has made vital health services 
available to the community.
    It is absolutely crucial to improve health care access and services 
to all Americans especially those living in rural and medically 
underserved areas. I hope this hearing will enlighten us all on how to 
do just that.
                                 ______
                                 
 Prepared Statement of Hon. C.L. ``Butch'' Otter, a Representative in 
                    Congress from the State of Idaho
    I would like to thank the chairman for holding this hearing today 
and I appreciate his leadership on this issue. I am also pleased by the 
efforts of Secretary Thompson and the administration in their 
persistence on the Medicare and Medicaid reform issues.
    The notion that it is always cheaper to provide healthcare in rural 
areas is now outdated and inaccurate. Rural areas face unique 
challenges in delivering quality affordable healthcare. Great 
geographic distances, low populations, and limited services create 
increased obstacles and added expenses in providing care. Despite these 
challenges, disparities in wage factors and geographic adjustments in 
Medicare reimbursement formulas continue to put rural Medicare 
providers at a considerable financial disadvantage. While I am 
encouraged efforts were made in this year's omnibus appropriations bill 
to provide a temporary fix to some of these problems, a long-term 
solution has yet to be reached.
    In Idaho, the number of medical providers accepting Medicare 
patients is dwindling. In addition to low reimbursement rates, there 
are a number of factors that have contributed to this problem including 
an increase in required documentation, intrusive fraud and abuse 
investigations, and high medical liability claims. Any reformation of 
the Medicare program must be provider responsive in addition to 
providing seniors with updated insurance benefits.
    Many rural states, including Idaho, are cutting optional Medicaid 
programs as a way to deal with their declining budgets. According to 
the Government Accounting Office (GAO), Medicaid spending accounts for 
about 15 to 20 percent of all state spending, second only to Education 
spending. The aged and disabled account for approximately 27 percent of 
all Medicaid enrollees, yet make up 66 percent of all Medicaid 
expenditures. Long-term care and prescription drugs for this 
demographic accounts for much of the disparity. Medicaid is now the 
single largest funding source for long-term care. The Federal 
government must create incentives for individuals to purchase long-term 
care insurance, and for families to play an active role in providing, 
or funding, long-term care.
    States are also spending a large portion of their Federal Medical 
Assistance Percentage (FMAP) for Medicaid on prescription drugs. 
Shifting the burden of prescription drugs for low-income seniors from 
Medicaid to Medicare will mean significant savings for states. The 
Medicare Modernization and Prescription Drug Act, as passed last year 
by the House, would have saved states in the order of $44 billion over 
the next 10 years. It is imperative we work toward creating a 
responsible Medicare prescription drug benefit for seniors.
    Responsible and meaningful reforms to the Medicare and Medicaid 
programs are achievable. However, the baby boom generation continues to 
age and comprehensive reform to these programs still looms as a 
necessary step in updating our health system to meet the needs of 
modern society.
                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Mr. Chairman, I am pleased to cosponsor and support the Patient 
Safety and Quality Improvement Act. I commend you, Chairman Bilirakis, 
and Rep. Brown for your work on this bill. We reported a similar bill 
in the last Congress.
    According to a December 2003 survey by the Harvard School of Public 
Health and the Kaiser Family Foundation, 42 percent of the public says 
that they or a family member have experienced a medical error. Some 
government agencies and private-sector organizations have been pioneers 
in their efforts to improve patient safety. Now is the time for 
Congress to produce a coordinated initiative. This bill takes an 
important first step by creating a voluntary reporting system for the 
purpose of analyzing and learning from medical errors.
    Under this voluntary reporting system, health care providers could 
freely discuss medical errors with Patient Safety Organizations, 
determine what went wrong, and identify what changes need to be made to 
prevent future mistakes. The bill balances providers' need for 
confidentiality with the public's right to access information. All 
information that is available to patients today would continue to be 
available to them in the future.
    The bill would allow different Patient Safety Organizations to 
share knowledge with each other and the Agency for Health Research and 
Quality. In turn, the Secretary of Health and Human Services would use 
this information to identify which strategies for reducing medical 
errors should be used in federally funded health programs.
    Our underlying goal is to improve care for patients, and we intend 
for this bill to encourage the health care sector to make improvements 
the public can see. Again, I commend my colleagues for their 
cooperation on this bipartisan bill.
                                 ______
                                 
   Prepared Statement of Hon. Edward J. Markey, a Representative in 
                Congress from the State of Massachusetts
    Good Morning. I'd like to thank Chairman Tauzin for calling this 
important hearing.
    Mr. Secretary, I think that the President's budget does a pretty 
good job of laying out this Administration's priorities with respect to 
health care. Unfortunately, the message that the Administration's 
budget sends is, ``Sorry Grandma and Grandpa, but our tax cuts trump 
your Medicare and Medicaid.''
    The Bush tax-cuts are not only undermining health care now, but are 
leading us into a health care crisis--particularly for the many seniors 
who are in need of long-term care or struggling to afford rising 
prescription drug costs, and the Bush Administration has been doing 
little to help them.
    The Bush Administration is now proposing to further privatize 
Medicaid and Medicare. But Medicare+Choice was a failed experiment that 
does not warrant repeating but should be shown the door. The private 
sector profits by taking care of the healthy and the wealthy. But 
insurance companies often lose money serving the poorest and the 
sickest. That is why we have Medicare and Medicaid--to ensure a health 
care safety net for populations which may prove too ``costly'' for the 
private sector to cover. Medicaid pays for 1 out of every 3 births in 
our country and 65% of all nursing home patients and is a vital program 
to this society and deserves to receive adequate funding.
    Medicare+Choice failed in Massachusetts and around the country 
because proposed cost savings have never been delivered, while the 
increasing costs of health care have lead to huge premiums which have 
made Medicare+Choice unaffordable to many. In my home state, these 
plans could not build adequate physician networks and limited service 
to those areas of the state considered to be the most profitable. In my 
District, Cities like Everett, Revere, and Winthop lost coverage as 
Medicare+Choice withdrew. It's time to recognize that this was a failed 
experiment.
    Instead of learning from the mistakes of the past, the Bush 
Administration is now proposing to repeat them on a much larger scale. 
The Bush Administration is trying to extort seniors into these 
privatized plans by adding an inadequate drug benefit. In addition, the 
Bush Administration is proposing new ``flexibility'' in how Medicaid 
services are delivered. Sounds good, but what does it mean? What it 
means is states may be given greater latitude to cut non-mandatory 
services, increase cost-sharing, or reduce eligibility to balance their 
State's budget. Under the Administration's proposal, if States want to 
receive slightly more money they can receive a block grant. However, 
the amount of funding provided for these block grants is inadequate, 
since it fails to account for likely increases in the patient 
population or increased health care needs. In addition, in the eighth, 
ninth, and tenth years of this program, the states have to pay all of 
the block grants back. Where is that money going to come from? State 
budget cuts? State tax increases? The Bush Administration is 
essentially proposing an intergenerational ``punt'' that will force our 
children to pick up these costs just as the Baby Boomers enter 
retirement.
    How will our nursing homes fare under the Bush plan? Medicaid pays 
for half of all nursing home expenditures. Nursing homes in 
Massachusetts already receive inadequate Medicaid rates--rates that are 
$20/day below cost--and have lost money every year since 1994. How many 
private industries will invest in a business with that kind of track 
record? Not enough to cover our greatest generation and not enough to 
cover the baby boomers. It is the Federal and State's obligation to 
ensure that our nursing home thrive and provide the highest quality of 
care. This will only occur with increases in Medicaid spending. While I 
agree that alternatives to institutionalization, such as those proposed 
in New Freedom Initiatives, are important. But we cannot neglect the 
need for nursing home care and we should not allow this existing 
infrastructure to crumble. In our efforts to promote home health care 
we must provide allow enough money to provide for all the necessary 
services and these are all not covered in the President's budget. That 
money is being spend on tax cuts that disproportionately benefit the 
wealthy.
    The irony of the New Freedom Initiatives is that the Bush 
Administration supports the homebound definition in Medicare law that 
restricts the length and frequency of a home health beneficiary's 
absences from the home without changing the conditional requirements. 
The current ``homebound'' definition forces patients to choose crucial 
home health care over fundamental freedom. I have proposed legislation 
that is being held up because of disputes about the costs. Secretary 
Thompson, I have repeatedly asked HHS and CMS to invest this issue and 
I have not yet seen any data to support the claims of the extraordinary 
costs that the CBO has reported, which directly conflict with the GAO's 
report.
    I am also concerned that this Administration has started a 
vaccination program for smallpox which asks our health care workers to 
volunteer to serve their country by building up immunity to this deadly 
pathogen while there is not an adequate safety net in terms of 
compensation for those who will suffer adverse side-effects, which were 
not due to negligence but will occur normally with this vaccination.
    This year is a critical year for maintaining and building upon our 
national security but also national health care coverage, providing 
prescription drug coverage to all people, covering the uninsured, 
reimbursing our providers adequately, and providing universal 
fundamental freedoms for those who seek medical treatment and health 
care coverage, such as protecting their health information and easing 
up harsh restrictions for homebound patients. I look forward to 
exploring how best to achieve these goals with the Secretary today.
                                 ______
                                 
Prepared Statement of Hon. Ed Towns, a Representative in Congress from 
                         the State of New York
    Secretary Thompson, while I join my colleagues in expressing deep 
concerns about the Administration's reform proposals concerning 
Medicare, Medicaid and the S-CHIP program, I was pleased that the 
President's budget contains significant funding increases for substance 
abuse treatment. I believe that the President's initiative is a good 
start towards addressing the nation's critical lack of access to 
substance abuse treatment. As a former drug rehabilitation clinic 
administrator, I am convinced that we could exponentially increase the 
impact of the Recovery Now Initiative if the Administration would 
couple this proposal with a similar initiative on the private sector 
side.
    As you know, for the last three Congresses, legislation that would 
require private insurance plans to treat addiction like any other 
medical illness under a health plan has enjoyed strong bipartisan 
support. I believe that proposing the Recovery Now Initiative without 
addressing the issue of substance abuse parity in the private sector 
diminishes a valuable opportunity to make treatment in both the private 
and public sectors more widely available. By requiring private 
insurance companies or employers to provide the access to coverage for 
addiction treatment to their plan participants, we can better utilize 
public resources including the new funding in the President's Recovery 
Now Initiative. Mr. Secretary, I congratulate you and the President on 
this innovative substance abuse program and hope you will couple it 
with the inclusion of substance abuse parity. I yield back the balance 
of my time.
                                 ______
                                 
  Prepared Statement of Hon. Frank Pallone, Jr., a Representative in 
                 Congress from the State of New Jersey
    Thank you, Mr. Chairman, for holding this hearing on the Department 
of Health and Human Service's budget priorities for Fiscal Year 2004.
    President Bush's 2004 budget is proof that health care is not a 
priority of this Administration. Furthermore, the Administration has 
taken up the task of single-handedly dismantling nearly every safety 
net health care program in the United States. Unfortunately, without 
dramatic changes made by Congress during the budget and appropriations 
process, more Americans--children, adults and the elderly--will be 
uninsured and under-insured due to the President's Medicaid block grant 
proposal; and surely, seniors will go without a true Medicare 
prescription drug benefit and possibly their choice of doctors or 
hospitals due to the President's Medicare reform proposal.
    During this economic downturn, the President's budget is 
particularly cruel to the uninsured, poor and disabled that rely on 
Medicaid to help with health care costs. By block granting a large 
portion of the Medicaid program, the Bush administration simply passes 
the buck onto hard-pressed states. By shifting fiscal responsibility to 
states, the Bush proposal encourages states to limit their liability by 
capping enrollment, cutting benefits and increasing cost-sharing for 
millions of low-income people.
    Mr. Chairman, $3.25 billion in 2004 and $12.7 billion over seven 
years is grossly inadequate when providing health care to our nation's 
most vulnerable populations. In addition, any short-term relief that 
states receive upfront under the block grant will have to be paid back 
at the end of the 10 year budget window. This is simply unacceptable. 
This proposal would not only harm Medicaid recipients, but also 
aggravate fiscal problems plaguing most states, including New Jersey, 
which would be forced to pick up the slack. We need to strengthen, not 
undermine, the Medicaid program by supporting an increase in the 
Federal Medicaid contribution (FMAP) that would provide a direct 
infusion of money to states this year and ensure health insurance for 
millions of low-income Americans.
    I am also disappointed that the President rehashed his Medicare 
reform proposal and token prescription drug benefit program that does 
nothing to help millions of middle-income seniors who are now 
struggling to pay for their prescription drugs. In fact, it is 
painstakingly clear that the Bush administration wants to turn Medicare 
into a voucher program that will limit the government's responsibility 
while shifting costs to seniors. This ``modernization''' proposal 
simply hands $400 billion to private plans--which is sure to end the 
Medicare program that seniors have depended on for over 35 years.
    Furthermore, the Bush administration goes so far as to bribe 
seniors into managed care plans if they want to receive prescription 
drug coverage. Private plans throughout the nation have a terrible 
record of providing health services to seniors, and Mr. Chairman, the 
president should not be pressuring seniors to choose between badly 
needed drug coverage and the freedom to choose their own doctor and 
hospital under traditional Medicare.
    The budget proposal of $400 billion over 10 years for Medicare 
reform is grossly inadequate when CBO has estimated that over the next 
10 years, seniors will spend $1.8 trillion on drug costs. Seniors need 
a meaningful, real prescription drug benefit under Medicare--and 
seniors need to be able to choose their doctor and their hospital. We 
need to preserve the Medicare program and we need to ensure that our 
seniors have access to affordable and adequate health care.
    We all know one of the best ways to ensure access specifically to 
affordable prescription medication is to allow generic drugs to enter 
the market. Although the FY 2004 budget includes a $13 million increase 
for the FDA Office of Generic Drugs, the administration's claim that 
this additional funding will speed up the process for bringing generic 
drugs to the market is false. In order for generic drugs to be 
available to consumers on a timely basis, the administration needs to 
support legislation that ends abuses by the brand name industry that 
block entry of generics on the market. Until legislation, such as S. 
812 that passed in the Senate last year is signed into law, 
prescription drugs will remain unaffordable for seniors and the 
disabled.
    I would also like to note that there are several gaps within the 
budget regarding Native American health issues that need to be 
addressed.
    The President's budget proposes $3.2 billion in FY 2004 for IHS 
services. Of this amount, $150 million has already been appropriated 
for diabetes prevention and treatment, which leaves us with just over 
$3 billion. Of this amount, $560 million is ``health insurance 
collections''--that is, reimbursements from Medicare, Medicaid, and 
private insurers. A majority of these reimbursements, in turn are from 
Medicaid. Yet, many of the states in which the IHS operates are facing 
severe revenue shortfalls and are likely to cutback on Medicaid 
eligibility, benefits, and provider payments. As a result, IHS and 
tribal providers in these states are likely to receive fewer Medicaid 
reimbursements than last year. Yet, the IHS budget projects appear to 
assume an increase in such collections. It is likely that the 
administration's projections are incorrect and that expected Medicaid 
collections will fall short of projections. My fear is that IHS and 
tribal providers will be forced to ration care to their patients, which 
comprise a very vulnerable population.
    In addition, the American Indian population is projected to grow at 
about 1.5% per year for the next several years. At the same time, the 
consumer price index (CPI) for medical care is projected to rise at 
about 4% per year. In order to simply maintain the ability to provide 
services at current levels, the IHS and tribal providers will, at a 
minimum, need resources that increase at about 5.5% per year.
    Unfortunately, your budget for Indian Health services, excluding 
not facilities, between FY 2004 and FY 2008 projects increases of about 
2 percent per year (ranging from 1.7% to 2.4%), which represents only 
half of the necessary CPI. Over time, this really adds up. The 
difference between what you propose for IHS services in FY 2008--$2.875 
billion--and what it would cost to maintain current services--$3.284 
billion--is over $400 million in one year. This gap in funding is three 
times the amount of your allocation for the diabetes initiative alone.
    IHS is currently underfunded and requires an increase of more than 
5.5% per year. Instead, the administration is proposing to further 
underfund the IHS, and all traditional health programs.
    Moving onto another topic, I would like to express my 
disappointment with the FDA's irresponsibility in the area of dietary 
supplements. Congress intended with the Dietary Supplement Health and 
Education Act to make a clear difference between fake, misleading, 
deceptive claims and legitimate claims. Getting to the heart of the 
matter, the FDA has been ineffective and inefficient in protecting the 
public. The FDA's actions and omissions to act, contribute to the myth 
that the dietary supplement industry is unregulated, and this agency 
only adds fuel to the recent controversy regarding the use of dietary 
supplements.
    The FDA must stop doing a disservice to American consumers and must 
answer the industry's request for guidance by using its authority to 
regulate. If the FDA requires funding in order to carry out its 
responsibilities, then it is necessary for the FY 2004 budget to 
reflect adequate funding for the FDA to report and properly implement 
its Good Manufacturing Practices (GMP) regulations, which the industry 
has anxiously awaited for over 9 years.
    In addition, I think it would be useful to provide funding for the 
FDA's Office of the Ombudsman to appoint a dietary supplement 
Ombudsman. This person would be responsible for facilitating 
suggestions from the industry and would be very helpful in providing 
guidance on many of the questions the industry is faced with today.
    These topics barely scratch the surface of my concerns with the HHS 
portion of the FY 2004 budget. I look forward to the opportunity to 
discuss several additional topics with the Secretary during the 
question/answer period.
                                 ______
                                 
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress 
                       from the State of New York
    Mr. Secretary, let me first extend my appreciation for coming 
before us today to discuss the President's budget. It seems like 
yesterday when you were here discussing the previous budget and we have 
yet to implement most of the initiatives you talked about last year. 
But we may get our act together and get that done in the next couple of 
days.
    Mr. Secretary, I must say that there are some encouraging aspects 
of this budget blueprint but it is virtually impossible to praise any 
program while so much is in doubt for Medicare, Medicaid and other 
vital health programs that help so many people across the country. It 
is also difficult to determine the President's priorities.
    The budget calls for a $169 million increase for Community Health 
Centers, like the Mount Vernon Neighborhood Health Center in my 
district, that will help many uninsured people get needed health care 
but the Medicaid and S-CHIP proposal appears to threaten the very 
existence of these critical programs by establishing a block grant with 
undefined benefits. It appears that the budget is like the kid in 
school who would pull the chair out from under his friend and then run 
over to help him up hoping to get praised for his kindness. There are 
other instances of this type of maneuvering. At a time when the 
Administration is pushing for malpractice reform it effectively cut 
funding to the Agency for Healthcare Research and Quality by $20 
million over the last three years. AHRQ is the agency responsible for 
implementing patient safety initiatives. So again, it is difficult to 
determine the President's priorities. Pushing for malpractice reform 
while undermining patient safety programs is simply short-sighted.
    This Committee appears to have the same short-sightedness. Last 
year we passed a good bill, the Patient Safety and Quality Improvement 
Act, and I was proud to be a cosponsor. But today we are scheduled to 
mark-up a bill that is stripped of important initiatives that would 
provide grants to hospitals to implement interoperability standards 
that promise to greatly reduce medical errors. I hope we can agree to 
improve upon this measure and pass a bill at least as strong as the 
bill we all supported just a few months ago.
    Mr. Secretary, I thank you for your time and I look forward to your 
testimony and the opportunity to discuss aspects of the President's 
budget further.
                                 ______
                                 
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Thank you, Mr. Chairman, for holding this full committee hearing on 
the Administration's FY 2004 health care budget. It is always a 
pleasure to have Secretary Thompson before the committee, and I am 
certain we will enjoy a spirited discussion about the Administration's 
FY 2004 budget for the Department of Health and Human Services (HHS).
    HHS is the home to many of the critical programs that our 
constituents rely on, including the Medicare and Medicaid Programs, the 
Children's Health Insurance Program (CHIP), the National Institutes of 
Health (NIH), the Health Resources and Services Administration, and 
many other critical programs. I can safely say that the HHS budget 
directly impacts more Americans than any other federal government 
agency.
    So it is with a heavy heart that I read the President's FY2004 
health care priorities. Unfortunately, the President's funding levels 
for almost every program under HHS are woefully inadequate.
    The Medicare program, which provides a critical health care safety 
net for almost 40 million seniors and individuals with disabilities, 
has been without a prescription drug benefit for far too long. 
Unfortunately, the President's budget includes only $400 billion for a 
prescription drug benefit, and this benefit is tied to requirements 
that seniors join private plans. This program builds on the 
Medicare+Choice program, and as we have learned with that program, it 
is unreliable and often leaves seniors without the coverage they need.
    I am also disappointed in the President's Medicaid and CHIP 
budgets, which do not provide nearly enough assistance to the states. 
My home state of Texas is facing a $12 billion shortfall, and is in 
dire need of assistance for its Medicaid program. Instead of providing 
meaningful relief for the states through an increase in the Federal 
Medicaid Assistance Percentage (FMAP), the President put forth a vague 
and troubling measure that provides minimal short term assistance to 
the states, but puts them in the position of having to reduce services 
for current beneficiaries. This proposal would limit benefits for so-
called ``optional'' recipients. But it fails to acknowledge that those 
beneficiaries are some of the most vulnerable within the Medicaid 
population--the elderly, children, and the disabled.
    Furthermore, the Medicaid proposal fails to provide additional 
funds for what is sure to be an increase in enrollment. As the economy 
continues to falter, more and more Americans will be forced onto the 
Medicaid rolls. States need assistance for this crisis, and they need 
it now.
    The President's CHIP program also fails to provide states with the 
assistance they need. States with unspent CHIP funds from FY98 to 
FY00--like Texas--had to return those funds to the U.S. Treasury. This 
has cost my home state $285 million. But instead of extending the 
availability of those funds to the states, the President is proposing 
only to allow states to keep only those funds that are set to revert to 
the Treasury at the end of FY 2003. The failure to reinstate those 
funds will put 790,000 children at risk of losing their CHIP coverage. 
Again, they need assistance and they need it now.
    There are many other areas of troubling cuts and insufficient 
increases, including the budget for the NIH, which enjoyed 15 percent 
increases for the past five years, in keeping with the Congressional 
promise to double that budget. This year, they are given a paltry 2 
percent increase--barely enough to keep up with inflation. The 
Community Access Program, which won Congressional authorization last 
year with almost unanimous support, has been zeroed out. The CDC's 
Chronic Disease budget is also woefully inadequate.
    Mr. Chairman, the reality is that health care costs money, and that 
we have an obligation to spend our taxpayer's health care dollars 
wisely. These proposals are penny-wise and pound foolish, and will 
ultimately wind up costing us all in the long run.

    Chairman Tauzin. The Chair is now pleased to welcome our 
guest, The Honorable Tommy Thompson, the Secretary of the U.S. 
Department of Health and Human Services.
    Mr. Secretary, at a moment in time when Americans, 
particularly those who live in this great city, are out at 
shopping malls buying necessary safety material for their homes 
and families because of the dire warnings of potential attacks 
upon this community, your presence is particularly important.
    We welcome you and appreciate your comments not only about 
the agenda of your Department but of your own perspectives on 
the conditions facing this community at this moment. Mr. 
Secretary, we are pleased to welcome you.
    And the Chair, by unanimous consent, will ask that the 
Secretary be given 10 minutes for his opening statements. 
Without objection, so ordered.
    Mr. Thompson?

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

    Secretary Thompson. Mr. Chairman, Mr. Dingell, Mr. Waxman, 
Mr. Bilirakis, and all members of this wonderful committee, 
thank you so very much for giving me this opportunity to answer 
your questions as well as to testify this morning.
    Mr. Chairman, I want to thank you personally for your 
continued leadership and friendship on so many issues that are 
vitally important to the American people. I have enjoyed our 
many meetings, and I know that all members of this committee 
want all Americans to be as healthy as they absolutely possibly 
can be. It is my passion. It is my motive for being here.
    It is good to be with this committee again, and to have 
this opportunity to discuss the President's fiscal year 2004 
budget for the Department of Health and Human Services. In my 
first 2 years at the Department, we have made tremendous 
progress in our efforts to improve the health, the safety, and 
the well being of the American people. We continue to make 
extraordinary advances, providing health care to lower income 
Americans, through waiver and State plan amendments granted to 
State governments for their SCHIP and Medicaid programs.
    We have expanded access to health coverage through the 
waiver process to 2.2 million Americans, and we have expanded 
the range of benefits offered to 6.7 more million Americans 
through SCHIP and Medicaid through the waiver process in the 
last 2 years. And we have also brought up to date all of the 
waivers that were very much in delay when I came on as 
Secretary of this Department.
    Last week I gave a waiver out for $1.8 billion to the State 
of California and the county of Los Angeles. Some of you were 
there, and even some of that money went to Stanford. Our 
progress is substantial, but it is far from being finished. So 
this year our work continues, as we propose new and innovative 
programs to promote the health and the well being of our fellow 
citizens.
    The President's budget proposal contains $539 billion for 
HHS--an increase of $37 billion, or a 7.3 percent increase, 
which will enable the Department to continue to work to help 
improve the health and the safety of our Nation.
    This proposal will fund programs to increase the Nation's 
readiness, to respond to potential bioterrorist attacks, 
bolster disease prevention efforts, cast a wider safety net to 
meet the critical health needs of the uninsured, and strengthen 
and improve Medicare and Medicaid.
    Mr. Chairman, in light of recent events, I would first like 
to mention our efforts in the budget to fight bioterrorism. Our 
$3.6 billion bioterrorism budget would enhance the steps that 
we have taken since September 11, 2001.
    And I would invite every member of this committee to stop 
over to the Department and see our new communication room. It 
is absolutely state-of-the-art.
    If the request is approved, by the end of the next year we 
will have spent $9.2 billion to research, to prevent, and to 
prepare for a potential bioterrorist attack. This budget 
repeats last year's $1.45 billion investment in State, local, 
and hospital preparedness.
    Since September 11, we have worked very closely with States 
of comprehensive public health preparedness and their response 
plans for chemical, biological, radiological, and nuclear 
attacks. And I am proud to say that as a Nation we are much 
better prepared for an attack of non-conventional weapons than 
ever before.
    Am I satisfied? No. Are we making progress? Yes. And I 
would invite you once again to stop over and see how much 
progress we have made. I think it would allay a lot of the 
fears that you members might have.
    In its address on the State of the Union, President Bush 
announced a brand-new initiative that was developed in the 
Department. It is called Project Bioshield, which will help 
prepare the country for bioterrorist attack by procuring 
effective countermeasures. We would spend roughly $6 billion--
$6 billion over 10 years to speed up research and approval of 
vaccines and treatments and ensure a guaranteed funding source 
for their purchase once that research and completion has been 
done.
    Project Bioshield would leverage the government's 
intelligence, the law enforcement, and the public health assets 
to enhance our preparedness. So while we are proud of the 
progress we have made over the past year, we are absolutely 
committed to become even better prepared against a larger 
number of potential threats in the next few years.
    There has been much discussion and speculation in the media 
in recent weeks about the administration's plans to provide a 
drug benefit to Medicare beneficiaries. The administration's 
proposal to strengthen and improve Medicare is still being 
developed, and further details will become available in the 
next few weeks, and I will be more than happy to come back and 
explain them once all of the decisions have been decided.
    But I can assure all the members on this side of the 
committee room that there is not going to be a force of seniors 
to go into HMOs in order to get drug coverage. But I can assure 
you that we are absolutely dedicated, passionate about, adding 
a prescription drug benefit to Medicare and enacting meaningful 
changes to strengthen, revitalize, and improve the program.
    We have dedicated $400 billion over the next decade to 
achieve this ambitious goal, and we look forward to working 
very closely with this committee to develop and pass a 
responsible and effective Medicare bill this year.
    Passing Medicare legislation is going to be a huge task as 
we all know, but it is necessary and this is the year, ladies 
and gentlemen, to do it. I pledge my support, and I pledge my 
cooperation to working with every member on this committee to 
accomplish that end result.
    But there is other things that are just as urgent. In fact, 
Medicaid, which has been mentioned many times. Medicaid is 
growing even more rapidly than Medicare. The Federal portion is 
$285 billion, and the program grows at about 9 to 10 percent a 
year.
    Like Medicare, Medicaid is absolutely vital to making sure 
that all Americans have access to health care. But State 
Medicaid programs are under tremendous financial pressure as 
all of us know, and beneficiaries risk losing coverage. Two-
thirds of the States today have already made reductions or have 
reductions pending.
    Under current law, the existing law, States are eliminating 
coverage of optional populations and dropping optional 
benefits. In the past year, 38 States have reduced services or 
eligibility, and most States are currently considering other 
benefit or eligibility cutbacks.
    We want to give States another option. It is our 
responsibility to work together so that States get the help 
that they need in managing their health care budgets while 
preventing further service and benefit cuts and expanding 
coverage for low-income Americans.
    Simply pouring more money into an outdated system will not 
bring that system up to date or repair its structural flaws. 
Failure to act will put the health insurance of thousands of 
Americans at risk, because States can no longer afford to 
maintain their current programs.
    The President has also proposed a plan to preserve coverage 
and make Medicaid more efficient and provide better health care 
delivery. If Congress adopts this plan, States will be able to 
build on the successes of the wonderful State Children's Health 
Insurance Program, SCHIP.
    And let me be very clear about two things. First, State 
participation in the new program would be optional. And, 
second, mandatory populations will continue to receive all of 
the mandatory benefits and all of the guarantees. And, third, 
this is not--this is not a block grant.
    The Medicaid entitlement will be unchanged. States will 
have more flexibility in covering optional populations, which 
account for a large part of Medicaid spending. They will gain 
the ability to target special need populations, such as those 
suffering from mental illness and AIDS, and those who prefer 
home- and community-based care.
    Somebody asked me if I am working with any Governors. I 
have addressed the NGA Executive Committee on a bipartisan 
basis. I have contacted no less than 30 Governors so far, and I 
will be meeting with the Governors on a bipartisan basis when 
they come to Washington in the next 2 weeks to meet at the NGA. 
And I have asked several Democrat Governors to set up a 
meeting, so I could go in and explain and work with them to 
develop a program.
    We must begin by addressing the immediate fiscal needs of 
the States. President Bush's plan would meet the 9 percent base 
growth in the program, and then forward funding by $3.25 
billion for 2004 and $12.7 billion over 7 years. And to be able 
to extrapolate that into what that would mean on the Federal 
match, it would be an increase of 2 percent. And a reduction of 
the cost for the States to go into the program would be another 
percent on the Federal match.
    If we do not improve Medicaid, a million Americans could 
lose coverage this year and millions more next year. I look 
very much forward to working with you, Mr. Chairman, to make 
sure that they keep it.
    Another issue of keen personal interest to me is the 
drastic toll that chronic diseases take on our society. 
Consider the following facts. A hundred million Americans are 
currently living with chronic diseases in America. Seven of 
every 10 deaths, more than 1.7 million every year, are caused 
by chronic diseases.
    Our health care system waits for people to get sick and 
then spends billions of dollars to make them well. I want to do 
things differently, and I am sure you do as well. That is why 
our budget proposes a coordinated Department-wide effort to 
promote a healthier lifestyle by emphasizing the prevention of 
obesity, which costs $117 billion a year; diabetes, which costs 
$100 billion a year; asthma, and other risky youth behaviors. 
The HHS budget also includes an investment of $125 million for 
targeted disease prevention.
    We continue, ladies and gentlemen, to implement our 
commitment to increase access to health care for Americans who 
have no health insurance. We are committed to providing new and 
expanded health centers in 1,200 communities, doubling the 
number of people served.
    The fiscal year 2000 core budget expands the number of 
health centers by 120 to 3,698 centers, expand services in 110 
existing sites, and would serve an additional 1.2 million 
people. And I thank the committee on a bipartisan basis for 
their support of this wonderful initiative.
    Last year, we completed a 5-year doubling of a budget of 
the National Institutes of Health. This year we continue that 
commitment with a budget of $27.9 billion. It is a net increase 
of $549 million over last year. But because of the one-time 
projects that were funded in 2003, and not needed to be 
refinanced because we have built them and finished it, actual 
NIH research investment will rise by $1.9 billion, or a 7.5 
percent increase.
    The Bush Administration is also dedicated to combatting the 
spread of HIV and AIDS across the globe. The HHS budget 
contains $294 million in global AIDS, as well as $150 million 
for mother-to-child transmission of AIDS to children--things 
that I happen to be personally passionate about, and that is 
the reason I took over the chairmanship of the global fund.
    I have got many more things to discuss, Mr. Chairman, but I 
realize that time is running short. Let me just suffice to say 
that it is an honor for me to be here. I am willing to answer 
your questions, willing to meet with any of you to discuss 
further issues as they come up, but this budget meets the needs 
of Americans at this point in time, and I thank you very much 
for giving me the opportunity to speak.
    [The prepared statement of Hon. Tommy G. Thompson follows:]
Prepared Statement of Hon. Tommy G. Thompson, Secretary, Department of 
                       Health and Human Services
    Good morning Mr. Chairman and members of the committee. I am 
honored to be here today to present to you the President's FY 2004 
budget for the Department of Health and Human Services (HHS). I am 
certain you will find our budget exhibits a balanced proposal to 
improve the health and safety of our Nation.
    The President's FY 2004 budget request continues to support the 
needs of the American people by increasing preparedness for terrorism, 
modernizing and strengthening Medicare, Medicaid, SCHIP; furthering the 
reach of the President's New Freedom Initiative; and, opening the doors 
of opportunity to all Americans.
    The $539 billion proposed by the President for HHS will enable the 
Department to continue its important work with our partners at the 
State and local levels and the newly created Department of Homeland 
Security to secure our commitment to protecting our Nation and ensuring 
the health of all Americans. Many of our programs at HHS provide 
necessary services that contribute to the war on terrorism and provide 
us with a more secure future. I am particularly focused on: 
preparedness at the local level, ensuring the safety of food products, 
and research and development of vaccines and other therapies to counter 
potential bioterrorist attacks.
    Our proposal includes a $37 billion increase over the FY 2003 
budget, or about 7.3 percent. The discretionary portion of the HHS 
budget totals $65 billion in budget authority, which is an increase of 
$1.6 billion, or about 2.6 percent. HHS' mandatory outlays total $475.9 
billion in this budget proposal, an increase of $32.3 billion, or 
roughly 6.8 percent.
    Your committee will obviously be vital to achieving many of the 
Administration's most important priorities. I am grateful for the close 
partnership we have enjoyed in the past, and I look forward to working 
with you on an aggressive legislative agenda to advance the health and 
well being of millions of Americans. Today, I would like to highlight 
for you the key issues in the President's budget that fall under the 
Energy and Commerce Committee's jurisdiction.
        supporting the president's disease prevention initiative
    One of the most important issues on which we can work together is 
disease prevention. We all have heard the disturbing news about the 
prevalence of diabetes, obesity and asthma that could be prevented 
through very simple lifestyle changes. The statistics, I am sure, are 
as alarming to you as they are to me. The incidence of diabetes and 
obesity among Americans is up sharply in the past decade, putting 
millions more Americans at higher risk for heart disease, stroke and 
other related medical conditions.
    Diabetes alone costs the nation nearly $100 billion each year in 
direct medical costs as well as indirect economic costs, including 
disability, missed work and premature death. Medical studies have shown 
that modest lifestyle changes--such as getting more exercise and losing 
weight--can reduce an individual's risks for developing these serious 
health conditions.
    For this reason the HHS budget, consistent with the President's 
Healthier US effort, proposes a coordinated, Department-wide effort to 
promote a healthier lifestyle emphasizing prevention of obesity, 
diabetes, and asthma. The FY2004 budget includes a new investment of 
$100 million for targeted disease prevention.
                  strengthening and improving medicare
    Through the leadership of Chairmen Tauzin and Bilirakis, the Energy 
and Commerce Committee has been at the forefront of efforts to 
strengthen and improve the Medicare program. As we are all aware, we 
need to fill the gaps in current Medicare coverage. This committee has 
dedicated countless hours to increasing public understanding of the 
challenges confronting the program, and your efforts have significantly 
advanced the debate over program modernization. While we remain 
steadfastly committed to ensuring that America's seniors and 
individuals with disabilities can keep their current, traditional 
Medicare, the President has proposed numerous principles for Medicare 
enhancements to ensure that we are providing beneficiaries with the 
best possible care. The budget builds on those principles by dedicating 
$400 billion over ten years to strengthen and improve Medicare, 
including providing access to subsidized prescription drug coverage, 
better private options and better insurance protection through a 
modernized fee-for-service program.
Prescription Drug Coverage
    Ensuring that Medicare beneficiaries have access to needed 
prescription drugs is a top priority for the President and me. This 
budget proposes a prescription drug benefit that would be available to 
all beneficiaries, protect them against high drug expenditures, and 
would provide additional assistance to low-income beneficiaries through 
generous subsidies to ensure ready access to needed drugs. The 
Administration's prescription drug plan would offer beneficiaries a 
choice of plans and would support the continuation of the coverage that 
many beneficiaries currently receive through employer-sponsored and 
other private health insurance.
Medicare Choices
    Medicare+Choice was introduced to provide beneficiaries with 
options in their health coverage. Over the past year, the Department 
has made significant strides in expanding beneficiaries' 
Medicare+Choice options by approving 33 new preferred provider 
organization through a demonstration. However, due to a variety of 
factors, in many parts of the country, few new plans have entered the 
program. More needs to be done to encourage plan participation in this 
important program. This Administration believes that Medicare+Choice 
payments need to be linked to the actual cost of providing care. 
America's seniors should have access to the same kind of reliable 
health care options as other citizens. We believe that we should move 
away from administered pricing to set Medicare+Choice rates and that 
those choices should be provided through a market-based system in which 
private plans compete to provide coverage for beneficiaries. Those 
beneficiaries who select less costly options should be able to keep 
most of the savings. It is time we give our seniors the choice they 
have been promised in Medicare.
Modernized Fee-for-Service
    One of the basic tenets of our reform proposal is that seniors 
deserve the same range of health care delivery choices as federal 
employees enjoy. These choices should reflect the benefit innovations 
incorporated into private sector plans. The Administration is very 
interested in updating Medicare to reflect the insurance protections 
offered in the private sector. This system should modify and 
rationalize cost-sharing for beneficiaries who need acute care. A 
modernized Medicare should eliminate cost sharing for preventive 
benefits and provide catastrophic coverage to protect beneficiaries 
against the high costs caused by serious illnesses.
                  strengthening and improving medicaid
State Health Care Partnership Allotments
    Chairman Tauzin, as you know, states are confronting serious 
challenges in running their Medicaid programs. It is crucial that we do 
something now to stabilize Medicaid programs so we do not allow 
millions of Americans to go without health care. Under current law, 
states have every right to eliminate coverage of optional populations 
and to drop optional benefits. They are doing so. In the past year, 38 
states have reduced services or eligibility and most states are 
currently considering other benefit or eligibility cutbacks. We want to 
give states another option. It is our responsibility to work together 
so that States can get the help they need in managing their health care 
budgets, while preventing further service and benefit cuts and 
expanding coverage for low income Americans.
    Building on the success of the State Children's Health Insurance 
Program (SCHIP) and the Health Insurance Flexibility and Accountability 
(HIFA) demonstrations in increasing coverage while providing 
flexibility and reducing the administrative burden on States, the 
Administration proposes optional State Health Care Partnership 
Allotments to help States preserve coverage. Under this proposal, 
States would have the option of electing to continue the current 
Medicaid program or to choose partnership allotments. The allotment 
option provides States an estimated $12.7 billion in extra funding over 
seven (7) years over the expected growth rate in the current Medicaid 
and SCHIP budgets. If a State elects the allotments, the federal 
portion of the SCHIP and Medicaid funding would be combined and states 
would receive two individual allotments: one for long-term care and one 
for acute care. States would be required to maintain their current 
levels of spending on Medicaid and SCHIP, but at a lower rate of 
increase than current law.
    States electing a partnership allotment would have to continue 
providing current mandatory services for mandatory populations. For 
optional populations and optional services, the increased flexibility 
of these allotments will allow each State to innovatively tailor its 
provision of health benefit packages for its low-income residents. For 
example, States could provide premium assistance to help families buy 
employer-based insurance. States could create innovative service 
delivery models for special needs populations including persons with 
HIV/AIDS, the mentally ill, and persons with chronic conditions without 
having to apply for a waiver. Another important part of the new plan 
would permit States to encourage the use of home and community based 
care without needing a waiver, thereby preventing or delaying 
inappropriate institutional care. Let me stress that this is an OPTION 
we are proposing for States.
New Freedom Initiative
    Home and community-based care as an alternative to nursing homes 
for the elderly and disabled is a priority of this Administration. The 
New Freedom initiative represents part of the Administration's effort 
to make it easier for Americans with disabilities to be more fully 
integrated into their communities. Under this initiative, we are 
committed to promoting the use of at-home and community-based care as 
an alternative to nursing homes.
    It has been shown time and again that home care combines cost 
effective benefits with increased independence and quality of life for 
recipients. Because of this, we have proposed that the FY 2004 budget 
support a five-year demonstration called ``Money Follows the 
Individual'' Rebalancing Demonstration, in which the Federal Government 
will fully reimburse States for one year of Medicaid home and community 
``based services for individuals who move from institutions into home 
and community-based care. After this initial year, States will be 
responsible for matching payments at their usual Medicaid matching 
rate. The Administration will invest $350 million in FY 2004, and $1.75 
billion over 5 years on this important initiative to help seniors and 
disabled Americans live in the setting that best supports their needs.
    The Administration again proposes four demonstration projects as 
part of the President's New Freedom Initiative. Each promotes home and 
community-based care as an alternative to institutionalization. Two of 
the demonstrations are to provide respite services to caregivers of 
disabled adults and severely disabled children. The third demonstration 
will offer home and community-based services for children currently 
residing in psychiatric facilities. The fourth demonstration will test 
methods to address shortages of community direct care workers.
Medicaid Coverage for Spouses of Disabled Individuals
    The Budget proposes to give States the option to extend Medicaid 
coverage for spouses of disabled individuals who return to work and are 
themselves eligible for supplemental security benefits. Under current 
law, individuals with disabilities might be discouraged from returning 
to work because the income they earn could jeopardize their spouse's 
Medicaid eligibility. This proposal would extend to the spouse the same 
Medicaid coverage protection this Committee was instrumental in 
offering to the disabled worker.
Extension of the QI-1 Program
    Under current law, Medicaid programs pay Medicare Part B Premiums 
for qualifying individuals (QI-1s), who are defined as Medicare 
beneficiaries with incomes of 120% to 135% of poverty and minimal 
assets. This program was set to expire on December 31, 2002 but it is 
being extended under a series of continuing resolutions. The Budget 
would continue this premium assistance for five years.
Transitional Medicaid Assistance (TMA)
    TMA provides health coverage for former welfare recipients after 
they enter the workforce. TMA allows families to remain eligible for 
Medicaid for up to 12 months after they lose welfare related Medicaid 
eligibility due to earnings from work, and was scheduled to sunset in 
September 2002. It has been extended through a series of continuing 
resolutions. This budget proposal would extend TMA for five more years, 
costing $400 million in FY2004, and $2.4 billion over five years. This 
program is an important factor in establishing independence for former 
welfare recipients by providing health care they could not otherwise 
afford.
    We are also proposing modifications to TMA provisions to simplify 
it and make it work better with private insurance. These provisions 
include:

 States will be given options to offer 12 months of continuous 
        care to eligible participants.
 States may waive income-reporting requirements for 
        beneficiaries.
 States that have Medicaid eligibility for children and 
        families with incomes up to 185 percent of poverty may waive 
        their TMA program requirements.
 States have the option of offering TMA recipients ``Health 
        Coupons'' to purchase private health insurance instead of 
        offering traditional Medicaid benefits.
State Children's Health Insurance Program (SCHIP)
    As you know, SCHIP was set up with a funding mechanism that 
required States to spend their allotments within a three-year window 
after which any unused funds would be redistributed among States that 
had spent all of their allotted funds. These redistributed funds would 
be available for one additional year, after which any unused funds 
would be returned to the Treasury. An estimated $830 million in FY 2000 
funds are expected to go back to the Treasury at the end of FY2003. The 
Administration proposes that States be permitted to spend redistributed 
FY2000 funds through the end of FY2004. Extending the availability of 
SCHIP allotments would allow states to continue coverage for children 
who are currently enrolled and continue expanding coverage through HIFA 
waivers.
Medicaid Drug Rebate
    Over the past year it has become evident that the best price 
component of the rebate can be confusing, as it is not always clear 
which prices a manufacturer must include when calculating and reporting 
to CMS its best price. In addition, best price may serve to limit the 
discounts that private sector purchasers are able to negotiate with 
pharmaceutical manufacturers. The Administration is interested working 
with this Committee and the Senate Finance Committee to explore policy 
options in this area that would improve the Medicaid drug pricing and 
reimbursement system and generate program savings. The current 
methodology sets rebates equal to the difference between a drug's 
average manufacturer's price (AMP) and the manufacturer's best price 
for that medication.
                         fighting bioterrorism
    As Americans confront the realities of terrorism and hatred around 
us, it is imperative that the Federal Government be prepared to keep 
our citizens safe and healthy. HHS's $3.6 billion bioterrorism budget 
proposal substantially expands ongoing medical research, maintains 
State and local preparedness funding, and includes targeted investments 
to protect our food supply. The President's proposal significantly 
expands NIH research funding needed to develop vaccines and medicines 
that will make biologic agents much less effective as weapons. HHS will 
continue to manage the Strategic National Stockpile, funded by DHS, and 
also provide the scientific and public health direction needed to 
ensure that the pharmaceutical stockpiles include proper amounts of 
effective drugs , vaccines, other biologics, certain emergency medical 
equipment, and associated material.
    HHS and the Department of Homeland Security will spearhead the 
development of Project Bioshield. This project, which the President 
just announced, will bring together the resources of the United States 
government in an innovative effort to develop defenses against 
bioterror before they are ever needed. Project Bioshield will have 
three (3) major goals:

 Ensure sufficient resources are available to procure the next-
        generation countermeasures. A guaranteed funding source must be 
        available to enable the government to purchase vaccines and 
        other therapies as soon as experts believe they can be made 
        safe and effective, and spur the industry investment needed to 
        produce them.
 Speed up NIH research and advanced development, providing more 
        flexible contracting and procurement authorities for critical 
        biodefense work.
 Make promising treatments available more quickly for use in 
        emergencies by establishing a new FDA Emergency Use 
        Authorization for promising medical countermeasures that are 
        under development. This provides greater flexibility in 
        emergency situations than the current Investigational New Drug 
        (IND) authority.
    Funding for this work will be in the new Department of Homeland 
Security (DHS) which will make determinations about what 
countermeasures may be needed based on threat assessments. HHS will 
provide the scientific direction, and carry out the actual 
procurements.
                     improving the nation's health
    In an effort to improve the Nation's health, the budget includes 
initiatives to reduce drug-related medical costs and carry out the Best 
Pharmaceuticals for Children Act. The request for the Food and Drug 
Administration (FDA) includes $13 million to increase Americans' access 
to safe, effective, and less expensive generic drugs. The budget also 
includes an additional $30 million in NIH and FDA funding to expand 
Federal and private research to improve information for prescribing 
pharmaceuticals to children.
    The HHS budget includes a series of improvements in the financing 
of childhood vaccines to meet three goals--improve vaccine access, 
restore tetanus and diphtheria toxoid vaccines (Td, DT) to the Vaccine 
for Children (VFC) program, and build a national stockpile of childhood 
vaccine. To ensure against future shortages, HHS will use its current 
authority to begin building a vendor-managed, 6-month supply of all 
childhood vaccines by 2006. In addition, legislation will be proposed 
to improve access to VFC vaccines for children already entitled to 
them. The budget proposes to expand the number of access points for 
underinsured children--those whose private insurance does not cover the 
immunizations--by allowing them to receive their VFC vaccines at State 
and local public health clinics. The Administration also proposes to 
restore tetanus-diphtheria booster to the VFC program. The VFC caps 
prices for the few remaining vaccines that were in use prior to 1993, 
but the price caps are so low that tetanus-diphtheria booster was 
removed from the VFC program in 1998 when no vendor would bid on the 
contract.
    The budget also contains $100 million to begin working with 
industry to ensure the nation has an adequate and a timely supply of 
influenza vaccine in the event of a pandemic. We cannot stockpile 
influenza vaccine, and current manufacturing methods could not surge to 
meet the Nation's needs in a pandemic. Funds will be used for 
activities to ensure a year-round influenza vaccine production capacity 
and the development and implementation of rapidly expandable production 
technologies.
    In FY 2003, we are completing a 5-year doubling of the budget of 
the National Institutes of Health (NIH). This year, we continue that 
commitment with a budget of $27.9 billion, a net increase of $550 
million over last year. As a result of one-time projects being funded 
in fiscal year 2003, and not needing to be re-financed, actual NIH 
research will increase by $1.9 billion, or 7.5%, and will fund a record 
number of new and competing research grants.
    We are investing $50 million in a new program at AHRQ to increase 
investments in information technology in hospitals that will improve 
patient safety. Of this amount, $26 million will be used to focus on 
small and rural hospitals. Proven technologies like computerized 
physician order entry and automated medication dispensing systems 
improve the safety and quality of care.
    We must do everything within our abilities to address the 
disparities in health care in this Nation. The FY2004 budget proposes 
numerous activities to move away from such inequities.

 The budget continues the third year of the President's Health 
        Center Initiative with a total of $1.6 billion, an increase of 
        $169 million, to provide health care services to nearly 14 
        million individuals. In support of the Health Center 
        Initiative, the President is also seeking to expand the 
        National Health Service Corps to increase the number of health 
        care providers in rural and underserved areas. Additionally, 
        the Budget will increase efforts to recruit underrepresented 
        minorities for participation in the program and better serve 
        minority populations.
 The budget also proposes a $10 million increase for the breast 
        and cervical cancer program through the Centers for Disease 
        Control and Prevention, which supports screenings for low-
        income, underinsured, and uninsured women between the ages of 
        50-64.
 The Ryan White AIDS Drug Assistance Program will receive an 
        increase of $100 million or 16 percent to purchase medications 
        for an additional 9,000 persons living with HIV/AIDS, for a 
        total of nearly 100,000 clients during the fiscal year.
 Indian Health Services will receive an increase of $73 
        million, including $20 million to provide sanitation facilities 
        to over 22,000 American Indian Homes and $25 million to improve 
        health care not available through IHS or tribal providers.
                 faith based and community initiatives
    In support of the President's Faith-Based and Community Initiative, 
the HHS FY2004 budget supports programs that promote positive 
relationships that link faith- and community-based organizations, State 
and local governments, and Federal partners to develop a shared picture 
for substance abuse treatment and positive youth development.
    We are proposing to establish a new $200 million drug treatment 
program. For some individuals, recovery is best assured when it is 
achieved in a program that recognizes the power of spiritual resources 
in transforming lives. Under this new program, individuals with a drug 
or alcohol problem who lack the private resources for treatment will be 
given a voucher that they can redeem for drug treatment services. The 
program will give them the ability to choose among a range of effective 
treatment options, including faith-based and community-based treatment 
facilities. Another important program that helps some of our most 
vulnerable children is the Mentoring Children of Prisoners program. We 
are asking for funds to be increased to $50 million, which would in 
turn be made available to faith-based community-based, and public 
organizations for programs that provide supportive one-on-one 
relationships with caring adults to these children who are more likely 
to succumb to substance abuse, gang activity, early childbearing and 
delinquency. In addition, the budget request for the Compassionate 
Capital Fund is $100 million, the same amount requested in FY2003, and 
an increase of $70 million over the FY2002 appropriation. These funds 
would continue to be used to support the efforts of charitable 
organizations in expanding model social service programs. The Fund 
would also continue to provide technical assistance to faith- and 
community-based organizations to expand and enhance their services. 
These are just a few examples of the services that can be provided to 
those in need under this initiative.
                     president's management agenda
    I am committed to improving the management of the Department of 
Health and Human Services, and I realize that as we work to improve the 
health and well-being of every American citizen, we also need to 
improve ourselves. The FY2004 budget supports the President's 
Management Agenda and includes cost savings from consolidating 
administrative functions; organizational delayering to speed decision 
making processes; competitive sourcing; implementation of effective 
workforce planning and human capital management strategies; and 
adoption of other economies and efficiencies in administrative 
operations. We have also included savings in information technology 
(IT) which will be realized from ongoing IT consolidation efforts and 
spending reductions made possible through the streamlining or 
elimination of lower priority projects. I am also very excited about 
the IT infrastructure consolidation which should be fully implemented 
by October, 2003, that will further reduce infrastructure expenditures 
for several HHS agencies.
             improving the health and safety of our nation
    Mr. Chairman, the budget I bring before you today contains many 
different elements of a single proposal; what binds these fundamental 
elements together is the desire to improve the lives of the American 
people. All of our proposals, from building upon the successes of 
welfare reform to protecting the nation against bioterrorism; from 
increasing access to health care, to strengthening Medicare, all these 
proposals 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 Tauzin. The Chair thanks the gentleman. Indeed, 
the Chair recognizes himself for a round of questions, and 
members in order.
    Mr. Secretary, first of all, as you know, our committee 
shares jurisdiction with the Ways and Means Committee in 
producing the Medicare Modernization Act that we will jointly 
work on with your Department and the White House over the next 
several months.
    And you have again our commitment, as we gave it to you 
last Congress, to complete that work through the House in a 
timely fashion, so that we can this year get it through the 
Senate and hopefully get a prescription drug benefit bill 
signed into law that provides this essential service for our 
seniors and modernizes Medicare at the same time.
    But Medicaid is specifically and exclusively within the 
jurisdiction of the Energy and Commerce Committee. And so it is 
on our watch that we watch States cutting back on their 
programs because of dire shortages of funds and program 
expansions, in terms of costs that they can't keep up with.
    And reforming Medicaid has to be one of our main functions 
this year, and I challenge the committee, both Democrats and 
Republicans, to come together as soon as we possibly can, 
because this is our committee's exclusive responsibility.
    And I look forward to going over in more detail your 
recommendations, including those which, by the way, I think are 
borrowed, if I understand your recommendations correctly, from 
your own experience as Governor, where your State had to 
request waivers for increased flexibilities in your program, 
and where having been granted those waivers your State made 
some significant savings in its Medicare program and Medicaid 
program, and at the same time increased dramatically the reach 
of the program to serve the highest needs within your State.
    That is essentially what you want to do nationwide is to 
create more of that same flexibility over the next 10-year 
period. Is that correct?
    Secretary Thompson. That is absolutely correct. In fact, 
Mr. Chairman, quickly, I set up a program called Badger Care, 
which has been proclaimed as one of the finest initiatives to 
help low-income families get health insurance. I also started a 
program under a waiver program for the disabled community to be 
able to keep their medical coverage while they went to work 
before the Congress acted. And I also developed a program to 
keep individuals in their own homes without going to 
institutions.
    Chairman Tauzin. In fact, much of your recommendations, as 
I read them coming to us, are designed to create those new 
freedoms, where the money follows the individual out of an 
institution, back into the community, back into the homes. Is 
that correct?
    Secretary Thompson. That is the genesis of the program, and 
the real reason that the program is here is to give the States 
the flexibility to be innovative, to cover more people, and not 
cut them off.
    Chairman Tauzin. Mr. Secretary, I look forward again to 
engaging you on this critical issue, because, again, our 
committee must complete this work this year.
    At this moment, however, I think most Americans, 
particularly those around this community and other major cities 
of our country, are most concerned about the warnings that your 
Department and the Homeland Security Department and our 
intelligence agencies have recently given to Americans. And 
those warnings seem to center around the potential threat of 
either a chemical, biological, or perhaps a radiological attack 
upon communities such as this great community in Washington, 
DC.
    Families are being advised to buy certain stocks of water, 
tape, plastic, to seal their windows and doors, in order to 
survive for 3 days in the event of such an attack. Members are 
calling me to ask me what I know, what more do I know about 
what we might face, and what they ought to tell their families 
and their children.
    Can you elaborate at all on this threat, these advices, and 
what is prudent for families in this community and other cities 
who face this threat to be considering as we complete the Hajj, 
and we are in this period of potential conflict in Iraq?
    Secretary Thompson. Mr. Chairman, I would much rather go 
into executive session if you want to get into specific 
details. But let me just----
    Chairman Tauzin. Again, I am not asking you to do that. I 
am asking you just to help, in a general way, explain to 
American families what is happening right now, and why these 
warnings are as specific as they are, and what--why, indeed, 
are they being asked to purchase and acquire these specific 
items as we read about in the press.
    Secretary Thompson. First off, the question about 
purchasing those supplies should be directed to Homeland 
Security and Tom Ridge, but let me tell you from my perspective 
in regards to being responsible for biological, radiological, 
and nuclear preparations.
    We are very prepared to respond, but the truth of the 
matter is is that anybody that wants to commit suicide or 
submit or emit any kind of aerosolized biological toxins, it is 
very easy to do, and we have to be able to be able to quickly 
respond. And that is what we have set up at the Department of 
Health and Human Services.
    In fact, we have activated a couple of our medical 
assistant teams today, and we have put on alert a few more. The 
reason being is that it is ending up at the Hajj, and we have 
seen an increase of threats from the Middle East and across the 
world that are directed at Europe and at the United States.
    And so in order to be prepared, in order to quickly 
respond, you have to put people in place as well as equipment 
and medical supplies, which we have done, because if it is a 
biological, we have a little time to respond, but if it is 
chemical you have to get the anecdotes into the individual very 
quickly, within hours. And so we have got to put people on 
alert, just in case something might happen.
    But in regards to the overall threats, they have increased, 
and we are concerned about them. And that is why we are--that 
is why we level--or increased the level up to orange, as well 
as getting better prepared and more people on alert.
    Chairman Tauzin. And Americans should heed these warnings 
seriously.
    Secretary Thompson. They should heed the warnings. They 
should not disrupt their plans, but they should be very 
vigilant in their everyday life and business.
    Chairman Tauzin. Thank you.
    The Chair recognizes the gentleman Mr. Waxman for 8 
minutes.
    Mr. Waxman. Thank you, Mr. Chairman, and, Mr. Secretary, 
welcome to the committee. I want to ask you about Medicare and 
Medicaid, but just briefly I don't think that the small pox 
vaccination program is as effective as we would like it to be 
because of the lack of compensation for those who are being 
immunized.
    I intend to introduce a bill tomorrow with several of my 
colleagues here on the committee in an attempt to get a dialog 
going. I hope you will consider it and take it in the spirit in 
which it is offered, and I want to assure you we want to work 
with the administration.
    I assume you believe that if someone is risking their own 
health and the health of their family and patients by 
volunteering to be vaccinated, they deserve to be compensated 
in case they are injured by the vaccine.
    Secretary Thompson. Congressman, you are absolutely 
correct, and that is why we are working on a proposal. In fact, 
we should have one up to the Congress hopefully by the end of 
this week.
    Mr. Waxman. Very good. Well, we will look forward to 
working with you on that.
    Secretary Thompson. And I thank you for your support, and I 
thank you for your interest in this thing. And it is absolutely 
imperative that we get more people vaccinated for small pox in 
order to be better prepared. And I thank you for your interest 
in this subject.
    Mr. Waxman. Thank you. Mr. Secretary, I want to talk about 
Medicaid first.
    Secretary Thompson. Okay.
    Mr. Waxman. The administration's proposal is a very radical 
departure from Medicaid as we have known it, which has been a 
program which is an entitlement. And the administration is 
proposing to make this a block grant. You say it is not a block 
grant, but if there is a cap on the Federal funds, which means 
that they don't increase when there are more people who need 
services, or the costs of those services increase, if there are 
few requirements on how the program is run, and there are no 
enforceable rights, that is the earmark of a block grant.
    Now, I think we have a disagreement.
    Secretary Thompson. Congressman, but I----
    Mr. Waxman. No, I want to ask you specifically about that. 
I think we have a disagreement about this. I don't think this 
is a sound idea. I know the administration said that there are 
mandatory populations that are going to be protected, but there 
are a lot of populations under Medicaid that are not considered 
mandatory--people in nursing homes, disabled people who are 
trying to hold down a job, kids in families with incomes 
slightly above poverty, women whose breast cancer was found 
through public health screening programs. All of these people 
are somehow less deserving of protections because they are not 
in the mandatory groups. I think that is really offensive and 
certainly troubling.
    Now, the question is, what kind of flexibility are we going 
to give to the States? Because if we give the States a lot of 
flexibility, less money but more flexibility, then we are not 
going to have guarantees to rights of care. And if we are 
giving Federal dollars to the States to run their Medicaid 
programs, it seems to me we ought to have certain basic rules 
for every American, no matter what State they live in, to be 
assured of certain protections.
    So I would like to ask you, would nursing home standards 
for safety and appropriate care continue to apply in every 
State that is under Medicaid, whether they are in the block 
grant or not?
    Secretary Thompson. In order to answer that question, I 
have to correct a couple of things that you said, Congressman. 
And, first, and all due respect to you, I know how interested 
and passionate you are on this subject, as I am. First off, 
this is not a block grant. The money will continue to rise at a 
9-percent increase each and every year.
    No. 2, the mandatory population is not going to be capped, 
as you indicated. It is not. Third, State--the optional 
population is approximately one-third of the population in 
Medicaid. The two-thirds will continue to get the mandatory 
coverage as they currently exist, the same guarantees, and no 
changes.
    Mr. Waxman. Mr. Secretary, I am going to have to interrupt 
you, because I know you are going to say that you think this is 
not a block grant. But if there is a mandatory population and 
they get--the State gets a certain amount of money, even if it 
is increasing, it is capped, it is limited, and that means that 
the States have to come up with their own money to deal with 
these matters. That is called a conditional block grant.
    But let me ask you specifically, in your proposal, will 
there still be protections for nursing home standards for 
safety and appropriate care that----
    Secretary Thompson. Yes.
    Mr. Waxman. [continuing] we have at the Federal level?
    Secretary Thompson. Yes, there will.
    Mr. Waxman. It will apply to every State?
    Secretary Thompson. If it is optional, the States right now 
can change it, Congressman.
    Mr. Waxman. No, no. There are Federal laws----
    Secretary Thompson. And the Federal laws--the Federal law 
stays. We don't change that. It is on the optional population, 
and the optional services, which consists of two-thirds of the 
budget.
    Mr. Waxman. Well, let us don't get too complicated, because 
most people in nursing homes are optional. They are not 
mandatory. But whether it is optional or mandatory----
    Secretary Thompson. But the standards state----
    Mr. Waxman. But Federal law requires that we have nursing 
home standards. Now I would like to ask you----
    Secretary Thompson. It is standard, Congressman----
    Mr. Waxman. Okay. I would like to ask you whether the 
protections against spousal impoverishment, which means that 
the husband or wife of a person who goes in a nursing home, 
will be assured they will have money to live on, will those 
provisions continue to apply? Will the States be required under 
Federal law----
    Secretary Thompson. They will, Congressman.
    Mr. Waxman. Okay.
    Secretary Thompson. It is the optional services for the 
optional population that States now, under the existing law, 
can change--the States will have the flexibility. Instead of 
having uniform coverage throughout those, the States will have 
the opportunity to determine, under the optional population, if 
they want to cover them, the same way they have right now.
    Mr. Waxman. Well, excuse me, Mr. Secretary. My question is 
not whether they can cover them or not, or it is optional or 
not. Will nursing home patients have guaranteed care to meet 
Federal standards?
    Secretary Thompson. Yes.
    Mr. Waxman. Will their spouses be protected from being 
impoverished under the Federal law as it is now in the Medicaid 
program?
    Secretary Thompson. Yes.
    Mr. Waxman. Okay.
    Secretary Thompson. And it----
    Mr. Waxman. My next question would be, would people in 
managed care plans have the right to go to emergency rooms if 
they were in a situation where any prudent layperson would 
recognize that emergency care was necessary? There was some 
flirting of the idea of changing that. The administration 
pulled back. But would all States be required to provide this 
emergency care? Would they have flexibility to deny it?
    Secretary Thompson. They will have--if it is for the 
optional population, if it is the optional population, unless 
it is a State or Federal law, they will have the option to 
cover that, the same way the existing law does. No difference--
--
    Mr. Waxman. Well, if they have the option to----
    Secretary Thompson. [continuing] they can----
    Mr. Waxman. [continuing] have the option not to cover it.
    Secretary Thompson. The Medicaid----
    Mr. Waxman. Isn't that correct?
    Secretary Thompson. That is correct, but that is the 
existing law, Congressman.
    Mr. Waxman. I don't believe it is.
    Secretary Thompson. Yes, it is.
    Mr. Waxman. Because a Medicaid beneficiary can go to court, 
and if their care is being rationed by anybody, they can go and 
get an enforceable right. Would they still have that----
    Secretary Thompson. Yes, they will.
    Mr. Waxman. [continuing] if they are optional?
    Secretary Thompson. Yes, they will. It is the optional 
services that the States currently have, Congressman. The 
States right now have the authority under law to stop it. We 
are not changing that. What we are asking for you to do, and 
for the Congress to do, is to allow them to develop a more 
comprehensive program to cover these people, and get an advance 
funding and less money paid in.
    Mr. Waxman. Mr. Secretary, at your press conference you 
were asked how much flexibility the States will have, and you 
said, ``Carte blanche in the optional populations they have 
right now.'' When asked if there would be any limits at all for 
the optional benefits and populations, you said ``complete 
flexibility.''
    Secretary Thompson. That is what they have now.
    Mr. Waxman. Well, I don't believe that is what they have 
now, but I do believe that that is what the administration is 
proposing, and the States are being coerced into accepting a 
block grant limited Federal funds, increasing it first but then 
decreasing later on in order to get the Federal Government out 
of the business of assuring health care for some of our most 
vulnerable people.
    Secretary Thompson. But, Congressman, they have the option 
right now to stop it. States do. They do. And they have the 
flexibility to----
    Mr. Waxman. If you are in the program----
    Secretary Thompson. [continuing] the optional benefits----
    Mr. Waxman. If you are in the program under Medicaid now, 
everywhere in America the States must provide the standard of 
care, the level of care. It is an entitlement.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Waxman. If the Secretary may answer.
    Secretary Thompson. Congressman Waxman, they will continue.
    Chairman Tauzin. The Chair now recognizes----
    Secretary Thompson. It is a Federal law. They will continue 
to have it--mandatory--we are given the flexibility, the same 
right they have under the existing law to change the optional 
population, but more flexibility in funding and more 
opportunity to be able to give coverage to those people.
    Chairman Tauzin. The Chair now recognizes the gentleman 
from Florida, the chairman of the Health Subcommittee, for 8 
minutes.
    Mr. Bilirakis. Thank you very much, Mr. Chairman.
    Mr. Secretary, as you may know, I have always been a big 
fan of the community health center concept. I know that was 
brought up by----
    Secretary Thompson. I thank you for it.
    Mr. Bilirakis. [continuing] one of our members in his 
opening statement. It is a vital safety net for so very many 
Americans.
    Now, the budget calls for a $169 million increase for those 
health centers. We are pleased with that. But I would ask you, 
sir, if you can, give us an idea about what levels of funding 
you think would be necessary in the following years to help 
with expanding community health centers--you know, maybe not 
exact dollars figures but percentages or something toward that 
end.
    Secretary Thompson. We have--the Congress and the 
administration have always added additional money in the last 2 
years in the neighborhood of $150 to $185 million. And we have 
been able to grow at approximately 230 to 250 community health 
centers across America. And I thank you for your passion on 
this, Congressman, and I think it is in that area--if we keep 
growing at that rate, we are going to be in good shape across 
America.
    This is something the President and I are very passionate 
about. It is something that really meets the needs of the 
uninsured and those individuals that need coverage, and it is 
usually very good coverage.
    Mr. Bilirakis. Yes, sir. And I have seen that firsthand. 
And, certainly, it is not the full answer to the uninsured, not 
the complete answer, but it certainly goes a long way toward 
that end. And that is why I have always felt this way--and Mr. 
Waxman knows this, because we have held hearings together on 
that subject over the years.
    Mr. Secretary, unless the plans have changed, after this 
hearing we plan to go into a markup on the Patient Safety and 
Quality Improvement Act. And I know that, as you know, this 
committee has been active in the area of reducing medical 
errors.
    I wonder if you can tell us what will the AHRQ budget 
request includes in the area of patient safety.
    Secretary Thompson. We have added a lot of money in it, 
because it is one of our interests. There is going to be an 
increase of $30 million, Congressman, and it is for reducing 
medical errors and improving patient safety.
    We are also doing something in the Department. We are 
standardizing the codes for technology, which is going to make 
it easier to have uniform technology in the health care 
delivery system, and we are also requesting an administrative 
rule to bar code all of the drugs so that the drugs will be bar 
coded, which will be easier to use the swipe capacity to 
improve the safety of all patients.
    And we are making lots of progress in this area, plus we 
have improved the quality assurances in nursing homes and in 
hospitals now.
    Mr. Bilirakis. The patient safety organizations that we 
envision in our legislation, the new entities if you will, you 
have contemplated that as far as your budgeting is concerned.
    Secretary Thompson. Yes, we have, and I thank you for the 
legislation. It is very good legislation. I only wish that I 
could convince Members of Congress and this committee to take 
some of the fraud and abuse money that we get and put it into a 
mini-Chairman Tauzin committee, so that we could get uniform 
technology across America and put $1 in for--or a $3 match for 
every $1 we have in it. It would be an excellent initiative.
    Mr. Bilirakis. There we go. That is a challenge to you, Mr. 
Chairman.
    Mr. Secretary, long-term care--we know that we are going to 
be facing a tidal wave as the baby-boomers begin to need long-
term care. They are going to likely redefine how we deliver 
long-term care in this country, and we do need--I mean, there 
are so many needs out there. We are not concentrating on 
prescription drugs, if you will, but we also know that there is 
no coverage for long-term care in Medicare.
    So I would ask you--you know, our current programs, both 
Medicare and Medicaid, just don't have the capacity to handle 
these populations, particularly as they are going to be coming 
down the line. So what steps does the budget take? And if we 
can expand maybe past that, how do you and the administration 
see the preparations for future demands on our long-term care 
system?
    Obviously, you know I come from a very elderly district in 
Florida. And it is a concern there, but it is a concern 
everywhere in the entire country.
    Secretary Thompson. The Medicaid proposal is--we are 
requesting the States that voluntarily go into the new Medicaid 
program to split the Medicaid into acute care and long-term 
care, because the long-term care is the one that is growing the 
most rapidly.
    And what we are trying to do is give the States the 
flexibility in the long-term care, which I did back in 
Wisconsin, is to be able to allow the long-term care to take 
the money and use it to purchase their services and stay in 
their home, much more so than going into an institution and 
nursing home.
    And we think that that is a giant step forward. We have 
also--the President has put in $220 million over 5 years with 
$11 million proposed for fiscal year 2004, and that is the new 
Freedom Initiative to help individuals that are disabled to be 
able to also stay in their own home. And so these are two 
strong proponents. They are two strong pieces to address that 
particular question.
    The Medicare thing, we want to also look at a stop-gap loss 
in Medicare, which we think is very important. It has not been 
in there before, and we think that also needs to be in the new 
streamlined, refined, improved, innovative Medicare system.
    Mr. Bilirakis. Well, I am sure we all agree that that 
certainly is not adequate in terms of the current as well as 
the expected long-term care needs of our country.
    You finished up your answer with the point on the Medicare 
and stop-loss if you will. And others have said this, Mr. 
Chairman. The administration does not have a definitized black 
and white plan on Medicare. Is that not true?
    Secretary Thompson. That is absolutely----
    Mr. Bilirakis. And prescription drugs in Medicare 
modernization, I mean, you have committed to working with the 
Congress on this, so that there aren't really any 
preconceived--I guess there is some thinking out there, 
obviously, principles if you will, but no preconceived black 
and white definitized plans on it. Is that--isn't that correct? 
And we are working together on this.
    Secretary Thompson. That is correct, Congressman. The final 
decisions have not been made. We are working very hard on it, 
and hopefully we will complete our work relatively soon, so we 
can share that with you and other members of this committee, as 
well as other Members of the Congress.
    Mr. Bilirakis. Thank you. Thank you, Mr. Secretary. I yield 
back.
    Chairman Tauzin. The Chair thanks the gentleman.
    The Chair recognizes for 8 minutes the gentleman from 
Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Secretary, there is an issue that Senator Dole and I share 
a great concern about, and it is the issue of what happens to 
someone who has been certified by a physician to be seriously 
and permanently unable to take care of themselves, Parkinson's, 
ALS, later stages of these diseases, and who qualify for home 
care service under Medicare.
    What happens to them if they leave the home in a car for a 
ride with their spouse, or to be walked around the 
neighborhood? Under existing law, even after people have been 
diagnosed and certified by physicians to have this problem, the 
individual would lose any further visitations for a home health 
care benefit.
    Now, there is a man, a very courageous man. His name is 
David Jane, and he approached Senator Dole and I on this issue. 
He has ALS. He cannot breathe on his own. He cannot move on his 
own. But he was asked if he wanted, with his other fellow 
alumni of the University of Georgia, to be taken to an alumni 
weekend football game at the University of Georgia.
    He did so. It was written up in The Atlanta Constitution. 
And then, his home health agency saw it and removed any further 
visitations to his home, even though he cannot take care of 
himself at all.
    And so last year Susan Collins and I, over in the Senate, 
we introduced a bill to basically say that it is common sense 
that once--no one is going to try to have themselves diagnosed 
with Alzheimer's or Parkinson's or ALS, or any other chronic 
disease, in order to qualify for home health care visits.
    And we contend that there is going to be no increase in the 
costs, because there is--if their family members are able to 
put them in a car and drive them around, or, you know, walk 
them around the neighborhood--because it helps the home 
health--it helps the spouse. It helps the daughter or the son 
or whoever might be taking care of them as well.
    Mr. Secretary, CBO looked at the amendment, and they 
determined that there is going to be a $1.5 billion increase in 
home health care benefits as a result. That is, there will be a 
whole raft of people who will be arguing that--you know, that 
they now have Alzheimer's or Parkinson's. And as a result, the 
home health care costs will go up in the country.
    We contend it is just the opposite. We contend that it is 
the last thing most families want to do. My mother died from 
Alzheimer's. It took 5 years for my father to admit it, you 
know, because families aren't rushing to receive certification 
from a physician that their family member has it.
    But once they do have it, the spouse, for the most part, is 
trapped with the other spouse, because they care for them so 
much in the home. And if they can walk them down the stairs, 
put them in the front seat, strap them in, and take them for a 
ride, in the sixth, seventh, eighth, ninth, tenth year of this 
disease, and they are still trying to keep them at home, I just 
don't think anyone is going to all of a sudden try to engage in 
fraud and argue that they have the disease when they don't.
    So we wrote to CMS, you know, asking them to evaluate the 
CBO number, which we think is--Senator Dole and Senator Collins 
and I, we just don't think it is an accurate number, and we 
have asked for a response from CMS, which we haven't officially 
received yet.
    So that is what I would like to work with you on, Mr. 
Secretary, because I think it is--it is something you can give 
to people at home. It doesn't really cost anything, and it just 
makes the whole home care system so much more efficient, and it 
will keep people out of nursing homes, which would have a 
dramatically escalating, you know, drain on the Federal budget.
    Secretary Thompson. Thank you very much, Congressman. And I 
know you are very concerned about this and about the definition 
of the homebound, and I thank you for it. And I thank you for 
your urging for us to look at this.
    I want to report back that because of your urging CMS did 
relax the ability for a family to take a person out of their 
home last year, and it was because of you we issued a 
clarification to permit individuals to leave their homes to 
attend, for example, a family event, and that was at your 
urging.
    I might add that this clarification, of course, was in 
large response--was with regards to your inquiries. And I want 
to work with you on it, because I think that you make some very 
valid arguments. And I don't see where it is going to cost as 
much as CBO scored it.
    And I know that you have sent a letter, and you are going 
to receive a response. It is being worked on, and you will be 
receiving a response, as I understand it, in the next 10 days, 
Congressman. And if you don't have it within 10 days, I will 
call you directly. But I am confident that we will, and I am 
confident that we can work something out here that will be 
agreeable to you and agreeable to the patients that really need 
it.
    Mr. Markey. Can I just make this point to you, Mr. 
Secretary----
    Secretary Thompson. Sure.
    Mr. Markey. [continuing] and I know--and I appreciate the 
fact that there was some movement last summer saying that they 
could be taken out for a special occasion. But in my own 
personal experience, for example, with my father who was 
healthy enough in his eighties to take care of my mother in her 
eighties, is that if he could walk her down the stairs and put 
it--put her in the front seat of a car, strap her in, and what 
he did was he just basically duct-taped the door so that she 
couldn't open it from the inside, he could go drive her down to 
the beach, sit there, read the paper, sit next to her, you 
know, and 1\1/2\ hours later go home.
    Now, that is not a special occasion, you know?
    Secretary Thompson. No, it isn't.
    Mr. Markey. But it meant the world to him, you know, and it 
kept him going. And I just don't think--you know, they don't--
these old people they don't want to admit that they have these 
diseases. No one is--there is no fraud. No one is going to 
contend that they have it.
    And I just think that it helps the system so much, but it 
helps these heroes at home, you know, because it is such a 
burden on the family member, you know? So I would hope that you 
could look at it.
    Secretary Thompson. Congressman, sometimes we become very 
bureaucratic, and I am not noted for that. And I can assure you 
that I will--this has just been elevated to the highest levels, 
meaning my office, and I will get a response back to you within 
10 days. I thank you for it.
    Mr. Markey. Thank you.
    Chairman Tauzin. Would the gentleman yield a second? I just 
want to advise the Secretary that I have never had a worse 
experience in my life than trying to get CBO to reconsider the 
extraordinary dollars they put on the language Mr. Markey was 
trying to work out to solve this simple little, as you put it, 
bureaucratic problem. I wish you good luck.
    Secretary Thompson. Maybe we can administratively solve the 
problem.
    Chairman Tauzin. I think you can, and I would urge you to 
work with Mr. Markey to find a way to do it, so I don't have to 
deal with CBO on this again. I don't want to ever have that 
experience again. I thank you.
    Secretary Thompson. I can assure you, Congressman, we will 
work with you----
    Chairman Tauzin. Thank you, Mr. Secretary.
    Secretary Thompson. [continuing] and Congressman Markey.
    Mr. Markey. Thank you very much for----
    Chairman Tauzin. Thank you, Mr. Markey.
    The Chair recognizes Mr. Upton for 8 minutes.
    Mr. Upton. Thank you, Mr. Chairman. I would like to 
underscore Mr. Markey's comments. I tried to act as an 
intermediary last year to try and get this resolved, and I gave 
my full faith and commitment to do so and was frustrated to no 
end as well. So I will stay in touch with my friend from 
Massachusetts in that regard.
    I do have a couple of questions. First of all, welcome back 
to the committee.
    Secretary Thompson. Thank you, Congressman.
    Mr. Upton. You know, last year I thought we passed a pretty 
good prescription drug bill. And as I hold town meetings 
throughout my district, I don't think there has been a time the 
last couple of years that we haven't had prescription drugs as 
being one of the top issues that my constituents raise.
    And I remember well last year leaving my son's little 
league game, and a young woman ran up to me and her mom had 
just had a stroke. And the family was not prepared for the $600 
monthly charge that she would--they would now have to be paying 
to take care of her.
    And she asked me whether the bill that we passed would, in 
fact, benefit their family, and the answer was yes. It was 
within a week or 2 of the House action that we had here.
    But the Senate failed us. They didn't pass the bill. And 
here we are at it again this year, and I know that it is one of 
the top priorities for this committee to report out legislation 
and get to the floor, and hopefully we will see the Senate pick 
up the ball and begin to move it down the field.
    And there have been a number of us, professors say probably 
on both sides of the aisle, that are somewhat alarmed to a 
degree with some talk, maybe a trial balloon about--with the 
prescription drug benefit actually forcing folks, if they do 
participate in this new program for Medicare prescription 
drugs, of linking the two and being forced to go into an HMO or 
a Medicare Plus Choice type arrangement.
    I just wanted to hear from you whether that is--it is on 
the table for discussion, whether it is likely to be in an 
administration package, whether you are looking at it, or 
whether it is likely to be rejected. I saw today the Speaker of 
the House had some pretty strong comments against it. I think 
it was in The Post, but I think it was an article that he had 
talked to some reporters from The Chicago Tribune.
    I don't have those comments in front of me now, but where 
are we in terms of the administration of forcing the two to be 
together versus the legislation that the President said that he 
would sign last year with regard to the House passed bill?
    Secretary Thompson. Congressman, first, let me just tell 
you that we are still working on the Medicare proposal. 
Decisions have not been finally made. We are working extremely 
hard on it, and hopefully we will have those decisions made 
within the next several days, and hopefully within the next 2 
weeks.
    Second, I can guarantee you that there is not going to be 
any attempt whatsoever because--just it is not going to happen, 
to force seniors into HMOs in order to get prescription drug 
coverage.
    Mr. Upton. Great. I am glad to hear that answer. Thank you.
    Mr. Secretary, last year we in the House moved I thought 
relatively quickly to pass a West Nile Virus bill, thanks to 
Chairman Tauzin and Mr. John. It was a bipartisan bill. 
Michigan was No. 2 in the country in terms of deaths. I think 
we have had close to 48--close to 50 deaths. This last year, we 
had 574 cases.
    Obviously, it is not mosquito season now with lots of snow 
coming down in Michigan. But come spring, we will begin to 
think about this again. Where are we in the efforts of the 
Department to not only help States but actually find--whether 
it be a virus or a vaccine or some cure for this disease? I 
happen to know a number of people that, in fact, were infected 
with the West Nile. Thank goodness they were survivors.
    But it alarms me as we look into another season, next year, 
particularly if we don't have the drought that we had this 
year, or this year being last year, 2002.
    Secretary Thompson. Last year, NIH spent $18 million in 
fiscal year 2002 and is going to spend approximately $27 
million this year. We have conducted Phase 1 clinical trials 
for two West Nile Virus vaccine candidates, and that is going 
to commence this year.
    We got some early research done to investigate a DNA 
vaccine approach to protect against the West Nile Virus, and 
the basic research on the West Nile Virus is being expanded, as 
I indicated, from $17 million to $27 million to accelerate our 
understanding of the disease, so it is able to enhance our 
research and development efforts.
    We feel pretty good about the preliminary studies on the 
two vaccines that we have, but we have to go through the human 
clinical trials, and they will be started this year and go 
through three phases. Phase 1 will be starting within--
hopefully within a couple of weeks to a month, and then we will 
go into Phase 2 if that Phase 1 is promising.
    Mr. Upton. Well, that is very good news. That is very good 
news.
    Mr. Secretary, as chairman of the Subcommittee on 
Telecommunications and the Internet, as well as a member of the 
Health Subcommittee, I have had a focus on telemedicine. My 
district is pretty diverse. It is a good microcosm for the 
country in terms of a blend of urban and rural. You know, 
Kalamazoo is in my district.
    I have got two large hospitals there, Borgess and Bronson, 
each with 600 physicians. But I have got some hospitals in some 
counties that are very rural, and they don't have, obviously, 
the equipment that a university hospital or a major institution 
might have. And as we have looked at telemedicine, we have seen 
that this really could be a breakthrough for providing great 
care for patients in urgent need.
    And I have talked to my colleague Chairman--Mr. Bilirakis 
about having some hearings on this maybe this fall, looking 
toward telemedicine. Where is the Department's priority in 
terms of its budget on telemedicine? What type of projects are 
you looking at in the 2004 budget for promoting telemedicine 
and the advances that we know clearly would be there?
    Secretary Thompson. We have gotten an increase of about 
$5.6 million in telemedicine production and promotion, and 
trying to expand it is something that you and I come from rural 
areas. I am from Wisconsin. You are from Michigan. But there is 
no question that telemedicine is something that we have used 
very effectively in our clinics and rural areas in Wisconsin. I 
know you do that in Michigan, and that is----
    Mr. Upton. You know, just one--right. You know, we are 
going to probably have the malpractice bill up on the floor in 
the coming weeks. One of the things about telemedicine, 
particularly when you have got a State--Michigan, we look at 
different institutions, different physicians. We have got 
University of Michigan Hospital. And often cases you have got 
expert advice that is crossing State lines.
    Secretary Thompson. It really is.
    Mr. Upton. And so we get to the malpractice problem. Might 
the Department have any suggestions as we look at----
    Secretary Thompson. We are working in a collaborative 
fashion with a lot of universities and a lot of States on this 
thing, and we are hoping to be able to push it further down the 
field. My only suggestion and advice to you, Congressman, is 
that I wish the University of Michigan would spend more time on 
this and less time on football. We would be much better off.
    Mr. Upton. Too bad. This is the big house, after all.
    I yield back my time.
    Chairman Tauzin. The gentleman's time has expired, and the 
Chair will recognize the gentleman Mr. Brown, I believe, for 5 
minutes.
    Mr. Brown. There seems to be a sort of Orwellian air in 
this city. The President at the State of the Union said, ``We 
will not pass along our problems to other Congresses, to other 
Presidents, and other generations.'' And then, a few paragraphs 
later, he proposed a budget that was $300 billion in deficit, 
with deficits as far as the eye can see.
    He talked about bureaucrats and HMOs and got a great 
standing ovation and applause lines saying that doctors and 
patients should get--we should have those insurance company and 
HMOs get them out of the doctor-patient relationship. And then, 
a few paragraphs later, he proposed to push people that wanted 
prescription drugs, push them out of traditional Medicare into 
private plans.
    And then, listening to Mr. Waxman, and you, Mr. Secretary, 
we see that the President is proposing capping funding for 
Medicaid, even though there are specific increases, but capping 
funding and then deny that it is block grants.
    I want to explore that a little bit. Secretary Thompson, 
you had said that Federal spending for Medicaid will grow at 9 
percent per year under the block grants. That sounds good until 
you realize in the last--in 2001, Medicaid expenditures rose 11 
plus percent. In 2002, Medicaid expenditures rose 13 plus 
percent. We don't see likely anything better in 2003.
    This increase obviously is significantly above the 9 
percent, and it is driven mostly by the economic downturn. 
Medicaid actually has done better than the private sector, as 
Medicare has, in keeping costs down. But nonetheless, with more 
people out of work with this economic downturn, with no real 
stimulus package proposed in this Congress, no one that seems 
likely to pass, these problems can easily continue. This 9 
percent growth will leave States in a pretty bad position if--
in this block granting kind of Medicaid situation.
    The Federal law today contributes a percentage for every 
single person the State enrolls. In other words, the Federal 
Government will help meet those expenditures. Under your 
proposal, if I understand, each State's allotment will increase 
by a fixed percentage each year, correct?
    Secretary Thompson. Let me just correct something. We are 
under--under the law, we have to project out for 10 years what 
the Medicaid costs are. That is the 9 percent. But we have 
already readjusted the 9 percent for next year to 10 percent, 
and so we readjust the 10 percent or readjust the growth 
factors on an annual basis, Congressman.
    So it is not locked in to a 9-percent. That is point No. 1.
    The second point is it is not a block grant, because the 
mandatory population, there is no cap on it. The mandatory 
population is the same under the existing law as it will be in 
the new proposal that we are going to advance.
    Mr. Brown. So it is locked into a percentage every year, 
and it is locked into that same percentage for every State. 
Correct?
    Secretary Thompson. Every State--every State is not locked 
in because it is a--it is a guaranteed benefit. You are going 
to be able to continue to get that benefit. And so that--it 
doesn't change for the mandatory populations, Congressman. That 
doesn't change. So if the mandatory population increases, the 
money increases, and so will it under the current law.
    Mr. Brown. But you give it a percentage, but it doesn't 
necessarily meet the needs of the State, so it really is a 
block grant. It is a defined--it is not a defined benefit; it 
is a defined contribution by you, correct? By the feds?
    Secretary Thompson. The block grant is like TANF was. It 
was at $16 billion a year for 5 years. The Medicaid proposal--
the Medicaid law goes up at a plane right now at 9 percent, 
which is going to be adjusted next year.
    Mr. Brown. But it has clearly not been enough. That is what 
makes it a block grant, because it doesn't--it is a defined 
contribution by you, not a defined benefit for the State.
    Secretary Thompson. But the Federal Government has to pay 
whatever the State matches, whatever the Federal matches for 
that State for how much population. Every----
    Mr. Brown. Except the funding is capped, Mr. Secretary.
    Secretary Thompson. Yes. But every year--every year the 
States have got to compute out. Every year the States have to 
compute out what their caseload is, and they drag--they have a 
drawdown, an allotment. Every quarter they use up the money, 
and then they apply to the Federal Government. We send them a 
check for the prior quarter, and then they go and spend the 
money, and then they get another drawdown the next quarter for 
the cases they have had.
    Mr. Brown. Is the money capped? Let me ask you 
specifically--I guess I have only got 3 minutes in this. I am 
not sure why that calculation worked.
    Secretary Thompson. I am trying to----
    Mr. Brown. I guess that is a little like the Medicaid 
calculations perhaps. Is the money capped? Are you capping the 
money?
    Secretary Thompson. Not in the mandatory population, no.
    Mr. Brown. But in the optional that really matters in 
people's lives, you are capping the money, correct?
    Secretary Thompson. No.
    Chairman Tauzin. The gentleman's time has expired.
    Secretary Thompson. The optional population is the same as 
existing law. This is where the confusion is. States right 
now--States, under the existing law, can change the optional 
population. States can drop it, and that is what they are doing 
right now.
    They are dropping over a million people, and what we are 
trying to do is give them flexibility, Congressman, so that 
they will be able to hold on to those individuals. They may 
require co-pays. They may require differentiation in medical 
coverage. But we are trying to figure out a way to keep them 
covered. That is why we are advancing the payment of $3.25 
billion, so the States will have this, which is--actually 
equates to a 2-percent increase in the Federal match.
    Then we are reducing what the States have to pay in in 
order to get that dollar, which is another 1 percent on the 
Federal match. So truly it is a great deal----
    Mr. Brown. But if there is a newer----
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Brown. [continuing] capped by the Federal Government.
    Chairman Tauzin. The gentleman's time has expired. I am 
going to ask everybody to hold to these agreements we made on 
time. I extended it to allow the Secretary to answer, but I 
have got to hold to these agreements.
    Mr. Whitfield is recognized for 8 minutes.
    Mr. Whitfield. Mr. Chairman, thank you very much.
    And, Mr. Secretary, thank you for joining us today on this 
important issue. We hear a lot of criticism today about the 
administration on these huge deficits that are anticipated over 
the next few years. And I remember those in my class in 1994 
who came--that was one of the things that we really focused on 
was trying to get out of deficit spending.
    And I know the administration, as I said, is really being 
criticized about that. But at the same time, the administration 
is being requested to expand certainly health care programs. 
And I recently just read this little statement which is in 
Health Affairs today, and it is particularly talking about 
Medicaid.
    And we all know that Medicaid, in 1966, cost $400 million. 
And in 1991, it cost $87 billion. And today it costs $257 
billion. And so we all recognize that something has to be done. 
We can't just keep expanding a program.
    And one of the comments made in here today is that one of 
the real problems with politics today is the growing number of 
people in public life for whom there is nothing important 
enough to lose an election over. And then, a comment is also 
made which we are all very much aware of, that today, for 
example, millionaires on Medicare are getting public 
subsidies--public subsidized health care paid for in part by 
poor workers who cannot pay for health care for themselves and 
their families.
    And so I, for one, wanted to commend the administration for 
at least being willing to look outside the box to try to 
explore some new way of trying to provide a benefit, but also 
be responsible on the cost, because we are always talking about 
we need to expand the coverage, we need to expand the coverage, 
we need to expand the coverage.
    But in the end, those people who are--their employer does 
not provide health care for them, they do not qualify for 
Medicaid because they earn a little bit too much, their payroll 
taxes are going in and their income taxes are paying benefits 
for other people, many times who are wealthy people, and they 
can't buy health care for themselves.
    So one thing that I would point out, in these State health 
partnership allotments that you all are talking about, it is 
optional, is that correct?
    Secretary Thompson. That is correct.
    Mr. Whitfield. So it is not mandatory, but we are simply 
saying here we are giving the States the opportunity to see how 
innovative they can be in coming up with ways to deliver health 
care.
    Secretary Thompson. That is absolutely correct, 
Congressman, and it is a voluntary program on the States. The 
States can continue on with the old program if they so desire, 
or they can volunteer to go into the new program, which is 
based upon the very successful SCHIP program. It is based on 
the very successful TANF program. There is some modifications 
because the TANF program and the SCHIP programs were block 
grants.
    These are not block grants, because they continue to 
increase, and it also allows for the mandatory populations to 
be covered the same way that they are under the current law. It 
doesn't change that at all. It only allows for the one-third of 
the population, which is the optional population, that the 
States--the Governor and the legislature have added, plus two-
thirds of the options, which are optional. But they make up 
two-thirds of the cost of the Medicaid budget.
    And what we are doing is we are going to give the States 
the options to be able to change the program, because under the 
existing Medicaid program if you put an optional population 
with an optional service into the Medicaid program, you have 
got to have it uniform throughout the State.
    And I don't know what State you are from. I should know. I 
apologize. But if you have got a State like mine, you have some 
rural areas, some urban areas. What costs the State a great 
deal of money is when you have to have uniform services from a 
rural area that has fewer providers to an urban area, it costs 
more money.
    And what we are going to allow under the optional 
population, if the States want to do this, is to allow for 
those areas in the rural areas to have a different kind of 
coverage, but continue to cover them, so they are covered by 
the Medicaid program. It would be much more innovative, and you 
know that States will be very innovative in this, and that is 
why we set this program up, Congressman.
    Mr. Whitfield. Well, thank you. And, of course, we know 
that Mr. Waxman has been a real leader in Medicaid, and no one 
questions his motives of being dedicated to the program, 
providing the best health care that can be provided for as many 
people as possible. And he made the comment earlier today that 
this is a radical departure, and I just want to emphasize once 
again that we need radical departures if we are going to make 
this program to ensure that it is effective for the long term.
    So one other point that I would reiterate on what you are 
looking at here is that you are not changing the mandates at 
all.
    Secretary Thompson. The mandatory population stays the 
same. And I know you are from Kentucky, and I know that 
Louisville is No. 2, and Kentucky is No. 3. So you are doing 
well, sir. I apologize. But----
    Mr. Whitfield. Well, I wasn't going to tell you where I 
was----
    Secretary Thompson. But it is not--the mandatory 
population, the mandatory guarantees that Congressman Waxman 
was talking about, stay the same.
    Mr. Whitfield. Right.
    Secretary Thompson. They are not changed at all, and that 
also does not describe a block grant. It is different than a 
block grant.
    Mr. Whitfield. Right. Right. Now, there has also been a lot 
of discussion today about prescription drugs and how horrible 
it is going to be to force people to lose--to leave fee for 
service and go to an HMO. And, obviously, we want to provide 
prescription drug benefits for people who need it. And I am 
sure the motive behind going from a fee for service or 
requiring--to an HMO is simply a cost consideration.
    But in the President's proposal on prescription drugs--and 
I know you have indicated that you are certainly going to be 
working with Congress closely in developing that plan, even 
though there was one the last year, are you all considering a 
co-pay or a means test to be eligible for the prescription drug 
benefit under Medicare?
    Secretary Thompson. The President feels that everybody is 
entitled to prescription drug coverage, and there is not going 
to be a means test.
    Mr. Whitfield. Okay. Well, I for one think that we should 
look at a means test, because just as this comment was made, I 
read earlier millionaires on Medicare are getting publicly 
subsidized health care paid for in part by poor workers who 
cannot provide health care for their own families.
    And I know that it is a volatile issue. I know what 
happened to Danny Rostenkowski and others when, in expanding 
benefits, they asked that seniors pay a part of that, and there 
was an uproar and it was repealed. But I think we can make a 
strong argument that Warren Buffet, Bill Gates, and other 
people, when they become eligible for Medicare, should not have 
subsidized prescription drug benefits.
    And so I hope that at least the administration would be 
open, that we can discuss that, and maybe pursue that.
    Secretary Thompson. Thank you very much, Congressman, and 
thank you for your support.
    Mr. Whitfield. Thank you.
    Chairman Tauzin. The gentleman's time has expired. I was 
going to hint to you that they had more horses in his State 
than people, but I was not going to tell you where he is from.
    The gentlelady from California Ms. Eshoo is recognized----
    Ms. Eshoo. Thank you, Mr. Chairman.
    Chairman Tauzin. [continuing] for 5 minutes.
    Ms. Eshoo. Thank you.
    Mr. Secretary, first, I want to comment about Stanford 
Hospital, which you mentioned in one of your remarks--in your 
remarks to--I believe in response to another member. The 
funding was for the select contracting provider waiver, and I 
was very happy and proud to write letters supporting that 
waiver.
    And I concur. It is a very good waiver, because it saves 
money. But it didn't hurt people, you see? There has to be--my 
point in my opening statement was that when you provide the 
right pot of money in order to accomplish the same goals of 
coverage, but doing it in a different way, I support that.
    The model that I set up in California before I came here is 
the first and only free-standing Medicaid program that was 
really modeled on a private sector model, and it is still 
working today, saving money, but also expanded the services to 
people.
    So I think in this capitated system it went from a fee for 
service to a capitated system, but it was fair in terms of the 
funding, and it is a good waiver. And I want--I just wanted to 
say that.
    There is a bill that I was the Democratic lead on that came 
out of this committee. It represented an enormous amount of 
bipartisan work, and that was on the medical device----
    Secretary Thompson. I thank you for it.
    Ms. Eshoo. [continuing] fee program. Thank you, Mr. 
Secretary.
    Now, in order to make sure that this moves on, that the 
policy is actually implemented, it needs the dollars. It is 
like trying to get a car going without--you either put fuel in 
the tank and make it run, or it doesn't.
    Now, in the President's budget that was submitted, there 
isn't any allocation for any funding in this new fiscal year. 
Now, the user program in 2005 will cease to be.
    Now, I think that, you know, some can say, ``Well, it can 
be taken care of down the road,'' except the price tag is going 
to be larger. So I don't know what your recommendation or what 
you will--I mean, I think that you recognize how important this 
is. It represents a technology that is life-saving, 
technologies that are life-saving. It was bipartisan. The 
administration supported it, and now it is like close your 
eyes, what do you see? There is not a dime, and this needs to 
be taken care of.
    I hope that you will come to the Congress and advocate with 
the appropriators for this. So, you are shaking your head, 
which looks very good to me. All right?
    Secretary Thompson. Can I respond?
    Ms. Eshoo. Yes.
    Secretary Thompson. I want to stress three things. First 
off, the waiver.
    Ms. Eshoo. I still have some questions, so--go ahead.
    Secretary Thompson. Can I respond?
    Ms. Eshoo. Absolutely.
    Secretary Thompson. If you want to ask the questions, and 
then I will respond to all of them.
    Ms. Eshoo. Great. Okay. Well, on that, the user fee. I also 
think that there needs to be some clarity in this hearing, 
because we are talking about block grant proposals and 
combining a number of different pots of money. Medicaid 
spending on coverage, the SCHIP spending, spending on 
administration activities, and spending on disproportionate 
hospital share of moneys. And that is correct; you are shaking 
your head.
    What happens to the DSH money when it gets folded into the 
pot? Do States have to continue to operate their DSH programs 
like they do today? Will there be standards for this? I know 
that there are some abuses of DSH, but I want to tell you 
something, I have seen it firsthand in my own communities and 
in California.
    And I am not suggesting that we defend things that aren't 
defensible, but I am going to rise to the defense of those 
dollars that can be defended because that is what--that is the 
tool that allows my hospitals to take care of people that need 
to be taken care of. So if you could comment on that as well, 
and I will stop here.
    Secretary Thompson. Thank you very much. First, on the 
waiver, it is $1.8 billion; $250 million went to Los Angeles 
County to maintain their hospitals. The balance of that money 
went throughout the rest of the hospitals, including your 
districts, to share among the hospitals. It was a very good 
waiver. I thank you for your support. We worked very hard in 
the Department to make that happen, and I think everybody 
appreciated that on a bipartisan basis.
    Second, in regards to----
    Ms. Eshoo. The medical device user fee.
    Secretary Thompson. [continuing] medical devices----
    Ms. Eshoo. And no money for it.
    Secretary Thompson. Thank you. We worked very--that was 
actually a proposal from the Department of Health and Human 
Services, and we appreciated the bipartisan support. We are 
required to come in with $60 million, and I requested $15 
million over 4 years. We have got to come up with----
    Ms. Eshoo. Forty-five million dollars, I think, total.
    Secretary Thompson. No, $60 million. We have to come up 
with the--the users are going to come in with $45 million. And 
so we have a responsibility for coming up with $60 million over 
4 years. We requested in the Department $15 million for this 
budget, but OMB said we should wait until Congress acts for 
fiscal year 2003 to see what money the Congress puts in in this 
particular year in this project.
    Ms. Eshoo. Well, right now, as far as----
    Chairman Tauzin. The gentlelady's time has expired.
    Ms. Eshoo. Can I just respond to----
    Chairman Tauzin. The Chair has----
    Ms. Eshoo. [continuing] the Secretary?
    Chairman Tauzin. [continuing] to stick closely to these 
limits, if we are going to get everybody in before the 
Secretary has to leave.
    So let me--I have to move on, Mr. Secretary. Otherwise, 
some members are going to miss the opportunity to ask 
questions.
    The Chair recognizes the gentleman from Florida, Mr. 
Stearns, for 8 minutes.
    Mr. Stearns. And thank you, Mr. Chairman, and I appreciate 
your being punctual on this. And I think all of us should work 
with you because under the new rules a person can have ample 
time through 8 minutes.
    I have four questions I would like to get in. The first one 
is in my opening statement I talked about the Family Directive 
Services, in which three States are using the waivers to go 
ahead. And I provide--in my opinion, it is basically letting 
people on Medicaid show personal responsibility and have choice 
and get them involved with their health care. And I am just 
curious if you thought all the States should do this, and you 
might just give a little comment on it, just as a general 
statement.
    Secretary Thompson. There are three States that are doing 
it right now--New Jersey, Arkansas, and Florida. Every State 
that has said that it is working well by the people, it is cash 
and counseling, that the people get the money, they are able to 
make the decisions for themselves, and it has worked out. They 
have saved money, and everybody is happy about it. I think it 
is a concept that should spread throughout America, and I know 
that a lot of people are looking at it.
    Mr. Stearns. And I think your point is well taken. With the 
mounting costs in Medicaid, unless we get the participants to 
accept some personal responsibility in choice, these costs go 
on and on and on.
    Let me take you to something that is a little bit more 
controversial, and that is I have supported the doubling of the 
funding for NIH. And I think many members on this committee 
have.
    In 1996, the Institute of Medicine report suggested that 
the funding at NIH--that funding decisions are a little 
politicized. And they base this based upon the number of 
deaths. And if you look at the number of people who die from 
heart disease, and die from cancer, and from strokes, from 
chronic lung diseases, pneumonia, diabetes, these are all in 
multiple proportions that the people die from AIDS in America.
    Yet the money that goes to AIDS is in multiple increases in 
what we give to diabetes, pneumonia. And, in fact, the money is 
almost twice as much for AIDS than for heart disease, but heart 
disease has--almost 20 times more people die of heart disease. 
So I guess the question is, Mr. Secretary, can't we do the 
research spending based upon the need rather than it appears to 
be the politics?
    And I say this very deferentially, because we are always 
talking about more funding for AIDS. But when you look at the 
statistics of heart disease and cancer and stroke and chronic 
lung disease and pneumonia and diabetes, there are so many more 
people dying from these diseases than AIDS, yet the AIDS is 
getting so much more funding.
    So I will give you a crack at that question.
    Secretary Thompson. Well, it is not political, Congressman. 
I can assure you of that. They have peer reviews set up in 
every one of the institutes, and they have peer reviews looking 
at all of the research grants that come in. Eighty percent of 
the money that--75 to 80 percent of the money that NIH gets 
goes out in research grants, and this year with this budget it 
will be the maximum amount of grants ever given out by NIH.
    There is a lot of cooperation and spillover from one 
research project to another. So dealing with anti-retroviral 
drugs and research on that, and a vaccine for AIDS, helps out 
in other diseases. And so it is the decision made by the 
scientists and the experts. I have nothing to do with it, but I 
will certainly share your views with Elias Sirhoney, the 
Director. But I am fairly confident that knowing the people out 
there there is no political machinations going into how the 
grants are given out whatsoever.
    Mr. Stearns. Okay. I am just trying to maximize our 
research efficiency.
    Secretary Thompson. Thank you.
    Mr. Stearns. Another question is on September 21, 2001, our 
committee had a hearing on the average wholesale price, AWP.
    Secretary Thompson. Right.
    Mr. Stearns. For drug reimbursement and payment of 
oncologists under Medicare. Then, the American Society of 
Clinical Oncology, the Levin Group, presented a report in 
September of 2002 on this. What are the plans? We keep hearing 
about this. What are the plans for correcting this gross 
misalignment that is dealing with the average wholesale price? 
Just briefly. I mean, it is a very complex----
    Secretary Thompson. We have it in the budget. We are trying 
to fix any overpayment for outpatient drugs. The proposal is a 
slight change from the fiscal year 2003 budget proposal, which 
was not passed. We declared our intention to pursue a 
regulatory approach if Congress did not address the problem 
legislatively.
    And we estimated that the regulatory approach is going to 
generate savings of about $5.2 billion over 5 years. So we are 
proceeding along the lines of----
    Mr. Stearns. Okay.
    Secretary Thompson. [continuing] the administrative 
process.
    Mr. Stearns. Last question is, I know you have talked to 
Secretary Princippe. He has priority 8 veterans that can't get 
help under Medicare, and I just wondered if you and Secretary 
Princippe have touched on this idea of veterans who will be 
eligible to get into this Medicare Plus Choice. You might just 
briefly--my time has expired, but----
    Secretary Thompson. Congressman, we are working on that, 
the Veterans Department and my Department, CMS, and the 
Veterans Department. I have personally met with Secretary Tonio 
Princippe, and we have knocked down a few of the barriers.
    We are hoping to be able to solve the problem and set up 
what we call a managed care HMO between Medicare and the 
Veterans Department. But it is still in the embryonic stages.
    Chairman Tauzin. The gentleman's time has expired.
    The gentlelady, Ms. McCarthy, is recognized for 8 minutes.
    Ms. McCarthy. Thank you, Mr. Chairman.
    Mr. Secretary, I want to commend you and your decision with 
the President to put in this budget and in your plan prevention 
of disease by including a request for $100 million to promote 
healthier lifestyles and targeting prevention of those diseases 
that you and I both know can be prevented--obesity, diabetes, 
asthma, clearly, and others.
    I really appreciated your remark last year in The L.A. 
Times where you called on private insurance companies and 
businesses to do more to promote exercise in the workplace and 
encourage people to stay healthy. And as a result of that, my 
colleague from my neighboring State of Kansas, Jim Ryan, and I 
and others put in a measure sent to the Congress to promote 
healthier lifestyles and encourage insurance companies to 
provide discounted premiums for those who exercise regularly 
and also provide screenings of certain diseases that we know if 
treated early will, indeed, save money.
    And you know the facts probably better than I, but if 
more--if the more than 88 million inactive adults in the United 
States began regular exercise, national medical costs would 
decrease by more than $76 billion. This is from research we 
found in our efforts to, you know, try to follow along with 
your lead on----
    Secretary Thompson. Thank you.
    Ms. McCarthy. [continuing] keeping people healthy will save 
Federal dollars. And knowing the crunch that we are in fiscally 
now, I wonder if you would--if I could leave some information 
with your staff about----
    Secretary Thompson. Absolutely.
    Ms. McCarthy. [continuing] this. We have reintroduced it 
today. It seems to make good sense, and I appreciate your 
taking the lead on this. And I loved the article. You said, ``I 
am going to call on those insurance companies and tell them to 
rethink the way they do things, because the cost savings will 
be a benefit to them and to the taxpayers as well.''
    So that is--I kind of wanted to bring that to your 
attention and share that with you, because I do appreciate what 
you are doing.
    Secretary Thompson. Thank you so very much. $155 billion a 
year in tobacco-related illnesses, 400,000 people die. $117 
billion a year on obesity, and people are overweight, and 
300,000 people die. $100 billion on diabetes; 17 million 
Americans are diabetic, 16 million are pre-diabetic. And if we 
don't do anything, in 5 years those 16 million will be 
diabetic, and there will be another $100 billion.
    And NIH has just done an exhaustive study. If you walk 30 
minutes a day, 5 days a week, and you lose 10 to 15 pounds, the 
incidence of diabetes goes down by 60 percent. That is a 
savings of $60 billion right there. I am passionate about this. 
I put the whole Department on a diet, including myself, and we 
are losing weight. We are setting an example.
    I have got everybody exercising. I am handing out these 
little walk-o-meters. If you want one, I will send you one. And 
it--you have got to do 10,000 steps a day, which equates to 30 
minutes of good exercise, 3 miles a day. Everybody should do 
it. You don't go up in the elevator. You walk up the steps. You 
are healthier. We have got to do it.
    Thank you so very much, and thank you for asking the 
question.
    Ms. McCarthy. Thank you, Mr. Secretary. I love it.
    Mr. Chairman, perhaps if the bill is reassigned to this 
committee again this year, we could invite the Secretary back 
and have the--fire up the whole committee on this.
    Chairman Tauzin. Perhaps we can institute such a similar 
reduction and exercise program at the committee. You look 
marvelous, Mr. Secretary.
    Ms. McCarthy. Yes, you do, sir.
    Thank you, Mr. Chairman. I would like to yield back, so 
that others might have some time.
    Chairman Tauzin. I thank the gentlelady for yielding back, 
and the Chair recognizes Dr. Norwood for 8 minutes.
    Mr. Norwood. Thank you, Mr. Chairman.
    Governor, welcome. Glad to see you.
    Secretary Thompson. It is always a pleasure, my friend.
    Mr. Norwood. And I am from Georgia.
    Secretary Thompson. I know where you are from.
    Mr. Norwood. I just want to make sure.
    Secretary Thompson. Everybody knows where you are from, 
Charlie.
    Mr. Norwood. Let me--I know we are here on the budget, and 
I have a lot of softball questions I could ask you on the 
budget, but I am not going to have time. So let us start trying 
to get at two things.
    No. 1, the Medicare part. I am going to make some 
statements about it in hopes that you will correct me if you 
think I am wrong in my attitude about what I think is going on 
in Medicare.
    It seems to me that there isn't a President Bush bill. 
There are some guidelines out there that have been aired that 
we are all thinking about, and they are all possibilities of a 
Medicare reform. Nothing is set in stone at this point.
    I have heard comments, ``Well, the President is going to do 
this, and the President is going to do that.'' I am not sure we 
are at that yet. But I do think that it is totally 
irresponsible for us not to consider why the President is 
asking for reforms.
    As I understand it, if we don't do anything to Medicare, by 
2030 it is going to take up 30 percent of the budget, all of 
our spending. And when we add a prescription drug benefit, 
which I believe perhaps we will, we are talking about 35 
percent of the budget. Therefore, it is totally irresponsible 
for us to not look at some options to change Medicare, so that 
it won't cost that much in the future.
    My understanding is that we should give options to seniors 
other than just fee for service. And nobody has to choose any 
one of those options. Patients will be able to take their 
choice.
    One of them, of course, is the fee for service that we 
presently have today, and my understanding--another one could 
very well be Medicare Plus Choice plans, which is basically 
managed care. A third could be insurance PPOs, and hopefully 
non-insurance PPOs.
    The first one, fee for service, is administered by CMS. 
They control the administrative part of it as well as what they 
will pay. The other two are handled by insurance companies that 
they will do the administering of the plan. However, what we 
will pay will be determined again by CMS. Am I right so far?
    Secretary Thompson. You are always right, to my credit.
    Mr. Norwood. Not always. My concern, and I think the reason 
you hear some concerns from different people, is that basically 
patients, understandably, want all of the health care they 
possibly can use at no cost, and are accustomed to that in fee 
for service. And at the same time, CMS is sitting there trying 
to figure out, how do we not bankrupt this program by 2030?
    When you get into the insurance programs, patients, again, 
want all of the health care they possibly could use at no cost. 
And then you have insurance companies being concerned about, do 
we make a profit here when we get to the bottom line?
    There is a difference in those two concerns, but it is--in 
CMS we do have standards there, and we did that in 1997. We put 
some Medicare standards in there to protect patients, so there 
would be some things in which CMS and anybody else involved in 
Medicare couldn't cross that line.
    And I think that it would probably give many people more 
comfort using the options, which I think we have to do, too, 
Congressman Allen, if we set some standards, legislatively 
would be fine, but my question is, can't your Department set 
some basic standards for which they can't cross that line, too, 
which means that it makes it much harder for the insurance 
industry to ration care and deny care.
    Secretary Thompson. We can, if you give us the authority to 
do so. We would be more than happy to do that, Congressman.
    Mr. Norwood. You can't, by rule and regulation, now do some 
of that?
    Secretary Thompson. We can do some of it, but not as far as 
you want to go, Congressman.
    Mr. Norwood. Well, that is probably right. You probably 
don't want to go as far as I want to go, and I would have to do 
that the hard way. But it would give, I believe, people a lot 
more confidence, Members of Congress included, if they knew 
that the industry--the insurance industry simply didn't get to 
make all of the decisions about what basically happens to a 
patient.
    So I hope you will consider that as we draft and pass a 
Medicare reform bill, that some of the responsibility I hope 
will be with your agency as well in order to protect these 
people as we turn the administration of their care over to 
whomever insurance company.
    Secretary Thompson. As you know, I worked with you and your 
office very closely on the privacy rules and the patient bill 
of rights. And I can pledge to you that we will continue to do 
so on the Medicare proposal. And I appreciate your ideas, and I 
will take them back and discuss them with my peers at the White 
House.
    Mr. Norwood. If we leave Medicare as is, and it is going to 
take a third of the budget by 2030, which I feel sure we will 
pass a prescription drug bill which is going to add cost at a 
time when cost is a real problem, what is going to happen to 
long-term care as we age in this Nation? And is long-term care 
going to continue to be a cost to Medicaid? And why is it in 
Medicaid to start with, since it generally is about patients 
who are normally on Medicare?
    Can you envision anywhere out there that long-term care 
would be picked up? Somebody is going to have to pay for what 
is going to happen in long-term care.
    Secretary Thompson. That is correct.
    Mr. Norwood. It is either going to be the State government 
and the Federal Government, or the Federal Government.
    Secretary Thompson. I think, Congressman Norwood, it 
certainly should be considered as part of the revitalized and 
strengthened new Medicare. I think it makes much more sense in 
that regard, and I appreciate your comments on it.
    Long-term care has really never been--I know this committee 
has held hearings on it, but long-term care has never ever 
really been addressed like it should be. There should be a tax 
credit for people that are applying for long-term care 
insurance. We should be doing that.
    Right now, we should be getting out more information on 
long-term care insurance. We should be looking at ways to 
revitalize and strengthen Medicare, and that is what we are 
doing. And I think we should do the same thing on Medicaid, and 
I think we can make a lot of progress.
    I know there is a lot of people on this side of the 
committee room that do not believe that we should do anything 
with Medicaid, and I am here to tell you it is going--it is 
going to bankrupt the States unless we do something. And the 
proposal that I have advanced makes a lot of sense.
    And if you just got away from the idea of it being a block 
grant, which it is not, but I know that is the easy way to 
demagogue it--but if you wanted to work with it, we can make a 
great deal of progress to come up with a very beneficial 
Medicare and Medicaid proposal. And I think and hope and pray 
that is what we are going to be able to do this year.
    Mr. Norwood. Last quick question, if I may. NIH--though you 
are only increasing that 2 percent, NIH budget is going to 
increase considerably more than 2 percent when you count the 
moneys going to NIH for Homeland Security to do research and 
development and produce vaccines. Am I correct?
    Secretary Thompson. You are absolutely correct. The 
research budget at the NIH is going to go up this year--the 
research portion--7.5 percent. And that is even before the 
money comes in from Homeland Security. This is money that we 
spent last year to build laboratory security, laboratory 
buildings.
    We are taking that money that went into capital 
construction last year, and this year, and fiscal year 2004 
budget. We will turn it into research. So the research budget, 
even though the additional new money is $539 million, the 
actual amount of money that is going into research, without the 
Homeland Security, which is another tranche of money, is going 
to be $1.9 billion.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Norwood. Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair recognizes the gentlelady Ms. 
Capps for 5 minutes.
    Ms. Capps. Thank you, Mr. Chairman.
    And, Mr. Secretary, you know what I am going to talk to you 
about, and would ask you to please comment on a conversation we 
began in an airport last weekend on the funding levels for 
nurse education that are woefully short in this budget.
    Can you give me some assurances that we can work together 
to increase that amount, which is so critical for all of the 
reasons--long-term health care, but also our homeland security? 
But also, would you comment--I am not just a nurse, I am also a 
school nurse. SCHIP has been a way to increase coverage for 
populations, and our numbers of uninsured have just been 
skyrocketing.
    Would you comment on the way that this will be included 
with Medicaid and so-called flexibility with the States? And 
also, I was there when it came out, and I saw how awkward it 
was to get families enrolled. Let us not use the historical 
numbers. Can we focus on a way that it could meet the needs 
now? And also, is there a way, with this flexibility, that we 
can guarantee this money will go to children?
    Thank you.
    Secretary Thompson. You have got a lot of questions.
    Ms. Capps. I know.
    Secretary Thompson. Let me quickly--first, let me thank you 
for your leadership on the nurses bill.
    Ms. Capps. Thank you for your help, and this committee was 
terrific.
    Secretary Thompson. This committee, Chairman Tauzin, and 
you, were outstanding. Everybody was, and I thank you for it. 
The only reduction actually is an administrative one. It is 
not--it is administrative. We had to take an administrative 
reduction, and that is the $300,000. The actual money going to 
the nurses program is the same.
    I would like to have said that it was going to be more, and 
I will work with you on it. That was your question. I would be 
more than happy.
    We have got acute problems, and we have to do it. We also 
have to do something about encouraging more nurses to get into 
the profession of teaching. You and I discussed this.
    Ms. Capps. Yes.
    Secretary Thompson. This is a shortage. This is the 
bottleneck right now.
    Ms. Capps. Yes.
    Secretary Thompson. Because the applications are going up, 
but we don't have the professors and the people that are doing 
the teaching necessary to get the increased number of students 
to go through the nursing profession.
    So I thank you. I am looking at some ideas on that. I am 
going to come and talk to you about it. I thank you.
    The second thing--in regards to the Medicaid proposal right 
now, the States get checks. The States get a DSH check. The 
States get an SCHIP check. And the States get a Medicaid check, 
and they get an administrative check. What we are going to do 
is we are going to, if the States want to do it on a voluntary 
basis, combine that into two checks, one for acute care and one 
for long-term care, for those States that want to do it.
    The voluntary program is going to allow for the States to 
use the SCHIP money. As you know, not all of the States are 
using the SCHIP money.
    Ms. Capps. I know. But they----
    Secretary Thompson. And California is one of them. They 
send it back. Under the new provision, they will be able to use 
that SCHIP money. There will be no turnback. They will be able 
to use that money for children.
    Ms. Capps. Okay.
    Secretary Thompson. And be able to do that. And if you 
could only just give me an opportunity to explain this very 
quickly. What we are going to do--right now, the States have 
got to put in an allotment. They get paid down on a quarterly 
basis. What they are going to be able to do is they are going 
to have two accounts. They are going to have a long-term care 
and acute care.
    This money is going to come in. They are going to have to 
maintain the mandatory populations under the mandatory 
guarantees that the population has right now.
    The optional population that the States now have added on, 
with the Governor and the State legislature, those are the ones 
that are being dropped. But we are hopeful with the new amount 
of money, the additional $3.25 billion, will come in, and it 
will come in to the States. They will be able to maintain their 
commitment to that population or be able to change it.
    So in Northern California, they may be able to give 
different services, different co-pays, for people in the 
southern part of California for the optional population or 
optional services. We are hoping that will allow them to be 
able to develop a better program. We are hoping that States 
will come in with a guaranteed minimum of insurance for the 
program and be able to set up an insurance program for their 
citizens and the optional populations.
    And then, the third thing is if they go into the voluntary 
program, they will get the additional money--$12.7 billion over 
7 years. But to get this money, they are also going to have to 
pay less, because under the existing law, in order for the 
States--in order to get the money, the Federal match, they have 
to do every year three things. They have to take into 
consideration the increased population, the utilization, and 
the indexing increase of the medical costs.
    And we are saying under this proposal, if they do it, we 
will waive the increased population. We will waive the 
utilization. The only thing the States will have to pay will be 
the indexing increase of medical costs, which is a reduction of 
the amount of money that California will have to pay if they 
take the deal, or any other State will have to pay, which 
actually adds up another 1 percent in the Federal match, which 
makes it 3 percent.
    So the States are going to get the flexibility. They are 
going to get the opportunity to extend the benefits if they so 
desire. And they will be able to get more money and less 
payment in to get it.
    Ms. Capps. Could I ask you to--it sounds like the SCHIP 
might be part of that non-mandatory population.
    Secretary Thompson. That is what it is right now.
    Ms. Capps. Right. And what I am curious--in followup with 
your staff, could we find out how much of the $3.25 billion our 
State of California would be getting under this new proposal?
    Secretary Thompson. Sure, I can get that.
    Ms. Capps. And I would like to get that----
    Secretary Thompson. I don't have it off the top of my head, 
but----
    Ms. Capps. You and I are going to work on the nurse money, 
because I--that conversation is ongoing.
    Chairman Tauzin. The gentlelady's time has expired.
    Ms. Capps. I know.
    Chairman Tauzin. The issue has not.
    Ms. Capps. Thank you.
    Chairman Tauzin. And we will keep working on it.
    Secretary Thompson. If you would just get over the thought 
that this is a block grant.
    Ms. Capps. I didn't use the word.
    Secretary Thompson. And look at the tremendous 
opportunities that a State like California, or any State would 
have. I am confident that I could convince you that this is the 
right thing to do. And I am confident that States, on a 
bipartisan basis, are going to support it.
    Ms. Capps. But this----
    Chairman Tauzin. The gentlelady's time has expired.
    The Chair recognizes the gentlelady Ms. Wilson for 8 
minutes.
    Ms. Wilson. Thank you, Mr. Chairman. My colleague, Mr. 
Shimkus from Illinois, was not able to stay, but he asked me to 
read this statement into the record.
    Right now, the State of Illinois receives the lowest 
Federal match allowable by law. While serving 4.5 percent of 
the national Medicaid population, Illinois receives only 3.6 
percent of Medicaid funds.
    Mr. Secretary, I thank you for being here today, and I 
wanted to talk about two things and ask you a question. In New 
Mexico, if my neighbors, the Batemans or the Garcias, who are 
both elderly, if they go to the doctor, the Federal Government 
reimburses that doctor for a doctor's visit of $57.22. If they 
lived in New York, your Department would pay that doctor 
$75.50, about a third more.
    And it is not just the elderly. My daughter--our family is 
covered by managed care, but we had to go for some out-of-
network care recently. They tie what gets paid to the Medicare 
reimbursement rates that are set by the Federal Government. If 
you were talking to a doctor in Albuquerque or Bernalillo, New 
Mexico, what would you say to him to convince him to stay in 
New Mexico and practice medicine rather than go to Texas or 
Colorado or New York or Florida where he could get a 30 percent 
raise?
    Secretary Thompson. I would tell him that New Mexico is a 
beautiful State to live. It has got a great quality of life, 
and I would strongly urge them to come and live there.
    What you are asking me to do is to change something that I 
cannot change. There is a statutory way that we determine the 
reimbursement formulas on Medicare. Seventy-one percent of the 
reimbursement formula, which was set up a long time before I 
came here, was set up because of the wage costs. And it just 
happens that New Mexico wage costs are lower than they are in 
New York, and that makes up 71 percent of the reimbursement 
formula. I can't change that. You can change that; I can't.
    Ms. Wilson. But that is a wonderful segue, Mr. Secretary. 
Today, we have introduced and reintroduced, both in the House 
and the Senate, the Medicare Equity Act that tries to address 
this problem, and recognize that we have a national market for 
health care providers, not a local market, and that these 
provisions and law are creating a shortage of health care in 
States like New Mexico. And I very much appreciate your help 
and support for making the system more fair, because it is 
killing us.
    Secretary Thompson. Congresswoman, I agree with you. You 
know, when I was Governor of the State of Wisconsin, it was 
my--Wisconsin got less reimbursement than the State of New 
Mexico. And so I was opposed to the system as it was then. But 
I can't change the law. I can tell you what the problem is. I 
can encourage changes. We need to modernize it. That is why 
Medicare really needs to be handled this year.
    We need to really do a real housecleaning on Medicare and 
strengthen it, take care of some of these inequitable 
situations, and try and improve it. And I thank you so very 
much for the question.
    Ms. Wilson. I did want to ask you and commend you and the 
President for your leadership on the problem of HIV and AIDS. 
Mr. Brown and I on this committee are focused on the issue of 
tuberculosis. And as you well know, 15 percent of the AIDS 
deaths, and half of the AIDS deaths in Africa, are--actually, 
the immediate cause of death is tuberculosis.
    Secretary Thompson. That is true.
    Ms. Wilson. And it affects--it is not only a national--an 
international crisis and a crisis in Africa, there is the 
growing problem of multi-drug resistant tuberculosis that has 
huge impact here in the United States.
    And I know that when we talk about the AIDS program and 
this major initiative that you are undertaking and leading, we 
lump together sexually transmitted diseases, HIV, AIDS, and 
tuberculosis, at the CDC. And I wanted to ask you if you could 
be a little more specific as to what is included in this effort 
to eradicate tuberculosis, because we have the treatment 
available now to go after it in a worldwide way to eradicate 
the problem.
    Secretary Thompson. Well, most of the dollars are going to 
go to the Department of State. The portion that we have is 
really for mother-to-child transmission to mother to child. And 
it is a wonderful program, and we have set up a program. It was 
a result of my visit to Africa. I came back with Tony Falchua. 
We visited several countries last April, and we came back and 
we said, ``We have to do something for the mothers and 
children.''
    And we came up with this program for mother to child, and 
that is----
    Ms. Wilson. I am sorry, sir. Is this for tuberculosis or 
for AIDS?
    Secretary Thompson. It is for AIDS, but it also is going to 
have a tremendous impact on tuberculosis. We do not have the 
real program on tuberculosis. That is really in USAID. The 
program we have is for mother-to-child transmission. It is----
    Ms. Wilson. Are you familiar with--or should we just ask 
the State Department as to of this huge new effort we are 
undertaking, are we going to within that effort be able to 
focus the resources and eradicate tuberculosis?
    Secretary Thompson. Absolutely, because it has to be. As 
you have indicated, the evidence is quite overwhelming. The 
number of deaths come from tuberculosis, the majority of the 
deaths do. And we are hoping that through Congress, and with 
the President's valiant leadership on this thing, that we are 
going to be able to work with States through the Department of 
Health and Human Services and be able to develop more programs 
on tuberculosis, malaria, and also on fighting the HIV/AIDS.
    And the President is absolutely committed. I appreciate 
your question. I thank you for your passion on the subject. It 
is a huge fight, and I just think the President should be 
congratulated each and every day for his leadership on this 
effort.
    Ms. Wilson. Thank you. Mr. Chairman, I yield the balance of 
my time, so that others can have an opportunity to ask some 
questions.
    Chairman Tauzin. I thank the gentlelady, and the Chair 
recognizes the gentleman Mr. Strickland for 5 minutes.
    Mr. Strickland. I have only one question, and I think it 
probably won't take the full time. Thank you, Mr. Chairman.
    Mr. Secretary, your budget would commit about $200 billion 
in new funding for a State voucher program for substance abuse 
treatment services. According to your budget, ``This new State 
voucher program will increase substance abuse treatment 
capacity, consumer choice, and access to a comprehensive 
continuum of treatment options, including faith in community-
based organizations.''
    In your submitted testimony, you state, ``For some 
individuals, recovery is best assured when it is achieved in a 
program that recognizes the power of spiritual resources in 
transforming lives. Under this new program, individuals with a 
drug or alcohol problem who lack the private resources for 
treatment will be given a voucher that they can redeem for drug 
treatment services. The program will give them the ability to 
choose from among a range of treatment options, including 
faith-based and community-based treatment facilities.''
    Mr. Secretary, I agree. I, at one time, served as a United 
Methodist Minister, and I certainly agree that faith-based 
programs can be an important source for those struggling with 
substance abuse problems. However, I do have a concern. How 
will the program you envision ensure that the providers of 
services to those who use these vouchers are qualified? And 
will there be standards for licensure or standards for 
training?
    And one further aspect of the question. As you know, many 
people who suffer from substance abuse also have co-occurring 
mental illnesses. How will this voucher program ensure that 
those who have these dual diagnoses are able to receive 
appropriate care?
    Secretary Thompson. Congressman, first, thank you for your 
leadership in this effort. I know of your background of being a 
psychologist and a minister, your tremendous compassion for 
this particular subject. It is--the voucher program is going to 
be set up through the Governor's office and the State 
legislators. And the Governor is going to have to set up the 
program, and they are going to have to be accountable to the 
Federal Government for their performance.
    They are going to have to set up the performance standards 
and how the program is going to work in the individual State. 
We are not going to mandate it from the Federal Government. The 
President feels very strongly that we need to get this money 
out to the States as quickly as possible, unencumbered, as much 
as possible, with the overall responsibility for the Department 
of Health and Human Services to monitor what the States do and 
how they set up their performance.
    Mr. Strickland. Thank you.
    Mr. Chairman, before I yield back my time, let me say that 
I disagree with the Secretary about a lot of things, but the 
Secretary is somebody that I personally admire and respect, and 
I just--I wanted to say that. Thank you for your time today.
    Secretary Thompson. Thank you very much, Congressman. I 
appreciate that very much.
    Chairman Tauzin. Let me, for the sake of the members and 
for the Secretary ask the Secretary, how much time do you have 
remaining to share with us?
    Secretary Thompson. If I could go to the bathroom, I could 
probably stay all afternoon, Congressman, but----
    Chairman Tauzin. Would you like a break at this point? We 
have about 4 or 5 other members who are on the list to ask 
questions at this point.
    Secretary Thompson. If I could be out----
    Chairman Tauzin. How about we take a 10-minute break? We 
will come back in 10 minutes. Let us do that. Is that okay?
    Secretary Thompson. No, let us go ahead.
    Chairman Tauzin. You want to go ahead?
    Secretary Thompson. Yes, sir.
    Chairman Tauzin. You are healthier than I thought. The 
Chair recognizes Mr. Buyer for 8 minutes.
    Mr. Buyer. Thank you. Noted that there has been a 165 
percent increase since 1990 in the Medicaid program.
    Secretary Thompson. That is right. It is the fastest-
growing program that we have.
    Mr. Buyer. I also note that much of this has been caused by 
States which have expanded program eligibility, added new 
benefits in the areas, whether it is for weight loss, substance 
abuse. The list goes on and on. some have even accused some 
States of operating the gold-plated Medicaid-type program.
    When you talk about reforming Medicaid, what role, if any, 
should the Federal Government have here? I am kind of caught 
between this policy of trying to give greater authority or 
flexibility, empowerment to States, but you have got some 
States that absolutely have gone way overboard where other 
States have tried to act responsibly. And you just can't say, 
``Well, Federal Government, give me more money, give me more 
money.''
    And it is almost caught where, what, is the Federal 
Government going to have to come in and say, ``No, we are only 
going to send money for these types of elective procedures''? I 
am just curious if you can expand on what type of reform you 
are going to recommend.
    Secretary Thompson. Congressman, the Medicaid budget is 
growing faster than Medicare and faster than any other program. 
And we are trying to address the Medicaid problem by looking at 
how successful we were with SCHIP and TANF. And we gave the 
States block grants for those programs. We are not block 
granting the Medicaid program.
    But what we are doing is we are going to allow the States 
and the optional population, which is one-third of the 
population but two-thirds of the cost, because it also allows 
for the States to come up with programs for two-thirds of the 
options. It is two-thirds of the cost of Medicaid.
    To allow States to innovate, such as the State of New 
Mexico, which came in with a HIFA waiver--half of the 
population of the State under 2 percent of poverty was not 
insured. Under the waiver, the State will contract with managed 
care organizations for a benefit package.
    Utah, a primary care network, it was able to take--Utah was 
able to take a waiver that I gave them and take a population 
which had higher benefits than what the Governor and the State 
employees and the State legislature had in Utah.
    Mike Leavitt, the Governor there, came up with an 
innovative idea and said that if I could reduce the Medicaid 
population, which is optional, to have the same benefits as the 
State health contract, I could extend the benefits to at least 
25,000 more people that live in Utah and save money. And I 
thought that was a good idea, and so we did it, and he did it. 
And that is another one of the ideas we have.
    A third way, in long-term care, if a State would 
voluntarily go into the program on long-term care. The way it 
is right now, the usual way to do it is to put individuals into 
a nursing home, an institution, because the money follows the 
decision by the State and goes to the institution. We think a 
better approach would be that the money would go to the person, 
would follow the person, and allow that person to be able to 
have their independence and make a choice to live in their own 
home. It would be easier.
    Three States--the States of Florida, Arkansas, and New 
Jersey--came up with an idea on cash and counseling for the 
disabled community. And we gave them the opportunity to try 
something new, and we gave them--those States gave those 
individuals the cash to make the decisions to buy their own 
medical care.
    The people loved it. The States loved it. And they save 
money. These are just a few ideas off the top of my head that a 
new Medicaid proposal would be better for the individual. You 
could actually expand the coverage, and you would have better 
coverage and be able to allow for some savings of dollars for 
the States.
    The final thing is, in Medicaid, in order to get Medicaid 
it has to be uniform. You will go into a particular program, 
and every State is different. You have urban areas, and you 
have rural areas. And you are not able to always give uniform 
treatment in coverage from a rural area versus an urban area. 
It is more expensive, if you have to have the same type of 
coverage in a city as you do in a rural area, in some 
instances. In some instances, just the opposite.
    But what we are trying to do is allow the States the 
flexibility to look at their State, to manage their Medicaid 
budgets, and be able to develop better innovative programs to 
meet their optional population. At the same time, maintaining 
the guarantees for the mandatory populations that Congress, 
you, and every other Member of Congress has said we should do.
    Mr. Buyer. I have a specific question in the area of fraud.
    Secretary Thompson. Did I answer your question?
    Mr. Buyer. Yes, thank you. On the issue on fraud, if 
someone on your staff could let us know how much of the fraud 
in judgment has been classified as uncollectibles.
    Secretary Thompson. I will get that information. I don't 
know that off the top of my head, but I will get that 
information.
    Mr. Buyer. Because there are many civil judgments out there 
that basically you are having to write off. So it sounds like a 
great number, but if someone no longer has the ability to pay, 
or they are sitting in jail and they are going to do it in 
payments over time, I am curious about what that number is.
    Secretary Thompson. I would be more than happy to get that 
information to you.
    Mr. Buyer. That would be fine.
    Second, when I read different articles, and they try--they 
make these accusations that fraud accounts for approximately 8, 
9, 10 percent of the Medicaid program, could you testify as to 
what it is? What is the number across the spectrum in fraud in 
the States?
    Secretary Thompson. I really can't. I can get that.
    Mr. Buyer. Could you get----
    Secretary Thompson. It is pretty hard to measure it, 
because, you know, people look at it in different ways. But I 
don't think it is that high, but I don't know if we have ever 
really quantified it.
    I just was handed this. Medicare they said is allegedly 
around 6 percent. But it could be more than that.
    Mr. Buyer. Do you work--do you feel like you have good 
cooperative--strike that. Do you feel that there is good 
cooperation between the Federal Government and the States in 
the area of fraud?
    Secretary Thompson. Could be better, but I think it is--I 
think we handled the investigations very well in the 
Department. Every year we are increasing the amount of money 
that we are taking in on fraud and abuse claims, and we are 
getting bigger and bigger judgments.
    So our Department works closely with the Department of 
Justice. We do the investigations. They do the prosecution.
    Mr. Buyer. Do you----
    Secretary Thompson. But I think we have done a good job.
    Mr. Buyer. I know that during the 1990's the Clinton 
administration took a lot of--whether it is the FBI and 
others--and focused their attention on Medicare/Medicaid fraud. 
And now we have shifted our focus away from that. Has there 
been any impact upon your Department with----
    Secretary Thompson. No. Because our Office of Inspector 
General continues to do the investigations, and we are doing 
it--we are very aggressive. In fact, we have expanded our 
investigations into--we have got offices now in every State in 
America, which hadn't been done before I came.
    Mr. Buyer. Okay.
    Secretary Thompson. So we are actually being very 
aggressive. We are also being very aggressive on child support, 
which is another one of my passions. We have increased the 
amount of child support collections, which is good for poor 
mothers and children.
    Mr. Buyer. I will be a good listener to your request for 
greater flexibility to the States for cost efficiencies.
    Secretary Thompson. Thank you.
    Mr. Buyer. And if you could get the answer to me on the 
uncollectibles on fraud, I would appreciate it.
    Secretary Thompson. I would be more than happy to, 
Congressman.
    Mr. Buyer. Thank you. I yield back.
    Secretary Thompson. Thank you for your questions.
    Chairman Tauzin. I thank the gentleman, and the Chair 
recognizes the gentleman from Louisiana, Mr. John, for 8 
minutes.
    Mr. John. Thank you, Mr. Chairman.
    Also, thank you, Mr. Secretary, for spending several hours 
with us on issues that are very important. And also, I am very 
pleased with your commitment to addressing the West Nile Virus. 
As you are aware, this member, along with a bipartisan group, 
has passed a bill out of this committee that is waiting in the 
House to try to address West Nile as it relates to mosquitos 
and other issues.
    Of course, you know, mosquito season is year-round in 
Louisiana, but it is going to start very aggressive here in the 
next couple of months. So----
    Secretary Thompson. I hope you can come over and see my 
command center, because we attract--we track the West Nile 
Virus, and we have got it up on a big map, and it is just very 
revealing.
    Mr. John. Well, it is an issue that a couple of years ago 
may have been unique to Louisiana, because of the mosquito 
population in Louisiana. But since May of last year when I 
first introduced the bill, it has become an epidemic across the 
country, and is no longer just secluded to the States that have 
mosquitos. So thank you for that commitment on a disease that 
we need to know a little bit more about.
    Also, I commend you on a very difficult task that you have. 
Medicare reform, Medicaid revamping, prescription drugs, the 
high cost of the uninsured population, and, of course, just the 
rising costs of public and private health care. You know, there 
was a Wall Street Journal article that I was reading the other 
day that in 2001, it was 14 percent of the GDP.
    By 2012, they are predicting that it could be 18 percent of 
the gross domestic product, which is very significant, and it 
is an issue that I think is of utmost importance to the 
American people. I believe that it has taken a very partisan 
road up to this point on a vast variety of those issues. But I 
think the American people want us to address health care in all 
of the things that I talked about, and we are going to have to 
get out, roll our sleeves up, and do them.
    One of the things that I am concerned about as it relates 
to my home State of Louisiana is that Louisiana gets today 
about 70 percent Federal match in its Medicaid dollars, 
approximately. And that is for every person we cover, 
regardless of whether it is mandatory or optional.
    I am not hung up on words and phrases of block grants or 
using that as a buzz word. I am just concerned for Louisiana. I 
would like to know a yes or no answer, because I want 
flexibility. Unless you can convince me otherwise as we move 
through this process, I believe that what you are trying to do 
will provide less flexibility for Louisiana.
    And I guess I want a yes or no answer. If my State takes 
this new option--Louisiana, today we get 70 percent, are we 
still going to get a 70 percent match----
    Secretary Thompson. Yes.
    Mr. John. [continuing] on that?
    Secretary Thompson. Yes. Yes.
    Mr. John. Will that apply to every single person in 
Louisiana that is now covered in Louisiana.
    Secretary Thompson. Under the mandatory population, yes.
    Mr. John. But not the optional.
    Secretary Thompson. That is up to the State and the State 
legislature. If the State wants to continue it, they will 
continue getting the same match on the optional population. It 
is completely discretionary to the State, the same way it is 
right now. This law doesn't change, Congressman.
    The State of Louisiana, and the Governor, could change the 
law right now and drop all of the optional population and----
    Mr. John. Correct. But today they are serving a very--
Louisiana has a disproportionate share of the population in the 
optional, of course, and poor people.
    Secretary Thompson. But that could--that is completely 
discretionary with the Governor under the old law. It will be 
completely discretionary with the Governor and the legislature 
under the new law, and they will still maintain their 70 
percent, Congressman.
    The beauty is is that the Governor and the legislature, 
under the new procedure, will be able to change the mix if they 
so desire, but still will get 70 percent. And they will----
    Mr. John. Seventy percent on the mandatory. So I am just 
trying to understand. I am trying to overlay this onto 
Louisiana's scenario. So you would--it would be under the 
auspices of the legislature and the decision of the legislature 
whether to provide--continue to provide the optional population 
as it is today. But you have a population that is receiving 
benefits today.
    Secretary Thompson. All right.
    Mr. John. If we select your option, then what you are doing 
is saying that we are going to base it on 2002. And in the own 
words of your budget it says that the size of each 
participating State's allotment will be determined by 2002 
expenditure levels increased annually using a specified trend 
rate, not on a population. It is going to be on the--I think 
you said, what, 9 percent.
    But what happens in Louisiana where they get an influx of 
uninsured or a huge factory closes down, and we have got more 
uninsured today that are not--or more poorer folks today that 
would qualify. I mean, today we have that flexibility to move 
up and down in that optional program and still get to 70 
percent.
    Under your proposal, the way I understand it, is that we 
may not have that flexibility, because the legislature will 
have to cut or readjust or revamp the optional side.
    Secretary Thompson. No.
    Mr. John. Is that not true?
    Secretary Thompson. That is not true. States will have the 
option, the same way they have right now, to maintain that 
optional population and get the 70 percent.
    Mr. John. But if I run out of my allotment, because it is a 
capped--at some point in time----
    Secretary Thompson. It is not a cap on the mandatory 
population.
    Mr. John. Yes. But I am speaking about the optional. The 
whole population, mandatory and optional, is what I would like 
to make sure, because we are providing those services today, 
and we are getting the 70 percent match.
    Under this, I am just concerned that under the optional 
part, if we run out of the allotment, we won't get the 70 
percent match, and we are going to have to either cut the 
services to these optional folks or do away with them, and, of 
course, that will have to be up to the legislature to fund 100 
percent of it.
    So I am not necessarily opposed to what you are trying to 
do. We have to address the rising costs of Medicare. I just 
want to make sure that we provide as much flexibility as we can 
and not--and the way I see it, provide less flexibility in 
Louisiana if the allotment runs out on the optional side.
    So can you help me understand?
    Secretary Thompson. Let me try. The trend line is what the 
existing law is. The trend line is 9 percent.
    Mr. John. Okay.
    Secretary Thompson. Okay? It is going to be adjusted. It is 
adjusted every year. We look out for 10 years. What do we think 
the trend line is going to be? We do that right now. We thought 
when we had the 9 percent that is what it was going to be. Next 
year we have seen that the increases have been higher, so the 
trend line is going to be 10 percent. The Federal Government 
puts in that amount of money.
    Mr. John. Okay.
    Secretary Thompson. Okay? Under the current law, and under 
the future law, if Louisiana takes the choice. Louisiana----
    Mr. John. But that is a specified amount of money. Is that 
not how it happens today?
    Secretary Thompson. It is an amount of money that is put in 
that is appropriated each year by Congress. Okay?
    Mr. John. Okay.
    Secretary Thompson. The State of Louisiana can make a 
choice. Do they want the existing law--they would have that 
choice, or do they want the new law? The State of Louisiana 
could maintain the existing law, and they would continue on. 
They just would not get the increased money up front, the $3.25 
billion for the portion that will go to Louisiana.
    Mr. John. As the incentive to join one of these programs.
    Secretary Thompson. The incentive. And it would not, 
Congressman, get a reduction of payment that the State of 
Louisiana would have to make to the United States Treasury.
    Chairman Tauzin. The gentleman's time has expired, and the 
Chair will recognize----
    Secretary Thompson. So it is completely left up to the 
State.
    Mr. John. Thank you.
    Chairman Tauzin. The gentleman----
    Mr. John. I look forward to working with you.
    Chairman Tauzin. Mr. Walden is recognized for 5 minutes.
    Mr. Walden. Thank you,Mr. Chairman.
    I want to get off on a bit of a different topic. I spent 5 
years on a nonprofit community hospital board, and, as I 
watched that operation work, it struck me--and as I meet with 
physicians and other provider groups, the enormous amount of 
money that is spent on paperwork.
    Secretary Thompson. Absolutely.
    Mr. Walden. Are you looking at some kind of an initiative 
to help with that? I have thought about we ought to just create 
some test area out in rural Oregon somewhere, and say you get 
the same amount of money next year as you got this year, 
without all of the regs, and let us measure health outcomes and 
the ability to provide service. Can you help more people with 
less paperwork? Could you talk to that?
    Secretary Thompson. I certainly can, and thank you very 
much for asking me the question.
    First off, we set up an advisory committee headed up by Dr. 
Douglas Wood, a 39-member committee that went around the 
country and asked, what regulations can we get rid of? They 
came in, gave me a report last December, a couple of months 
ago, and with I think 155 suggestions on how we can reduce the 
paperwork. We have already instituted 31 of those in the area 
of MTALA, privacy, and so on and so forth--reducing the 
paperwork.
    For one instance on home health, they had to fill out a 
form that required I think it was 10 pages. We got that down to 
two pages. And just one example.
    The second thing is is that we are trying--we are 
standardizing the technology standards, so that hospitals and 
clinics, what the problem has been in the past, hospitals and 
clinics go out and capitalize and buy new technology as they 
find out that they can't, you know, interact with their other 
carriers, their other hospitals. So we are standardizing the 
thing so we have uniform technology across America that will be 
much easier to access and work.
    The third thing is we are putting in $50 million for 
demonstration plant in this budget for new technology. And 
hopefully we will get hospitals in your State of Oregon to be 
able to look at that and be able to come up with new techniques 
on how we can use it.
    The fourth thing, which I mentioned earlier, and I would 
like somebody to do it--I would like to take--we get about a 
billion dollars a year out of fraud and abuse, every year. I 
would like to take half of that money, $500 million--it has got 
to be a State legislature--or a State--or a Federal law, but 
take $500 million out of that, put it into a small fund called 
the Billy Tauzin Hill Burton Fund. What?
    Well, I like that name. But anyway, put it into the fund 
and take that $500 million, and then allow your hospital from 
the State of Oregon that wants to capitalize and go into new 
technology, based upon the new standards, would get $1 for 
every $3 they invest. And we could change--we could change the 
delivery of hospitals. We could reduce the paperwork 
considerably, save costs, and it would be a wonderful, 
innovative thing. And this committee could lead the way.
    Mr. Walden. Thank you. I appreciate that.
    Let me switch to a different topic, and it is one that I 
think is on everybody's mind, and that is the threat of 
bioterrorism.
    And one thing I continually hear out in my district is the 
concern at the very local level, the health clinic level, the 
county health department level, about the adequacy of resource 
getting out, especially as we looked at small pox inoculations. 
And then, the competition between that and other inoculation 
programs that are in place, and how they do it all.
    Can you speak to the administration's proposals relative to 
that?
    Secretary Thompson. Absolutely. We are putting in--after 
this budget, we will have put in $9.3 billion. And this year, 
we sent out $1 billion to State and local units of government. 
We asked the State and local units of government to come in by 
April 15th of this past year with their comprehensive plans, 
how they would use this State or Federal dollars in order to 
implement their biodefense, and also how to educate, how to 
improve communications, how to get their emergency workers 
better prepared to handle the situation.
    We have sent that money out. All the money was sent out by 
June 1. Not all the States have drawn down the money as fast as 
I think they should, but they are working on it. We now, in the 
fiscal year 2003 budget, have got an additional $1.4 billion, 
and we are putting in $940 million back to the States, $518 
million into hospitals' for surge capacities.
    We are asking the hospitals first year to have a surge 
capacity in each region of about 500. This year, it is 
ratcheted up to 1,000. Next year, it goes to 1,500, in case 
there is a bioterrorism attack of small pox or botulitim 
toxins, and so on. And this is all being coordinated by the 
Department of Health and Human Services out of the Secretary's 
office and out of the biopreparedness office that I set up, as 
well as HRSA, FDA, NIH, and CDC.
    We will have connected by the end of this year 90 percent 
of the health departments with a Health Alert Network, which is 
a communication network by the Department, CDC, FDA, and NIH, 
so we can send out information every day if need be. We are 
also going to have now laboratories hooked up to a laboratory 
capacity network, and we have gone from 88 laboratories to 124, 
and this year we will be over 240 laboratories.
    Chairman Tauzin. The gentleman's time has expired.
    The Chair recognizes Mr. Allen for 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for taking some additional 
time to let those of us in the front row ask questions as well. 
We appreciate it. I did want to second the comments of Dr. 
Norwood about the need for standards in your own proposal, the 
need for standards for insurance companies as they play 
whatever role you intend them to play.
    I have three quick unrelated questions, which I will try to 
get them all out to you. The first, Healthy Maine Prescriptions 
is a program that--a vital program in Maine. It is being done 
through a Medicaid waiver right now. It has been up and 
running. It provides a reduction in prescription drug costs of 
about an average of about 20 percent to 112,000 people in 
Maine.
    The program was suspended in Federal court on December 24, 
pending further action by your Department. The Maine--we are 
told by the Maine Department of Human Services that your 
Department may require the State to reduce the eligibility cap 
from 300 percent of the poverty level to 200 percent of the 
poverty level, in order to have Healthy Maine Prescriptions 
reauthorized. That would reduce the potential participants from 
225,000 to 38,000.
    And I want--the first question is, will you reauthorize 
that plan? And what would it take to persuade you that 300 
percent of the poverty level is a better way to keep people 
healthy and keep them out of Medicaid? That is one question.
    The second question, how would you expect the prescription 
drug plans to work in Medicare if they are going to be offered 
through the private insurance market? Particularly in rural 
States like Maine where Medicare Plus Choice hasn't worked very 
well, either for beneficiaries or for the companies.
    And, third, in relation to the debate that has been going 
on, many States have constitutional amendments regarding 
balanced budgets. And as I understand what you are trying to do 
in Medicaid, over the long run you are basically--what you are 
doing would stabilize the Federal expenditure on Medicaid to 
some extent. If that happens, wouldn't it logically lead to 
more fluctuation in the State level as particular States go 
through recessions and others don't?
    And, you know, you have--recessions don't affect all States 
equally. There can be a lot of geographic variation. And what I 
am concerned about is year-to-year variation and people 
qualifying for Medicaid and then being driven off because the 
State simply can't afford it.
    Those three. Thank you.
    Secretary Thompson. First off, I have been working--I was 
working very closely with Angus King before his term expired in 
Maine. This has been up to many machinations in court, and we 
are working with Maine right now. But it has been our policy to 
limit the coverage to 200 percent of poverty, and there has to 
be a connection to Medicaid. But we are working with the State 
officials, as we speak, and hopefully we can reach an agreement 
on it.
    The second one in regards to Medicare, how it will work, 
even in rural Maine, Federal employees, foresters, and people 
that are employed by the Federal Government, are covered by the 
Federal Employees Health Benefit. In the most rural Maine to 
the most rural areas of Alaska, all Federal employees under the 
private insurance market have coverage. And so we think the 
same kind of market would be available for Medicare if we 
decided to go that way.
    The decision has not been made, but you asked me how it 
worked. It will work the same way that Federal employees in 
rural Maine now are covered under the Federal Health Insurance 
Program as they would under Medicare.
    Mr. Allen. But that is a requirement that is laid down by 
the Federal Government with respect to the Federal employees, 
is that right?
    Secretary Thompson. That is correct. And the same 
requirement would be laid down for Medicare coverage as well, 
if, in fact, we went that way. But that decision has not been 
made, and I want to point that out.
    The third thing on Medicaid--let me try and explain this 
very simply. Medicaid has been around a long time. And Congress 
has decided certain populations have to have certain minimum 
requirements. There are mandatory benefits and mandatory 
populations. That stays the same.
    Every year we have to project out what the costs are going 
to be for Medicaid. We have projected out for 10 years, which 
is our requirement. We have done that. We have to adjust that 
every year because more people may come into the system. There 
may be higher indexing costs of medical expenses. There may be 
more utilization as the population gets older.
    And so what we are saying is that stays the same. That 
trend line will--is going to remain. We have to recompute that, 
and it keeps going out for 10 years. But under the procedure, 
if Maine wanted to do it, Maine would have the opportunity, 
which it does now under the existing law, to drop optional 
populations or optional services, we will continue that.
    But we would also change the Medicaid law that the State of 
Maine would be able to devise a health care package for those 
people that they wanted to cover. For that population, the 
money would be there. They would get the same match that they 
currently are. It will be completely voluntary, left up to the 
Governor and the State legislature.
    For that, we are going to advance some dollars, forward 
funding, $12.7 billion over 7 years. The first year there will 
be an additional $3.25 billion. I don't know what Maine's share 
would be, but Maine would get an increase. And that would be 
the same for 7 years.
    And then, the eighth, ninth, and tenth, which would be 
2011, 2012, 2013, Maine would still be getting an increase, but 
their trend line would go below what the rest of the States 
would be. Their trend line may only be going up at 8 percent 
instead of 10 percent or 11 percent, but the trend line would 
be below that for the last 3 years.
    But then, the State of Maine would also get another 
benefit. The other benefit would be is that the State would 
have to pay less dollars to get this money, because under the 
current law you have to take into consideration, in order to 
get the Federal match every year--Maine does--three things. 
What the increased population is in Maine; two, what the 
utilization is; and, three, what the index increase is for 
medical costs.
    We are going to waive the first two--the increased 
population as well as the utilization. Only the indexing 
increase of medical costs will the State of Maine have to pay. 
So that will be a reduction.
    That is approximately a billion dollar a year reduction for 
the States, which equates to almost 1 percentage point increase 
in the Federal match for this program, so it will continue to 
get--so Maine will get more money up front, less payment out to 
get it, more flexibility to develop the program.
    The only thing we are asking Maine to do is to split the 
program. So instead of getting four checks from the Federal 
Government, one for disproportionate share, one for Medicaid, 
one for SCHIP, and another check for management, administrative 
things, they will get two checks--one for acute care and one 
for long-term care.
    And we are asking the State to develop a program for the 
acute care and the long-term care, so that they will be able to 
take new innovations that are out there, and we hoping that in 
Maine they would go to the elderly population and allow the 
State of Maine to give those individuals the cash to buy the 
kind of services they want--cash and counseling, which three 
States have--but also allow the elderly population in Maine to 
be able to stay in their own home instead of going to the 
nursing home, to save money and have a higher quality of life 
in some cases.
    And so that is what the Medicaid does. It is not that 
radical. It really is going to allow States the flexibility to 
be able to develop a very comprehensive and a very innovative, 
exciting, new coverage, usually for more population.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Allen. Thank you.
    Chairman Tauzin. By the way, I will take a break at this 
moment and point out, I don't know if you noticed, but the 
committee ends up under this new rule listening a lot more than 
talking. I just wanted you all to reflect with me. I think this 
is working.
    Now the Chair recognizes Mr. Rogers for 8 minutes.
    Mr. Rogers. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. I want to just commend you for 
the work that you are doing. Thank you for taking the leap in 
the Federal Government. So I want to commend you not only for 
your work but your bladder control today. Thank you for that. I 
appreciate it. We have asked----
    Secretary Thompson. I am going to have to go very quickly.
    Mr. Rogers. I will make it quick, then. We don't want to be 
responsible for any troubles you may have with that.
    I was pleased to see in the 2004 budget the President 
completing out the doubling of NIH, and that means that roughly 
1,500 scientists every year that NIH could hire in addition to 
where they are at. One thing that you and I chatted about 
briefly when we were in Michigan was the idea of pain care 
education and training, something that is woefully neglected in 
health care today and an incredibly growing problem all across 
America.
    I wanted to get your thoughts on the possibility of support 
for a national center of pain and palliative care research--
regional centers, so that we can hopefully shove some of these 
doctors and nurses and anesthesiologists into the notion of 
adequate pain care understanding for acute care, chronic care, 
cancer, and HIV pain-related activities. And I was wondering if 
I can get your thoughts on that, if I may, sir.
    Secretary Thompson. It happens to be a--it happens to be 
one of the real growing areas of medical therapy. And I happen 
to have spoken to their national conferences for the last 2 
years, and they are really coming up with some innovative 
solutions. NIH is working with them, at the Institute on Pain, 
that the NIH has got some exciting new programs. I am all for 
it. I think it is going to be very helpful.
    And I am still working on getting your 45 pediatric beds to 
Afghanistan. I haven't forgotten. I----
    Mr. Rogers. Thank you, sir.
    Secretary Thompson. I have taken it up with the Department 
of Defense, and I am going to go back to Afghanistan to open up 
I hope our first maternal child clinic, and I hope to be able 
to take the 45 pediatric beds with me. And I am giving you 
credit for it, sir.
    Mr. Rogers. They are ready to go, sir. Thank you very much. 
I appreciate it.
    Secretary Thompson. I don't want you to think I forgot.
    Mr. Rogers. No, I know you didn't. And in interest to your 
bladder, I am going to give back the balance of my time, 
because I want those beds in Afghanistan, Mr. Secretary.
    Chairman Tauzin. The gentleman yields back the balance of 
his time, and the Chair recognizes Ms. Schakowsky for 5 
minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary.
    I know you are frustrated explaining why this isn't a block 
grant, and I am going to add to that frustration, I guess, 
because here is my question.
    Secretary Thompson. I am not frustrated. I just want you 
to----
    Ms. Schakowsky. No, I understand. I mean, I feel like maybe 
I am missing something here, so let me ask what I think is a 
simple question that may clarify it, at least for me.
    Secretary Thompson. Okay.
    Ms. Schakowsky. What if Illinois, who--and I agree with Mr. 
Shimkus' statement that we don't get back as many as--as the 
Medicaid patients that we have and the amount of money that we 
spend. But that is another matter, and Illinois needs more 
money.
    But if we run out of money, we opt--we take your option, we 
run out of money for the mandatory covered people, will the 
Federal Government provide that money?
    Secretary Thompson. Yes.
    Ms. Schakowsky. Unlimited. So when you say it is being 
adjusted up to 10 percent, or whatever, 11 percent, and we go 
beyond those dollars, no matter what, the money is going to 
come for those who are under the mandatory program. So there is 
no cap.
    Secretary Thompson. No cap.
    Ms. Schakowsky. There is no cap.
    Secretary Thompson. That is the increase. That is the trend 
line on the mandatory population. The mandatory population 
stays the same.
    Ms. Schakowsky. Okay. It is not true, then, that if the 
money runs out, the State must still cover mandatory people 
using State money. That is not true.
    Secretary Thompson. They have to use their State match.
    Ms. Schakowsky. No, the match.
    Secretary Thompson. But they will get the Federal match, 
yes.
    Ms. Schakowsky. They will continue to get the Federal 
match.
    Secretary Thompson. Same as the existing law.
    Ms. Schakowsky. Okay. Now, this program that you have 
offered is budget neutral. So, in fact, aren't these dollars 
really just a loan? It is up front, but in the end don't the 
States, including those that have not taken the option, have to 
return the Federal funding through program cuts in later years?
    Secretary Thompson. No. No, it doesn't. They still will 
always get an increase, because the trend line keeps going up. 
That is the difference between a block grant. It is not level 
funding, Congresswoman. Every year the amount of money going 
into Medicaid will increase. This year it is going up from 
$162.4 billion to $176.6 billion, a $14 billion increase.
    Next year it will be 10 percent on top of that, so it will 
be an additional $18 billion----
    Ms. Schakowsky. But it could be--the amount of money that 
you actually lay out could be significantly higher than that if 
there are needs in States----
    Secretary Thompson. But that----
    Ms. Schakowsky. [continuing] to cover more people.
    Secretary Thompson. The amount of money keeps growing every 
year. What we are trying to do is we are trying to allow the 
States the flexibility. The States are also going to get 
another tremendous benefit because not only will they get 
advance money that you are talking about, forward-funded $12.7 
billion, the States will have to pay less--if they take the 
option, will pay less to get the Federal match.
    It will be a savings of about a billion dollars a year, 
because, as I indicated, we are only--we are going to waive 2 
of the 3 factors that the States will have to pay in. So it is 
a tremendous deal for the States.
    Ms. Schakowsky. And what happens in 2011?
    Secretary Thompson. In 2011, they will still get the great 
deal, because they will pay less money in. But right now, the 
State of Illinois--I don't know what your Federal match is. 
About 55 percent?
    Ms. Schakowsky. Fifty.
    Secretary Thompson. Fifty percent. Okay. So you get 50 
percent----
    Ms. Schakowsky. We would love 55 percent from you.
    Secretary Thompson. You are going to get--if you take the 
deal, you get 53 percent.
    Ms. Schakowsky. We would like 55 percent.
    Secretary Thompson. Well, I will----
    You have got to settle for 53 percent. Okay? So you go up. 
If Illinois took the deal, if you kept the same, you would 
continue on under the existing law and continue getting 9 
percent this year, 10 percent next year increases. Under the 
new voluntary program, the first year you would probably get 13 
percent, and then 11 percent, and then 12 percent, and it would 
go up like this.
    When you get out here to 2011, the lines cross. And then, 
you would still be getting an increase, but instead of getting 
the 10 percent increase, the State of Illinois would only be 
getting a 7-percent increase.
    Ms. Schakowsky. The numbers I see starting 11, 12, and 13, 
are pretty substantial negative numbers.
    Secretary Thompson. But they are still increases. There is 
still an increase of 5, 6, and 7 percent.
    Ms. Schakowsky. And we still wouldn't be able to cover the 
number of people who may need it, if these--if it is negative 
numbers; that is, relative to the increases we really face.
    Secretary Thompson. Well, you can--yes, but you can choose. 
You can choose--you can stay in the existing program if you so 
desire, Congresswoman, or you can try the new way. I am 
confident your Governor will take the new way.
    Ms. Schakowsky. Well, because we are in a crisis right now, 
but it looks like down the road we are going to be in a bigger 
one.
    Chairman Tauzin. Well, the gentlelady's time has expired. 
But I think that is an important point that everyone ought to 
keep in mind. Whatever is being suggested is not a mandatory 
new program for the States. What you are simply suggesting is a 
second choice, if the States want to make it, is that correct?
    Secretary Thompson. That is absolutely correct, 
Congressman----
    Chairman Tauzin. I thank the gentleman.
    Secretary Thompson. --Mr. Chairman.
    Chairman Tauzin. Mr. Otter is recognized for 8 minutes.
    Mr. Otter. Well, thank you, and thank you, Mr. Secretary, 
for being here. I think we only have to go back a few years, 
although I wasn't in Congress when we went through welfare 
reform.
    Secretary Thompson. That is correct.
    Mr. Otter. The tremendous success that we had at your 
leadership, and all of the nay-sayers that were saying it 
wasn't going to work, it wasn't going to work. Well, Idaho was 
one of those States--I was the lieutenant Governor of Idaho 
then--that had a very high success rate.
    Within 3 years we had lowered our welfare rolls by 78 
percent. People had a lot more pride in themselves, went back 
to work. They were getting a paycheck rather than a welfare 
check, and they appreciated that. And I think that is much of 
what you are offering us today.
    Let me begin by just encouraging you to read most of those 
written opening statements that were not read, or were not 
presented to you today. It was much more important, at least as 
far as I was concerned, to listen to your testimony rather than 
to provide you with a verbal offering of my written statement.
    But there are many things in there that I can--I would like 
to speak to about the problems that we have with rural health 
in Idaho and some of the dislocations as far as the repayment 
for services that Ms. Wilson from New Mexico talked about.
    You can go ahead and call them block grants if you want to 
with me. I remember that is what we called them with welfare 
and with some of the other things. That doesn't scare me, 
because I have a lot of confidence in my Governor. And I have a 
lot of confidence in my State agencies.
    And, more importantly, I have a lot of confidence in the 
people of Idaho, that when they see that they are going to have 
a shared responsibility here, that they are actually going to 
be in control of part of their life. That that is not maybe 
such a bad idea, because it worked before under your 
leadership, and, quite frankly, I think that it can work again.
    I will tell you this. Many of my constituents paraded 
through my office after they had seen the President's budget, 
and said, ``We want you to put this back in. We want you to get 
that back in.''
    And speaking to Mr. Walden from Oregon's question, I just 
want you to tell them--I just want you to know what I tell them 
is I am supporting the President's budget.
    Now, if you will come back to me and show me where we can 
reduce rules and regulations, reporting responsibilities, that 
will lessen the impact of the money that you do get on your 
operations and on your administrative costs, I will go to work 
to try to remove those.
    So I was very happy to hear your response to Mr. Walden 
relative to the fact that you have already got, what, 31, 33 
initiatives that you have begun to reduce those costs and to 
provide the State with a few more options and a few more 
opportunities to lead themselves.
    Let me say, though, the one thing that I find missing in 
the budget, and maybe that is to come at another time, is I 
don't see an enlarged responsibility for the individual 
themselves to take responsibility for their own health care 
needs or more responsibility for either themselves or for their 
family.
    And I don't know whether we do it through tax incentives or 
we do it through tax incentives for the entire family, but I 
would like to see a much larger role played. Now, perhaps there 
are those that want to take care of everybody cradle to grave, 
but I don't think that grows the individual. And I think what 
makes this country great is the growth and the strength of the 
individual, not necessarily just the collective.
    But in a couple of statements that were made to you, 
relative to the private sector and insurance companies, I want 
to know, how can we force the insurance company to make--to 
provide coverage on certain things, without also having a 
corresponding expectation, a behavioral change.
    Let me give you an example--obesity. And that is one that 
we have talked a lot about, and you have just mentioned what 
the cost is to the United States.
    If there is an illness directly related or aggravated or 
encouraged by obesity, would we then find that the private 
insurance company who is now being forced to provide some kind 
of coverage, would they also be provided--say along with a 
means test, they would also be provided with an achievement 
test?
    You have lost so much weight, and so you are reducing the 
aggravation of the obesity. Can we balance this so that the 
private sector isn't going to be held totally responsible for 
coverage of people that in some cases may not be wanting to 
help themselves?
    Secretary Thompson. You have raised several points, and 
first let me congratulate you on being lieutenant Governor and 
working on welfare. And I remember talking with you in Idaho 
many times, and I think you are going to be an outstanding 
Congressman.
    Mr. Otter. Thank you.
    Secretary Thompson. I thank you very much for running.
    In regards to TANF versus Medicaid, I think Medicaid is 
going to be more exciting and more successful than the TANF 
proposal. I think this new way of Medicaid, and I think once 
people get comfortable with it I think Governors are going to 
buy into it, and I think on a bipartisan basis they are going 
to say, ``This is exciting. It is going to be successful.''
    You asked what thing you can help lead a fight on. There is 
a big cost factor that we can't get through the Congress, and 
that is is that we have got to change the contracting of our 
fiscal intermediaries and our contract carriers.
    These are the people that pay the bills for Medicare. There 
is over a billion transactions annually, and we are restricted 
on getting fiscal responsibility, and we cannot directly 
contract out for these individuals. They have to be nominated 
by State health departments, and so on and so forth.
    It would be a huge saving. We have to have 50--right now we 
have 50 fiscal intermediaries and contract carriers. We could 
do the job with 10. We could actually do it with four, but we 
cannot do it because the law prevents us.
    In regards to prevention, this is the greatest way in which 
we can reduce the costs of health care is by getting people to 
live healthier and eat correctly and exercise. How you set that 
up--I have been trying to think, coming up with a tax credit 
for people to lose weight. But how do you actually know that 
people have lost the weight? I don't know. I don't know how you 
would be able to enforce that.
    But I think insurance companies have got to be encouraged 
to look at ways to allow for lower health insurance premiums 
for those people who take better care of themselves. And that 
is something that you and I can work on. It would be a great 
achievement, if we could come up with a solution. I don't have 
the solution yet, but I have been working on it.
    Mr. Otter. Thank you. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman. I yield back.
    Chairman Tauzin. I thank the gentleman for yielding back, 
and the Chair recognizes Ms. Solis for----
    Secretary Thompson. I really have to get going, Mr. 
Chairman.
    Chairman Tauzin. I will tell you what I have got. I have 
Ms. Solis for 5 minutes, Mr. Green for 8, Mr. Stupak is here 
for 5 minutes. Can you handle that?
    Ms. Solis. I won't take 5 minutes. I won't take 5 minutes, 
Mr. Chairman.
    Chairman Tauzin. Can I ask all of you to abbreviate?
    Ms. Solis. Yes. Actually, I just----
    Chairman Tauzin. The Secretary has been most patient. Ms. 
Solis is recognized.
    Ms. Solis. Thank you.
    Secretary Thompson. I had an appointment at 12:30, and I--
--
    Chairman Tauzin. I will try to hurry everybody, Mr. 
Secretary.
    Ms. Solis. I will be quick. Thank you, Mr. Chairman.
    Mr. Secretary, I am going to go off the subject a little 
here and ask about a program initiative that this 
administration has been supporting, and that is the abstinence 
program, the component that is actually offered through your 
Department, the public health component.
    I am wondering if there is any evaluation that has been 
done on those programs and if you could shed some light on what 
their performance has been.
    Secretary Thompson. There is always evaluations. I can get 
you that information, Congresswoman. I don't have it at the tip 
of my----
    Ms. Solis. Okay. That would be great. I would like to see 
that, because I am very concerned this leads into also where we 
are looking at prenatal care and for the----
    Secretary Thompson. Sure.
    Ms. Solis. [continuing] high teenage pregnancy----
    Secretary Thompson. I would be more than happy to get it.
    Ms. Solis. [continuing] that occurs within the----
    Secretary Thompson. I just didn't think that subject was 
going to come up, and so I----
    Ms. Solis. Well, it relates to my district, we have a high 
number of teenage pregnancies among low income, and especially 
Latina teenagers, and I am looking to see----
    Secretary Thompson. I would like to work on an initiative 
for you.
    Ms. Solis. Great. Next question is with respect to--I want 
to applaud the administration also for taking on this issue of 
chronic diseases, which also is very prevalent in our Latino 
community. Obesity, asthma, and heart disease----
    Secretary Thompson. Diabetes is epidemic in the Hispanic 
communities.
    Ms. Solis. And I am asking that because I want to know how 
much moneys are going to be really targeted to your youth media 
campaign. Last year my understanding is that there was no money 
provided. This year there is a proposal to expand that. And how 
do we catch up? I mean, we are far behind now. And is there any 
mechanism to really go after these groups of individuals that 
may not speak our language and come from a very different 
cultural perspective.
    Secretary Thompson. We do. Just about everything the 
Department is doing now is in both Spanish and English. And we 
are doing that with all of our information, all of our 
messages, all our Medicare announcements. We are doing that, 
because it is the right thing to do, and it is something that I 
feel very strongly about.
    And we have spent--we had $125 million 2 years ago to set 
up a program for advertising for youth, and the next year it 
was $65 million. We didn't use that money because we were in 
the process of setting up the program. Now we are rolling that 
program out. It is called VERB. It is for the tweeners, the 
ages of 9 to 13.
    It is allegedly quite successful. I personally didn't think 
it was going to be successful, but I am not a tweener. And the 
tweeners say that they have responded quite nicely to it, and 
that is what we have to do. But I----
    Ms. Solis. Can you share that information?
    Secretary Thompson. I would strongly urge you to work with 
us, because I am trying to get some new initiatives into the 
Hispanic communities all over America, as well as the American 
Indians, because that is where the epidemics are as far as 
diabetes is concerned.
    Ms. Solis. And one last question, Mr. Secretary.
    Secretary Thompson. And the $125 million for prevention is 
a wonderful new program. I hope you can support it.
    Ms. Solis. The other question I have is with respect to the 
National Healthcare Disparities Report that is scheduled to be 
released at the end of the fiscal year, and I wanted to ask you 
if you have any updated information about that report.
    Secretary Thompson. We have updated information. I will get 
it for you.
    Ms. Solis. That is a real concern as well with respect to 
the different communities that we are trying to address here. 
Thank you very much, Mr. Secretary.
    Secretary Thompson. Thank you. Thank you.
    Ms. Solis. Thank you, Mr. Chairman.
    Chairman Tauzin. Thank you, Ms. Solis.
    The Chair recognizes Mr. Green for 8 minutes, or less if he 
will be kind to the Secretary.
    Mr. Green. Thank you, Mr. Chairman.
    I understand, Mr. Secretary, and I appreciate--and the 
committee does--your time this afternoon. You and I have talked 
before and come from the State of Texas, and my first question 
is on the CHIP issue. And I know the chairman and our ranking 
member have legislation to try and allow the States who didn't 
expend those CHIP moneys to have 50 percent of them back.
    I have a bill that would allow, for example, the State of 
Texas and other parts of the country who didn't use it--the 
Office of Management and Budget, if we--if the States lose that 
money, estimates that there will be 900,000 children who lose 
CHIP coverage. Is there discussion within the administration 
about the 50 percent, allowing the States to retain 50 percent? 
Obviously, I would like 100 percent, because in Texas we lose 
$285 million for children's coverage.
    Secretary Thompson. I answer that two ways. Last year we 
had requested in the budget, which never got passed, all of the 
unused SCHIP money to go back to the States, not to take 
anything back into the treasury. This year I think it is a 
quarter, and you are increasing that to 50 percent.
    Mr. Green. Yes.
    Secretary Thompson. We are discussing that, we are looking 
at it, and I think we are quite supportive of it.
    The third thing is under the new Medicaid provision, if the 
State of Texas would go into it--and I am fairly confident the 
State of Texas would, once they get to understand it, that they 
would be able to use the SCHIP money, the unused money would 
stay there and they could determine how that money is going to 
be spent.
    Mr. Green. Okay. Well, and that brings up--because our 
Governor gave a State of the State last--yesterday, and he 
talked about cutting our Texas Medicaid. And if you are 
familiar with Texas, we are not near as, I would say, rich as 
Wisconsin in our Medicaid. But cutting it 6 percent--$600 
million in State Medicaid, and that includes the $900 million 
of Federal matching funds----
    Secretary Thompson. Right.
    Mr. Green. [continuing] I think, and so it is frustrating 
to see that happen.
    Let me ask a question on the Medicaid and diabetes because, 
again----
    Secretary Thompson. I am fairly confident that if the State 
of Texas--if we had the new Medicaid laws, the State of Texas 
would not be using--would not be doing that.
    Mr. Green. Okay. In 1987, you signed a law in Wisconsin 
that required insurance plans to cover diabetes supplies and 
services. And you were the first Governor to do that and to 
sign such a law, and the law was real specific telling insurers 
also what they need to cover with regard to diabetes.
    The good news is that, you know, in Wisconsin, in the 
States that have followed it, diabetes-related complication is 
on the decline. And in the case we have seen some comprehensive 
and prescription laws by--prescriptive laws have been the best 
to go.
    Unfortunately, what we are seeing now in certain States, 
they are proposing to eliminate some of the diabetes coverage. 
For example, California is proposing to eliminate coverage for 
durable medical equipment and diabetes supplies for its 
Medicaid enrollees. And Oregon is proposing limiting durable 
medical equipment. Ohio optical services, and different 
provisions--I know in Texas we are doing some of the same 
things.
    My concern is--and if by the increased effort, for example, 
on diabetes in select--whether it be expanded populations, 
African-American, Pacific Islanders, we have a problem, and 
sometimes related to income. I know the flexibility for our 
States is good, because I served 20 years in the legislature. 
But I also know that it is--they could be penny-wise and pound-
foolish. And like you said, we need to look at what saves us 
money in the long run, and, if we can, do some of these things 
early.
    I am concerned that the flexibility will force the States 
to make some of those tough decisions. If you could share with 
us just how you would----
    Secretary Thompson. See, that is what is happening right 
now, Congressman. States are dropping it. I don't want States 
to drop these. I think it is more important to give the States 
the opportunity to restructure the Medicaid budgets so they 
don't do this.
    I think it is a terrible mistake to drop the diabetes thing 
that I signed into law in 1987. And I was happy to sign it. And 
we have to do more of these things. It is an epidemic situation 
in America; 17 million Americans have diabetes, 16 million are 
pre-diabetic, and we spent $100 billion last year.
    And the new Medicaid law would give the State of Texas the 
flexibility to design their Medicaid provisions, and give them 
the flexibility, plus the additional money to make sure they 
wouldn't drop it. I am fairly--see, that is happening under the 
existing law. That is why we should change it.
    Mr. Green. Okay. Let me ask one last question, Mr. 
Chairman, and I will give some time back.
    The Medicaid drug rebate--the program----
    Secretary Thompson. Yes.
    Mr. Green. [continuing] what exactly is the President's 
Medicaid drug reform proposal, whether the drug rebate 
protections will continue to apply to the block grants, so our 
States can still take advantage of it? And if the protections 
don't continue to apply, how are we sure that our constituents 
will be able to get that drug coverage?
    Secretary Thompson. I would say the--we are going to 
continue the rebate program. It has worked out very effective.
    Mr. Green. Well, it seems like in--what I saw contains a 
discrepancy in the savings achieved from reforming the Medicaid 
rebate system. The budget indicates your proposal would save 
$6.4 billion, on page 319. But on page 61, it indicates--the 
brief indicates it would be $13.2 billion.
    What I am concerned about is that rebate proposal has been 
beneficial to our States for Medicaid. And, again, Texas only 
provides a very limited amount of Medicaid prescription 
benefit. But I am worried we would even lose that if we didn't 
have that rebate provision.
    Anyway, you might get back with us.
    Mr. Chairman, I am going to--Mr. Secretary, I know it is 
time--I have got some questions I would like to submit if we 
could submit them.
    Secretary Thompson. Give me a call or----
    Mr. Green. Thank you, sir.
    Secretary Thompson. [continuing] send me a letter over, 
Congressman.
    Mr. Green. I will do it.
    Chairman Tauzin. Yes. And I would encourage all members who 
have additional questions to consider submitting them in 
writing. The Secretary has been most patient and his time is 
out. I still have other members who were not here.
    First of all, Mr. Issa passes. I thank him for that.
    Now, we have other members who were not here when we opened 
the session. And I want to recognize you, but I will ask you, 
please, to be courteous to the Secretary's time. Mr. Pallone?
    Mr. Pallone. Mr. Secretary, I will try to be quick. I 
wanted to ask one question about dietary supplements and then 
another one about the Indian Health Service. And, you know, if 
you can't answer them, you can get back to me later.
    Secretary Thompson. Sure.
    Mr. Pallone. And I brought these up--the issue of the 
dietary supplements up last year at this time when you came for 
a similar hearing. My disappointment basically is with the 
FDA's responsibility. As you know, Congress intended with 
DSHEA, the Dietary Supplement Health and Education Act, to make 
a clear difference between false, misleading, deceptive claims, 
and legitimate claims.
    And, unfortunately, you know, the FDA hasn't answered the 
industry's request for guidance in these areas by using its 
authority to regulate. The most important thing here are the 
GMPs, the good manufacturing practices.
    I had mentioned it last year. They were supposed to be out, 
you know, last year. They are still not out, and so, first of 
all, I would like to know whether they are going to come out 
soon and when. And, second, you know, the FDA has been 
complaining that they can't do the proper regulation and 
enforcement, because they don't have enough money. But the 
budget doesn't seem to reflect a significant amount of money, 
so that they could make a difference.
    Secretary Thompson. Congressman, I am not satisfied with 
the response to you, or to the law. The law was passed in 1994. 
I mean, it is about time. I am very happy to be able to report 
to you, because I knew you were going to ask me the question. 
It is out of the Department. It is in OMB--the rule--and the 
rule should be out, we think, within days.
    Mr. Pallone. Okay. Well, I appreciate that, and I hope it 
is days instead of months. But we will see.
    Secretary Thompson. And hopefully you will like it, and it 
is a subject that I am interested in, too, as well, and I am 
looking at it. And I apologize to you.
    Mr. Pallone. No, you don't have to apologize. Let me ask 
you one----
    Secretary Thompson. It is out of the Department, but OMB is 
slow.
    Mr. Pallone. Okay. Now, one of the suggestions that is 
being made is that within the FDA's Office of the Ombudsman, if 
we could appoint--and this doesn't require legislation--to 
appoint a dietary supplement person--in other words, a dietary 
supplement ombudsman within the Office of the Ombudsman, and, 
you know, I don't know that that would require additional 
funding, but I just ask if you would entertain that, to have 
somebody within the Office of the Ombudsman that specifically 
deals----
    Secretary Thompson. Yes, I would.
    Mr. Pallone. Could you follow up on that? Do you think that 
is a good idea?
    Secretary Thompson. Yes, I will. And thank you very much 
for the suggestion.
    Mr. Pallone. Okay. And I know that time is running out, so 
let me just get to the Indian Health Service.
    Chairman Tauzin. Quickly.
    Mr. Pallone. Is that all right? My concern, Mr. Secretary, 
is that, again, we are not getting enough funding for the 
Indian Health Service. In other words, you have a projected 
increase in the American Indian population of 1.5 percent per 
year for the next year. You know that the Consumer Price Index 
for medical care is projected to rise at about 4 percent per 
year. But the amount of increase in funding for the Indian 
Health Service is basically about 2 percent.
    If you think about the Consumer Price Index as well as the 
number of the population increase, you would have to figure you 
probably need double that. And my question relates to the fact 
that, of this amount that is in the President's budget, the 
$3.2 billion, which I think, you know, is inadequate, of this 
amount $560 million is health insurance collections--in other 
words, reimbursements for Medicare, Medicaid, and private 
insurers.
    And the majority of these reimbursements, in turn, are for 
Medicaid. But we know that many States in which the IHS 
operates are facing severe revenue shortfalls--you have been 
through this early today--and that they are likely to cut back 
on Medicaid eligibility benefits and provider payments.
    So what I am concerned about is that this budget, which is 
already, in my opinion, inadequate assumes an increase in 
health insurance collections, primarily in Medicaid, that 
aren't going to be there. And I am just, you know, wondering--I 
don't think it is likely that the Medicaid collections are 
going to increase. I think they are going to fall off. I mean, 
do you want to comment on that?
    Secretary Thompson. Well, first off, I would like to 
comment. I don't know where you got the figure that it is only 
up 2 percent. It is--our computation said the Indian Health 
Service went up $130 million, or an increase of 4 percent.
    Mr. Pallone. Well, I am----
    Secretary Thompson. I would be more than happy to sit down 
and go over the figures.
    Mr. Pallone. Yes. We can go off the figures more. But if 
you could, answer this question about why they are anticipating 
increases in the third party reimbursement, particularly 
Medicaid, when we know that right now there has been major 
cutbacks.
    Secretary Thompson. All I can tell you, Congressman, is 
that this is based upon our actuaries and our accountants. They 
are the ones that come up with these figures. I understand what 
you are saying. You make a sound argument. I really have no 
defense of our budget in regards to that, except to say this is 
what came up through the Indian Health Service, and I am sure 
it had the impact--input from the actuaries.
    Mr. Pallone. Well, what I will do is if you--with agreement 
of the chairman, if I can maybe follow up with some questions--
--
    Secretary Thompson. Absolutely.
    Mr. Pallone. [continuing] in this regard, because I am 
concerned that we are going to have a shortfall.
    Secretary Thompson. Thank you.
    Mr. Pallone. Thank you.
    Chairman Tauzin. The gentleman's time has expired.
    Mr. Stupak, if you can make it brief, sir. We have to go to 
a markup as soon as this hearing is concluded. Mr. Stupak?
    Mr. Stupak. Mr. Chairman, thank you.
    Secretary Thompson. Does that mean I can go, Mr. Chairman?
    Chairman Tauzin. No, you can't go yet.
    Mr. Stupak. Mr. Secretary, if I may, a quick question or 
two on the Medicaid block grant flexibility.
    Secretary Thompson. Yes.
    Mr. Stupak. And the question is really you had a press 
conference on January 31, and you said something, and I believe 
you said this. When you have a State--and you know I am from 
northern Michigan, so I agree with your comments--when you have 
a State as diverse and as large as Wisconsin or Michigan, but 
you went on to say that it is very difficult and very 
financially costly, almost prohibitive, to provide Medicaid 
services, but you have to.
    Once you start it in one place, which may be good in 
Milwaukee, but it may be extremely costly in Superior, which is 
way up in the northern part of the region, it allows States to 
be able to come up with a program that they could allow for the 
adjustment in geography.
    I guess I am--what do you mean by these comments? Are you 
implying that if a State found it too burdensome to guarantee 
people in rural areas access to service under Medicaid, the 
State would no longer have to do it?
    Secretary Thompson. Absolutely not, Congressman. In fact, I 
have stated I think no less than 15 times that the mandatory 
population is not going to be changed at all. The mandatory 
benefits are not going to be changed at all. It is only the 
optional benefits and the optional population that this 
Medicaid law--proposed law is--and it is completely voluntary, 
left up to the Governor.
    Mr. Stupak. So the flexibility only comes in on optional 
programs, not on the mandatory----
    Secretary Thompson. Optional programs and optional 
populations.
    Mr. Stupak. Don't have to worry about the kids in northern 
Michigan not getting treatment because it is too costly up 
there.
    Secretary Thompson. No. Absolutely not.
    Mr. Stupak. Okay. I have some other questions. I will put 
them in writing.
    One more, though.
    Secretary Thompson. Sure.
    Mr. Stupak. In the background we have, you have an 
additional $13 million for FDA and generic drugs.
    Secretary Thompson. Yes.
    Mr. Stupak. The drugs out in the marketplace----
    Secretary Thompson. Yes.
    Mr. Stupak. [continuing] do you have any more money for 
post-marketing surveillance, so they can find the problems 
that----
    Secretary Thompson. I think we put some more money into 
that, Congressman.
    Mr. Stupak. If you could get back with me on that, it would 
be interesting to know that.
    Secretary Thompson. Absolutely. But the $13 million----
    Mr. Stupak. Thank you.
    And thank you, Mr. Chairman.
    Secretary Thompson. [continuing] is put out there so we can 
get the generic drugs out faster.
    Chairman Tauzin. Thank you, Mr. Stupak.
    Unless any other member has a question that they are 
burning to ask--Mr. Wynn, you have one? Make it quickly, sir.
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. Thank you 
particularly for visiting the FDA site for consolidation in 
White Oak. That is a very important project for all Americans, 
and we are concerned that that project was zeroed out in the 
fiscal year 2004 budget.
    What we are trying to do with that project is bring 6,000 
employees who are now spread out over 39 buildings to one 
secure location and save the Government $400 million. If you 
could weigh in to help us get money in this budget, I would 
appreciate it. Or if we could get that money transferred to 
your budget, much as CDC is, it would help us----
    Secretary Thompson. I would like that. I would like that a 
lot.
    Mr. Wynn. Well, if you could talk----
    Secretary Thompson. If you could help me, I would 
appreciate that very much, because I was up there and it is--we 
absolutely have to do it. And I am working on it. I have 
weighed in on it. I have not been as successful as I would 
like, and I would appreciate your help.
    Mr. Wynn. Thank you. I am happy to do anything that I can. 
But thank you very much for your efforts.
    Secretary Thompson. Thank you.
    Mr. Wynn. I have no further questions.
    Chairman Tauzin. Thank you, Mr. Wynn.
    Mr. Deutsch, you have a quick question?
    Mr. Deutsch. Right. Just really one question.
    Thank you, again, Mr. Secretary. I appreciate it. My staff 
has been interacting with your staff regarding the issue of 
drug reimports from Canada. In fact, yesterday there was an 
interesting article in The Wall Street Journal talking about 
it, quoting an FDA saying the agency is exercising 
``enforcement discretion'' when it comes to Canadian medication 
imports.
    And, obviously, it is an issue which at this point we 
really don't have a feel for exactly how many people are 
availing themselves. It could be, if not in the tens of 
thousands, even the hundreds of thousands of Americans who are 
doing that.
    What I would ask you is that we actually, in the Oversight 
Committee, which I serve as the ranking member, we have 
scheduled a hearing in South Florida which seems to be 
particularly active in this area, to try to do some 
investigation from a committee level. And what I would hope is 
if your staff, you know, can work with us and meet with us, you 
know, on that so that we can really try together to really get 
a handle on this and what is the best approach to this issue.
    Secretary Thompson. I certainly will, and however I can be 
helpful to further the investigation, I would be more than 
happy to do so.
    Mr. Deutsch. I appreciate that. And as I said, I mean, at 
this point, they have not yet met with us, and that is a 
standing request. Thank you.
    Secretary Thompson. Thank you very much.
    Chairman Tauzin. Thank you, Mr. Deutsch.
    Mr. Secretary, again, thanks for your extraordinary 
patience. I hope you consider this a compliment to our 
committee's interest in the extraordinary work that you do, and 
we share jurisdiction over, as to the depth and length of the 
questions today.
    My apologies for keeping you as long as we have. But one 
final thought, I just want everybody in this country who may be 
tuning in to know how much we all deeply appreciate the fact 
that this country is safer today and healthier today because of 
the work you do, sir. We deeply appreciate and admire your 
work, sir. Thank you very much.
    Secretary Thompson. Thank you very much, Congressman. 
Appreciate that.
    Chairman Tauzin. The hearing stands adjourned.
    [Whereupon, at 1:57 p.m., the committee was adjourned.]
    [Additional material submitted for the record follows:]
      Responses Submitted for the Record by Hon. Tommy G. Thompson
            question submitted by representative nathan deal
    Question: Question regarding SCHIP The Administration's Medicaid 
Reform Proposal
    Response: Mr. Secretary, as I am sure you know, New York has a 
model S-CHIP program. Nearly 500,000 kids are enrolled and total 
program costs are approaching $1 billion annually. Yet, the annual 
federal allotment is just $230 million. Thus, NY is dependent upon 
redistributed funds to keep the program going.
    The President's Medicaid reform policy would lump all Medicaid and 
S-CHIP money together. As I understand, this is based on 2002 spending. 
Would this amount be based on the initial S-CHIP allotment or is it 
based on actual federal spending for S-CHIP taking into account what 
New York receives in redistributed funds?
    Also, under your proposal, would there be redistributions of unused 
funds for states who are able to expand and cover more children given 
the appropriate resources? As you know. It is less expensive to insure 
kids under S-CHIP than it is under Medicaid. With any reforms it is 
imperative that we do not short-change S-CHIP.
    Answer: The Administration's Medicaid Modernization proposal is 
completely optional for the states. If a state chooses not to 
participate, then their Medicaid and SCHIP program would remain the 
same as today. However, if a state did participate in the Medicaid 
Modernization proposal then the state would not have to worry about 
insufficient state funds to get its Federal match and risk taking money 
away from children to pay for other populations' mandatory services. 
The proposal guarantees funding for mandatory services for mandatory 
populations. The Administration does not believe that the intent of 
SCHIP legislation, to provide coverage for uninsured children, would be 
compromised in any way by the Modernization proposal. Rather, the 
President believes it is solid reform that will produce efficiencies 
and enable states to cover even more of the uninsured children. Indeed, 
the reform proposal builds upon the successes found in SCHIP.
    The base allotment for a state would be determined using the 
state's expenditures for Medicaid and SCHIP for FY 2002. The allotment 
would be increased annually by an inflation factor. A state would also 
have access to unspent SCHIP allotments up to the date it elected the 
optional Modernization plan allotments. The unspent SCHIP allotments 
would not be increased by an inflation factor.
    New York receives more than $230 million per year in allotments as 
stated in the question. In a recent letter sent to the New York State 
Medicaid Director, New York was informed of the interim redistribution 
payment amount for approximately $414 million that it will receive for 
its SCHIP program.
    Question: Regarding extending the 340-B provision to inpatient 
drugs at public hospitals.
    Prescription drug coverage clearly needs to be part of the Medicare 
benefit. While we work to achieve this goal, there are some immediate 
steps HHS can take to help patients who are particularly vulnerable to 
prescription drug costs--our nation's poor and uninsured. One step 
would be to remove a regulatory barrier that is preventing public 
hospitals such as the New York City Health and Hospital Corporation 
from accessing lower prices on inpatient pharmaceuticals. Currently, 
these institutions are paying 20-25 percent more for inpatient drugs 
than outpatient drugs as a result of the way that CMS interprets the 
``best price'' provision of the Medicaid rebate law.
    The VA has agreed to make a change in policy to allow these safety 
net hospitals to access lower prices but it cannot be effective unless 
CMS adopts a similar change. CBO has determined that this change would 
have no impact on the budget including Medicaid. It is my understanding 
that this change does not require legislation and can be addressed 
administratively. I am prepared to introduce legislation to clarify 
this situation but I believe CMS should do this administratively. Is 
CMS willing to make this change to help out our nation's safety net 
hospitals and their patients?
    Answer: CMS has not changed its policy at this time. Because of the 
current State fiscal crises, we are concerned that exempting the 
purchase of inpatient drugs by 340B hospitals from Medicaid ``best 
price'' will cause States to lose funds from drug rebates. We are also 
concerned that drugs purchased by 340B hospitals will be diverted to 
other institutions with which the hospital has a relationship. However, 
we are aware of the important job these institutions perform in serving 
communities and we are listening to the concerns of these institutions 
about the impact of the policy on their ability to serve the uninsured.
            question submitted by representative eliot engel
    Question: Today this Committee will mark-up the Patient Safety and 
Quality Improvement Act which, among other things, directs HHS to 
develop interoperability standards in an effort to reduce medical 
errors. Medical Informatics technology holds great promise for reducing 
medical errors. I know that HHS has been working to that end. However I 
am concerned that neither the bill nor the Administration's budget 
provides funding to test any standards to ensure their efficacy, 
usability, and scalability prior to the promulgation of standards.
    Mr. Secretary, don't you think that we should test any standards 
not only to ensure that they work but also to demonstrate to the health 
care community the benefits of adopting and using these technologies?
    Additionally, I fully expected a much larger increase for patient 
safety initiatives at the Agency for Healthcare Research and Quality 
(AHRQ). At a time when the Administration and the Majority here in 
Congress are championing medical malpractice reform I believe we should 
be doing all we can to prevent medical errors and improve patient 
safety.
    Even with a $29 million increase this year for AHRQ, we are still 
well below the year 2000 funding level. I intend to dedicate more 
resources to patient safety issues and hope that you and the other 
Members of this Committee will work with me to achieve that goal.
    Answer: NOTE: Despite two paragraphs on the adequacy of AHRQ's 
budget, the question does not specifically request a response on this 
point and the draft answer below doers NOT address that issue.
    Having recently seen the information system used by the Veterans 
Administration, I believe that the benefits of moving ahead on IT 
standards are significant. Adoption of integrated information 
technology (IT) systems is pivotal for public and private sector 
efforts to improve the quality and safety of patient care, as well as 
its efficiency and overall effectiveness. Significant progress has been 
in the past three years toward developing a consensus regarding IT 
standards and HR 663, which just passed the House of Representatives, 
calls upon HHS to play a leadership role in making use of these IT 
standards
    At the same time, by studying the early adopters, we can quickly 
identify implementation issues, and how the private and public sectors 
can work together to address them. In addition, as we proceed, our 
staff will determine whether there are aspects of these standards where 
the benefit of a short-term demonstration to assess efficacy, usability 
and scalability might be warranted. While the President's FY 2004 
budget request does not include funds specifically for such a short-
term demonstration, our request for the Agency for Healthcare Research 
and Quality does include $10 million targeted to overcoming barriers to 
the use of IT, which could be used if necessary to at least begin such 
a test.
                question submitted by rep. darrell issa
    Question: Will CDC allow the costs associated with smallpox 
vaccination and follow-up monitoring to be a reimbursable activity for 
counties and their hospitals? If not, why not?
    Answer: As you know, the Congress recently approved a supplemental 
appropriation of funds that will be provided to States to cover their 
smallpox vaccination costs. States will soon be notified of the 
availability of these funds and we are moving quickly to make the grant 
awards.
    Question: Will CDC propose legislation that will provide liability 
protection and workers compensation coverage for State and local 
entities that are administering smallpox vaccinations?
    Answer: This is an issue that was very important to me, the 
President, and the Congress. I am happy to say that due to our 
collective efforts--the Congress, my Department, and the White House 
working cooperatively on this issue--the President recently signed the 
smallpox compensation program legislation that the Congress enacted.
    Question: Will there be in the near future any special protections 
against potential cuts in Medicaid for government-operated skilled 
nursing facilities that are tied to acute care hospitals?
    Answer: There are currently no special protections planned 
regarding potential cuts in Medicaid for government-operated skilled 
nursing facilities that are tied to acute care hospitals.
    Under Medicaid, nursing facility (including skilled level) services 
are a mandatory Medicaid benefit and therefore all States must provide 
them regardless if the services are furnished by a free standing 
facility or hospital based facility.
    While States have flexibility to establish the payment rates for 
nursing facility services, States are required to do so through a 
public process under which proposed and final rates including the 
underlying methodology and justifications are published and interested 
parties are given a reasonable opportunity for review and comment on 
the proposed rate, methodologies and justifications. We believe that 
the Congress established this public process because it believed 
provider payment rates should be established at the local level. 
Further, the rates must be consistent with efficiency, economy and 
quality of care and sufficient to enlist enough providers so that care 
and services are available under the plan at least to the extent that 
such care and services are available to the general population in the 
geographic area.
    We strongly encourage these skilled nursing facilities, as well as 
all providers, to become involved in their state rate setting process.
    Question: The current CMS interpretation of the Medicaid Managed 
Care Regulations seems to indicate that there is a conflict of interest 
if County Public Health Departments perform enrollment broker services 
and does not provide an opportunity for rebutting this presumption. 
This interpretation would prohibit claiming of Federal Financial 
Participation (FFP) for performing these services in the future. States 
and local governments interested in performing the enrollment broker 
function should be permitted to rebut the presumption of conflict of 
interest. To that end:
    a. Was the Congressional intent in these amendments to really 
prevent any local health department from conducting enrollment broker 
services?
    b. Why is the conflict of interest being interpreted so stringently 
without a provision to rebut the presumption of conflict of interest by 
a showing that a public entity is independent?
    Answer: The section of the managed care regulations cited, 42 CFR 
438.810, follows the language found in section 1903(b)(4)(A) of the 
Social Security Act. Section 1903(b)(4)(A) of the Act prohibits FFP for 
amounts expended by a state for the use of an enrollment broker in 
Medicaid managed care programs unless the broker is independent of 
``any health care providers (whether or not any such provider 
participates in the state plan under this title) that provide coverage 
of services in the same state in which the broker is conducting 
enrollment activities.'' Since local health departments would normally 
be providers of health care services in the same state in which they 
may be performing Medicaid managed care enrollment activities, we 
believe the application of this exclusion to local health departments 
is consistent with the law .
    The provision prohibiting FFP for enrollment brokers where there is 
a conflict of interest is found in section 1903(b)(4)(B) of the Act. 
This provision prohibits FFP if a person who is the ``owner, employee, 
consultant, or has a contract with the broker'' has any direct 
financial interest with the managed care entity or health care 
provider.
    Both of the statutory prohibitions apply to all entities performing 
the enrollment broker function on behalf of a state. The statute 
contains no exceptions for public entities, or authority to deem 
independent status to an entity under this provision. We believe the 
regulations accurately reflect the provisions of the statute and 
Congressional intent.
    States may use local health departments as enrollment brokers using 
state-only funds, or may contract with these entities to provide 
outreach and other non-broker functions and claim FFP for their 
services. But states cannot claim FFP for enrollment broker services 
provided by the local health departments.
    Question: I am concerned that directing funding to Los Angles to 
solve their long-standing healthcare problems hurts other counties in 
the State. San Diego County is sixth largest in the U.S. and has had 
several hospital closures which puts a tremendous strain on a already 
precarious healthcare system. What is the level of financial support 
that we can expect for San Diego, Riverside, and other counties that 
would help bolster our healthcare infrastructure, especially for the 
underinsured or uninsured?
    Answer: CMS and the State of California consider Los Angeles County 
(LAC) to be unique and have not found it necessary to provide other 
counties with special programs similar to those that LAC has received. 
State and Federal funding provided through the Medicaid hospital 
disproportionate share program (DSH) and supplemental payments provided 
through the State's Selective Provider Contracting Program (SPCP) 
waiver should provide sufficient financial support for other counties 
in California.
    Question: Locally, county clinics and hospitals are seeing 
increasing numbers of uninsured patients at the same time costs are 
increasing, nurses are in short supply and reimbursements are 
decreasing. Does CMS have a strategy or plan to assist local government 
to provide safety net care?
    Answer: The Administration is very concerned about the uninsured 
and has proposed a variety of initiatives to support clinics in their 
work. The President's Budget contains a five year initiative to 
increase the number of patients served by community health centers, 
helping more than one million additional people receive health care in 
2004 through 230 new and expanded sites. The Budget also proposes to 
increase the number of health professionals to serve underserved areas 
by providing $23 million in new funding for the National Health Service 
Corps in FY 2004. The 2004 Budget also proposes to redirect resources 
from health professions grants for advanced nursing to the Nursing 
Education Loan Repayment and Scholarship Program, which provides 
education loan repayments and scholarships to registered nurses in 
exchange for a commitment to serve in health care facilities with too 
few nurses, which should assist clinics in recruiting and retaining 
nurses.
    The Administration has also proposed initiatives to reduce the 
number of uninsured including tax credits for the purchase of health 
insurance, funding to enable States to start or expand high risk pools 
to provide coverage, extending for five years the transitional medical 
assistance program which continues Medicaid coverage for one year those 
who transition from welfare to work and extending the availability of 
FY 2000 SCHIP allotments until the end of fiscal year 2004.
           question submitted by representative edward markey
    Question: Massachusetts and other states require immediate and 
meaningful federal support in order to maintain health care coverage to 
Medicaid beneficiaries. It is imperative that any federal action to 
address the current crisis must not put further financial pressure on 
the states, nor diminish the guarantee of coverage for our most 
vulnerable patients.
    Federal and state governments have an obligation and responsibility 
to maintain their financial commitment to the Medicaid. However, it is 
my belief that the Administration's Medicaid Reform proposal would 
sever the federal and state financial partnership and replace it with a 
fixed federal commitment and a state maintenance of effort, which 
begins to unravel the financial foundation of the Medicaid program.
    What incentives do states have to expand and improve their Medicaid 
program when there is a cap on federal matching?
    Answer: Because of the federal participation in Medicaid, states 
have a strong fiscal incentive to expand coverage under Medicaid as 
much as possible. Yet, 38 states have made program reductions in the 
past year: 13 cut eligibility; 19 cut services; 8 increased cost 
sharing; and 23 reduced provider payments. Over 70,000 beneficiaries 
already have lost coverage, and most states are considering new or 
additional eligibility or benefit reductions. The reason is that, under 
the current financing methodology, in order to draw down federal 
matching funds to expand eligibility, states must be able to increase 
state Medicaid expenditures as well. The simple reality is that states 
do not have the state funds needed to take advantage of the federal 
match to expand coverage. To the contrary, despite the loss of federal 
funds that will result, tight fiscal constraints are forcing states to 
cut their programs and reduce coverage.
    The Administration's Medicaid modernization proposal will enable 
states to avoid the cutbacks being made today, and even to expand 
eligibility, within current budget limits. It is able to do this not 
only by giving states an infusion of additional federal funds in the 
first seven years, but by providing states with considerable 
flexibility to streamline and restructure their programs. This, in 
turn, will enable states to spend their Medicaid dollars more 
effectively.
    The greater flexibility afforded to states in designing their 
benefit packages alone will help states to avoid eliminating, and even 
to expand, coverage. Because they would be able to tailor benefit 
packages to meet the needs of different populations, states would not 
be forced to eliminate an optional service for all beneficiaries or an 
entire optional eligibility group in order to save costs. Conversely, 
states would be more likely to expand coverage to optional populations, 
even in tight fiscal times, because they could offer a more modest 
benefit package--more in line with coverage in the private insurance 
market--rather than having to offer new populations all services 
covered under the state plan.
    The response to the Administration's August 2001 HIFA initiative 
undeniably demonstrates states' interest in expanding coverage to the 
uninsured, if given the flexibility to make appropriate programmatic 
reforms, even in these tight fiscal times. Moreover, the ability of 
states to streamline and simplify their programs under the reform 
proposal also will generate savings. Under the current funding 
mechanism, a reduction in state expenditures would result in a 
corresponding reduction in federal matching funds. Under the 
modernization proposal, however, the state's federal allotment would 
not be reduced. Thus, any savings generated by the state under reform 
could be used to expand coverage.
    Question: Families provide 70% of Alzheimer's care and they do this 
for as long as they can. But because Alzheimer's disease is a chronic 
disease and most people live with this disease for 8-20 years and 
health care and medical care is SO expensive, personal assets are 
exhausted. These patients depend on Medicare and half of these 
beneficiaries develop symptoms such as dementia and qualify and depend 
on Medicaid for treatment and care.
    The demand will expand exponentially since it is predicted that 16 
million baby boomers will develop Alzheimer's. Therefore the demand for 
long-term care, nursing homes, and Medicaid assistance will expand 
exponentially as well.
    How are we going to establish a health safety net now and for the 
future with huge tax cuts, inadequate Medicaid support, and giving 
``flexibility'' to the States, which could eliminate nursing home 
spending?
    Answer: Under the Administration's Medicaid modernization proposal, 
mandatory services for mandatory populations will be protected. This 
includes elderly individuals who qualify for mandatory coverage, 
whether or not they suffer from Alzheimer's disease. Nursing home care 
would continue to be guaranteed for such individuals who require a 
nursing home level of care and who cannot be cared for in alternative 
settings. And as I have already stated, protections for nursing home 
beneficiaries would continue to be enforced. Further, the 
Administration's proposal continues to provide funding for mandatory 
services for mandatory populations.
    Please keep in mind that the availability of open-ended federal 
funding has not enabled state Medicaid programs to grow in proportion 
to the increased need, because states simply do not have the resources 
to put up their share of the cost. By giving states increased 
flexibility in designing and administering their programs, the 
modernization proposal will enable states to avoid cutbacks, and even 
to expand eligibility without having to increase state expenditures. 
Any savings generated by the state under the reform proposal could be 
used to expand coverage--without the state having to appropriate 
additional state funds. These program savings can be used to then cover 
a greater number of beneficiaries in more appropriate settings.
    Within this broad framework, there are many details which need to 
be worked out, and we look forward to working with you and other 
Members of Congress and Governors to develop legislation that balances 
the flexibility that states need with appropriate beneficiary 
protections.
    Question: Secretary Thompson, as you are aware, the small pox 
vaccination program has started with a much lower participation than 
expected and needed. This program's success has been compromised by the 
Administration's reluctance to create a compensation program for the 
health care workers who will be injured by the smallpox vaccine. The 
Administration has included protection for the vaccine manufactures and 
hospitals but seems to have forgotten the people who could suffer the 
most the volunteers.
    The Institute of Medicine has criticized the vaccine program and 
has called for better screening, a system for covering lost wages and 
medical expenses for people who have adverse effects from the small pox 
vaccine. The unions have recommended that volunteers not participate in 
this program based on the risk and the lack of compensation for those 
who will have side effects, not due to negligence.
    The administration has wavered about whether you will work with 
Congress on legislation for a compensation program, Mr. Secretary are 
you going to work with us to create a sufficient compensation program?
    Answer: As you know, this is an issue that was very important to 
me, the President, and the Congress. I am happy to say that due to our 
collective efforts--the Congress, my Department, and the White House 
working cooperatively on this issue--the President recently signed the 
smallpox compensation program legislation that the Congress enacted.
             question submitted by representative joe pitts
    Question: Mr. Secretary, on June 28, 2002 you announced a $14 
million project between HHS and the Chinese Ministry of Health. I have 
a copy of your press release which I will submit for the record.
    Mr. Secretary, as I'm sure you are aware, the Chinese Ministry of 
Health is the entity tasked with enforcing China's one-child policy. 
All of the forced abortion regulations and orders emanate from the 
Chinese Ministry of Health.
    Just last year, the President revoked money from the UNFPA, in 
part, because they were working with this coercive abortion regime in 
China. Mr. Secretary, do you think it is appropriate for HHS to be 
working with the very agency whose actions our President condemned last 
year?
    Answer: It is the understanding of the U.S. Department of Health 
and Human Services (HHS) and the Department of State that the Chinese 
State Family Planning Commission (SFPC), and not the Chinese Ministry 
of Health (MOH), is the agency of the Chinese Government responsible 
for all matters relating to the development and enforcement of 
measures, both voluntary and coercive, to ensure Chinese families 
adhere to the limits laid out in national and local birth planning 
laws. The China SFPC drafts, promulgates, and enforces China's national 
birth planning regulations, which last year the Secretary of State 
determined to be coercive. Induced abortions are performed at SFPC 
clinics in support of SFPC birth planning regulations.
    According to Chinese law, the MOH has no role in the policy 
development, communication, regulation, or enforcement of the one-child 
policy. According to MOH law and regulation, MOH doctors and clinics 
are not required to report births, pregnancies, or abortions to the 
SFPC regardless of the ``kind'' of birth it may be or services they may 
provide; further they are obliged to provide health care to all 
children, regardless of registration status and are not required to ask 
about registration status when a child comes to a clinic. Given this 
distinction, we believe the MOH is a good and appropriate partner with 
whom to work on key public health issues, including HIV/AIDS.
    After a thorough review of HHS activities in China, we recently 
discovered that the Centers for Disease Control and Prevention (CDC) 
has engaged in a limited, staff-level interaction with the SFPC. This 
interaction apparently began in 2000 and most recently involved the 
training of an SFPC scientist in clinical trial design for studies 
related to contraceptive use. We have asked CDC to discontinue this 
cooperation.
    If you have further concerns regarding U.S. policy with China, we 
would refer you to the U.S. Department of State, with whom we work 
closely on issues such as this.
    Question: As you know, the Advisory Committee on Blood Safety and 
Availability reports to your office and former Assistant Secretary Eve 
Slater was the liaison to that Committee. With her recent resignation, 
what are you doing to assure that the availability and safety of blood 
and plasma therapies continue to receive the appropriate level of 
attention?
    Answer: I can assure you that the Advisory Committee will continue 
its work on blood plasma therapies. The departure of Dr. Slater will 
not have an impact on the agenda or the work of the Committee. In 
addition, Surgeon General Carmona is now supervising the activities of 
the Advisory Committee and he is actively involved in blood safety and 
availability issues. I appreciate your interest in this program.
           question submitted by representative john shimkus
    Question: Historically, states' Medicaid programs have reimbursed 
hospitals for less than the cost of their care. As a result most of the 
hospital care provided to Medicaid covered individuals has come from 
safety net hospitals with missions of serving patients regardless of 
their ability to pay. Since 1981, we in Congress have required states 
to make ``disproportionate share hospital'' (DSH) payment adjustments 
to hospitals serving disproportionately large numbers of low-income and 
Medicaid patients. Are the rumors true that the Administration's 
Medicaid proposal would effectively eliminate the DSH program, which 
serves our most vulnerable?
    Answer: Under the proposal currently allowable DSH expenditures 
would be included in the base year expenditures and those expenditures 
would be trended forward during the period that the State was in the 
modernization program. States would have the flexibility to target 
payments to hospitals and other providers based upon the particular 
needs in the State.
    Question: I understand that under the new proposal states will be 
given significant flexibility with their Medicaid and SCHIP funding. 
With all of the new flexibility, how can we ensure where the funds will 
go (meaning that the funds go toward health care and not highways) and 
that coverage will not be lost for those in unmandated groups?
    Answer: The proposal requires that the Federal allotments be spent 
only on health care needs of low-income populations under the 
modernization proposal and these funds cannot be shifted to other 
programs within the State. Additionally, each State that participates 
in the proposal will be required to have a maintenance of effort of 
current State funds spending so that they will not be able to use the 
Federal allotment to supplant State funding to be used for other 
expenditures in the state.
    As for the non-mandatory populations, states today have the ability 
to terminate their coverage. The greater flexibility afforded to states 
in designing their benefit packages and optional coverage groups under 
the modernization proposal will actually provide more protection for 
the optional populations. Thus, because they would be able to tailor 
benefit packages to meet the needs of different populations, states 
would not be forced to eliminate an optional service for all 
beneficiaries or an entire optional eligibility group in order to save 
costs. Conversely, states would be more likely to expand coverage to 
optional populations, even in tight fiscal times, because they could 
offer a more modest benefit package--more in line with coverage in the 
private insurance market--rather than having to offer new populations 
all services covered under the state plan.
    Question: Right now the state of Illinois receives the lowest 
federal match allowable by law. While serving 4.5% of the national 
Medicaid population, Illinois receives only 3.6% of Medicaid funds. How 
would this reform proposal address this inequality?
    Answer: Under current law the Federal government will match all of 
the Illinois Medicaid expenditures. Under the proposal, states would 
receive additional Federal funding amounting to $3.25 billion in FY 04 
and an additional $12.7 billion over seven years as the Federal trend 
rates would be higher in the initial seven years of the program. This 
additional Federal funding, coupled with the increased flexibility to 
manage its program, would enable States like Illinois to be able to 
address the demands of its Medicaid and SCHIP populations. As long as 
the state satisfies its maintenance of effort for state spending the 
state would receive all of its Federal allotment and any unspent 
Federal allotment would be carried forward from year to year.
    Question: I believe that the Medicare program should maintain 
equity vis a vis benefits, cost, and accessibility among its 
beneficiaries, who should not be disadvantaged or advantaged merely 
because of where the live. Rural beneficiaries should have the 
opportunities to enroll in plans that include outpatient prescription 
drug benefits comparable to those available to urban beneficiaries. 
Under your proposal can we ensure that the same basic prescription drug 
benefit will be available to all beneficiaries and guaranteed in all 
locations?
    Answer: As a former Governor of Wisconsin, I can certainly 
appreciate the concerns you raise about access for beneficiaries in 
rural areas. While the Medicare program has provided health security to 
millions of beneficiaries, it has not kept up with decades of 
advancement in modern medicine and is facing serious financial 
challenges.
    President Bush has pledged to spend $400 billion over the next 10 
years to modernize Medicare and bring more choices and better 
benefits--including a prescription drug benefit--to Medicare 
beneficiaries.
    Currently, about 76 percent of Medicare beneficiaries have 
prescription drug coverage either through former employers, Medigap, 
and other sources. Many beneficiaries are happy with their current 
coverage, and under the President's plan beneficiaries can keep this 
coverage. A modernized Enhanced Medicare and Medicare Advantage will be 
available for those beneficiaries who want more choices and better 
benefits, including a prescription drug benefit, full coverage of 
preventive care, and limits on high out-of-pocket costs.
    Through enhanced Medicare, all beneficiaries--including those in 
rural areas--will have choices available to them that will offer better 
benefits. The types of plans that would participate in enhanced 
Medicare--most likely preferred provider organizations (PPOs)--are the 
most popular type of health plan in the market today. PPOs can provide 
access to care in rural areas from any provider because they reimburse 
enrollees for care, regardless of whether this care is providing by a 
``network'' provider or not. Under enhanced Medicare, plans will be 
required to serve an entire region and accept any Medicare-eligible 
participant; this will minimize risk selection and guarantee access to 
all beneficiaries.
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